Archive - Oct 2013 - Story

Five years ago, when QE first started, we blasted the Fed's "Plan Z" systemic rescue "policy" - which was merely a tried and true dilutive fallback plan used by every collapsing monetary regime starting with the Romans - stating it does absolutely nothing to resolve the biggest underlying threat to the economy and the western way of life, namely the epic accumulation of debt (most of it bad), courtesy of a Fed which has now unleashed a perpetual "buyer of only resort" QE (as we predicted months before QE^ternity was revealed), which instead only redistributes wealth from the middle class to the wealthiest 0.01%, while providing scraps to the poorest to keep them occupied and away from very violent thoughts. Enter the FT, which in an Op-Ed today titled "QE has stigmatised the well-off" says that "despite it being entirely justified as a save-the-world policy in its first round, it is still at best an unfair and at worst an evil policy. Why? Because of the way in which it redistributes wealth" And now we lean back and await for even more of the incisive mainstream media to suddenly come up with this timely, non-conspiratorial observation.

Yesterday afternoon, we tweeted:

What time tomorrow do we get the hope rally? Odds are between 10:30 and 10:45. Rejection news naturally just after 4 pm

— zerohedge (@zerohedge) October 14, 2013

And on the back of a statement from the White House that Obama and Biden will meet with McConnell, Reid, Pelosi, and Boehner - but "will not pay ransom" - and with the T-Bill market police on vacation, equity markets are surging back towards green (removing once again any incentive to act).

The fine upstanding people at the NASDAQ noticed something odd this morning with SBAC:

*POTENTIALLY ERRONOUS 'SBAC' TRANSACTIONS BEING PROBED

After some discussion, they have decided that it is indeed erroneous that, as Nanex notes, SBA Communications (a $10 billion market cap company) should see its stock price jerk from $80 to $299.73 in the space of a few seconds. NASDAQ will be canceling these trades on behalf of the participants involved (we suspect the "buying" algorithm is more relieved than the "seller")

Japan’s plan to raise taxes while expanding stimulus received “widespread skepticism” at the meeting of Group of 20 policy makers, according to Chinese Deputy Finance Minister Zhu Guangyao. "Japan, on the one hand, plans to raise consumption taxes next year," Zhu told reporters in Washington during the G-20 meetings. "On the other hand, it plans to unleash a fresh round of 5 trillion-yen economic stimulus to stem the economic slowdown. Such strategy received widespread skepticism."

Following President Obama's "win" a few years ago, the headline above may not be as entirely surprising as some would expect. However, we can't help but feel the Syrian President's comments represented his actual perspective and his 'just kidding'-moment was 13-year-old-girl-esque covering-up of the stunning comment given the 115,000 dead in his nation so far from the conflict. As The Tribune reports, the prize, which was given to the global chemical weapons watchdog on Friday, “should have been mine”, Assad said, according to Al-Akhbar newspaper. Hey, there's always next year Bashar...

While only a small sample so far, it is quite telling that despite the manic depression of earnings expectations heading into Q3 results, only 52% have topped revenue estimates (on aggregate missing expectations by 40bps). On the earnings side, the number of companies beating expectations plunged to its lowest since Q1 2009... sounds like another good reason to BTFATH...

Remember: what Goldman wants, Goldman gets. The only question is whether Jan Hatzius and Bill Dudley have had their talking point convergence meeting over a tasty lobster club sandwich at the Pound and Pence already today...

Four decades ago no one had cell phones, the Internet, or personal computers; households had landlines, only offices or research centers had any kind of computer, and wireless anything wasn’t even close on the horizon. These days, of course, there is more than 1 cell phone per person in the US, laptops are standard fare, and using dial-up or wired Ethernet is like living in the Stone Age. But each of these technological advances comes with a cost; and, more specifically, a cost a family in the 1970s didn’t have to cover. The price of a cell phone plan and wireless internet is well over $1,000 per year; more if you add in the price of a $1,500 laptop or a $200 smartphone, which most of us tend to replace after a few years of wear and tear.   With average post-tax income of $63,000, according to the latest Consumer Expenditure Survey, these bills might not seem like a lot to shell out – only about 4% of post-tax wages – but they’re costs that the families of 1973 avoided completely. How have the households of the 21st century managed to incorporate these added expenses?

