Archive - Nov 11, 2013 - Story

JPM's "flows and liquidity' expert Nikolaos Panigirtzoglou, who last week spotted the "most extreme ever excess liquidity" bubble, has just noticed yet another indication that not even corporations believe in further equity upside. Simply said, this means that that for the first time since the Lehman crisis, non-financial corporations within the entire developed, G-4 (US, Europe, Japan and UK) world, have shifted from net buyers of stock to net sellers, as net "equity withdrawal" have just turned positive.

With stocks at record highs, ongoing commentary that retail is back and will lift all boats to infinity and beyond, it seems the professionals in the credit market are not amused. We have noted the ongoing divergence between the asset-classes for two weeks now but with today's ultra-low volume drift higher in stocks, the drop in high-yield bonds is even more notable. The question we have is - as we have explained in great detail before - if rates for leveraged firms is rising, how will management maintain their exuberant re-leveraging to buoy their stock prices in the face of crushing top-line deflation?

The operator of Japan's wrecked Fukushima nuclear plant will double the pay of contract workers as part of a revamp of operations at the station, after coming under criticism for its handling of clean-up efforts. Reuters reports, hazard pay for the thousands of workers on short-term contracts will be increased from 10,000 yen ($100) to 20,000 yen a day, Tokyo Electric Power Co said in a statement on Friday. The plan released on Friday also lays out improvements to the management of hundreds of thousands of tonnes of contaminated water building up, which comes from groundwater mixing with coolant poured over melted uranium rods. All of this as the riskiest phase of the decommissioning of Fukushima begins soon...

The pushers of Obamacare had years to plan. Everything looked right on paper. No expense was spared. There were thousands of meetings, a foolproof plan, mountains of numbers to back it all up. Then finally you press the button. The whole thing explodes — and not just the website. The risk pools will not lower premiums. The mandates will not cause people to experience health-insurance bliss. The price controls will not control costs. The new tools for access will not lead to greater access. Science is glorious. But government is not science, and society cannot be managed scientifically from the center. Ludwig von Mises had a phrase he used to describe every attempt: “planned chaos.” There is a plan, and the experts are in charge with all resources and conviction. But the results are crazy, random, irrational, confusing, and chaotic. It would be the greatest legacy of the Affordable Care Act if the government finally understands this message.

Just when Twitter briefly dipped in bear market territory from its post IPO highs, and threatened to wipe out the retail mania of 2013 (very much as FaceBook did in 2012), here comes the hail mary to provide the most anticipated IPO of the year its second wind. "From its inception in 1974, the intent always has been for the Wilshire 5000 Total Market Index to be the most complete and investable measure of the total U.S. equity market," noted Robert J. Waid, managing director. "As a rules-based index, the Wilshire 5000 does not need to make special accommodations for early entry of large IPOs, like Twitter, as stock additions always have been made monthly for U.S. companies with readily available price data. The Twitter IPO is no exception," he concluded. Of course, how inclusion in the Wilshire 5000 will boost TWTR profitability, remains a mystery.

Instead of using inflation statistics as a political ploy to raise taxes and artificially cut spending, the President and Congress should use a measurement that actually captures the eroding standard of living caused by the Federal Reserve’s inflationary policies. Changing government statistics to exploit the decline in the American way of life and benefit big spending politicians and their cronies in the big banks does nothing but harm the American people.

In the minute preceding last week's highly anticipated payrolls report, Nanex exposes the appearance of a High Frequency Trading (HFT) algo in both the December 2013 Nasdaq (NQ) Futures and the QQQs (an ETF). When it was active, it caused prices to gyrate wildly over a few seconds of time. This is the brief period that also saw Treasury Futures halted (and gold prices jumping) and looking closer at the charts, it appears this HFT algo caused wild price oscillations in the futures in a way that enable it to establish a short position in QQQs. We are sure the regulatory world is already on this blatant manipulation (or simple front-running on information received)...

