Archive - Jan 28, 2013 - Story

Below is a live stream from Egypt which contrary to promises from the US department of state, appears to not be fixed after all. Contrary to some naive expectations, yesterday's 30-day curfew imposed by the president in various Northern cities in hopes of cooling tempers has not achieved its goal, and may soon need to move to the capital Cairo where the riots are back. So while we wait for Athens' Syntagma square to emerge from hibernation, here is a preview of how a very "fixed" Europe, where one will soon need scientific notation to express the levels of youth unemployment, will look like once the snow melts.

There may be rotation out of bonds (there isn't), but don't tell the Direct bidders, who submitted a total $22 billion in bids for today's $35 billion Two Year auction, and well below last month's $18.2 billion, and were hit on just under half of this tendered amount, taking down a massive $10.4 billion, or precisely 29.99% of the entire auction. This was the second highest Direct takedown in history only less than October's 35.41%. What is curious is that Indirect buyers, traditionally strong buyers of the 2 Year point on the curve, and taking down on average 31% in the past year, were left with just 18% of the auction, slightly better than last month's record low 17.7%, and the second lowest as far as our time series goes. The balance of 52%, as always, was left to the Primary Dealers, who will promptly turn around and flip it back to the Fed at the first opportunity now that the Fed is monetizing across the curve and not just to the right of the belly. Other metrics of today's auction included a 3.77 Bid to Cover, roughly in line with the trailing 12 month average, and higher than December's 3.59, while the final high yield was not surprisingly, 0.288, just inside of the 0.289% When Issued at 1 PM trading. Overall hardly a flight from Treasurys, at least in the segment where the nominal return is absolutely laughable, and an indication that nobody believes for a second that ZIRP may be ending any time soon.

The US Postal Service may be a woefully overstaffed anachronism of a bygone era, with a painfully mismatched cost and revenue structure, which last year reported a massive, and record, $15.9 billion annual loss for the last Fiscal year, but that doesn't mean it is going away without a fight. As of yesterday, the USPS valiantly hiked the price of first-class mail by another 2.6%, to 46 cents, up from the 45 cents which in turn was hiked a year previously. Alas, somehow we doubt this latest increase in pricing which is supposed to keep up with inflation, will do much for the long-term viability of the government service which employes some 500,000, and which has warned would run out of cash by October 2013 for two simple reasons: the ongoing collapse in mail volume sent via the USPS (with free or more effective alternative widely adopted), and a cost structure that unlike the revenue side, has managed to stay leaps and bound ahead of inflation courtesy of some rather vocal labor unions.

While it may be a little early for humor this week, this was just too ridiculous to pass up. As Keep Talking Greece notes, Charis Theocharis - Greece's new revenues general secretary - recently appeared at a conference and made the rather intriguing "me neither" reply to an audience member's “I have no money to pay property taxes" comment. “Me too, as all of you, I have difficulties to pay the property taxes,” a rather perplexed Theocharis told the audience in an effort to continue his speech. This follows former deputy PM Theodoros Pangalos, a PASOK MP for several decades, who had often claimed he could not pay property taxes for his more than 50 residences. If those who have salaries cannot pay property taxes, what should the unemployed or the pensioner do who has a roof over his head but no other income?

You might have to read this post twice to make sure your eyes didn’t deceive you.  This article is actually completely different from our recent pieces on stealth inflation, but is even more infuriating.  In this case, a grocery store called Fresh Markets decided to sell milk at a bargain basement price as part of a promotion, yet the state has deemed the price “too low.”  As a result, the chain is being forced to raise the price.  Yep, at a time when millions are struggling every day to make ends meet, this is what the state of Louisiana has decided it a priority that the cost of milk is higher for consumers in the state.  This is exactly what happens when bureaucrats exert to much influence in our daily lives. No one can seem to put a banker in jail, but sell milk too cheap and regulators are all over you.

Determining the “pain threshold” beyond which the euro appreciation would significantly impair the recovery is crucial at this juncture. Deutsche Bank's quantification of this “pain threshold”, is not fixed but depends critically on the pace of global growth. If world demand accelerates from a current pace of 1.3% YoY to 4.2% YoY by Q3 2013 (30% below trend), as per OECD forecasts, the EURUSD exchange rate which would be consistent with maintained competitiveness would stand at 1.37 (not far from where we are). However, if growth is lower (as we humbly suspect) the threshold for currency strength to hamper growth is considerably below current levels.

Maybe Uncle Warren doesn't like to 'make it rain' (see here) because Becky forgot her umbrella again? And yes, the fact that even TMZ is on to the Octogenarian of Omaha, and his perpetual arm candy, is probably most amusing of all.

