Archive - 2012 - Story

Arguing semantics over cuts here, taxes there, "we are close", etc. misses the entire premise of the entire political debacle that is now replaying in Washington. The simple fact of the matter is that our politicians will not cross the aisle, will not compromise, will not 'come together', will not 'rise above', will not 'think of the children' - until the market (that critical arbiter of everything that appears relevant to the elites) forces their hand. The following three charts should help clarify that for all market savants.

It was only a matter of time before Japan's criminal lying about the radioactive exposure in the aftermath of the Fukushima catastrophe caught up with it. What is surprising is that those holding Japan accountable are not its citizens but eight US sailors who have just filed a suit against semi-nationalized energy operator TEPCO - the company which repeatedly ignored internal warnings about the ability of the Fukushima NPP to withstand an earthquake/tsunami -  seeking $110 million in damages. As Kyodo reports: "Eight U.S. sailors have filed a damages suit against Tokyo Electric Power Co., claiming they were exposed to radiation and face health threats as the utility did not provide appropriate information about the Fukushima nuclear disaster while they engaged in rescue operations on board an aircraft carrier, U.S. media reported."

The sure sign of a halfwit is someone who believes a politician’s promise. There are two types of promises that originate from a politician’s breath. The first is a starry-eyed pledge that is practically unworkable. The second is an assurance that would constitute a threat if given by a private individual. When announced, these promises are sold as a cure-all for all of society’s ills. They hardly ever come into fruition but are referred back to only if they aid in another reelection campaign. The masses have been fooled by years of unrelenting propaganda - they are assured by campaigners for public office of a life that requires minimal effort, little intellectual stimulation, and no prudence whatsoever. Under normal circumstances, breaking a promise is regarded as unbecoming for any man. Even worse is that such a criminal gang is still respected by the greater public. This terrible truth ends up reflecting worse upon the latter than the former.

It seems that the market is slowly but surely getting the joke that the only thing that our politicians care about is the Dow - helped by Harry Reid's comments. As it appears ever more obvious that the cliff dive will take place, so with some liquidity back, traders are reducing exposure to stocks (just as they have been buying protection in VIX for a week now - VIX >20% highest in 5 months). Risk assets everywhere are getting a little jiggy with EUR falling and 10Y yields plunging. Meanwhile, Gold and Silver are bid.

Just as we saw with UMich, it appears the hope for change is wearing thin among the people. Today's Consumer Confidence data missed by its biggest margin in 7 months, dropped below the year's average, and saw the largest 2-month drop in over 15 months. All age cohorts lost confidence with the eldest most and it appears those earning over $35k are also beginning to worry (as those between $35k and $15k seem more confident). Over 40% expect stock prices to decline and it is expectations that have plummeted from a hope-filled 80.9 to a 13-month low of 66.5. In other news, we got the November New Homes Sales report from the Census Bureau. On the surface the number was good, but like the initial claims dats, below the surface its not as pretty - on an unadjusted, unannualized basis, November saw a tiny 27K houses sold - lowest since Feb 2012. In fact, the only thing that really did soar was the number of homes for sale at the end of the period which rose to 151K: the highest since November of 2011.

Comparisons of the failure of the TARP vote and the fiscal cliff were summarily dismissed early in this clip - though CNBC's Rick Santelli does note, as we have vociferously stated that a market correction is the only impetus to get something done in Washington. Having abandoned his channel's "Rise Above" meme in the face of this "childish nonsense", Santelli agrees that politicians "can show incompetence at very critical moments." Then, sparked by the anchor's comment that "the markets would know if [the cliff] was going be a horrific thing", Santelli goes 'off-script' with an epic take-down of all things CNBC: "the stock market is an immediate gratification for investors to make money;" and asks the key question "Why do we look to the Dow Jones Industrial Average to handicap if this country is going to go down the sewer in a couple of years? It doesn't give us a glimpse into the future." He adds that the market is not discounting $100 trillion of unfunded liabilities in our future and then slams the door shut with what will likely become the new meme: "The Fed doesn't have a clue, neither does the President, neither does Congress."

Just because CNBC's ridiculous "Rise Above" campaign has ended in abysmal failure (because who could have possibly imagined that the pin is not mightier than the utter dysfunction that is America's Congress), does not mean that other companies besides the Comcast-GE JV can't try their hands at an advertising campaign that piggybacks on politics. Sure enough, here is the company that an infamous movie made famous as Planet Starbucks, making a desperate plea to its readers to please "come together", think of the children, and "fix the debt." The same Starbucks that apparently had no such qualms as recently as a few months ago when it was revealed that the same company paid virtually no taxes in the UK, thereby quite directly contributing to "unfixing the debt."

We know its not Paulson, Ackman, or SAC; is it Dalio's Bridgewater? No, the world's most profitable private entity that is in business to generate profits via speculation in financial markets is, drum roll please, the Federal Reserve. Stone & McCarthy (SMRA) estimates the Fed will make around $90bn profits in 2012. Of this around $87.5bn will be remitted to the US Treasury - a new record high (quite helpful when one is trying to avoid a debt ceiling using 'extraordinary measures' though we assume this is already penciled in due to its consistency). Since 1947 the Federal Reserve has paid the Treasury roundly $975 bln, about 1/3 of which has been paid over the past 6 years. In other words, the cumulative Federal deficit since 1947 has been reduced by nearly $1 trillion since 1947 due to the repatriation of Fed earnings to the Treasury Department. SMRA estimates that this profitability, thanks to the spread between SOMA coupon income and IOER will likely lift the Fed's profitability to around $120bn in 2013, but a 1% rise in yields would translate into a $275bn loss.

