Archive - Jan 22, 2013 - Story

On occasion, truth is stranger than fiction; and in the somewhat surreal world in which we now inhabit, The Onion's perfect parody of where we are headed could have been lifted from any mainstream media front-page with little questioning from the majority of Americans. For your reading pleasure, the 62-year-old with a gun that is the last man standing between the American people and full-scale totalitarian government takeover.

The day Lehman failed saw the launch of the most epic central bank intervention in history with the Fed guaranteeing and funding trillions worth of suddenly underwater capital. However, what Bernanke realized quickly, is that the "emergency, temporary" loans and backstops that made up the alphabet soup universe of rescue operations had one major flaw: they were "temporary" and "emergency", and as long as they remained it would be impossible to even attempt pretending that the economy was normalizing, and thus selling the illusion of recovery so needed for a "virtuous cycle" to reappear. Which is why on November 25, 2008, Bernanke announced something that he had only hinted at three months prior at that year's Jackson Hole conference: a plan to monetize $100 billion in GSE obligations and some $500 billion in Agency MBS "over several quarters." This was the beginning of what is now known as quantitative easing: a program which as we have shown bypasses the traditional fractional reserve banking monetary mechanism, and instead provides commercial banks with risk-asset buying power in the form of infinitely fungible reserves... So how does all this look on paper? We have compiled the data: of the 1519 total days since that fateful Tuesday in November 2008, the Fed has intervened in the stock market for a grand total of 1230 days, or a whopping 81% of the time!

With Gold inching back up towards the $1700 mark once again following yet another central bank's promise to flush the world with fiat currency, we thought some reflection on the history of Gold was useful. From its rareness and malleability to its multi-millenial nature as a store of wealth, Visual Capitalist's infographic takes us from the Egyptians to the Chinese and on through the US Gold Rush to the current 'vaults' of gold being questioned currently.

It would appear that the sell-side is in a full-court-press to convince the world that the levitation of nominal equity prices is indeed the start of something new and secular - as opposed to the inevitable consequence of global monetary experimentation. To wit, Goldman has done an excellent job of divining the seven previous regimes within the volatility (or VIX) cycle and believes (with 89% probability) that we have entered a new 'great moderation'-like eighth regime. They are happy to admit that the ECB 'promise' to remove the left-tail, and the Fed and BoJ's work to open-endedly compress realized volatility is to blame - but the current VIX levels would imply a notably lower (than 2012) realized volatility on average throughout 2013. However, the back-end of the curve remains steep (and unyieldingly less ebullient), the skew is extremely complacent, and as every premium-selling call-writing 'this-is-easy' trader knows picking up nickels in front of the steam roller works well - until it doesn't.

Many of us spent much of 2012 confused about how the U.S. real estate market was improving within the context of a broke and unemployed citizenry.  Well as time has passed the answers to our questions have been revealed.  The criminals are piling in.  I first explained a couple of weeks ago how the financial oligarchs in the United States are currently in a bidding war to become America’s slumlords in my post:  America Meet Your New Slumlord: Wall Street.  Now we also discover that part of the bid to U.S. real estate has come from another criminal class. In this case, we are talking about corrupt Chinese officials who are pulling their ill gotten gains from their homeland and desperately placing it in real estate all over the globe. 

Who are we, the people? The following 15 simple charts from the WSJ offer insight into Race, Demography, Attitudes, Sex (not a yes/no question), Politics, and Religion across the unified society called the USA.

In a move that may cause some consternation in Europe due to its adverse implications for trade paterns in the continent, tomorrow British PM David Cameron will announce that he will propose a referendum on whether or not to stay in the European Union, a move that as the WSJ qualifies it "threatens to inhibit trade and cast a new shadow over the troubled bloc." That may be a slight exageration: the referendum would take place, if at all, before the end of the first half of the next Parliament, roughly by late 2017, after an election. Which means that if Cameron loses the election, it is a non-issue, just as it would be a non-issue of course if the UK public voted to stay: according to a survey of the British public late last week by pollsters YouGov showed 34% indicated they would vote to leave in a referendum, while 40% said they would vote to stay. A week earlier, 42% said they would opt out, compared with 36% preferring to remain. Obviously a volatile topic for the population.

The optimism over the housing recovery has gotten well ahead of the underlying fundamentals. While the belief was that the Government, and Fed's, interventions would ignite the housing market creating an self-perpetuating recovery in the economy - it did not turn out that way.  Today, these repeated intrusions are having a diminished rate of return and the risk now is that interest rates rise shutting potential homebuyers out of the market.  It is likely that in 2013 housing will begin to stabilize at historically low levels and the economic contribution will remain fairly weak.  The downside risk to that view is the impact of higher taxes, stagnant wage growth, re-defaults of the 6-million modifications and workouts, elevated defaults of underwater homeowners and a slowdown of speculative investment due to reduced profit margins.  While many hopes have been pinned on the 2012 stimulus fueled, China investing, and supply-deprived housing recovery as "the" driver of economic growth in 2013 - the data suggest that may be quite a bit of wishful thinking.

