Archive - Nov 2012 - Story

Last week's largely symbolic vote in which the Greek bailout-addicted parliament passed, by the tiniest of margins, the latest request for just one more monetary fix promising that this time it will, pinky swear, get its house in order (and maybe even collect some taxes, because all those previous promises were just rehearsals) succeeded in one thing: the coalition government from this summer's elections, crumbling well ahead of time. Which means the time for yet another parliamentary vote is fast approaching. So if a vote were held today, who would be the most represented parties in the Greek parliament? The answer, according to the latest KAPA poll, is the following...

Barclays' Barry Knapp has joined the growing crowd of 'sub-1400 year-end S&P 500 target' realists among sell-side equity strategists. With Morgan Stanley's Adam Parker at 1167 and Goldman's David Kostin at 1250, Knapp just reduced his target to 1325 as he notes "the election scenario that unfolded was the one with the most risk, the status quo outcome." In a brief but densely packed interview on Bloomberg TV (the likes of which we suspect we will not see on CNBC), Knapp summarizes his non-rose-colored-glasses view: "In the longer term, while U.S. growth ... remains constrained by policy uncertainty and balance sheet deleveraging. Financial repression has limited the Fed’s effectiveness... We believe a period of significant equity market valuation improvement can’t begin until the Fed initiates the exit strategy process, which is unlikely to occur until Federal government debt sustainability is addressed." From lame-duck impotence to tax-selling pressures, Knapp nails our new reality and explains, as we have been saying, that the only solution lies in a market-forced move: "We suspect, absent a market correction large enough to force compromise, the two sides will not agree on the starting point for tax rates." Must Watch...

With Spanish unemployment at record levels over 26% (and youth unemployment over 50%), even the bailout-avoiding prime minister is now recognizing the "terrible things and inhumane situations" that many real people are dealing with. To wit, a 53-year-old woman died after she threw herself from a window of her apartment when representatives of Spanish bank La Caixa arrived with locksmiths to evict her yesterday morning. The suicide (following another last month in Granada) has prompted Rajoy to temporarily halt evictions of the most vulnerable families as the government devises measures to help people stay in their homes. And yet, we are told again and again by Juncker, Barroso, van Rompuy et. al that the corner has been turned... we suspect not!

"I don't think the US government even realized how far it had spread" is how the collateral damage from the Iran-attacking Stuxnet computer virus is described by Chevron. The sleep San-Ramon-based oil giant admitted this week that from 2010 on "we're finding it in our systems and so are other companies... so now we have to deal with it." It would seem that little consideration for just how viral this cyber warfare tactic has become and this news (reported by Russia Today) is the first time a US company has come clean about the accidental infection. On the record, the federal government maintains ignorance on the subject of Stuxnet, but perhaps Chevron sums up the impact of Stuxnet best (given the escalating Iranian enrichment program): "I think the downside of what they did is going to be far worse than what they actually accomplished." As more truth comes out so it would appear the probability of copycat attacks is rising as the shadowy Iranian-based hacking group called The Qassam Cyber Fighters took credit for launching a cyberattack on the servers of Capital One Financial Corp. and BB&T Corp just last month.

When you strip all the politically correct rhetoric, and the carefully sculpted facade is taken off for the night, this is what remains: Via Germany's most popular financial newspaper Spiegel: "There is hardly an issue about which Germans as so united as they are by their desire to see America on its knees. It unites both the left and the right. Wherever they look, they see decay, a lack of culture and ignorance. "A perverse mixture of irresponsibility, greed, and religious zealotry".  With a bit of luck, the specter across the Atlantic might even take care of itself. It can't be ruled out. When they are not shooting each other or being fried by dangling power lines then the Americans might simply pop. Two out of every three US citizens are overweight, or even obese! Every child in Germany knows the numbers. The childish excitement over Obama, that once again took hold over Germans during this election -- fully 93 percent of the country would have voted for him in this election -- is the flip side of this desire for America's demise. That the Germans, of all people, should see themselves in a black civil rights attorney from Chicago can only be explained by the fact that they see him as the opposite of what they consider to be normal Americans."

It appears communism is alive and well. Coming to a '5 year plan'-sponsored KolHoz near you.

While there had been speculation that the BLS may delay the release of its October nonfarm payroll number until after the election, it turned out there was no reason to worry. Perhaps this is because the number, while at stall speed, was not quite as horrible as some had expected (even if the change in average hourly earnings did tumble to new all time lows) and so boosted Obama's reelection chances. There was, however, another closely tracked number which perhaps is far more indicative of the economic "growth" in the past 4 years, which certainly had a delayed release. The number of course is that showing how many Americans are on foodstamps, and usually is released at the end of the month, or the first day or two of the next month. This time the USDA delayed its release nine days past the semi-official deadline, far past the election, and until Friday night to report August foodstamp data. One glance at the number reveals why: at 47.1 million, this was not only a new all time record, but the monthly increase of 420,947 from July was the biggest monthly increase in one year. One can see why a reported surge in foodstamps ahead of the elections is something the USDA, and the administration may not have been too keen on disclosing.

