Archive - Apr 2015

This great generational injustice is the direct consequence of central banks lowering interest rates to zero and inflating asset bubbles in a corrosive (and vain) attempt to generate a wealth effect of households borrowing and blowing their newly created asset wealth. In an economy that isn't whipsawed by central bank manipulation, the difference between middle class households' asset wealth is largely behavioral, not the random luck of coming of age before central banks began blowing destructive asset bubbles as a matter of policy.

Despite another data series revision by the Department of Commerce, there was no way to put lipstick on the pig of America's wholesale trade data, and as reported moments ago, the all important merchant sales for February dropped for 3rd month in a row in February, the longest stretch since the last recession.  What's worse however, is that the annual pace of decline has now stretched over both January and February, confirming that 2015 is now officially a year of contraction for the US economy. As a reminder, every time this series suffers an annual decline, there is a recession.

As usual, US stocks are the last to “get it.” But this won’t last for long. The S&P 500 is sitting on the ledge of a massive cliff. And when it finally tumbles, the move will be both fast and violent.

“I’m staying conscious. Some people are buying stocks like they’re gambling in Macau," an investor in Hong Kong tells Bloomberg, underscoring what happens when a bubble in one market begins to spill over into another market. We suppose this is further evidence that no one is planning on listening to the China Securities Regulatory Commission, who recently warned that investors “shouldn’t be thinking if they don’t buy now, [they’ll] miss it.”

My advice to Ben Bernanke is simple. If you consider yourself a public servant, spend less time trying to concoct ways to defend your legacy, and spend more time on what you did that didn’t work, what can be learned from it, and what current policy makers can change and do better. Here is a theoretical title to a Bernanke blog post that I would like to read, but don’t think will ever get wrriten “Things I was wrong about, what I learned, and what the Fed should do differently going forward.”

Punch Nein!

Emergency legislation can be drawn up over-night. While Austria may be the first in enacting bail-in legislation there is no guarantee that savers, particularly in the peripheral nations, will receive any indication that their deposits may be at risk.

After the abysmal March payrolls number, there were expectations in the whisper forecast of today's initial claims that there would be a sizable jump in initial unemployment claims, one that may break the streak of 4 consecutive prints under 300K. It did not happen, and in fact the number which was released moments ago by the BLS indicated continued strength in the US labor market, where there was 281K initial claims in the past week, just under the 283K expected and higher than the revised 267K from last week. This is the lowest level for this average since June 3, 2000 when it was 281,500. The previous week's average was revised down by 250 from 285,500 to 285,250.

If there was any confusion whether Iran thought it had gotten the best of John Kerry and the Obama administration as a result of the non-deal April 2 "framework" announcement for some future possible deal, it can be swept away following a Reuters report that Iran will only sign a final nuclear accord with six world powers if all sanctions imposed over its disputed atomic work are lifted on the same day, President Hassan Rouhani said in a televised speech on Thursday.

The US had snow in the winter to "explain" why for the second year in a row Q1 GDP tumbled from 3% to around 0%; Europe, whose GDP unlike its market (the Stoxx 600 just hit a record high) will also miss lofty expectations for an economic recovery thanks to ECB money printing, may have a French air traffic controllers strike to blame the Q2 GDP miss for. Yesterday, the SNCTA union - France's largest - called the two-day strike in a dispute over working conditions. As BBC reports, later on Wednesday, the DGAC civil aviation authority asked airlines to halve scheduled flights on Thursday. The immediate result: hundreds of flights and thousands of passengers have been grounded.

"While Dudley clearly does not want stocks to decline a lot, he also wants to avoid meaningful increases... Also very apparent is that Dudley wants bond prices to go down – not a lot but clearly down." - Bank of America

• Greece pleads cash running out, told to hasten reforms (Reuters)
• ECB Cash Said Likely to Fall Short of Greek Request This Week (BBG)
• Chinese Stock Buying Frenzy Sweeps Into Hong  (WSJ)
• Shell’s $70 Billion BG Deal Meets Shareholder Skepticism (BBG)
• Yemen's Houthis seize provincial capital despite Saudi-led raids (Reuters)
• Iran Nuclear Deal Gives Syria’s Bashar al-Assad Reason to Worry (WSJ)
• Slow apps, low battery life limit appeal of Apple Watch (Reuters)
• Gilead’s $1,000 Pill Is Hard for States to Swallow (WSJ)
• The Oil Industry's $26 Billion Life Raft (BBG)

As noted several hours ago, the main story overnight is not that Greece once again narrowly averted a Grexit when it was reported it would make its scheduled payment to the IMF today (adding that next month is a "different story") a development that was met with yet another ultimatum by its "partner", the Eurozone, but the dot com bubble deja vu-esque move in Hong Kong stocks, where the Chinese, seemingly tired of pushing up their local market into the stratosphere have turned their attention southward and are desperate to buy up every single Hong Kong stock.

A central bank official, according to The FT, said that Greece has repaid the €450m it owed the International Monetary Fund today. Bond yields have fallen across the Greek curve with 10Y GGBs now at 11.1% (down 70bps from Tuesday's highs). Greek stocks are not as impressed and are giving back their gains. Tsipras, on return from Moscow, explained Greece "was not a beggar...asking other countries to solve its problem," but as a senior Greek official earlier this week said that while it would be able to make Thursday’s IMF repayment, it will still exhaust its cash reserves very soon and "next month is a different matter." HSBC points out that the real crisis point looms on the 12th May and FinMin Varoufakis warns the "asymmetric union" that they "have learned nothing from economic history."

For an hour or so, terrible news was great news as the DAX dipped and ripped after February Industrial Production fell 0.3% (against expectations of a 0.6% rise) and even worserer, January's 'everything is awesome' +0.9% rise was revised massively lower to 0.0%... February was the biggest drop in German Industrial production since August (but of course now that Q€ is here, we are sure everything will be great going forward).