Archive - Jun 2012 - Story

Last month, when the USDA released the latest foodstamps numbers for the month of February, there was some hope that following a third month of declines, we may just have seen the peak of US foodstamp usage and going forward we would only see the number decline. Sadly, the latest numbers refutes this: in March a total of 46,405,204 persons were at or below poverty level and thus eligible for foodstamps, a 79K increase in the month. Yet while many individuals have learned to game the system, and this numbers at the peak may fluctuate, when it comes to the far more comprehensive and difficult to fudge "households on foodstamps" number, there was no confusion: at 22,257,647, the number of US households receiving the "SNAP treatment" rose to an all time high, even as the benefit per household dropped to the second lowest ever. At least all these impoverished believers in hope and change have FaceBook IPO profits to look forward to. Oh wait.

The problems facing the U.S. economy are daunting especially when it comes the issues of Government spending and the current deficit. We recently wrote about the dependency on Government programs which is currently making up as much as 35% of personal incomes. Social Security, Medicaid and Medicare make up the largest portions of the current spending requirements of the Federal Budget. The current administration has promised that cuts will not be made to government "entitlement" programs but is that a promise that any administration can actually keep? When it comes to Social Security the facts are rather alarming. By 2017 the Social Security Administration will pay out more in benefits than it takes in. This is not surprising given that in the 1950's there were roughly 5 workers for every retiree. Today, it is roughly half of that. With 78 Million "baby boomers" moving into retirement the demands on social security are set to spiral higher in the coming years ahead. Is it really any wonder then that with demographics heading in the wrong direction, not to mention a much slower growth economy, that the Social Security Administration has moved up its estimate that the Social Security Fund will be exhausted entirely by 2033?

Little to be said here: everyone's favorite proxy of all that is broken with Europe, and now the retail investor, Margin Stanley just closed at the lowest price since December 2008. The move lower continues as Zero Hedge warned back in September of 2011. Compare this to Jim Cramer's February 2 pronouncement that Morgan Stanley is a "dirt cheap stock"... at $19.66!? The 40% prolapse in the four months since (120% annualized?) probably make it dirtest cheapest?

With Europe's credit traders on vacation, volumes overall were muted today in Europe but average in the US. The lack of discipline that normally occurs when the credit boys leave the room helped lift sovereign credit in Europe and implicitly US equity futures (ES) into the open today, which marked the top for the day (back in the green after an ugly Sunday night) as dismal macro data dragged debt and and equity markets back down to overnight lows. Credit and equity moved in sync in general but across broad risk-assets, correlations were loose at best as Gold was very stable holding gains from Friday while Silver exhibited its high beta ebullience and Copper and Oil followed stock's path down and back up. Treasuries leaked higher in yield with a steepening in the curve (though 10Y and 30Y outperformed 7Y as the Twist pivot maturity seemed most active). EUR strength was sustained from early morning in Europe with JPY weakness providing some support for stocks but it seemed both VWAP and the 200DMA were the key levels today and despite two stop-runs in the afternoon, we flushed down at the last minute (off near day's highs - thanks to Egan-Jones' UK downgrade news) to close red for ES (2nd day in a row below 200DMA). Financials (which are close to red for the year and about to cross below Healthcare and Staples) did not participate in the swings as much with JPM and MS worst today -3% (with the latter now 25% lower than the March 2009 market trough levels) and the other TBTFs around -1.9%. VIX oscillated rather like ES today - as usual but popped back above 26% to close marginally lower on the day. While correlations did drift today, stocks remain a little too full of hope still against overall risk markets but with UK closed again tomorrow, we may have to wait for Wednesday to see how Europe (and implicitly the rest of the world) feels.

When one is expected to go down for missing a comma in their NRSRO application, one at least should go down swinging. Sure enough, Egan-Jones, the only rating agency with any credibility left, is at it again, this time cutting the big momma itself - the UK - from AA to AA-.

The other government-sponsored Ben-with-a-beard was in contemplative mood as the CEO of AIG relaxed at his Croatian seaside villa in a recent Bloomberg TV interview. Benmosche stated that "Retirement ages will have to move to 70, 80 years old" as that "would make pensions, medical services more affordable... taking the burden off of the youth." Opining on Greece (well the Greek people really): "they have to see that there is no easy way out of this" and the government must get them to work longer (Greek life expectancy is 81.3 years so there's plenty of hours left for retirement). Towing his corporate over-lord status quo line, he notes that Greece abandoning the euro could be a disaster for the country but we assume if only they would work 23 hours-a-day for 81 years at a 95% tax rate then TROIKA will be more than happy to use them as a rotating receptacle for European bank holdings.

A month ago we were delighted to counterpoint Charlie Munger's prior remarks about the level of "civilization" of a given consumer based on their sentiment vis-a-vis gold, by demonstrating that Chinese purchases of gold from Hong Kong rose to a record. To wit: "Imports from Hong Kong were 135,529 kilograms (135.53 metric tons) between January and March, from 19,729 kilograms in the year-earlier period, according to data from the Census and Statistics Department of the Hong Kong government. Shipments in March rose 59 percent from February, yesterday's data showed." We have just gotten the April update, and, lo and behold, the country which is now the biggest buyer of gold, having surpassed India, just set a new record: "Gold imports by mainland China from Hong Kong climbed 65 percent to a record in April, advancing for a third straight month as investors sought a hedge against financial-market turmoil and an economic slowdown. Shipments totaled 103,644.5 kilograms (103.6 metric tons) in the month from 62,913 kilograms in March, according to export data from the Census and Statistics Department of the Hong Kong government today. In the first four months, imports were 239,174 kilograms from 27,114 kilograms a year earlier, according to Bloomberg calculations. China doesn’t publish such figures." In other words: in the first four months of 2012 Chinese purchases have increased by an unprecedented 782% over 2011.

