Archive - Dec 2013 - Story

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In a year when everyone was a winner (thank you Fed and BOJ) if some were bigger winners than others yet when virtually everyone underperformed the S&P, the biggest irony was that the very aptly named Keynes Leveraged Quantitative Strategies Fund was actually down -6.88% YTD and one of the 20 worst performing funds of the year. As for everyone else, hopefully their LPs are forgiving and don't expect that in exchange for 2 and 20 that their funds would outperform the S&P for the first time in 5 years.

With the world watching mouth open at the 30% gains in the US equity market (and 57% gains in Japan), the Venezuelans are cock-a-hoop at their wealth-generation this year... a sprinkling of totalitarianism, nationalization, toilet-paper shortages, and hyperinflation and, drum roll please... the Caracas Stock Index is up a disappointed-not-to-make-it-to-500%, 480% in 2013... (time to greatly rotate and chase that momentum)...

In America today, there are close to 50 million people living in poverty and there are more than 100 million people that get money from the federal government every month.  As the middle class disintegrates, poverty is climbing to unprecedented levels.  Even though the stock market has been setting record high after record high, the amount of anger and frustration boiling just under the surface in our nation grows with each passing day.  And now extended unemployment benefits have been cut off for 1.3 million unemployed Americans, and it is being projected that a total of 5 million unemployed Americans will lose their benefits by the end of 2014.  In addition, 47 million Americans recently had their food stamp benefits reduced.  The conditions for a "perfect storm" are certainly being created.  So how much longer will it be until we see all of this anger and frustration boil over in the streets of our major cities?  Is America about to reach a breaking point?

Short-squeeze time? ... and suddenly CNBC goes quiet on the precious metals market movements.

Similar to UMich's confidence measure soaring by the most in 4 years, the Conference Board's confidence measure beat expectations and jumped the most in 6 months (though remains below the year's highs). This is the best beat in 4 months. The improvement is all based on "expectations" which soared the most in 6 months. Confidence is critical (as we noted below) especially since the massive majority of actual investors are already bullish...(and definitely not bearish)...

Stocks dropped and bonds rallied modestly as the early subscribers received the Chicago PMI which missed expectations significantly. Seemingly, with taper in place, bad news is bad news as the 59.1 print (vs a 60.8 exp) is the biggest miss in 6 months. Under the covers things are even worse with the lowest employment index since April. Inventories also collapsed (by the most since 1977) which is a problem since New orders and production also plunged suggesting the post-government shutdown 'surprise' GDP-enhancing inventory-build is entirely a one-off event (as we noted here).

Earlier this week, in "Why The Turkish Government May Be The Casualty Of A $119 Billion PetroDollar Loophole" we said "dare to mess with the Petrodollar and the wrath of the US government will hunt you down... sooner or later." Sure enough, after resulting in a Turkish government scandal, punishing its stock market and sending the Lira reeling, the blowback has reached Iran where billionaire Babak Zanjani was arrested yesterday on corruption charges, although in reality his chief transgression was allowing the Petrogold system to show that the Petrodollar is no longer irreplaceable.

Moments ago the October Case Shiller home price index was released which came largely as expected: the seasonally adjusted number rose by 1.05% in the month, which despite the collapse in mortgage applications, shows that cash still rules everything, as average home prices across the Composite 20 cities increased at a 13.63% annual clip, the highest since February 2006. Both were a fraction higher than the expected 0.95% and 13.50% M/M and Y/Y increases. On the more relevant NSA basis (according to the authors) however, the October increase was 0.18%, the lowest since January and an indication that the latest institutional "all cash" buying wave is finally fading. And to show specifically just what the Case Shiller index tracks, here - once again - is an update on the housing market of bankrupt Detroit. In October prices rose 0.9% for the 8th consecutive monthly increase, and rose 17.3% from a year earlier. All is obviously well.

As the US session starts, despite a dearth of news and actvity in other markets, the precious metals complex is being smashed lower (on heavy volume). Gold just hit 2013 lows at $1182 and Silver at $18.837 is near its 2013 lows also.

Risk is an ever-present characteristic of life; it cannot be eliminated, it can only be masked or hedged. We know this intuitively, yet we blithely accept official assurances that risk can be eliminated by the monetary machinations of the Federal Reserve, the Central Bank of China, the Bank of Japan and the European Central Bank. To confuse masking risk with the elimination of risk is the acme of hubris and the perfect setup for disaster.

What can one say but: "because of the recovery?"

• Firms to Face new Rules Over Pay, Taxes (WSJ)
• US to test commercial drones at six sites (CNN)
• China’s Local Debt Swells to 17.9 Trillion Yuan in Audit (BBG) - which is about 2 trillion less than where it actually is (Reuters)
• Fears after key China debt level soars 70% (FT) and in reality the debt level is saoring far more
• Pot Shops in Denver Open Door to $578 Million in Sales (BBG)
• China Says It Will Shun Abe After Shrine Visit (WSJ)
• De Blasio Taking Office Citing Wealth Gap as Crime Falls (BBG)
• China Approves $353 Million of Share Sales as IPOs Resume (BBG)
• Obama Seeks Way to Right His Ship (WSJ)
• Netflix Tests Subscription Fees Based on Number of Account Users (BBG)
• Three big macro questions for 2014  (FT)

A year which showed that central planning works (for the fifth year in a row and probably can continue to "work" at least a little longer - in the USSR it surprised everyone with its longevity before it all came crashing down), is drawing to a close. This is what has happened so far on the last trading session of 2013. As market participants head in to the New Year period, volumes are particularly thin with closures being observed across Europe with only the CAC, IBEX and FTSE 100 trading out of the major European indices, with German, Switzerland, Italy and the Nordic countries are already closed. The FTSE and CAC are both trading in the green with BP leading the way for the FTSE earlier in the session after reports the Co. have asked a federal appeals court to block economic loss payments in its settlement of the Gulf of Mexico oil spill. European stocks rise, with real estate, travel & leisure leading gains. Retail shares underperform as Debenhams slumps following its IMS. A number of major markets will close early today. The euro falls against the dollar. Fixed income market are particularly quiet with the Eurex being shut. Whilst Gilts are seen down this morning following on from yesterday’s short-covering gains.

Over the weekend, Heather Linebaugh wrote a powerful Op-ed in The Guardian newspaper lamenting the lack of public understanding regarding the American drone program. Heather should know what she’s talking about, she served in the United Stated Air Force from 2009 until March 2012. She worked in intelligence as an imagery and geo-spatial analyst for the drone program during the occupations of Iraq and Afghanistan.

"Few of these politicians who so brazenly proclaim the benefits of drones have a real clue of what actually goes on. I, on the other hand, have seen these awful sights first hand."