Archive - Jun 25, 2014

The conventional view of the Baby Boomers' retirement is a happy story: since we're living longer and remaining productive longer, Boomers will not be as much of a burden on Gen-X and Gen-Y as doom-and-gloomers assume. Not only are Boomers staying productive longer, they will draw upon their vast generational wealth as they age, limiting the financial burden on younger generations. This happy story is wrong on multiple counts.

Stocks are green on the worst economic growth data in five years... you just have to laugh...

"...we think that Q1 GDP was an aberration, and is not representative of the strengthening underlying trend in US growth." There is nothing we can add to such brilliant weatherman insight as what Jan Hatzius from Goldman just unleashed on the unwitting muppets (all of whom can't wait for Goldman's second above-consensus GDP forecast to pan out... unlike the last time in 2010). In brief: Goldman just boosted their Q2 tracking GDP from 3.8% to 4.0% because Q1 GDP imploded. And scene.

Markit's US Services PMI printed at 61.2 (massively beating the 58.0 expectations) and soaring to its highest since records began. In other words, it doesn't get any better than this. This, based on Markit's analysis, implied a Q2 GDP surge to +6% - we can only wait. There's one thing though... Business expectations (the line item that represents company's confidence in the future) plunged from 79.3 to 75.9 - not what Yellen needs... furthermore, margins continue to come under pressure as prices charged drop as input prices rise. One wonders how long before this miracle is revised due to a technical glitch?

As the 'leaked recordings' scandal grows in Poland, the Prime Minister has taken a dramatic step and called for a vote of confidence ahead of crucial meetings in Brussels. As Bloomberg reports, Polish Prime Minister Donald Tusk says he needs mandate to rule on eve of talks in EU, he tells parliament; adding that the taping scandal erupted after government took serious steps against importers and distributors of coal and also comes in “context” of people involved in gas trading. The Polish Zloty has given up its earlier gains on this news.

Between the second and final revision of Q1 GDP something dramatic happened: instead of contributing $40 billion to real GDP in Q1, Obamacare magically ended up subtracting $6.4 billion from GDP. This, in turn, resulted in a collapse in Personal Consumption Expenditures as a percentage of GDP to just 0.7%, the lowest since 2009!

It appears the sad reality that a consistently tapering Fed won't be able to support this fairy castle with words (forward guidance) alone as - rather unusually -this morning's double whammy of bad news has been taken as "bad news" by the market. Thanks to decisive break below 102 in USDJPY, stocks are dropping and bonds are rallying. Gold and silver are well bid (as copper and oil slide) and the USD is fading fast.

Following last month's far-stronger-than-expected 'defense-spending-stuffed' Durable Goods orders, which were subsequently revised downwards, they plunged in May (at the heart of Q2 GDP creation). Against expectations of no gain, Durable Goods Orders tumbled 1.0% - the biggest miss in 2014. It seems the brief bounce back from weather has now gone entirely as it seems no submarines were ordered this month or excess Blackhawks to save the day. Not exactly great news for Q2 GDP (especially after the Q1 collapse). New orders ex transportation dropped for the first time since January - again hardly differentiating Q1 'weather' from Q2 'rebound'.

With the cease-fire on shaky ground in Ukraine, and the ongoing proxy war between the US and Russia growing in intensity (once again ignited in Syria); it seems Putin has fired a significant warning shot across the bow of the west. Reuters reports that Russia is considering banning state companies and other strategically important firms from holding accounts at foreign-owned banks. As Liberty Blitzkrieg's Mike Krieger notes if this actually happens, it would be a very big deal with significant negative implications to the global economy, and certainly an escalation in the friction between these two geopolitically crucial nations.

Here are the most notable news updates from overnight events in Iraq.

• Obama Administration Widens Export Potential for U.S. Oil (BBG)
• WTI Pares Gains as U.S. Export Ruling Seen Limited (BBG)
• Senator Cochran defeats Tea Party rival in Mississippi Republican runoff (Reuters)
• Militants attack Iraq air base, U.S. assessment teams deploy (Reuters)
• Maliki rules out national emergency govt (AFP)
• Koch to Start EU Power Trading as It Plans LNG Expansion (BBG)
• Obama Said to Ready Sanctions on Russian Industries (BBG)
• Ghana Sends Plane With $3 Million to Calm World Cup Team (BBG)
• Ghana’s First Hedge Fund Planned by Ex-Exchange Regulator (BBG)
• SEC Is Gearing Up to Focus on Ratings Firms (WSJ)
• Abe Declares Deflation End as Growth Plan Confronts Skeptics (BBG)

In the great chess-vs-checkers game, Putin just keeps steamrolling his clueless opposition.

The S&P500 has now gone 47 days without a gain or loss of more than 1% - a feat unmatched since 1995, according to AP.  Overnight markets are having a weaker session across the board (except the US of course). Even the Nikkei is trading with a weak tone (-0.7%) seemingly unimpressed by the Third Arrow reform announcements from Prime Minister Abe yesterday (and considering in Japan the market is entirely dictated by the BOJ, perhaps they could have at least coordinated a "happy" reception of the revised Abe plan). Either that or they have largely been priced in following the sizable rally in Japanese stocks over the past month or so. Abe outlined about a dozen reforms yesterday including changes to the GPIF investment allocations and a reduction in the corporate tax rate to below 30% from the current level of 35%+. Separately, the Hang Seng Index (-0.06%) and the Shanghai Composite (-0.41%) 98closed lower as traders cited dilutive IPOs as a concern for future equity gains.