Archive - Nov 2013 - Story

The trouble with proclaiming 'victory' over the crisis in Spain (read the whole of Europe) and the ECB enabling governments profligacy with the ghost of OMT future is that it merely emboldens. As Al Jazeera reports, Madrid's garbage collectors have been on strike since November 5 to protest layoffs and pay cuts. With garbage piling up on the streets of Madrid, the mayor issued private trash-collecting companies an ultimatum on Wednesday: end the street cleaners' strike or lose their contracts. More than 30,000 residents have signed a petition to the defense minister asking for the streets to be cleaned. The following images show the chaos...

First it was the Empire Mfg Index. Now it is the turn of Industrial Production which as the Fed just reported declined by -0.1% in October, a drop from the upward revised 0.7% increase in September driven by a -1.6% collapse in mining and a -1.1% drop in Utilities, while pure manufacturing rose a modest 0.3% in October, just above the 0.1% from September. And confirming the increasing slack, Capacity Utilization dipped once again, from the 78.3 in September, to 78.1 once again driven by a notable drop in Mining Capacity down from 90.5 to 88.7. In short: the news today so far has been bad enough to validate the "BTFATH mentality" which means Kevin Henry's 1800 price target on the S&P remains unchanged.

Two days ago, when we posted ""Frustrated" Liquidity Addicts Demand Moar From BOJ As Nikkei Rally Stalls", we suggested that more QE from the Bank of Japan is just around the corner (and likely to take place as early as April) as the only real "driver" behind Abenomics, the surge in the stock market had stalled for nearly 6 months. 48 hours later, and 700 points in the Nikkei higher, the realization that indeed more QE is coming has swept through the market like wildfire. So what will the Bank of Japan's expansion of quantitative easing look like, when supposedly only $75 billion per month amounting to a whopping 70% of all new issuance, is not enough? According to Goldman "the BoJ could take the lead in this reallocation process by notably increasing its purchases of risky assets, such as ETFs and RIETS, or even outright equities – say purchasing a wide range of Japanese equities by index weight." It may get even better: "the BoJ is likely to consider more unorthodox policy to push up inflation expectations" - like paradropping NGDP, better known as paradropping yen (a move Yellen herself is now contemplating as we previewed back in September).

"It's time to deepen the offensive, go to the bone in this economic war," warned Venezuelan President Maduro - echoing Hugo Chavez's iron fist of socialism (and nationalization) before him - as his decision to jail over 100 businessmen is "defending the poor." As Reuters reports, plenty of Venezuelans have applauded his measures, saying price hikes were out of control, while others have expressed fears that Maduro could be uncorking dangerous forces as opposition forces note Maduro's economic policies were "chillingly similar" to those of Zimbabwean President Robert Mugabe. Officials say unscrupulous companies have been hiking prices of electronics and other goods more than 1,000 percent. Critics say failed socialist economic policies and restricted access to foreign currency are behind Venezuela's runaway inflation. No matter which, Maduro thundered "They are barbaric, these capitalist parasites!"

The headline Empire manufacturing data missed expectations by the most since January (the 4th month in a row) and plunged to its lowest since January. Across the board sub-indices collapsed (every one of them) into contraction with shipments down from over 13 to -0.5, and New Orders down from 7.75 to -5.5. "Hope" didn't save it this time either as the outlook droped to 3 month lows. Labor market conditions were subdued. The index for number of employees drifted downward for a third consecutive month, coming in at 0.0 in November in a sign that employment levels were flat (falling at fastest rate in 2013). The average workweek index fell nine points to -5.3, pointing to a decline in hours worked. This can only be great news for the bulls and guarantees that the S&P 500 will hit 1800 today...

• China to Ease One-Child Policy (WSJ), China announces major economic and social reforms (Reuters)
• Consumers line up for launch of PlayStation 4 (USAToday)
• Trust frays between Obama, Democrats (Politico)
• Yellen Stands by Fed Strategy  (Hilsenrath)
• Hero to zero? Philippine president feels typhoon backlash (Reuters)
• Brussels warns Spain and Italy on budgets (FT)
• Moody’s Downgrades Four U.S. Banks on Federal Support Review  (BBG)
• CIA's Financial Spying Bags Data on Americans (WSJ)
• Germany Digs In Against Risk Sharing in EU Bank-Failure Plan (BBG)
• Bill Gates wants Norway's $800 billion fund to spend more in Africa, Asia (RTRS)

Here is a summary of the key stock additions, sales, initiations and liquidations conducted by the most prominent US hedge funds in the third quarter.

The overnight global scramble to buy stocks, any stocks, anywhere, continued, with the Nikkei soaring higher by 2% as the USDJPY rose firmly over 100, to levels not seen since May as the previously reported speculation that more QE from the BOJ is just around the corner takes a firm hold. Sentiment that the liquidity bonanza would accelerate around the world (with possibly more QE from the ECB) was undented by news of a surge in Chinese short-term money market rates or the Moody's one-notch downgrade of four TBTF banks on Federal support review. The release of more market-friendly promises from China only added fuel to the fire and as a result S&P futures are now just shy of 1800, a level which will almost certainly be taken out today as the multiple expansion ramp continues unabated. At this point absolutely nobody is even remotely considering standing in front of the centrally-planned liquidity juggernaut that has made "market" down days a thing of the past.

