Archive - Jun 2014

What is really going on in Iraq?

"I was curious if I could care about (money) on some fundamental level, and I couldn’t,” she told Fast Company in an interview that ran in the magazine's May edition, explaining why she gave up lucrative gigs to join her family’s philanthropic foundation. “It is frustrating, because who wants to grow up and follow their parents? I’ve tried really hard to care about things that were very different from my parents … it’s a funny thing to realize I feel called to this work, both as a daughter and also as someone who believes I have contributions to make,” she continued about her reluctant status as a boomerang kid.

Quietly behind the scenes, amid all the chaos of the Qingdao probe's contagion, copper has rallied modestly in the last seven days. That streak ended last night as the warehousing concerns we noted spreading to the entire sector, combined with a collapse in Chinese copper imports (down 17% in May), and yet another default (China Ting holdings said said two borrowers defaulted on entrusted loans). So it seems that not only are the commodities missing, but so is the money...as the slow motion train wreck gathers pace (no matter what PMIs or minis stimulus do to evade the tightening) as China's money-market rates (at 5 month highs) suggest liquidity demand is very high (and desperate).

"Why would anyone pay an advisor and reduce their returns when all one had to do was point-and-click their way to wealth." Near each major market peak throughout history, there has been some "new" innovation in the financial markets to take advantage of individual's investment "greed." In 1929, Charles Ponzi created the first "Ponzi" scheme. In the 1600's, it was "Tulip Bulbs." Whenever, and where ever, there has ever been a peak in "investor insanity," there has always been someone there to meet that need. In that past it was railroads, real estate, commodities, or emerging market debt; today it is investment advice. The latest innovation to come to market is what is termed "Robo-Advisors." That is the cycle of innovation in the financial market place. Despite the best of intentions, and advances in innovation, humans will always seek out the comfort of other humans in times of distress. The rising notoriety of Robo-advisors is very likely the symbol of the current late stage "market exuberance."

The annual human trafficking report has just been published by the US State Department in the Trafficking in Persons (TiP) report.

It is unclear for now what the catalyst for the $1.70 spike in oil prices is but WTI just touched $107.50 in a hurry. It appears a combination of a WSJ story reporting the Obama administration has quietly cleared the way for the first exports of unrefined American oil in four decades, allowing energy companies to chip away at the long-standing ban on selling U.S. crude overseas (which could theoretically enable them to buy crude (bid price up) and sell for higher prices abroad as we show below); and and Reuters reports that the U.S. military began deploying assessment teams to Iraq with about 40 special operations personnel already in the country (which could mean risks are rising).

When all the dust settles, Palo Alto is definitely going to look a lot more modern than it did when I first moved here. All I can say, though, is that when the current bubble finally bursts, whether it's next month or next decade, there are going to be an awfully lot of expensive, empty, class A office buildings situated around town, holding nothing but the memories of ping-pong games past.

Having learned last week that the world's central banks are their sovereign wealth proxies have secretly pumped over $29 trillion into markets in the last few years, it is not entirely surprising to hear from one of the largest - Norway $888 billion oil fund - that it is buying stocks with bond hands and feet. As The Financial Times reports, Yngve Slyngstad, chief executive of Norway's sovereign wealth fund, is hiring aggressively to manage its real estate portfolio and while the oil fund already owns 2.5% of every listed European company on average, it plans to go above 5%. Phew, bagholder found...

Just when you thought it was safe to leave your shelter and buy a car, buy a home, buy some Caterpillar trucks, and buy a Starbucks; NOAA reports the globe just experienced the hottest May on record... With El Nino looming, we can only imagine the excuses of 'extreme weather' that will rear its ugly head once again in Q2 earnings... though of course all this will be fixed in Q3?

With the market firmly under the control of the Fed, VIX plunging and the S&P at all time highs is the a different indicator to look at for "fear"? For one possible answer we refer to the latest note by FBN's JC O'Hara who looks at a different "fear" index, namely the Credit Suisse Fear Barometer. He finds that, at 37%, it has never been higher.

Euro area monetary policy and Anglo-Saxon monetary policy are taking different directions — radically so. It has been a decade since the Fed last embarked on a tightening cycle, and Euro area rates have never gone negative before. With the expectations and the reality of the direction of interest rates diverging in this manner the instinct of most in financial markets is to assume that the Euro will weaken against the US dollar. A weaker Euro has been forecast by financial markets for some time — and financial markets have been spectacularly wrong in their forecasts. The Euro weakened a little in the wake of the nudges and hints on policy from ECB President Draghi, but it still remains at a high level. How can this be explained? How is it that the Euro is not behaving the way everyone says it should?

According to the latest Nielsen Media Research data, in the second quarter of 2014, CNBC viewership for all viewers just dropped to 162,000 - a new (and depressing for Comcast) low, on par with CNBC's viewership from Q2 of 1997! Where things get funny is when one looks at the ratings of that consummate entertainer, that self-appointed "voice of the people", Jim Cramer. Sadly for Cramer, the people are now gone. Because also according to Nielsen Jim Cramer's Mad Money show just had its lowest ever rated month in the 25-54 demo, and is about to have its second lowest rated month ever across total viewers.

Something went horribly wrong. The Dow had almost its worst Tuesday in 8 months and Treasuries their best Tuesday of the year as once the data-sparked, POMO-driven short-squeeze had run its course stocks flatlined, tumbled at the 2Y auction, the dumped around 1500ET. VIX was no help whatsoever. Trannies gave up all their gains for the month of June. Various reasons were offered for the weakness, from Dubai's weakness, Ukraine's cease-fire cessation to Syria-Iraq escalation but it appears more likely just algos ran out of stops to run and shorts to squeeze amid the plethora of 'complacent' risk indicators we have shown. Treasury yields had been dropping modestly but as the 2Y showed modest strength, so the rates complex legged lower in yield (down 3 to 5bps) and dragged USDJPY and stocks with it. The USD pushed modestly higher to unch for the week (though JPY strngth back to 102 dragged stocks lower). Commodities in general closed unch (with WTI down 0.2%) but gold and silver saw European buying early on. Stocks close at their lows with the Dow's worst day in 5 weeks... "most shorted" stock had their best day in 7 weeks.

"Does society ever wake up?"

The Baltic Dry Index - so admired when it is soaring and supportive of all things great and good about credit creation and rehypothecation - has collapsed over 60% year-to-date. At $867, the index is at one-year lows and hovering near post-crisis lows as the hope-strewn surge of last year now lies torn asunder by the reality of China commodity ponzi probes and a 'real' slowing global economy. Of course, we will hear the echo chamber of 'over-supply' of ships rather than any 'under-demand' of actual aggregate product argument but the circularity of this argument is entirely lost on status quo huggers who viewed rising dry bulk commodity prices as indicative of growth (and built more ships) as opposed to the ponzi-financing scheme it really was... mal-investment writ large once again in a manipulated (and mismanaged) world.