Archive - Jun 2014

The NY Fed has been kind enough to just release a pic of the NY Fed's "Open Market Operations" team - i.e., its last line of defense tasked with preserving the American way of life - as it was first seen in the heat of World War II, some time in 1944. Because when one thinks of the veterans, one must not forget the men and women who quietly held it all together by BTFD.

It has been a while since Obama and Putin held one of their signature phone conversations purely for public theater and photo-op purposes. Moments ago, we learned that following weeks of silence, the world leaders had spoken earlier today, when first the Kremlin, the the White House, released details of the just conducted phone conversation.Topics discussed: Ukraine, Iraq, Syria. Also on the docket: the usual threats by Obama in the form of  "costs." No comment on today's disastrous performance by John Kerry in Egypt. Probably better that way.

Priceline announced last week that it will pay roughly 112x for OpenTable - the reservation app pioneer - even though its growth has stalled for two years, is assailed by numerous aggressive competitors (e.g. Yelp, GrubHub and numerous international players) and is not protected by any evident moat of technology or branding. The bottom-line is that the artificial attraction of massive capital and trading leverage  (through options) into rank speculation like the PCLN/OPEN deal here does not stimulate sustainable economic growth or a true rise in capitalist prosperity. It simply generates unearned rents for the 1% who have the financial assets and access to play in the Fed’s casino. One can't help but thnk of Dubai.

The deadline passed on June 16th for Ukraine's payment for gas already provided and upfront 'pre-payments' for ongoing deliveries. So what the Russian Energy Minister wants to know is how Ukraine took 3.8mcm on June 19th, 4.5mcm on June 20th, and 1mcm on June 21st. It appears Ukraine is claiming the gas supplies are reverse flow from Europe but this has not stopped Russia as The Pentagon reports more Russian troops at the Ukraine border and that they are preparing to send more tanks.

While California is by far the most vibrant market when it comes to the most expensive segment (at +6%, the highest in the nation), it is shambles when it also comes to the two lowest price buckets, both of which blow out any myth of a recovery for the "non-1%" out of the water, with a collapse of 40% in sales in the $0-100K range, and a 20% plunge in the prime $100-$250K market (the Median existing home price across the US in May was $213,400).

There has been no forward progress in US hourly compensation over the last half century. How it is possible that the world’s richest and most technologically advanced economy ever, operating during a 50-year period that included the invention of the Internet … the triumph of capitalism in China and Russia … and a landing on the moon – that is the most bountiful half-century in human history – failed to make its most important component parts better off. And at the bedrock level, we find the explanation: Fed policies are dangerous claptrap.

With the number of drone failures rising domestically and the likelihood of an exponential rise in drone strikes in Iraq imminent; the US federal court has decided now is the time to release the redacted memo justifying the use of unmanned drone strikes on US citizens. ...also recognized that "the realities of combat" render certain uses of force "necessary and appropriate," including against U.S. citizens who have become part of enemy forces-and that "due process analysis need not blink at those realities."

Less than 2 months ago we highlighted the effervescence of Dubai's equity markets when a "shell" of a company with no actual operations (but big plans) was 36x oversubscribed. We asked at the time if investors would ever learn... and it seems just weeks later, that a few are getting the joke. Dubai's General Financial Market Index is down 20.3% - a bear market - since just after that exuberant IPO hit the market. Is Dubai another leading indicator on the world's slowly rolling dissatisfaction with various asset classes?

Existing Home Sales beat expectations by the most in 11 months at 4.89 million annualized. This headline print is being greeted with exuberance as NAR declares "the sale decline is over." However, this is the 7th month in a row of year-over-year declines and the gains are anything but broad-based with the Midwest and South being the biggest driver as the West stagnates. The percent share of first-time buyers continued to underperform, representing less than one- third of all buyers at 27% in May, down from 29% in April (hovering near record lows). Not exactly the organic, non-flip-dat-house wealth building transmission mechanism the Fed is hoping to build the US 'recovery' on.

Comfortably beating expectations, and in Markit's words, USA is "booming again... as data suggests that GDP should be set to rise by at least 3.0% after the 1.0% decline in the first quarter," US Manufacturing PMI printed 57.5, its highest since May 2010. Despite the "booming" economy, employment rose only very marginally and new export orders growth dropped as prices rose once again. The Fed's "you don't need QE anymore, the economy is doing great on its own" meme is confirmed. The market seems disappointed at the 'good news' and did not react at all.

The May surge in airfare prices was so dramatic and unexpected, that on a compounded annualized basis (CAGR), the May surge in airline fares was a whopping 97%: the highest since 1999, and the third highest ever.
So, sorry America: you are stuck where you are, eating food that has rarely if ever cost more, fueling up with gas that is approaching it all time high summery prices. Enjoy Yellen's "noise."

First it was US' Victoria Nuland's "fuck Europe" leaked recording; then Turkey's Erdogan faced embarrassing details of a false-flag war with Syria from leaked recordings; then last week's Polish central bank was exposed (by leaked recordings) as offering support for the government in return for favors (crashing any faith in central bank independence); and then this weekend, Poland's foreign minister had some rather colorful language and perspective exposed (by leaked recordings). The Polish Zloty has been hammered lower in the last few days since the events broke (though clear CB intervention has rescued it today) and the Polish Prime Minister is fuming: the "criminal group" that taped public officials has the sole aim of destabilizing Poland during “key moment” as EU reshapes itself amid Ukraine crisis, Tusk blasted, adding (rather pointedly), "people who have organized criminal eavesdropping will not dictate to Poland who governs the country and which ministers are to be dismissed." One wonders who he is talking about; who has the technical know-how and organization to arrange such mass eavesdropping?

One of the great "paradigms" of the New Normal tech bubble that supposedly differentiated it from dot com bubble 1.0 was that this time it was different, at least when it came to advertising revenues. The mantra went that unlike traditional web-based banner advertising which has been in secular decline over the past decade, social media ad spending - which the bulk of new tech company stalwarts swear is the source of virtually unlimited upside growth - was far more engaging, and generated far greater returns and better results for those spending billions in ad bucks on the new "social-networked" generation. Sadly, this time was not different after all, and this "paradigm" has also turned out to be one big pipe dream. According to the WSJ, citing Gallup, "62% of the more than 18,000 U.S. consumers it polled said social media had no influence on their buying decisions.

This week brings PMIs (US and Euro area ‘flash’) and inflation (US PCE, CPI in Germany, Spain, and Japan). Among other releases, next week in DMs includes [on Monday] PMIs in US (June P), Euro Area Composite (expect 52.8, a touch below previous) and Japan; [on Tuesday] US home prices (FHFA and S&P/Case Shiller) and Consumer Confidence (expect 83.5, same as consensus), Germany IFO; [on Wednesday] US Durable Goods Orders (expect -0.50%, at touch below consensus) and real GDP 1Q anniversary. 3rd (expect -2.0%) and Personal Consumption 1Q (expect 2.0%), and confidence indicators in Germany, France and Italy; [on Thursday] US PCE price index (expect 0.20%), Personal Income and Spending, and GS Analyst Index; and [on Friday] Reuters/U. Michigan Confidence (expect slight improvement to 82, same as consensus), GDP 1Q in France and UK (expect 0.8% and 0.9% yoy, respectively), and CPI in Germany, Italy, Spain and Japan.