• CHINA COMMUNIST PARTY SAYS IT WILL DEEPEN REFORMS: XINHUA
• CHINA TO ACHIEVES GOALS MENTIONED IN DECISION BY 2020: XINHUA
• CHINA TO LOOSEN ONE-CHILD POLICY FOR MORE FAMILIES: XINHUA
• CHINA TO ACCELERATE YUAN CONVERTIBILITY: XINHUA
• CHINA TO TRANSFER 30% STATE-ASSET PROFITS TO STATE: XINHUA
• CHINA TO ALLOW TRANSFER OF NON-FARMING RURAL LAND: XINHUA
• CHINA TO REDUCE SCALE OF LAND ACQUISITION FROM FARMERS: XINHUA
• CHINA TO ABOLISH REEDUCATION-THROUGH-LABOR SYSTEM: XINHUA
• CHINA TO SET UP MORE COS. TO MANAGE STATE ASSETS: XINHUA
• CHINA TO SET UP NATIONWIDE DATA PLATFORM FOR PROPERTY: XINHUA
• CHINA TO ESTABLISH DEPOSIT INSURANCE SYSTEM: XINHUA
• CHINA TO ACCELERATE PROPERTY TAX: XINHUA
• CHINA TO BUILD OPEN MARKETS WITH NEGATIVE LIST SYSTEM: XINHUA
• CHINA TO EXEMPT MOST COS. PROJECTS FROM GOVT APPROVALS: XINHUA
• CHINA PLENUM DOCUMENT TO INCLUDE PROPERTY TAX: CAIXIN

For five years, congressional Democrats have sprung to his defense when Obama's been in trouble. Now though, amid the dismal reality of Obamacare, Politico reports a familiar refrain from Democratic sources: Obama's "if-you-like-it-you-can-keep-it" promise on insurance policies is his "Read my lips, no new taxes" moment — a reference to the broken promise that came to damage President George H.W. Bush’s credibility with his fellow Republicans. His one-time allies are no longer sure that it's wise to follow him into battle, leaving Obama and his law not only vulnerable to existing critics, but open to new attacks from his own party. Democratic sources say, Obama can expect that lawmakers will be quicker to criticize him — and distance themselves from his policies.

While the Dow has quietly added over 200 points in the last 2 days, the potential for Kuroda and Abe to embark on QQQE has sent Japan's Nikkei 225 up a magnificently suitable (given the utterly dismal macro data from yesterday) 700 points in the same period. Somehow this jerk higher to near the big collapse-day highs in May makes sense to someone (as TEPCO announces yet another leak). Meanwhile, across the sea, Chinese money-markets are exploding. The last 2 days have seen a combination of no operations yesterday and a big lift in rates today which spiked overnight repo-rates to 5.32% - the highest in 5 months if it closed there - as clearly smaller banks are desperate for liquidity. FX markets are seeing weakness continue in Indonesia, Thailand, and the Philippines. So, all-in-all, total chaos...

Allegations of JP Morgan’s use of clever tactics to bribe Chinese officials recently received mainstream attention when Salon journalist Alex Pareene mentioned it in a comical and classic interview on CNBC (you need to watch the video before reading this) with presstitute Maria Bartiromo. When Mr. Pareene mentioned these claims against the TBTF bank, CNBC mocked him. Howeverer, this article from the New York Times details how JP Morgan paid $75,000 a month to an obscure consulting firm called Fullmark Consultants, which had only two employees. The firm was run by a woman named Lily Chang, which in reality was the alias used by Wen Jiabao’s only daughter Wen Ruchun. Wen Jiabao was the Prime Minister of China at the time.

It is human nature to follow fads, no matter how strange or cultish they may seem. Anything from Beanie Babies to cupcakes to even tech IPOs fall into this category, but, ConvergEx's Nick Colas asks, why do some of these trends manage to stick around while others die off? We might laugh now at bellbottoms and the so-called “grapefruit diet”, but at one point in time these were both fashionable – and profitable. So what does it take to make a fad last? Colas looks at a number of quirky trends past and present and importantly for market participants, finds lessons that extend directly to investor psychology and discipline. The bottom line is that we are sometimes blind to our own trading (and fashion) mistakes in the moment, but we are not preordained to make the same errors in perpetuity.

Where and how is all of this going to end? We don't know, but we doubt the end will be anything but painful for all around.

It is becoming increasingly obvious that we are seeing the disconnect between financial markets and the real economy grow. It is also increasingly obvious (to Citi's FX Technicals team) that not only is QE not helping this dynamic, it is making things worse. It encourages misallocation of capital out of the real economy, it encourages poor risk management, it increases the danger of financial asset inflation/bubbles, and it emboldens fiscal irresponsibility etc.etc. If the Fed was prepared to draw a line under this experiment now rather than continuing to "kick the can down the road" it would not be painless but it would likely be less painful than what we might see later. Failure to do so will likely see us at the "end of the road" at some time in the future and the 'can' being "kicked over the edge of a cliff." Enough is enough.