Archive - Oct 2012 - Story

This morning's New Home Starts and Building Permits was called by some 'The Most Bullish Development On The Entire Earth'. That is indeed a very bullish statement about a sector of the economy that is still running at very recessionary levels of activity. However, let's analyze the data beyond the headline to determine what is really occurring. Among the various 'surprises' are seasonal adjustments, as we saw with the retail sales, were exceptionally large in September; the underlying fundamentals, especially in the 25-35 cohorts, are simply not in place to create a sustainable upturn in housing; and the disconnect between the housing data and the real demand for construction workers. The current activity falls well within the bounds of normal volatility, and we will likely see revisions lower in the coming months ahead, as seasonal variations began to negatively impact the data towards year end. The important point, however, is that while the housing data on the surface is showing improvement the more important components to sustainability from employment to lending are not.

While patriotically buying US equities, or Intrade contracts, is 'believed' to reflexively improve the odds of the incumbent reaching a second term, the correlation between Obama's lead over Romney and stocks is actually not that high. The most highly correlated 'vehicle' for 'impacting' the odds of an Obama victory is, according to empirical data, the CRB Index.

While it is easier to listen to the narrative from world leaders and feel numb to the reality of it all, The Economist has decided enough is enough. Just as we earlier explained in simple bullet points the reality of the last few years in Europe (here), so The Economist provides this handy 'be your own global macro strategist' tool to comprehend just what magic the markets believe will occur going forward to keep debt levels under control across the world's governments... (e.g. all things equal, the country would need to grow by 7.7% a year, or nominal bond yields to fall to a Teutonic 0.5% to stabilize government gross debt at its 2011 level of 70% of GDP).

Quazi Mohammad Rezwanul Ahsan Nafis (Nafis), 21, was arrested this morning in downtown Manhattan after he allegedly attempted to detonate what he believed to be a 1,000-pound bomb at the New York Federal Reserve Bank on Liberty Street in lower Manhattan’s financial district. The defendant faces charges of attempting to use a weapon of mass destruction and attempting to provide material support to al Qaeda. The arrest of Nafis was the culmination of an undercover operation during which he was closely monitored by the FBI New York Field Office’s Joint Terrorism Task Force (JTTF). The explosives that he allegedly sought and attempted to use had been rendered inoperable by law enforcement and posed no threat to the public. The charges were announced by Loretta E. Lynch, United States Attorney for the Eastern District of New York; Lisa Monaco, Assistant Attorney General for National Security; Mary E. Galligan, Acting Assistant Director in Charge, Federal Bureau of Investigation, New York Field Office (FBI); and Raymond W. Kelly, Commissioner, New York City Police Department (NYPD).

IBM weighed on the Dow - much to the chagrin of the mainstream media - but if they'd replaced IBM with AAPL things would have been just as ugly (if not worse). The tech-darling dumped after trying to ramp in the last hour and once again failing at VWAP on heavy volume as the big boys exited. S&P futures auctioned up to QEtc. spike levels and were unable to get through but still had a solid day. Interestingly, while today was an 'uncorrelated' day across risk assets, the rise in Treasury yields, rise in stocks, drop in Gold, and drop in USD has brought them all back together in sync post-QEtc. - from here who knows? Credit markets tracked equities generally - but HYG and LQD saw major volume spikes early on this morning (looked like HYG sells and LQD buys). VIX limped sideways most of the day - falling 0.14vols to 15.08% (though for the year remains on average at a high premium to realized). The USD is down 0.85% for the week with EUR back above 1.31 and only JPY weaker vs USD among the majors.

Update: we now have the suspect's name: Quazi Mohammad Rezwanul Ahsan Nafis, who in addition to Plan A had Plan B: "If Nafis felt his attack was about to be thwarted by cops, he would invoke the back-up plan, which involved a suicide bombing operation"

NBC 4 New York has learned that federal authorities have arrested a man they say was plotting to attack the Federal Reserve in New York City. The man is in custody in New York. Sources tell NBC 4 New York that he lives on Long Island. Law enforcement officials stress that the plot was a sting operation monitored by the FBI and NYPD and the public was never at risk. "According to the report, the suspect drove a van he believed to be loaded with explosives from Long Island to Lower Manhattan. He then placed the van near the Federal Reserve and was then arrested by the FBI and NYPD. The suspect, whom sources said is from the Jamaica Queens section of New York City, is currently in custody in New York. Sources say he was acting alone." And "New York terror suspect is a 21-year-old Bangladeshi citizen who traveled to the U.S. in January to carry out terror attack." At least all that tungsten gold lying on the Manhattan bedrock is safe and sound and John McClane will not be called out of retirement just yet.

Ten days ago, when we last tracked the progress of the third US aircraft carrier, CVN-74 Stennis, with destination Arabian Gulf, aka Iran, we reported that it was "within a week of reaching" its destination. Sure enough, as the latest Stratfor naval update confirms, CVN-74 has now reached its destination for which it was commissioned several months prematurely. But before you get your war hats out, note that that other aircraft carrier which is conducting its final voyage, the CVN-65 Enterprise, has decided to take a bit of a break and left the Arabian Gulf area for a scehduled R&R port visit in Naples, Italy. In a week or so, shore leave will be over and CVN will be back to join everyone else, at which point the US will finally have three aircraft carriers just off the Iranian coastline ready to rumble.

