Archive - Jun 2014

Writings on the wall...

With Germany taking a commanding (and somewhat shocking) 3-0 lead at half-time over European partners Portugal in the FIFA World Cup, the following image of the 'elites' enjoying the game could well be the analogy of the last few years...

First the good news. According to the "Sickness Absence" survey of 330 firms, conducted by the EEF, or the UK's manufacturing association, the number of days taken off work through sickness is at a record low. The survey found that over the past two years overall levels of worker absence reached a record low of 2.1%, equal to 4.9 days per worker per year. Now the bad news: while short-term absence is indeed at record low levels, long-term absence has increased, with almost two fifths of companies saying long term absence has increased in the last two years. Among the problems associated with long-term absence: mental health problems. Finally, the hilarious news. Since every organization these days has a clear and present agenda, the EEF being no exception, it was quick to scapegot the increase in long-term absence on what else - the same bogeyman that everyone in Europe now hates, one which despite constant pleas to crush it continues to be perpetually elusive: austerity.

While we noted last week the death of the Japanese bond market as government intervention has killed the largest bond market in the world; it is now becoming increasingly clear that the dearth of trading volumes is not only spreading to equity markets but also to all major global markets as investors rotate to derivatives in order to find any liquidity. Central planners removal of increasing amounts of assets from the capital markets (bonds and now we find out stocks), thus reducing collateral availability, leaves traders lamenting "liquidity is becoming a serious issue." While there are 'trade-less' sessions now in Japanese bonds, the lack of liquidity is becoming a growing problem in US Treasuries (where the Fed owns 1/3rd of the market) and Europe where as JPMorgan warns, "some of this liquidity may be more superficial than really deep." The instability this lack of liquidity creates is extremely worrisome and likely another reason the Fed wants to Taper asap as DoubleLine warns, this is "the sort of thing that rears its ugly head when it is least welcome -- when it’s the greatest problem."

Let’s be blunt here. The Fed has engaged in the single largest monetary experiment in history, betting the US economy and banking system on misguided theories that have little to no evidence of success.

Still unsure of whether tin-foil-hat-wearing blogs suggesting central bankers are directly buy stocks is just another wonkish conspiracy theory (if yesterday's report was not enough proof), we offer today's "market" with some helpful hints at who (or what) was responsible for stocks 10 point surge...

The years-long court battle over Argentina's sovereign debt default appears to have ended... badly for Argentina (and apparently well for Elliott Management). As WSJ reports, the U.S. Supreme Court on Monday rejected Argentina's appeal (and mutually assured destruction threats that it "could trigger a renewed economic catastrophe with severe consequences for millions of ordinary Argentine citizens."; leaving in place a lower-court ruling that said Argentina can't make payments on its restructured debt unless it also pays holdout hedge funds that refused to accept the country's debt-restructuring offers. Argentine USD bonds are down 10 points on the news ahead of President Cristina Fernandez addressing the nation at 9pm local time.

Investigators have opened a probe into the bizarre death of the former deputy head of the Interior Ministry's anti-corruption department, who reportedly jumped out of a window during questioning on Monday. "During the interrogation, the investigator and lawyer left the room, and at that moment my client dove out the window. He is dead," said Georgy Antonov, the lawyer of Boris Kolesnikov, Interfax reported.  Lyudmila Alexeyeva, head of the Moscow Helsinki Group and a veteran human rights campaigner, cast doubt on the official version of events, calling the situation "very strange." "When he ran, knocked over the guards, he just knew that a window was open somewhere? It's very strange somehow. It's unclear whether he jumped himself or was thrown out," Alexeyev said in comments carried by Interfax.

After 5 months of missed expectations and tumbling to one-year lows, the NAHB sentiment index jumped 4 points to 49 (still below the 'positive' 50 level). The Northeast - most troubled supposedly by the weather - saw prosepctive buyer traffic drop, but the otheer 3 regions rose with the West spiking. Just as we have seen in the last 2 cycles, NAHB survey data remains far adrift of the reality of sales, but that won't stop the algos extrapolating this jump to new highs and a recovery in housing that is back on...as HANB Chair confirms "is a welcome sign and shows renewed confidence in the industry."

Who could have seen that coming? The IMF has slashed US growth expectations for 2014 from 2.8% to 2.0% (with 2015 hockey-sticking back to 3.0%) due to weather. The IMF also warned the Fed should be "mindful of financial stability," but that is not the most surprising aspect of the IMF's mea culpa as they plunge head first into policy decisions...

*IMF RECOMMENDS RAISING U.S. MINIMUM WAGE, ADDITIONAL U.S. INVESTMENT IN INFRASTRUCTURE, & LIMITING OR ENDING ITEMIZED TAX DEDUCTIONS

One wonders, rhetorically of course, if the IMF also pulled a "Polish Central Bank" and suggested that the US fire all Republicans in return for this suggestion; and we wonder how El-Nino is "priced-in" to this forecast.

Last month's collapse in Industrial Production was handily revised up to a less taper-terrifying 0.3% drop (from 0.6%) and May saw the production gauge rise 0.6% vs 0.5% expectation for a notably unimpressive 'surge' post weather problems. Utilities fell modestly (as one would expect) but mining and manufacturing picked up slightly. Perhaps most notably, while total vehicle production rose, Auto production dropped for the 3rd month in a row as the Feb/March surge slows.

With everyone expecting "Belgian" US Treasury holdings to surge by another inexplicable double-digit billion amount, and surpass $400 billion in what has been the most aggressive, and secretive, accumulation of TSYs by an unknown third-party using the Belgian jurisdiction as venue via Euroclear, the April holdings of the small European country posted their first drop since August. According to the TIC data released moments ago, total "Belgium" holdings - the third largest after China and Japan - declined by $15 billion in April, to a new grand total of $366 billion.

The situation in Ukraine and Iraq have gone from bad to worse. There is the potential for a wider Middle East conflict as the region remains a ‘powder keg.’ Iraq may be the match that sees the region explode into chaos and war - with attendant effects on global oil prices and the global economy.

Following the arrival of the US aircraft carrier CVN-77, the ironically named George H.W. Bush, in the Persian Gulf, another US warship, LPD-19, the USS Mesa Verde also entered the Persian Gulf moments ago. Its cargo: some 550 US marines.

This week brings some key events and releases in DMs, including US FOMC (Goldman expects $10bn tapering, in line with consensus), IP, CPI, and Philly Fed (expect 13.5), EA final May CPI (expect 0.50%), and MP decisions in Norway and Switzerland (expect no change in either).