Two months ago we demonstrated one of the biggest paradoxes of the current iteration of the US welfare state, in which a single mom earning gross income of $29,000 has the same disposable income after all net benefits as a worker who has gross income of $69,000. The same logic is applicable to all those who instead of working, opt to receive foodstamps, disability payments, and the occasional Obama phone, all the while dropping out of the labor force and making the BLS' job of indicating a dropping unemployment rate a little easier. And while the US is fully intent on converting an ever rising portion of the population into these "comfortably poor" zombies who no longer have any marketable skills, and are completely unqualified to be competitive in an increasingly more specialized workforce, one place where such welfare handouts will no longer be tolerated is Japan, of all places. As Japan Times reports, "welfare benefits will be slashed by ¥74 billion over a three-year period starting from fiscal 2013, after a government panel found that some people are making more on the dole than the average low-income person who is not spends on living costs, it was learned Sunday." We await with eager amusement as this attempt to impose austerity on the comfortably poor takes place in the US next. Considering there was nearly a revolution in California a few weeks back when EBT cards malfunctioned for a few brief hours, the outcome of a comparable belt-tightening in the US would have truly hilarious, not to mention lethal, consequences.

Hope is dying in the US. The performance of financial markets affects everyone. For savers and investors, these markets represent the means to an improved life, at least as they define it. We are twelve years into this new century and Americans are losing their hopes, dreams and aspirations. Twelve years in, the S&P 500 has returned a total of 14%. That puny return has not come close to covering the decline in purchasing power of the dollar during the same period. The country's financial condition is deplorable and cannot continue much longer. So, too is virtually everything else the government has touched whether it be education, Amtrak, the post office, Social Security, Medicare, ad nauseum. Nothing government has done has not been a Ponzi scheme dependent upon additional theft from taxpayers to keep going. The system is now broken. There is no one to blame for this other than government. Despite this obvious conclusion, government is still seen to be a savior by a large proportion of the country.

Cramer called it the greatest piece of financial TV history. He was the only one. Here is Art Cashin's take on last week's 1 hour slow motion trainwreck between Ackman and Icahn. "While it diverted trading desks and floors somewhat – like a car chase – it was about as meaningful. Traders wondered if the performance dented the confidence of mom and pop investors watching at home. It certainly didn't make the financial arena sound solid and businesslike."

Where ever you look - apart from AAPL (-0.5%) - risk-related assets are on another tear this morning. Following the better-than-expected (though totally noisy) goods orders headlines - which a mere scratch below the surface show to be considerably less exuberant than expected, EURUSD surged back up to unchanged, 10Y Treasury yields pushed back above 2% for the first time in 9 months, and S&P 500 futures touched 1500. Bonds and stocks are modestly recoupling but not as much as one would think given the 10Y shift. Meanwhile CAT is up 2.5% on a cautious outlook and BA is down 0.6% (as driver of the macro rally?).

Yet another government data release, yet another epic case of baffle with BS. As expected (and as pretweeted by us) The headline Durable goods orders was a massive 4.6% increase M/M, rising to $230.7 billion from $220.7 billion, the biggest beat to expectations of a 2.0% headline print since December 2011. A key reason for this was the ridiculous 56.4% explosion in Nondefense aircraft and part from $5.1 billion to $7.9 billion, while Nondefense aircraft soared by 10.1% to $14 billion. Excluding this incredibly volatile data set, the headline number would have been a miss, and will likely be revised lower next month, because the primary driver of the boost was Boeing, which said it had received 183 orders in December, compared to 124 in November. One wonders how many of these fully cancelable orders were for the Dreamliner. Ah details. And more details: the only consistent series that matters for a credible Capital Expenditure picture without monthly aberations, is the orders of Non-defense Capital Goods excluding Aircraft category, which rose by a whopping 0.2% month over month. But more importantly, looking at this on a Year over Year basis, as this is a seasonal series and looking at it on a sequential basis makes zero sense, we just experienced a whopping -4.3%, negating the transitory 1.5% Y/Y bounce posted in November, and resuming the downward glideslope in the key corporate CapEx indicator.

In one sense the trajectory of money is similar to what recently occurred with Lance Armstrong which is that he admitted to doping. The financial markets have been living on the drugs provided by the world’s central banks and that has been more and more and ever more money pumped into the system. We have become addicted to the stuff and never mind that more pieces of green and blue paper decrease the value of the currency because, with the possible exception of gold, there is nowhere else to go and so the global slosh of capital keeps driving the markets higher; all of the markets. Many point to the rise in the markets as a sign that conditions are improving but this is not the case. If things were getting better then the fundamentals would be telling a very different story.

Why? Because once it hits 0 in a few months, it can't go any lower.

Russia, Kazakhstan and Turkey expanded their gold holdings in December, seeking to diversify their foreign reserves and protect from currency devaluation risk. Russian gold holdings climbed 2.1% to 957.8 metric tons or 30.793 million ounces, according to data on the International Monetary Fund’s website. The increase in December takes the increase in Russian gold reserves in 2012 to 8.5%.  The Russian central bank has said that they will continue buying gold. The pace of the purchases may vary, First Deputy Chairman Alexei Ulyukayev told reporters this month.  He denied that there is a 10% target for gold’s share in the reserves according to Bloomberg