There is little doubt that asset prices have responded to Central Bank promises and actions. Even as bottom-up fundamentals are fading, top-down index 'nominal prices' rise on the back of magical multiple expansion - which is defended from on high by sell-side strategists the world over on the back of 'recovery' is just around the corner. The trouble is there's a limit and it seems - from QE2 and LTRO - that we are rapidly approaching that limit; and with earnings outlooks being revised lower, perhaps we are at peak P/E for this cycle of QE?

As incredible as it may seem, there is more than just November 6th to worry about for the next three months. We present UBS's summary and relative importance of the main economic events and political dates through the end of the year. Of course, it is dominated by the politics in Europe, US, and China, but key economic data points that are required to maintain multiple expansion hopes are also included.

Even though we have presented comparable scenarios looking at the coverage of the US money base in gold terms previously, aka "gold coverage" ratio, including once from Dylan Grice, and once from David Rosenberg, now that we have drifted into a new, previously unchartered and very much open-ended liquidity tsunami, it is time to revisit the topic. Luckily, Guggenheim's Scott Minerd has done just that. Not only that, but he presents three distinct gold pricing scenario, attempting to forecast a low, medium and high price range for the yellow metal. To wit: "The U.S. gold coverage ratio, which measures the amount of gold on deposit at the Federal Reserve against the total money supply, is currently at an all-time low of 17%. This ratio tends to move dramatically and falls during periods of disinflation or relative price stability. The historical average for the gold coverage ratio is roughly 40%, meaning that the current price of gold would have to more than double to reach the average. The gold coverage ratio has risen above 100% twice during the twentieth century. Were this to happen today, the value of an ounce of gold would exceed $12,000.” 

While we have largely resumed ignoring the non-newsflow out of Europe, as it has reverted back to one made up on the fly lie after another, or just simple rumor and political talking point innuendo in the most recent attempt to get hedge funds starved for yield (and chasing year end performance) to pursue every and any piece of Italian and Spanish debt (at least the until euphoria ends and the selling on fundamentals resumes) the latest development from the FT bears noting as it has major implications for Europe's make it up as you go along "recovery." According to the FT: "A plan to create a single eurozone banking supervisor is illegal, according to a secret legal opinion for EU finance ministers that deals a further blow to a reform deemed vital to solving the bloc’s debt crisis. A paper from the EU Council’s top legal adviser, obtained by the Financial Times, argues the plan goes “beyond the powers” permitted under law to change governance rules at the European Central Bank." The punchline: "The legal service concludes that without altering EU treaties it would be impossible to give a bank supervision board within the ECB any formal decision-making powers as suggested in the blueprint drawn up by the European Commission."

It will come as no surprise to some but the bankruptcy court hearing for Solyndra just threw up all over any hopes that our taxpayer-funded loans to this solar sinkhole will be recovered:

• *SOLYNDRA HAS ABOUT $71 MILLION IN NET DISTRIBUTABLE ASSETS
• *SOLYNDRA LENDERS AHEAD OF GOVERNMENT OWED ABOUT $77 MILLION

So it looks like a $0 recovery for us - US Government: Picking Losers One Sector At A Time.

With bellwhether, large- and small-cap firms missing earnings, missing revenues, and lowering outlooks, it is no surprise that the market is near record highs once again - oh wait... IBM anchor-like on an otherwise glorious day in the stock markets...

With 20 days left to the big day and the candidates seemingly in a tighter race than many expected it seems appropriate to look at how the equity market is and will be positioned for a potential changing of the guard if Mitt Romney wins or if incumbent Barack Obama remains in charge. Credit Suisse has created a comprehensive 'cheat-sheet' outlining key issues for the election for each candidate, the sector impact of an Obama or Romney victory, and the extent to which that impact is already factored into current market prices. Everything you wanted to know about gaming the outcome of the election but were afraid to ask.

We can summarize the breeding ground of new-type depression: very demanding work that is beyond the capacity of people with poor social and communication skills and those who fear being left behind or failing. Fearing failure, they wilt under criticism that seems unfair and irresponsible given that they're doing their best. Facing an apparently no-win situation at work, they quit or take an extended leave of absence. This doesn't solve the depression or its causes, unfortunately. What seems to help is counseling that raises the emotional maturity of the person with NTD so they can better handle criticism, and counseling the senior supervisors to become better communicators with younger workers. Placing workers with low communication skills in jobs where they can work independently and productively also helps. The demands on enterprises and employees alike are rising as the "New Economy" of pervasive insecurity and constant adaptation become the norm. The take-away from Japan's new-style depression is that we need to understand not all workers are cut out for the high-social-skill "New Economy," though in the right positions they are admirably productive. That will take a new level of management skills in Corporate Japan, America and Europe as definancialization and deleveraging unravel the global economy.