Archive - Sep 2015

Unit Labor Costs dropped 1.4% in Q2, missing expectations of a 1.2% drop and falling to the lowest since Q2 2014. Despite all the sound and fury and wage growth looming any minute now... it is not! This is the first consecutive drop in unit labor costs since Q4 2008.

The global economy’s finance based spine is so out of whack that it is in need of a major readjustment. Cash or better yet “near cash” such as 1-2 year corporate bonds are my best idea of appropriate risks/reward investments. The reward is not much, but as Will Rogers once said during the Great Depression – “I’m not so much concerned about the return on my money as the return of my money.”

Following its disapppointing tumble in July (having missed expectations for 6 of the last 7 months), August ADP printed another miss at 190k against expectations of a 200k rise with last month revised lower. As the energy sectyoir continues to bleed jobs at a rate of 10k per month, ADP's Zandi notes that manufacturing jobs growth is all auto-related (which is extremely worryinmg given the size of inventories). Job groiwth was largely driven by small businesses (85k) as opposed to large business (40k) with Service-producing goods drastically outpacing manufacturing job growth (173k to 17k).

"One of the biggest problems we face is that there is no historical template for current global market conditions so we’re all flying blind to a large degree. Never before have so many of the most important countries in the world printed so much money and left base rates at near zero for so long. Also never before has the largest economy in the world tried to start a slow process of reversing said extraordinary policy. So there is no road map for this journey, only educated (hopefully) predictions."

• All surveyed analysts expect the ECB to keep their three key interest rates unchanged
• A number of analysts have suggested that inflation rhetoric could be downbeat and further QE is a possibility later this year, as such any potential indication to this by Draghi is likely to take centre stage at the press conference
• The central bank are said to be concerned by inflation expectations, with low energy prices and recent EUR strength raising concerns about the central bank’s mandated 2% inflation target

As Deutsche Bank put it on Tuesday, we've officially reached the end of the "Great Accumulation" as slumping Chinese growth, plunging crude, and an imminent Fed hike have put enormous pressure on emerging economies’ accumulated stash of FX reserves and that means that buyers of USD assets are becoming sellers at the expense of global liquidity and the perpetual bid for some core paper. Now, Goldman has weighed in, noting that the rise in foreign FX reserves held by non-G-7 countries that started around 2003-04 (at around US$1trn) appears to have ended for good.

• Markets on edge as policymakers flex muscles (Reuters)
• European shares recover from rough ride (Reuters)
• For Stock Markets, the Moment When Humans Matter (WSJ)
• Puerto Rico's PREPA, bondholders have framework for deal (Reuters)
• Hundreds of migrants protest at Budapest station, want to go to Germany (Reuters)
• New Whale Seen Moving Tokyo Markets (BBG)

Since today was the last day of trading for Chinese stocks this week ahead of the 4-day extended September 3 military parade holiday to mark the 70th anniversary of the allied victory over Japan, and since Chinese stocks opened to yet another early trading rout coupled with the PBOC's biggest Yuan strengthening since 2010 as we observed earlier, there was only one thing that was certain: massive intervention by the Chinese "National Team" to get stocks as close to green as possible. Sure enough they tried, and tried so hard the "hulk's" green color almost came through in the last hour of trading and yet, despite the symbolic importance of having a green close at least one day this week ahead of China's victory over a World War II foe, Beijing was unable to defeat the market even once in the latest week which will hardly bode well for Chinese stocks come next week.

The Enemy of My Enemy May Still Be MY F@©K!NG ENEMY!!

In today's SmartKnowledgeU_Vlog_005, we discuss why an intelligent investment strategy is impossible without incorporation of market & banker fraud analysis

“If the freedom of speech be taken away, then dumb and silent we may be led, like sheep to the slaughter.” - George Washington

With indicators from macro-fundamentals (e.g. retail sales, core capex, inventory-to-sales) to market-oriented measures (VIX levels and backwardation, HY credit spreads, commodity prices) all flashing various colors of dead canary in the coal-mine red, we thought today's colossal spike in the Arms (TRIN) Index was a notable addition.

"Worryingly, EM capital flows are already significantly undershooting the projection from the hawkish scenario. The less constructive view is that the Fed balance sheet simply matters far more for EM, with liquidity provided by the ECB and BoJ a poor compensation for the Fed’s retrenchment. The hawkish scenario of Fed stopping reinvestment next year would suggest that EM flows can get weaker, while even a more dovish scenario of a constant Fed balance sheet would not be enough to lift inflows again."

Wax on Wax off,risk on today risk off tomorrow.....things could spiral out of control rather quickly

Not a week goes by without the Pentagon carping about an ominous Russian "threat". The Pentagon’s rhetorical games also serve to mask a real high-stakes process; essentially an energy war – centering on the control of oil, natural gas and mineral resources of Russia and Central Asia. Will this wealth be controlled by oligarch frontmen “supervised” by their masters in New York and London, or by Russia and its Central Asian partners? Thus the relentless propaganda war.