UPDATE: He's now over an hour late.

Will the Speaker offer up a watered-down debt-ceiling can-kick extension breaking the spending-ceiling link or will he surprise investors and show some back-bone with a budget-contingent salary-withholding plan? Back-down or battle-on - that is the question. Due to speak at 5ET, let's get ready to grumble...

UPDATE: With GOOG and IBM earnings (details below), futures are pushing higher still after-hours

Lowish volume and low average trade size was all that was required to march stocks up to recent highs on the back of more VIX compression and vol term structure steepening. Today was one of the most-disconnected day in a while between equities (and vol) and the rest of the market with the USD practically unchanged, Treasury rates lower, and high-yield credit flat. Commodities pushed higher on the week with Silver outperforming (+1.2%) as Oil broke back above $96 and the Energy sector led stocks along with Utilities (safety?) and Materials. Tech was weak as AAPL plunged early on - only to recover back above VWAP into the close. The Dow Transports have been the corner-piece of this rally as it would appear AAPL's loss is rail-cars and airlines gains. Up 12 of the last 15 days and +19% in the last six weeks, we note the last time this index surged on this scale was in April 2010 (when we saw realized vol for the index also plunge to record lows such as we have now) - and this happened...

The algos have gone nuts after hours, but here are the numbers:

• GOOGLE 4Q REV. EX TAC $11.34B, Exp. $12.36
• GOOGLE 4Q AVERAGE COST-PER-CLICK FELL 6% VS YEAR AGO
• GOOGLE 4Q EPS EX ITEMS $10.65, EST. $10.50

That even former French president Nicolas Sarakozy plans to start a £1 billion private equity fund in London is not news: courtesy of ZIRP and the ongoing global reliquifiication of markets by every central bank as currency warfare goes ballistic, one would have to be seriously unlucky to chase the central planner inflated beta rally and not succeed (one would also have to be very unaware of the difference between nominal and real returns, but since that is most people these days, let's ignore that). What is news, is that as part of said transfer to the "asset management business" it is none other than the former French president who is next in line to evade Hollande's millionaire tax by crossing the Channel, and "redomiciling" himself in London.

Everyone's favorite bull made another magnificently arrogant appearance on TV this morning. Following his recent CNBC embarrassment, Bloomberg TV interviewed the outperforming hedge fund manager this morning - during which he explained his 'where else ya gonna go' bullish stocks thesis. From expectations for an "explosion of greatness" in the US to his gratuitous flirtation, he appears to have the inane ability to use many words where few are needed and his bullish thesis has the ring of any and every guest pumper (with nothing new to add): the same supposedly 'low' multiple, central-banks-are-printing, and wide spread between bond and equity yield argument that everyone's mom can explain. From expectations for the 'great rotation' from bonds to stocks and his 50%-upside prediction in Citi, Tepper is "balls to the wall" the best guest ever on any stock-touting network. However, one little thing gets in the way - the last time the Great-and-Powerful Tepper appeared so overtly bullish of stocks (and financials specifically), he also was dumping his holdings into the rally that followed.

When it was announced in late November that Goldman's Mark Carney would become head of the BOE (a "shocking" move only Zero Hedge predicted), we said that one has to be insane to be buying the GBP at those levels. Sure enough, it took just two short months before the implications of yet another Goldmanite's pro-inflationary policies would become apparent. To wit:

• KING SAYS BOE IS READY TO PROVIDE MORE STIMULUS IF NEEDED
• KING SAYS QE WAS CRUCIAL IN AVOIDING U.K. DEPRESSION
• KING SAYS U.K. BANKS SOME WAY FROM CONVINCING MARKETS ON SAFETY
• KING SAYS POUND DROP WAS NEEDED FOR U.K. REBALANCING
• KING: U.K. 4Q GDP ALMOST CERTAINLY CONSIDERABLY WEAKER THAN 3Q

And the punchline:

• KING SAYS REBALANCING NEEDED TO AVOID CURRENCY WARS

In other words, please welcome the UK to the global currency wars.

While the trend has been your friend in US equities for the last few months; the trend in US Macro data has also been consistent - but negative over the last few weeks. Today, for the first time in almost five months (thanks to misses on existing homes and the Richmond Fed) the US Macro index turned negative. In the past this has marked the start of the market's realization that things are not just dipping but are cycling lower. This is also the weakest 'macro' start to a year since the crisis began - and seasonally is prone to become worse not better from here. It seems, however, that the only reality that is required for any prognosticator or commission-taker is that of nominal stock prices (as self-confirming bias creating data) - just as it was in late-2007.