Archive - Jun 9, 2014

What if all the low-hanging fruit of outsourcing jobs and financialization have already been plucked by Corporate America?

"The dollar is king these days, but having them comes at a price," notes one working girl as Venezuelan prostitutes can more than double their earnings by moonlighting as currency traders, "yes, we got dollars to afford the things our families need, but we have to sell our bodies for it." The dollar shortage is turning Venezuela into a two-tier society similar to the Soviet Union and Cuba, said Steve Hanke; as Bloomberg notes, those with access to dollars such as prostitutes, tour agents, airport taxi drivers and expatriates are able to shield themselves from inflation by trading their greenbacks at ever higher rates. Those who can’t are seeing their living standards decline. Socialism at work...

With a closing P/E ratio over 17 and a VIX under 11, Deutsche Bank's David Bianco is sticking with his cautious call for the summer. Their preferred measure of equity market emotions is the price-to-earnings ratio divided by the VIX. As of Friday's close, this sentiment measure has never been higher and is in extreme "Mania" phase. Deutsche's advice to all the summertime-'chasers' - "wait for a better entry."

Moments ago, St. Louis Fed president Bullard gave one of his signature yellow-backgrounded presentations to the Tennessee Bankers Association Annual Meeting taking place at the favorited by 1%-ers everywhere Breakers hotel in Palm Beach, Florida. The bulk of his presentation is the usual trite platitudes, but he did have some chose comments, such as:

• BULLARD: FED SHOULDN'T BE `INTERVENING' ALL THE TIME IN MARKETS

So just intervene from 9:30 am to 4:00 pm in the US equity market? But what will those who have been screaming about rigged, manipulated, broken US equity markets rail about if the Fed isn't intervening all the time in "markets", and if some semblance of normalcy, even if highly crashy, returns?

There’s an old adage that the rich try to pooh-pooh and say that it’s not at all true and that’s: ‘Money makes you happy’.

McDonalds will have a tough time explaining is why after almost hitting 'escape velocity' and nearly posting positive annual comps in the US, McDonalds just reported that May US comps once again dipped, declining by 1.0%, on expectations of a tiny 0.1% increase, thus cementing the longest period in our records database, a total of 7 months, in which McDonalds has gone without posting a single month of increasing US sales! We can't wait for the company to blame the blamy balmy, spring weather as the reason why nobody could afford a 99 cent meal.

"The main goal of this attack was to damage the government, including by hijacking planes and destroying state installations," said Shahidullah Shahid, a Taliban spokesman, as Reuters reports a well trained and heavily armed group of Taliban fighters attacked Pakistan's largest airport in an attempt to hijack a plane. 27 people were killed (including 10 militants ) as the Taliban spokesman added ominously, "this was just an example of what we are capable of and there is more to come. The government should be ready for even worse attacks." This attack comes a day after John Kerry's dismissal of threats by some released Taliban prisoners that they will return to the battlefield and kill Americans as "a lot of baloney."

Earlier today something happened which we haven't seen since a very brief period of time in 2010, and then going all the way back to 2007: Spanish 10 Year bond yields tumbled below those on US 10 Year Treasurys. So is this an indication that the Spanish bond market is suddenly safer, and more credible than that of the US? Of course not. All we are seeing is merely the manifestation of the latest ECB carry trade pushing local banks not to lend the ECB's cheap money out to consumers, but to engage in yet another Draghi-subsidized carry trade.

As we have been reporting (and forecasting for the past several years), the Eurasian anti-US Dollar axis is rapidly taking shape, with recent events catalyzed and certainly accelerated by US foreign policy in Ukraine, which has merely succeeded in pushing Russia that much closer, and faster, to China. The latest proof of this came overnight when the FT reported that Russian companies are preparing to switch contracts to renminbi and other Asian currencies amid fears that western sanctions may freeze them out of the US dollar market, according to two top bankers. Andrei Kostin, chief executive of state bank VTB, said that expanding the use of non-dollar currencies was one of the bank’s “main tasks”. “Given the extent of our bilateral trade with China, developing the use of settlements in roubles and yuan [renminbi] is a priority on the agenda, and so we are working on it now," ... "It looks like this is not just a blip, this is a trend,” said Mr Teplukhin of Deutsche Bank.

• Attorneys Known for Large Civil Settlements Line Up to Sue GM Over Company's Handling of Defective Ignition Switches (WSJ)
• Pakistani Taliban attack airport in Karachi, 27 dead (Reuters)
• U.S. Official: Sgt. Bowe Bergdahl Has Declined to Speak to His Family (WSJ)
• Ukraine Gas Talks Resume in Brussels to Avoid Cut-off This Week  (BBG)
• China's Central Bank Flexes Muscle (WSJ)
• China says Vietnam, Philippines' mingling on disputed isle a 'farce' (Reuters)
• World Needs Record Saudi Oil Supply as OPEC Convenes (BBG)
• Kraft Raises Prices on Maxwell House, Yuban U.S. Coffee Products (BBG)
• United Continental: One Sick Bird (WSJ)

With the stock market hitting record highs day after day, it is easy to move on and forget that one of American's once premier cities, Detroit, has been bankrupt for nearly a year. But out of mind doesn't mean out of sight, especially now that Google has launched its street view Time Machine, which provides for 7 years worth of street images, showing the time shift of the tumultuous period period starting in 2007. One blogger who decided to take this time lapse data and apply it to the city of Detroit is GooBing Detroit who, as the following time-lapse photos demonstrate, has captured Detoit's unprecedented slow-motion collapse into death and decay in what is the closest we have to "real time."

With the VIX smashing last week to levels not seen since early 2007, the S&P rising to all time highs, and European core and peripheral bond yield this morning touching historic lows, it would appear that the "market" has priced in every possible negative outcome. Which, as Goldman showed over the weekend is clearly not the case at least as investors are concerned who continued to sell stocks across the board in May even as the market broke out to record levels making many wonder who is buying stocks (for more read here)? Expect more of the same, and with some luck we will get a single digit VIX in the coming days as newsflow slows down following payrolls week and ahead of the world cup start in Brazil.