Archive - Nov 29, 2013 - Story

Oddly reminiscent of the world today...?

"It’s time to put that power back where it belongs," explains Jonathan Zimmerman in today's Washington Post, "Barack Obama should be allowed to stand for re election just as citizens should be allowed to vote for — or against — him. Anything less diminishes our leaders and ourselves." The 22nd Amendment, limiting the Presidential term, according to Zimmerman, reflected "a shocking lack of faith in the common sense and good judgment of the people." Of course, in the increasingly 'entitled' America, it would only cost a few hundred million to bribe all the newly downgraded Middle-to-Lower class Americans with Obamaphones in order to finally get a "dictatorial democracy" by indirectly funding the lower common denominator with $400 in free money every election cycle.

As readers may or may not recall, one of the main arguments the bulls had in early 2008, a month after the recession had already begun (according to the NBER's retrospective conclusion over a year later) to justify that the S&P 500, which had recently hit all time highs of 1546, was not in a bubble is that the projected EPS for the following year, 2009, were 120, which meant the multiple was an oh so very cheap 12x. The same analysis with the even nearer, 2008, S&P EPS which at that point were expected to print just below 100, suggested the S&P at around 1500 was a "healthy" 15x multiple. Unfortunately as the events of 2008 showed, not only did the financial system nearly implode, but earnings, both actual and projected, cratered. The result is that the 2009 EPS which was initially forecast to be $120 ultimately ended up being half of that, or $60 (see chart below), which also meant that the forward multiple of a "very cheap" 12x or so ended up being, drumroll, just a tad bubbly 24x!

Gross: We should call this “Green Friday” – Be careful, though, of red numbers in 2014. All markets are bubbly.

— PIMCO (@PIMCO) November 29, 2013

It is no secret that the bulk of "very rich people" in recent years has been created in Asia (where some $15 trillion in liquidity has entered broad circulation in just the past five years). As the FT reports, "Asia is producing more new wealth than any other part of the world at any point in history. Over the past five years, the assets of rich individuals have grown at triple the rate of the wealthy elsewhere, while the number of rich people has increased by twice that of other regions. Their number grew by almost 10 per cent to reach 3.7m last year, according to the survey, while their wealth expanded by 12 per cent to $12tn." However, to find the truly ultra-high-net-worthy (UHNW), those with over $30 million in net assets, one has to go to the US and Europe - the places where Ben's print baby print policy has most aggressively inflated the latest asset bubble, making the richest richester. "More people from the US and Europe entered this club in the past year than from anywhere else – the population in China and Brazil actually declined slightly." So how many ultra-high-net-worth individuals are there? The answer: 199,235.

Despite a ratings 'upgrade' Spain's youth unemployment rate has re-surged to a record 57.4% (just below that of Greece which still tops the scary chart list at 58%). Italy and Portugal also saw notable rises (despite the former's record low short-dated bond yields) at 41.2% and 36.5% respectively. Ireland and France saw modest improvements but overall the Euro-zone's youth unemployment just keeps rising. In spite of all the rhetoric from Merkel, Van Rompuy, and Barroso, 24.4% of Europe's under-25 population is unemployed...

Yesterday, it was fast-food workers explaining that a 100% minimum wage rise "would do just fine" and today it is Wal-Mart employees pressing for a 50% rise. As McClatchy reports, Wal-Mart employees plan to disrupt operations at 1,500 of the company's stores on Black Friday. "Wal-Mart raked in $15.7 billion in profits last year alone, but apparently they don't feel any need to share that wealth with their millions of workers," rages one union campaign organizer as they hope the protests will also put pressure on Congress to increase the minimum wage. The reality of raising the minimum wage remains lost on most who never stop to think of where the 'money' comes from. But the protest lines and "unprecedented" disruption is unlikely to encourage Wal-Mart executives to soften their stance.

China's escalation and re-escalation described in detail yesterday, has just been met with a corresponding re-re-escalation by Japan.

• China's Ministry of Defense reports that the nation identified Japanese military planes that entered into Chinese air defense identification zone today.
• 7 batches of 10 Japanese planes consisting of E-767, P-3 and F-15 entered into the zone
• China has also identified 2 batches of 2 U.S. surveillance planes consisting of P-3 and EP-3, without specifying whether the planes entered into the zone
• China scrambled Su-30, J-11 and other aircraft in response.

And now it's China's turn to, once again, respond. And then Japan and the US again, and so on, until someone gets hurt.

• So much for the euphoria: Stores open early on Thanksgiving but shoppers in no rush (Reuters)
• Get to work Mr. Chairwoman: Do-Nothing Congress Dithers on Budget as Deadline Nears (BBG)
• FX to Libor Probes Leave U.K. Traders Looking for Lawyers (BBG)
• Protesters Briefly Storm Thai Army Headquarters (WSJ)
• Berlusconi accused of bribing witnesses in prostitution trial (Reuters)
• Japan Price Gauge Rises Most Since ’98 in Boost to Abe (BBG)
• S&P downgrades Netherlands’ AAA credit rating (FT)
• GrainCorp Verdict Clouds Australia Open-For-Business Pledge (BBG)
• Hertz Fix in Dollar Thrifty Deal Fails as Insider Warned (BBG)
• Narrow Budget Agreement Comes Into View (WSJ)

A hungover America slowly wakes up from a day of society-mandated consumption and purchasing excess to engage in even more Fed-mandated excess in the equity markets. The only difference is that while the "90%" was engaged in the former and depleting their equity, and savings, accounts in the process, far less than 10% will be doing the latter. Overnight attention was drawn to the rapidly escalating territorial dispute between China and Japan, now in the air, Bitcoin's brief surge above the price of an ounce of gold, and the ejection of the Holland from the AAA Eurozone club (where only Germany and Finland remain), following an S&P downgrade of the Netherlands from AAA to AA+, which however had been largely priced in long ago (and was coupled with an upgrade of Spain from negative to stable outlook, as well as an upgrade of Spain from CCC+ to B-). Europe surprised pleasantly on both the inflation (better than expected) and unemployment rate (dropped from an all time high of 12.2% to 12.1%), even if youth unemployment rose to fresh record highs.

If October's stunning(ly low) inflation print of 0.7% is what conventional wisdom believes is the reason for the surprising ECB rate cut (it isn't - the culprit was the record low increase in private loan creation), then the just released modest increase in Eurozone November CPI, which was expected to print at 0.8%, instead rising just above that, or 0.9%, will likely mean less surprises out of the ECB in the future. Core CPI (excluding food, energy, alcohol and tobacco) rose 1.0%, following a 0.8% increase in October and 0.9% expected, while the biggest headline bounce was in energy prices which rose from -1.7% to -1.1%, if still rather negative. Looking at the main components of euro area inflation, food, alcohol & tobacco is expected to have the highest annual rate in November (1.6%, compared with 1.9% in October), followed by services (1.5%, compared with 1.2% in October), non-energy industrial goods (0.3%, stable compared with October) and energy (-1.1%, compared with -1.7% in October).

UPDATE: ... And then Bitcoin collapses 13% minutes later...

It seems the growing tensions in Asia (Japan-China sabre-rattling and Indian capital controls) have prompted more great rotation out of fiat and into digital currency as China/India markets open. For the first time ever, the price of one unit of Bitcoin exceeds the price of an ounce of gold...