Update: the BLS disclosed that it had to estimate the data for 19 states due to holiday office closures. Good enough for Ministry of Truth work.

In what is a traditional slowdown to the layoffs season in the week leading into Christmas, initial unemployment claims, dropped from an upward revised 362K (was 361K) to 350K, below a consensus print of 360K, and the lowest seasonally-adjusted number in nearly 5 years. The boost, of course, was all in the ARIMA X-12 seasonal adjustments, as the not seasonally adjusted number rose by 39K to 441K. Although in a world in which only Case-Shiller says to use its Non-Seasonally Adjusted print as a far more accurate indicator of concurrent data, nobody cares about the BLS pre-adjustment data. In fact, judging by the market response, nobody cares about BLS data anymore, period, with absolutely no response by the market following the Claims print. Perhaps the only realm, unfudged notable number was the jump in people claiming claims at the State level, which soared by 71K in the week ending December 8, to a 3.238MM total. This happened even the surge of those collecting EUCs finally ended, with just 4K new collectors of EUCs and Extended Benefits. The good news is that at least nothing is Sandy's fault, at least this week.

With four days to go until the end of 2012, it means that Europe can finally reveal its dirty underwear, and as it does at the end of every year, scramble to "window dress" its banks, who for one reason or another, suddenly find themselves needing gobs of liquidity - not USD-denominated liquidity, but domestic, EUR-based. So what do they do? They all, or at least those without direct access to FX markets and without assets to dispose of, engage in what is now a traditional year end surge in loans at the ECB's Marginal Lending Facility, whose punitive rate of 1.5% - a true outlier in this day and age of global ZIRP - makes borrowing from this facility truly a last resort option. And as the chart below shows, in the past few days, various European banks have come begging at the front door of the ECB's Frankfurt HQ and have demanded a whopping €16.3 billion, the highest amount in just about a year, going back to December 29, 2011.

Been a while since we had some amusement out of the Bazooko Circus known as Europe, which for the past month has gone completely dormant, not because "it is fixed" but because, just like in Japan where the JPY has plunged on expectations of an action by the BOJ, so Europe has continued to benefit from the threat of the latest and greatest proposed ECB intervention: the OMT, which on one hand keeps the vigilantes in check, but on the other delays any painful reforms even as the underlying Spanish economy continues to deteriorate without any real structural reforms: something which a surge in rates would promptly precipitate (and once expectations turn to reality, it's all over: just see the recent QE3 and QE4 attempts by the Fed). So speaking of Spain, today's recap sentence of the day goes to Reuters' Julien Toyer with the following: "Spanish lender Bankia will wipe out 350,000 shareholders, many of them small savers with little knowledge of financial markets, after it emerged it had a negative value of 4.2 billion euros." Now if only the Spanish wipe out ended with Bankia's shareholders...

• U.S. Family of Mao’s General Assimilates, Votes for Obama (Bloomberg)
• Iron ore prices hit eight-month high (FT)... four months after plunging and crushing iron ore miners
• Obama seeks 60 Senate votes for cliff deal (MarketWatch)
• Need. Moar. InfinitQEeee: Japan PM adviser urges unlimited BOJ easing, higher price goal (Reuters)
• Yen Touches 16-Month Low Versus Euro Before Japan CPI (BBG)
• China consumers driving economic rebound (Reuters) - ot just year end window dressing to accompany the new Politburo
• Rajaratnam agrees to pay $1.5 million disgorgement in SEC case (Reuters)
• France should review 2013 deficit target with EU partners (Reuters)
• Monti-led poll alliance takes shape (FT)
• Bersani wants growth-oriented Europe (FT)

While the market will look with some last trace of hope to Obama's return from Hawaii to D.C. today, the reality is that even the mainstream media, which had so far gotten everything about the cliff spectacularly wrong (proving that sample polling and actual "predicting" are two very different things), is waking up and smelling the coffee. As Politico reports, "nearly all the major players in the fiscal cliff negotiations are starting to agree on one thing: A deal is virtually impossible before the New Year. Unlike the bank bailout in 2008, the tax deal in 2010 and the debt ceiling in 2011, the Senate almost certainly won’t swoop in and help sidestep a potential economic calamity, senior officials in both parties predicted on Wednesday. Hopes of a grand-bargain — to shave trillions of dollars off the deficit by cutting entitlement programs and raising revenue — are shattered. House Republicans already failed to pass their “Plan B” proposal. And now aides and senators say the White House’s smaller, fall-back plan floated last week is a non-starter among Republicans in Senate — much less the House. On top of that, the Treasury Department announced Wednesday that the nation would hit the debt limit on Dec. 31, and would then have to take “extraordinary measures” to avoid exhausting the government’s borrowing limit in the New Year."

With JPY bleeding lower once again overnight extending to 28-month lows against the USD (and the long-end of the JGB curve starting to show some signs of anxiety), it is perhaps timely to revisit Kyle Bass's five key reasons why Japan is the epicenter of the world's failed monetary policy experiment. In this excellent and much-requested summary 8-minute clip, Bass summarizes his Japan thesis and destroys several of the myths that talking-heads like to assign to the so-called widow-maker trade.

If breaking one window in a Keynesian utopia is good, then breaking moar windows is betterer; and it appears, therefore, our friends across the Pacific will be celebrating the rebirth of the Chinese economy as a 33-ton glass shark tank shattered in a Shanghai mall. According to local media (via Gizmodo), three lemon sharks surfed the water explosion into the shopping mall when the 6-inch thick acrylic glass burst, as you can see in this video captured by CCTV cameras. Unfortunately, given the images below it appears the sharks did not make it - but then again that means more new sharks will need to be purchased so that's upside, right?