One of the mysteries surrounding the insolvent, and already once bailed out Spanish banking sector, has been the question why reported bad loans - sharply rising as they may be - are still as relatively low as they are currently, considering the nation's near highest in the Eurozone unemployment rate, and in comparison to such even more insolvent European nations as Greece, Cyprus and Slovenia. Courtesy of the just completed bank earnings season, and a WSJ report, we now know why: it turns out that for the past several years, instead of accurately designating non-performing loans, banks would constantly "refinance" bad loans making them appear viable even though banks have known full well there would be zero recoveries on those loans. In fact, as the story below describes, banks would even go so far as making additional loans whose proceeds would be just to pay interest on the existing NPLs - a morbid debt pyramid scheme, which when it collapses, no amount of EFSF, ESM or any other acronym-based bailout, will be able to make the country's irreparably damaged banks appear even remotely viable.

As we are desperate not to miss the boat on the "Top XX Under YY" meme that is dominating social media clickbaiters currently, the following image - spotted in the playroom at a Hong Kong pre-school - sums up the 'world' in which we live so perfectly. And yes, e*Trade nailed it with their "baby" commercials.

Over the years, as the WSJ notes, the only way inequality has really mattered to professional investors is 'if the rich are getting richer, companies that cater to them have better prospects'. Lately, though, some big investors have worried increasing income and wealth gaps threaten the economy's ability to expand (discussed here and here most recently.) One reason U.S. corporate profit margins are at records is the share of revenue going to wages is so low. An economy where income and wealth disparities are smaller might be healthier; but it would also leave less money flowing to the bottom line, something that is increasingly grabbing fund managers' attention.

Reforms are the only way to avoid systemic crisis, rebalance the economy, and unleash growth potential. Barclays notes that government, SOE, factor price and fiscal reform are most needed, though progress is likely to be faster on financial, tax and social security reform. Hopes are high, raising the risk of disappointment, but most think the government will try to meet expectations. History shows that economic growth tends to be lower after major third plenum meetings. This is because structural reforms, while good in the longer term, tend to slow growth in the near term. In advance of its release, the Development Research Center of the State Council, China’s official think tank, presented its own reform proposal – the so-called “383 plan” – which offers a glimpse of the direction that the reforms will take.

Mere days after the euphoria of Twitter's IPO proclaimed by any and all as a great success, the bellwhether for all things Dot-Com-Bubble 2.0 has just entered its first bear market. Now down 20% from its $50.08 highs last week, Twitter now has a 3 handle ($39.99) as it seems the world wakes up to "unbelievable growth" that is 'priced in'... Of course, with rumors that TWTR options trading starts later this week, it's anyone's guess where the machines take it next...

"We’re seeing a new era of currency wars," Neil Mellor, a foreign-exchange strategist at Bank of New York Mellon in London. This is what Bloomberg reported today in a piece titled "Race to Bottom Resumes as Central Bankers Ease Anew." For the most part Bloomberg's account is accurate, although it has one fundamental flaw: currency wars never left, but were merely put on hiatus as the liquidity tsunami resulting from the BOJ's mega easing lifted all boats for a few months. And now that the world has habituated to nearly $200 billion in new flow every month (and much more when adding China's monthly new loan creation), the time to extract marginal gains from a world in which global trade continues to contract despite the ongoing surge in global liquidity, central banks are back to doing the one thing they can - printing more. So what should one watch for now that even the MSM admits the currency wars are "back"? Goldman lists the 5 key areas to watch as central banks resume beggar thy neighbor policies with never before seen vigor.

While the noise and seasonality of the various measures of employment (or lack thereof) in the US make interpretation nigh on impossible (for all but the most linear extrapolators), many strategists recognize that their is a correlated (if not causative) relationship between the rate of unemployment and the S&P 500. However, as Bloomberg's Chase Van Der Rhoer notes, using the unemployment rate to predict the S&P 500 Index may be an oversimplification, but doing so yields surprisingly robust results and suggests the index is overvalued to the tune of 150 points.

Asian economic growth (or lack thereof) is often seen as the bellwether to global growth. While the following heatmap (covering 10 Asian economies across 8 measures of macro-economic health) has its fair share of red (growth upswing) indications, as Bloomberg's Rob Subbaramam notes, a closer inspection reveals a theme on extremely uneven economic performance - and is expected to become more prominent. However, based on a GDP-weighted perspective the heatmap would signal cooling in aggregate for Asian growth.