While Australian bank credit spreads are rising dramatically in the last few months and the ASX 200 index has dropped significantly (though remains 27% above its 2009 lows), nowhere is the levered bet on China's ongoing dominance and growth writ larger than in the massive number associated with Australian Miners' Capex in the last few years. As Sean Corrigan of Diapason Commodities notes, the 1017% (or 39.5% annualized) rise in the absolute spend over the last 7 years clearly went exponentially ponzi-like in the last few years as it did compared to Manufacturing and Total CapEx. While equities and credit have fallen, it seems the 'expected' cut in spending from slowing China demand has yet to hit CapEx and that means troubled for all those levered bag-holders.

The most recent money supply data from the Swiss National Bank (SNB) has shown increases of huge amounts. As compared with its loss of 19 bln. francs in 2010 (3% percent of the Swiss GDP), the central bank printed tremendous 17.3 bln. in the week ending in June 1st and 13 bln. in the one ending in May 25th. These numbers were not seen since August 2011 when the SNB increased money supply by 50 bln and 40 bln per week buying the EUR/CHF at rates between 1.00 and 1.13. Now, however they are buying at 1.20 and are risking extreme losses, especially because many other central banks are dumping euros.

It's one thing for liberals to demand one group of Americans pay for another group of Americans, with a third group's money of course (until it runs out), but when a progressive think tank actually has the temerity to tell Bernanke that Europe is not socialist enough, and thus needs liberal US support, that's when things just get plain old silly. Which incidentally, is precisely what the progressive brains of Mark Weisbrot and Dean Baker, co-directors of the liberal Center for Economic and Policy Research, have done. Naturally, we are all for a humanistic effort; we also believe in leading by example. If Messrs. Weisbrot and Baker would first be kind enough to divest themselves of all their earthly possessions and bank account contents, which should be Fedexed and wired in the direction of Spain post haste, it would make their transparently theatrical pursuit of pseudo-noble causes just that more palatable to the masses who already are on the verge of poverty, and are now being asked to bail out other countries. 

90 seconds that describes the sad reality of US banking and politics - in Dr.Seuss style prose. "Now cabbies and crop-pickers will pick up the slack; your taxes will bring the bankers right back; where we'll keep spreading our good news, of deregulation and free market views - 'We know what we're doing, just stop with the rules!'"

"Now we're buying both sides to do our good bidding; That whole Democracy thing? Surely You're Kidding"

The following chart from Ray Dalio's Bridgewater probably explains why the words "funding gap" (or "math") will never be uttered by any Eurocrat as that would mean the jig is up. It is also quite self-explanatory.

The battle between rising profits & low equity valuations and the major macro-economic issues facing the world just won't go away. Michael Cembalest, JPMorgan's CIO, has been underweight equities YTD and remains so as he sees the Squid (some of the worst macro-economic imbalances on record) will beat the Whale (rising corporate profits, the lowest equity valuation multiple in decades, and a 50-year high in corporate cash balances) as he sees again and again that as soon as periods of monetary stimulus fade, so have measures of global activity. With global PMIs rolling over once again, China's growth fading as its credit creation slows, Europe's distressful situation, and the US failing to achieve escape velocity, Cembalest believes government rescues of different kinds may be on the way at some point which will probably stabilize markets, but finds it hard to see the squid-whale (macro-micro) battle being decisively resolved in 2012.

The much anticipated press conference between Merkel and Barroso, hence Barkel, in which nothing of any substance will be announced, has begun. Rolling headlines as we get them:

• MERKEL SAYS WE NEED MORE EUROPE, NOT LESS IN EURO-ZONE (sounds familiar)
• MERKEL SAYS WILL DISCUSS EUROPEAN SUPERVISIONS OF BANKS AT EU SUMMIT, BANKING SUPERVISION IS A MID-TERM GOAL
• BARROSO SAYS WILL PUSH FOR BANKING UNION AT THE COMING SUMMIT
• MERKEL SAYS EU NEEDS ANSWERS SOON ON POLITICAL UNION
• MERKEL SAYS DISCUSSING EU BANKING SUPERVISION WITH BARROSO
• BARROSO SAYS EU SHOULD DISCUSS ELEMENTS OF 'BANKING UNION' -> we agree to hold another conference at a future time

And... that's it folks. Proceed to the egress.

If there was ever an article that should spark every British citizen to immediately shift their savings into physical gold this is it.  Basically, proposals are on the table to change the way inflation is calculated for bonds that payout based on the rate of change in prices.  Unsurprisingly, they are purposely attempting to use an alternative measure of inflation that allows substitution (so when people can no longer buy a steak and must spend the same amount of money on spam this shows up as no inflation)!  If this goes through, it is blatant theft.  This is why owning TIPS in the U.S. is a total fool’s game.  They will mark inflation to whatever level they want at the end of the day.  To whatever is most convenient at the moment.  You know, just like the banks mark their balance sheets.  But don’t take my word for it…