Archive - 2014

The “Ig Nobel Prize” is parody of the Noble Prize that is awarded every year for the most trivial scientific achievement. For example, the 2007 recipient for the ‘Ig Nobel Peace Prize’ went to the United States Air Force Wright Lab in Ohio, for proposing the development of a ‘gay bomb’ that could be dropped in hostile territory and make enemy troops sexually attracted to each other. Make love, not war? So when we opened my email yesterday and saw the subject line: “Central Bank Governor of the Year”, we immediately presumed it was a similar satire. It wasn’t...

Putting it all into perspective, of the total $178 billion in consumer credit expansion in the past 12 months, a tiny $9 billion, or just 5% of total, was to fund credit card purchases. The rest went - you guessed it - into purchases of cars and paying for tuition, for which GM and strateospheric college tuitions are most grateful. And that is the New Normal economy in a nutshell.

Presented with no comment...

Broadly speaking, markets shrugged at the Fed minutes but as te last 30 minutes evolved, the relative hawkishness (though remember tapering is not tightening) QE message - and fears over excessive risk-taking - have sparked weakness in several asset classes (except stocks for now)...

"Participants also reviewed indicators of financial vulnerabilities that could pose risks to financial stability and the broader economy. These indicators generally suggested that such risks were moderate, in part because of the reduction in leverage and maturity transformation that has occurred in the financial sector since the onset of the financial crisis. In their discussion of potential risks, several participants commented on the rise in forward price-to-earnings ratios for some smallcap stocks, the increased level of equity repurchases, or the rise in margin credit. One pointed to the increase in issuance of leveraged loans this year and the apparent decline in the average quality of such loans." - FOMC

You can make this stuff up, but why bother when they do it for you...

As one might have expected the tension during the most recent FOMC meeting was palpable in the minutes as opposing dovish and hawkish less dovish views on the costs and benefits (and non-comprehension of the machinations) of QE were evident.

• *FED OFFICIALS SAW WANING BENEFITS FROM MONTHLY BOND PURCHASES
• *MANY FOMC MEMBERS FAVORED QE TAPERING IN `MEASURED STEPS'
• *MOST FOMC PARTICIPANTS WERE MORE CONFIDENT IN JOB MARKET GAINS
• *FOMC PARTICIPANTS `MOST CONCERNED' ABOUT QE RISKS TO STABILITY

The likely path of tapering seems clear (and mention of extending the reverse repo facility is notable) but how forward guidance will be implemented remains the hottest topics and Eurodollar prices suggest the latter even more so than the former.

Pre-FOMC Minutes: S&P Futs 1832.0, Gold $1225.5, 10Y 2.995%, EURUSD 1.3570, USDJPY 104.95

As the world prepares to comprehend, in their own recency-biased manner, the minutes of the most recent FOMC meeting, we thought it worth a reminder of just how Fed communications have ballooned in the past 20 years. The first statement, issued on Feb. 4, 1994, was a mere 99 words. December's 'most important FOMC statement ever' was a stunning (record) 867 words - and even so Jon Hilsenrath managed to interpret and write on it in 3 minutes. As we noted earlier, the minutes tend to be a platform for even greater 'communication' - and notably are not the actual minutes of the meeting but a prepared annotation of what the Fed wants the public to know about the meeting. Transparency and communications, it would appear, has been transformed from clarifying to endless caveat-ing.

The US may be blanketed in freezing cold, but the UK is already preparing for what should be a hot, dry summer. Either that, or the request of London mayor Boris Johnson to distribute water cannon on the street of the capital may be an indication that at least some major municipal centers are preparing for a jump in civil disobedience and are looking for appropriate, "non-lethal" means to contain it. SkyNews reports that "the London Mayor says the weapons will be used only in "the most extreme circumstances", however, there are fears the cannon could be deployed to break up small-scale legitimate protests. Mr Johnson says the water cannon are necessary in case there is a repeat of the summer riots of 2011." So "just in case."

Yesterday we described how so-called "Progressives" are pimping for the Empire. The same is true of so-called "Conservatives." Conservatives are masters at projecting a preachy devotion to a limited state, democracy, liberty and free enterprise while their support of the Central State undermines every one of these values. Conservatives are like the preacher who issues stern sermons on righteousness every Sunday while skimming big money from pimping sordid, destructive policies Monday through Saturday. "Conservatives" and "Progressives" alike are pimping for the Empire when they support the Central State's essentially unlimited powers.

With the 10 Year When Issued trading comfortably above 3% around the time of today's auction conclusion, it was expected that today we would see the first 10 Year auction, in the face of the WE6 9 Year 10 month reopening, pricing north of 3% for the first time since May 2011. Sure enough, moments ago the Treasury announced that it had sold $21 billion in benchmark paper at 3.009% tailing just slightly to the 3.007% When Issued. But while the yield was notable, the Bid To Cover actually picked up from last month's 2.61 rising to 2.68, almost exactly in line with the TTM average of 2.69, and showing a modestly increase in recent BTCs. The internals were a snoozers, with Dealers getting 39.8%, one percent above the 12 month average, Indirects were allotted 46.6% - below last month's 48.9% but above the 41.8% TTM average, and Directs got the balance, or 13.6% of the final allottment. Largely, a vanilla auction.

There are millions of people in that category. And their numbers are growing, not diminishing.

Having just missed out of +500% returns in the Caracas stock market last year, the reality of a hyperinflating world continue to cause chaos in the real world of Venezuela. As Bloomberg reports, the bolivar’s 73% decline against the dollar on the black market in 2013 is fueling contraband and worsening shortages of food and consumer goods in a country with the world’s biggest oil reserves, adding pressure on President Nicolas Maduro’s government to devalue. Smuggling to Colombia has exploded as "professional shoppers" traffic in wheat flour, corn flour and milk leaving more than one in five basic goods out of stock at any given time. Regulated foods are just too cheap to stay on the shelves, "you can't get anything in the shops here... it is taken to Colombia like a locust plague."

Much like the rest of peripheral Europe, Greek stocks have been on a rampage in the first few days of the year. Whether this is a global rotation into the junkiest of the junk - betting on the inevitable rescue and intervention to keep everyone safe, or merely front-running an ECB QE effort as inflation tumbles - is unclear but it is worth noting that this is the best start to a year for Greek stocks since 1994!! Remember Greece is not Japan (or Venezuela).