What politicians want from their regulatory efforts is a world of pure beta and zero alpha. This is the ultimate “level playing field”, where no one knows anything that everyone else doesn’t also know. The presumption within regulatory bodies today is that you must be cheating if you are generating alpha. How’s that? Alpha generation requires private information. Private information, however acquired, is defined as insider information. Insider information is cheating. Thus, alpha generation is cheating. QED. Why would politicians want an alpha-free market? Because a “fair” market with a “level playing field” is an enormously popular Narrative for every US Attorney who wants to be Attorney General, every Attorney General who wants to be Governor, and every Governor who wants to be President … which is to say all US Attorneys and all Attorneys General and all Governors. Because criminalizing private information in public markets ensures a steady stream of rich criminals for show trials in the future. Because the political stability of the American regime depends on a widely dispersed, non-zero-sum price appreciation of all financial assets – beta – not the concentrated, zero-sum price appreciation of idiosyncratic securities. Because public confidence in the government’s control of public institutions like the market must be restored at all costs, even if that confidence is misplaced and even if the side-effects of that restoration are immense.

Having been urged by none other than Nigel Farage to see some kind of alternative sane path forward, the Croatian government decided instead that accession to the EU was for them. Now, according to government estimates, since the joined the EU on July 1st, exports have fallen by 11% compared to the same period last year. As presseurop reports, The decline for the month of August alone was 19%. During the first eight months of this year, exports were down by 6.3% when compared with 2012. The reason for the fall-off, notes the newspaper, has do with the impact of EU accession — "which has exposed Croatia to greater international competition, and the loss of privileges associated with the Central European Free Trade Agreement (CEFTA)." Looks like Farage was right...

With the cash bond market closed, the indicator of choice (short-term T-Bills) remains absent from view but it is clear from the equity market's reaction (plunging back to T-Bill reality from Friday) that hope is starting to fade. Gold and silver are in demand (+1.2% this morning) and appear the preferred safety trade as Treasury futures imply only a 2-3bps compression in yield at the long-end (and only -1bps for 5Y). The Gold rally has recovered all the losses from the "stop-logic" idiocy from Friday's open - though we are sure there are plenty more G-20 members lined up ready to support the status quo (after this weekend's commentary). Equities have eradicated all Friday's gains and are testing below Thursday's close (S&P -14 points from Friday's close). The USD is under pressure (-0.25%) led by strength in JPY and a bid for CHF too...

The ongoing government shutdown will continue to affect the quality and/or the release schedule of official macro data. In the meantime, survey data is probably the best set of indicators to follow. The Empire (NY) and Philly Fed surveys are likely the highlight for this week. The US TIC data will get released as scheduled on Wednesday. Given the evidence of large capital outflows in recent months it will be interesting if this trend has abated. Data that will likely not be released this week includes September CPI, Housing Starts, and Industrial Production. It's ok: one can just draw a trendline and extrapolate. That's what the BLS does.

• Headline of the day: U.S. Risks Joining 1933 Germany in Pantheon of Deadbeat Defaults (BBG)
• As Senate wrestles over debt ceiling, Obama stays out of sight (Reuters)
• The "Truckers Ride for the Constitution" that threatened to gum up traffic in the capital was a dud as of Friday afternoon (WSJ)
• China New Yuan Loans Top Estimates as Money-Supply Growth Slows (BBG)
• Vegetable prices fuel Chinese inflation (FT)
• China Slowing Power Use Growth Points To Weaker Output Data (MNI)
• London Wealthy Leave for Country Life as Prices Rise (BBG)
• Gulf oil production hits record (FT)
• Every year like clockwork, analysts start out bizarrely optimistic about future results, then “walk down” their forecasts  (WSJ)
• Weak Exports Show Limits of China’s Growth Model (WSJ)

2013 Prize in Economic Sciences awarded to: Eugene F.Fama, Lars Peter Hansen & Robert Shiller #NobelPrize pic.twitter.com/hOkPHQqi7W

— Nobelprize_org (@Nobelprize_org) October 14, 2013

In a world devoid for the past two weeks and certainly for foreseeable future of most US economic data (this week we get no CPI, Industrial Production and New Home Sales among others), markets are now reliant on China for an indication of how the economy is doing, which is why this weekend's weaker than expected Chinese exports (ignoring the fact that China trade data is largely made up) and higher than expected consumer price inflation (driven by higher vegetable prices), even as new yuan loans soared to CNY787 billion, well above the CNY675 billion estimate despite broader M2 slowing from 14.7% in August to 14.2% in September, means the Chinese economy is once again in a vice and following the summer's liquidity driven boost, is set to roll over. Which in turn means that once again the PBOC is flying blind: unable to inject more liquidity without risking broader inflation, while most indicators are already rolling over. In short, ugly and certainly rolling over Chinese economic indicators for the market to mull over on Columbus day, even though all this will be promptly forgotten once the Washington debt ceiling song and dance resumes and the now traditional 10:30 am surge grips the algotrons as the latest set of "imminent deal" rumors is unleashed.