Economists the world over can take comfort that the laws of supply and demand still largely rule the marketplace. However, we believe there is a noted exception for a yellow, largely useless metal. A metal that just happens to have shaped the world’s monetary systems for the last several thousand years. Gold’s “supply” traditionally defined as global mining production is virtually meaningless in determining its’ price. How can this be? Gold, even when viewed as a commodity, is unique in that it is not consumed. Rather than supply in the traditional sense, what drives the gold price is the percentage of the existing stock (170,000 tons) that is available for sale on any given day. Gold, in our opinion is what is often referred to as a Giffen good. We believe that a massive revaluation of gold denominated in dollars can happen quite suddenly, almost overnight. But not because of any sustained long term demand for gold, but simply because owners of metal simply withdraw it from sale, sending the stock to flow ratio to infinity. This is why understanding gold’s stock to flow ratio is so vital. What happens to the “price” of gold when it ceases bidding for dollars? Zero. Or infinity. Take your pick.

Sometimes, it just pays to keep it simple stupid. At some point, the dismal economic reality of our post-credit-creation-miracle boom world will reassert itself in asset prices. The catalyst may not be obvious (like a close-election reminding a nation of sheep just how divided we are as a people and implicitly as a political class - and what that means for our future fiscal probity); but it is coming. 'Cycles' cycle; the Fed has fired its bazooka; and OMT omnipotence is in doubt;and the only way we get 'moar money' from our central planners is if their hand is forced by a reversion to reality...

While Mr. Panos has often been used as the poster boy for the Greek people, his shortened premise is - we will keep taking the Europeans money until they no longer want to give it to us. In the meantime, the Greek people have suffered due to the previous largesse of their government and need for a 'reversion' to the mean of their relative wealth. The following brief clip offers some insight (or defense) of who the real man-on-the-street is in Greece. Not the media's interpretation of a lazy, cheating, ungrateful, helpless, corrupt, violent, rude, racist, tax-evading, trouble-making thieving vandal - that lives with his mother; but a scapegoat for all that is wrong in Europe and remains shocked, confused, frustrated, and upset. It's someone's fault, right? Why not Alex?

"Recently, Johnson Matthey have put 172 “bad delivery” U.S. Assay Office bars into good delivery form for account of the Deutsche Bundesbank. These bars formed part of recent shipments by the Federal Reserve Bank to provide gold in London in repayment of swaps with the Bundesbank. The out-turn of the re-melting showed a loss in fine ounces terms four times greater than the gross weight loss... No indication should, of course, be given to the Bundesbank, or any other central bank holder of U.S. bars, as to the refiner’s views on them."

May 1968

Cash equity markets closed the day very marginally in the green - ending the worst week in over five months. S&P 500 futures are bleeding red after-hours as we note significant volume came in after the President began speaking - from which we closed down 1%. Cross-asset correlations were extremely high today as it seemed all about equities (and equities were all about AAPL). Credit markets (and volatility) were not enjoying the morning party as much as stocks but by the close equities reverted back down to reality. Gold remains the week's big winner (post-election) but we note that 10Y yields fell from over 1.75% into the election to under 1.60% at their lows today. The USD ended the week +0.6% and Treasury yields down 10-15bps. AAPL gained 1.75% (phew) but traded extremely technically with heavy volume around VWAP into the close which helped Tech slightly outperform Financials on the week (-2.5% vs -3.1%). A day of technical bounces and all eyes on stocks...

Update, in which we find the true reason for the affair: Petraeus Won’t Testify on Benghazi Next Week, Senate Aide Says.  In other words, next time one is called to testify before a panel over the deaths of 4 people including one US ambassador, one just pulls the infidelity "get out of testimony" card and all is well.

A mere few days after the re-election of our president, CIA Director David Petraeus annoucnes his resignation:

• *CIA DIRECTOR DAVID PETRAEUS RESIGNS
• *PETRAEUS SAYS HE ASKED OBAMA TO BE ALLOWED TO RESIGN: NBC NEWS

The reason - an extra-marital affair...

• *PETRAEUS SAYS HE ENGAGED IN AN EXTRAMARITAL AFFAIR: NBC NEWS 
• *PETRAEUS 'SUCH BEHAVIOR IS UNACCEPTABLE' IN A LEADER: CNN

Of course, the defense is already known: Petreaus did not commit that affair... the government did it for him

In mid 2008, when macro data surprises were very weak, equity markets continued to push inexorably higher; happily ignorant of reality as The Fed has your back, 'bad is good', and the impossible was still impossible. This rally front-ran the economic surprise data - as economists had (in their ubiquitously extrapolant manner) over-cooked the downside and a reflexive bounce and rate cuts swung us into the green economically and market-wise. That surge in macro surprise data proved fleeting and we crashed a few short months after. Four years later and once again we are told that 'bad is good', every central bank is just dying to add more liquidity fuel to the fire, and macro data is 'surprising' to the upside. However, instead of following the 2009, 2010, and 2011 patterns, we are mimicking that 2008 pattern as 3-month S&P return turns red while ECO data is still rising. We suspect the hope-driven 'magic' in that ECO data will rapidly fall to the bottom-up-biased earnings data we discussed earlier and while 'expecting' a 30% plunge in stocks is a little much - we've seen this kind of hopeful optimism dashed before on the rocks of reality.

The U.S. trade balance in September improved, largely on petroleum, with a rebound in exports.  This was good news for a single economic data point and it sent mainstream economists to mistakenly begin boosting third quarter GDP estimates to 2.9% from the 1st estimate of 2.0% that we saw last month. The important point is that the trend of exports, and imports, has been negative as the recession in Europe, and slowdown in China, have reduced end demand. There are a numer of reasons that the recent positive boosts to the trade deficit data are more likely temporary in nature and will be revised away in the months ahead.  "Regardless of when the NBER officially announces the start date of the next recession - the damage will have already been done to investors."