Archive - Oct 24, 2013 - Story

As much as we loathe saying "we told you so" - especially when it relates to highlighting the fallacious bullshit of one James Cramer - the truth is that just 3 weeks ago we pointed out the fact that the Baltic Dry Index was being heralded as proof of China's (and therefore the world's great recovery) was a mistake. At the time, we noted the temporary nature of the move and now forward markets indicated it was not sustainable; and of course, were met with a chorus of deniers. Well, following a 4.4% decline today, the Baltic Dry Index has now plunged over 20% from its recent peak (and the more crucial Capesize container rates even more) as underlying demand simply cannot keep pace with the massive (overbuilt) ship glut that remains. Added to this is the apparent 'tightening' stance by the PBOC that we have been noting and we suspect, as we warned, the 2011 deja vus will be clear.

With claims from the backlog in California's systems "glitch" (which began in September) still working their way through the system, one can only imagine the debacle that this data really is as more people filed for unemployment claims that expected for the 3rd week in a row. 44,100 Federal workers applied for claims two weeks ago (and received it we presume as well as their back pay now) but the Labor department notes these claims are not reflected in the total. At 350k, vs 340k expectations, this is the first time since early January that we have seen 3 weeks in a row of missed expectations...

Just two weeks after Goldman's "Slam Dunk Sell," report, the price of gold is surging once again. Goldman's Currie (in direct opposition to BofAML's Curry) argument that post debt-ceiling, "... with significant recovery in the U.S., tapering of QE should put downward pressure on gold prices," seems like another round of wishful thinking as physical premiums for gold around the world surge to record highs and spot prices reach one-month highs. Of course, while Goldman had a few days of positive reaction after their call, it is none other than Dennis Gartman who provided the bottom-tick in the latest exuberance.

If there was any doubt that the US housing "recovery" is anything but the latest speculative play by deep-pocketed (namely those who already have access to cheap funding) investors, who are now engaged in rotating cash gains out of capital markets and into real estate, on their way hoping to flip newly-acquired properties to other wealthy investors, then the most recent, September, RealtyTrac report will put that to rest. To wit: Institutional investors (purchasing 10 or more properties in the last 12 months) accounted for 14 percent of all sales in September, up from 9 percent in August and also 9 percent in September 2012. September had the highest percentage of institutional investor purchases of any month since RealtyTrac began tracking in January 2011....All-cash purchases nationwide represented 49 percent of all residential sales in September, up from a revised 40 percent in August and up from 30 percent in September 2012. In other words, institutional purchases are now at all time highs, with all-cash accounting for half of all transactions!

• Central Banks Drop Tightening Talk as Easy Money Goes On (BBG)
• More Democrats voice Obamacare concerns as website blame goes around (Reuters)
• Contractors Point Fingers Over Health-Law Website (WSJ)
• Jury Decides Against BofA on 'Hustle' Program (WSJ)
• Credit Suisse to overhaul interest rates trading business (FT)
• Home Builders Target Higher End (WSJ)
• The Many Lives of Iron Mountain (NYer)
• Busy tourist season nudges Spanish unemployment lower (Reuters)
• Morgan Stanley Joins BofA in Broker Recruiting Truce (BBG)
• Ending World’s Longest Nonstop Flight Adds Five Hours (BBG)

In addition to the already noted repeat spike in Chinese overnight repo rates as the PBOC refuses to inject liquidity for nearly a week offsetting the "news" of a better than expected HSBC PMI, the other kay datapoints to hit in the overnight session were various European PMIs which were broadly lower across the board. Of note being the French, which missed both the Manufacturing Index (49.4 vs 50.1 expected, down from 49.8) and the Services (50.2 vs 51.0 expected, down from 51.0) and Germany, which missed in Services (52.3 vs 53.7 expected, same as September), while modestly beating Manufacturing at 51.5 vs 51.4 expected, up from 51.1 last.  On a blended basis, the Composite Flash PMI fell from 52.2 to 51.5, against the consensus expectation of a modest rise (Cons: 52.4). Today's correction brings to a halt a series of six consecutive monthly rises in the Euro area composite PMI.

The diplomatic farce in the aftermath of the most recent revelations that Obama had tapped not only Hollande's but Merkel's cell phone as well continues, when moments ago Germany's Foreign Ministry summoned the U.S. ambassador over claims that U.S. intelligence agencies may be spying on Chancellor Angela Merkel's cellphone, a ministry spokeswoman said. They used the word "may" loosely.  John B. Emerson, the newly appointed U.S. ambassador to Germany, will meet Foreign Minister Guido Westerwelle Thursday afternoon, she said. But while the latest diplomatic escalation will have zero impact whatsoever on either US spying intentions, mostly of US citizens let alone foreigners, or German-US relations, what is missing is that had this "scandal" happened four short months ago, the farce would have been truly complete as the summoned US Ambassador would be none other than former Goldman senior director and head of Goldman Germany, Philip Murphy, who alas stepped down in August. Had that been the case someone may have just put two and two together.

The reason why the Chinese Shanghai Composite again can't catch a bid (and why the Baltic Dry is sliding and will continue sliding from recent highs) is the same as the main event yesterday: the concerns that while the Fed punchbowl is and will continue to be filled beyond the point of overflowing, China - where inflation has once again taken a turn for the worse as it did this summer when after much repo pain the PBOC killed it early on in order to not repeat the scary episode of 2011 - may be actively engaging in monetary tightening. And like yesterday, when the PBOC refrained from adding liquidity via reverse repos, so today for a third straight auction the Chinese Central Bank refused to inject short-term funding into the system. The immediate result: China’s one-month Shibor rose 59 bps, most since June 25, to 5.4000%; three-month Shibor rose to 4.6876% from 4.6843% yesterday, while the key 7-Day Repo Rises 63 Bps to 4.68% hitting 5% prior, which was the biggest jump since July.