Archive - Dec 2013 - Story

The US economy is stabilizing, but it's not truly recovering. That's the view of Saxo Bank's Chief Investment Officer, Steen Jakobsen. Following the Fed's tapering news, Steen says the risk is that we trade on perception and not reality... "We're at the end of asset inflation," he says, and that "will dawn on the market very soon."

There can be little doubt that last week's Fed announcement was an epic attempt at rhetorical audacity. The message they hope to convey is that they are tightening monetary policy by loosening it. Based on the market reactions, the trick has seemed to work.  But we are still seeing much higher leverage than what would be expected in a healthy economy, and as a result, the gains in stocks, bonds and real estate markets are highly susceptible to rate spikes. If yields move much higher we feel that the Fed will have to intervene to bring them back down. In other words, the Fed will find it much harder to exit QE than it was to enter.

While some would argue (as they always do) that there are good reasons to be bullish going into 2014 (central bank liquidity provision being an obvious one); there are ample reasons to remain vigilant with respect to your investments. The stagnation of wage growth combined with higher costs leaves an already cash strapped consumer with few options.  It is likely that we will see a push by consumers to re-leverage their household balance sheet which will be hailed by the media as a return of consumer confidence.  However, one should not forget the last time a highly levered consumer ran into problems. Furthermore, there are three potential headwinds that are likely to weigh on the economy and the markets which are potentially being overlooked.

Since the President's Obamacare legislation became law, it has never had such widespread opposition according to CNN's latest poll with 62% of those polled "opposed" the law and only 35% were in favor. Results also indicated most Americans predict their medical care costs will increase under the ironically-titled "Affordable Care Act". As UPI reports, "opposition to Obamacare rose 6 [percentage] points among women, from 54% in November to 60% now, while opinion of the new law remained virtually unchanged among men," CNN Polling Director Keating Holland said. "That's bad news for an administration that is reaching out to moms across the country in an effort to make Obamacare a success." Maybe Americans just need another day to decide?

Following David Woo's initial $1300 fair-value price target for Bitcoin, the BofAML strategist has had to suffer through some significant changes; not the least of which is China's increasingly strict Bitcoin regulation. The shifts, he notes, raise key questions about the future of Bitcoin as he asks "is this the end of Bitcoin?"

We all know Apple’s greatest hits, but which products and services would Apple’s leaders rather forget?

Not satisfied with paying less taxes than his secretary, it seems Warren Buffett has decided that his employees should also pay more for their healthcare. His latest acquisition, Heinz, has recently announced a very significant cut in retiree health benefits. Of course, as the Pittsburgh Post-Gazette reports, Heinz is not admitting this is due to Obamacare but the company is not alone with 60% of employers considering changes through 2013. In an effort to cope with the uncertainty of ongoing health payments, companies have chosen (potentially smaller) lump-sum benefits, leaving the employee to fund the rest. As one reitree noted, "I feel that they should stand behind the moral obligation of the preceding owners of this company and maintain the program," but, keeping promises does not seem to be the norm these days.

From the first headline to the last, the following brief month-by-month summary of the year shows just how far markets and global happenings have come...

Whatever one thinks of the New Normal economy, one sure can't say there is a shortage of flipping opportunities.

Nearly 100 years ago, on December 23, 1913, the Federal Reserve Act was signed into law, giving the U.S. exactly what it didn’t need: a central bank. Many people simply assume that modern nations must have a central bank, just as they must have international airports and high-speed Internet. Yet Americans had gone without one since the 1836 expiration of the charter of the Second Bank of the United States, which Andrew Jackson famously refused to renew. Not to be a party pooper, but as this dubious anniversary is observed, we should ask ourselves, Has the Fed been friend or foe to growth and prosperity? ... In actuality, the Fed’s modus operandi has been to trick capitalists into doing things that are not aligned with economic reality.

One of these is an "asset" that produces no profit based on an underlying architecture with low barriers to entry,  the other is a virtual currency... and remember: Bitcoin has no intrinsic value, doesn't trade at 1000x 2013 (or 340x 2014) EBITDA, and is nowehere near 40x it next year's revenues. It is, after all, simply a non-fiat currency. Which is why it is a bubble, and why, according to experts, Twitter is a screaming buy.

VIX closed at its lowest in a month as stocks pushed on higher to new record-er highs (and Twitter hit $70). The Nasdaq underperformed today (after yesterday's outpeformance) as the Dow, S&P, and Russell all closed around 0.4% higher (and Twitter added 8.2%). Treasury bond yields rose notably all day with the 10Y at its 2nd highest closing yield of the year +5.4bps to 2.98% today (but Twitter is almost a double off its lows in 2 weeks). Commodities drifted higher all day with Gold back over $1200 (and that so-called fat finger in copper leaving it up large still on the day). The USD ended unch with slight weakness in JPY. From the Taper lows, the S&P is up 3.7% (but Twitter is up 30% in that period).

It seems not a day goes by when the mainstream media (or your local friendly asset gatherer) proclaims the drop in gas prices from a Middle-East-turmoiling Summer as "great news" and very positive and an implicit tax cut... as they try to juice hopes and dreams of a better-than-expected holiday spending season. The sad truth - something unusual in this new normal - is that regular gas prices (at $3.258) have never been higher on Christmas Eve. It seems context does matter...

Procuring physical gold seems to be a rather problematic and time-consuming process, as the Bundesbank is learning. Yesterday Buba head Jens Weidmann told Bild that gold valued at €1.1 billion has been repatriated so far. Putting a weight to this number: to date the Bundesbank has received shipments of a paltry 37 tons of gold from its existing storage place in either New York or Paris to Germany: "The gold reserves of the country will be stored in Frankfurt because it has a special storage with the corresponding equipment,” said Carl-Ludwig Thiele, a Bundesbank board member.  The repatriated amount over the course of all of 2013 represents just over 5% of the total stated target of 700 tons, and is well below the 87.5 tons that the Bundesbank would need to repatriate each year if it were to collected the 700 tons ratably ever year in the 8 year interval between 2013 and 2020.