Archive - Oct 2013 - Story

It was less than four weeks ago that the Reserve Bank of India, under new head Raghuram Rajan, stunned the world on September 20 when it announced that it would both hike its repo and cash reserve rates in an inflation fighting step, while lowering its marginal standing facility rate by 75 bps to 9.5% in order to boost banking sector liquidity, hence "bipolar policy" of the kind most recently seen in Europe. Moments ago, the RBI once again showed that when faced with the option of consumer pain, i.e. runaway inflation, and preserving a banking status quo, i.e. liquidity, the central bank will always choose the latter, when in a surprising move the RBI cut its Marginal Standing Facility rate by further 50 basis points, from 9.5% to 9.0%.

While the ongoing government shutdown, now in its second week, means even more macro data will be retained by the random number generators, central banks are up and running. This means that in the upcoming week the key event will be the release of the FOMC minutes from the last meeting at which the Fed surprised almost the entire market by not tapering asset purchases as effectively pre-announced.  There are MPC meetings in the UK, Brazil, South Korea and Indonesia. The main focus, however, will be on the US political situation still. Data that will most likely be delayed this week includes the US Trade balance, JOLTs, Wholesale and Business inventories, Retail sales, PPI, Import Prices, and the Monthly Federal budget.

• A U.S. Default Seen as Catastrophe Dwarfing Lehman’s Fall (BBG)
• Software, Design Defects Cripple Health-Care Website (WSJ)
• Gunmen kill 5 Egyptian soldiers near Suez Canal, 2 people die in blast (Reuters); Egypt death toll rises to 53, streets now calm (Reuters)
• Three retailers sell Apple iPhone 5C for $50 or less (Sun Sentinel)
• New American Economy Leaves Behind World Consumer (BBG)
• Dow's Exiles Often Have Last Laugh (WSJ)
• Macy's Puts China Online-Expansion Effort on Hold Amid Economic Slowdown (WSJ)
• Gold Befuddles Bernanke as Central Banks’ Losses at $545 Billion (BBG) - just ask the BIS gold selling team: they are unbefuffdled
• Markit Group Said to Avoid U.S. Antitrust Claims as EU Proceeds (BBG) - being owned by the banks has benefits
• Paulson leads charge into Greek banks (FT) - and scene for the Greek banking sector

Overnight trading over the past week has been a bipolar affair based on algo sentiment about what is coming out of D.C. But which the last session was optimistic for some inexplicable reason that a deal on both the government shutdown and the debt ceiling out of DC was imminent, today any optimism is gone in the aftermath of the latest comments by Boehner on ABC, in which he implied that a US default is not unavoidable and that it would be used as more political capital, as it would be once again blamed on Obama for not resuming negotiations. As a result both global equities and US futures are down sharpy in overnight trading. And since the government shutdown, better known as a retroactively paid vacation, for everyone but the Pentagon (whose 400,000 workers have been recalled from furlough) continues it means zero government economic statistics in today's session with the only macro data being the Fed-sourced consumer credit report at 3 pm. This week also marks the unofficial start of the Q3 reporting season in the US with Alcoa doing the usual opening honous after the US closing bell tomorrow. JPMorgan’s and Wells Fargo’s results on Friday are the other main ones to watch to see just how much in reserves are released to pretend that banks are still making money.  As usual, expect disinformation leaks that send the market sharply higher throughout the day, which however will only make the final outcome that much more painful, because as during every US government crisis in the past, stocks have to plunge so they can soar again.

Despite the screaming surge higher in late Friday trading for Nikkei 225 futures (on the back of the "well they must agree a deal this weekend" exuberance), as cash markets open in Asia, the Nikkei futures are cratering 400 points from the Friday close. The rest of AsiaPac stocks are red but Japan is worst for now. S&P futures have pushed back to overnight lows (down 11 points) and Treasury yields are 2-3bps lower.

"MasterCard will be the first major payment network to join FIDO. The Alliance is developing an open industry standard for biometric data such as fingerprints to be used for identification online. The goal is to replace clunky passwords and take friction out of logging on and purchasing using mobile devices."

It’s for your own good, and it’ll probably fight terrorism too!

We last discussed the rise of the robot (as a a replacement for human labor) six months ago, pointing to the implicit (and large) deflationary bust that this entails and nowhere is this more evident today than in Australia's outback. As Bloomberg reports, the 400-plus workers employed by Rio Tinto in the remote Pilbara region (driving train-loads of mined minerals) are the highest-paid train-drivers in the world. The decade-long mining boom down-under has sucked up skilled workers, raising wages for engineers to drivers to an average $224,000 per year - as much as a surgeon in the US. This ridiculous situation has led, unsurprisingly, to the mining companies replacing them with robot locomotives.

Coca-Cola has been dethroned by Apple from its long-running position as the world’s most valuable brand, according to the closely watched Interbrand Best Global Brands survey. As Bloomberg BusinessWeek notes, the soft drink giant had held the No. 1 ranking for 13 consecutive years but fell to No. 3 in this year’s study by the consulting firm. Interbrand values the Apple brand at about $98 billion, and other tech companies such as Google, IBM, and Microsoft finished in the top five. Here’s a look at the twists and turns of the top 10 brands in the Interbrand study, which analyzes a brand’s financial strength and influence, going back to 2000.

After seeing this, it may be no wonder the rest of the non-mail-providing-public in the US goes "postal."...

The situation in Spain is shifting from the sublime (as reflected in PM Rajoy's epic failure during his recent Bloomberg TV interview) to the absolutely ridiculous. As AFP reports, a simple typographical error boosted Spain's 2014 public debt forecast by 10 billion euros ($13.6 billion), the government admitted on Thursday. Four days after announcing the national debt figure to the world, the Economy Ministry issued a correction: "It is an erratum," adding that the person that typed up the report mixed up the last two digits...

The federal government has been partially shut down for 4 days, and it appears likely that the situation could continue for a while longer. As the shutdown continues, the political focus has begun to shift to the next deadline.  If the debt limit is not raised before the Treasury depletes its cash balance, Goldman fears it could force the Treasury to rapidly eliminate the budget deficit to stay under the debt ceiling. They estimate that the fiscal pullback would amount to as much as 4.2% of GDP (annualized). The effect on quarterly growth rates (rather than levels) could be even greater.

"Change" indeed...

It takes a lot of courage to go against the crowd. Whether in investing, or acknowledging that your country is heading towards an epic fiscal crisis, it isn’t easy to stand alone... especially when everyone else is betting the other way. After more than a decade of positive returns, many investors have abandoned their precious metals positions. The conventional wisdom says that gold is ‘finished’. After all, the dollar price is falling... so it must be a bad ‘investment’. Others, however, are looking at where gold is right now, where it probably will be a few years from now, and thinking that it’s a hell of a bargain.

UDPATE: Futures bouncing a little off their opening lows (down 7)

Despite the US equity market's efficient "knowing better" on Friday, the total and utter lack of progress this weekend in any and all fiscal issues in Washington has seen the gains from Friday evaporate as the S&P 500 futures open  down 10 points. We are sure the headline-driven ping-pong will continue to drive stocks though as there remains over 15 hours until the US day-session opens. Gold and FX markets are practically unchanged for now.