Archive - Jul 14, 2015

With all hopes and dreams of economic renaissance in America pinned on small businesses (see ADP's recent gains), today's data from the NFIB will strike fear in the heart of the wealth-effect-creating Fed. The NFIB small business optimism index disappointed expectations in June (94.1 vs. consensus 98.5), falling to its lowest level since March 2014 - the biggest drop since 2012. All components were weaker but most notably hiring and plans to raise worker compensation tumbled. Furthermore, Deloitte's Q2 latest survery shows American CFOs are more worried than at any time since 2013.

Several days ago when we first calculated that the new Greek debt/GDP post bailout #3 will promptly hit 200%, something the IMF agreed with earlier today. But it won't stop here, and as the  following analysis from Michael Lebowitz at 720 Global shows, just based on the country's negative growth rate and positive interest rate, Greek debt/GDP will keep rising indefinitely and will likely hit 336% in about one decade, at which point Greece will, for all intents and purposes, cease to exist.

Having looked surprisingly at Ed Lazear's comment that "the market is still the best predictor of the economy," Rick Santelli unleashes his latest bout of truthiness when he explains to the former Bush economic adviser that "investors are blindfolded," by central bank intervention (such as BoJ buying e-minis). "We used to think plunge protection was heresy," he exclaims, "but now, if your nation doesn't have a plunge protection team, that's heresy!"

With VIX having collapsed earlier (and its term structure inverted) ahead of this week's OPEX, as risk started to increase, BATS &NYSE just declared self-help against the CBOE...

"The dramatic deterioration in debt sustainability points to the need for debt relief on a scale that would need to go well beyond what has been under consideration to date - and what has been proposed by the ESM. European countries would have to give Greece a 30-year grace period on servicing all its European debt, including new loans, and a very dramatic maturity extension, or else make explicit annual fiscal transfers to the Greek budget or accept 'deep upfront haircuts'."

Or, more simply: "Mark it zero."

In his Pulitzer-Prize-winning book, Lords of Finance, the economist Liaquat Ahamad tells the story of how four central bankers, driven by staunch adherence to the gold standard, “broke the world” and triggered the Great Depression. Today’s central bankers largely share a new conventional wisdom – about the benefits of loose monetary policy. Are monetary policymakers poised to break the world again?

Twitter shares surged this morning as traders rapidly spread a report from "Bloomberg" that "Twitter Attracts Suitors." However, in Avon-esque manner, the story is completely fake, via a website whose doman 'bloomberg.market' was created just 4 days ago. Prices then fell back. And if you got stopped out on your TWTR short due to the market spike confirming the Idiot Algo Hypothesis, please complain to the Modern Markets Initiative.

While slightly later than expected, a comprehensive deal on Iran’s nuclear weapons program has now been reached. As Reuters reports, the agreement will be greeted with alarm in several quarters, both in Washington and Tehran and internationally too, and could yet unravel. Internationally, the deal will accelerate unease in some Arab states, including Saudi Arabia, but it is Israeli Prime Minister Benjamin Netanyahu who remains the fiercest public critic and has issued a warning that the accord will "inevitably lead to a nuclear war." The deal profoundly changes the balance of power in the region, but averts the conflict that was likely otherwise, but as ECStrat notes, Iran offers exceptional investment opportunities, but the near term impact will be to continue oil’s decline back to its lows, potentially taking energy stocks with it.

Last month the fund managers responding to BofA' fund manager survey said that a "Eurozone breakdown" was was the third biggest "tail risk" to global markets. What is much more notable is that just one month earelier, in May, not a single respondent even mentioned this as a risk.  Fast forward to July when "Eurozone breakdown" is suddenly perceived as the biggest tail risk by all those surveyed.

“Greeks cannot withdraw cash left in safe deposit boxes at Greek banks as long as capital restrictions remain in place”, Nadia Valavani, a Deputy Finance Minister in Greece told local television station according to a Reuters report.

The problem with these policy extremes is that they are so painfully visibly acts of central-planning desperation. If things are as positive as we're told, then why are central planners forced to impose such absurdly extreme policies to keep the status quo from imploding? If these policies worked, why are interest rates still pegged to zero after six years of "growth" and the inflation of monumental asset bubbles? If these policies don't work (and they obviously don't, otherwise the authorities could have normalized interest rates and ceased quantitative easing, stock purchases, plunge protection schemes, etc. many years ago) and central planners keep doing more of what has failed, then the only possible conclusions are...

Because nothing says buy the dip like almost the worst retail sales print since Lehman...

In the final act of what has become a modern Greek tragedy, lawmakers will now be forced to choose between "approving" what is effectively a German overthrow of the Greek government, or face the collapse of the banking system and an economic depression of unimaginable propotions. 

With a 0.3% rise MoM (as expected), Business Inventories grew for the 4th month in a row (but growth slowed in May from April). Sales rose slightly more MoM (+0.4%) but this left the crucial inventories-to-sales ratio deep in recession territory.