Archive - Dec 2013 - Story

As we head towards NFP and discussion about tapering picks up again it is crucial to understand the Fed balance sheet report, where, at least in terms of the treasuries they own, they continue their Hunt Brothers impersonation. What this means is we would be very nervous about being too short treasuries here because in addition to steep curves and low inflation, you have the potential for a short squeeze as the free float of longer bonds is just small.

There’s no question here about identifying the oppressors and the oppressed. There’s no conflict between the internal exercise of your freedom to think for yourself and your external behavior. There’s no omnipresent social media, no cacophony of commercial voices, no GPS chips, no algorithms that can predict your likes and dislikes better than you can yourself. It’s just faceless soldiers with AK-47’s trying to impose their will on Patrick Swayze’s external behavior. It’s a movie that would have made as much sense (more?) in 1784 as it did when released in 1984. Our world isn’t “Red Dawn,” it’s “Invasion of the Body Snatchers.” Control over our behaviors isn’t as much physical as it is mental, not so much externally imposed as it is internally embraced. If you’re reading this note, the problem is not that you are in a dogmatic slumber and need to be woken up. The problem is that you know it’s in your best economic interest to act as if you’re still asleep. In a world overrun by pod people, the big losers are the people who can’t fake their pod-ness and ultimately get outed by Donald Sutherland.

Having "fixed" Obamacare, the President is ready to re-pitch American 'excellence' today as he addresses the state of the economy. Remember, good is bad and bad is good - do don't over-sell it... oh, and all the bad stuff - that's the Tea-Party's fault... Just don't show him (or anyone) this chart...

With the mainstream media inundated with tales of low paid workers demanding higher minimum wages (thus theoretically expecting to be paid more than a market rate for their services), we thought a look at the other end of the scale was worthwhile (where, some might argue, the following 10 CEOs are also paid above market rates for their 'ability')...

We had the good news (ADP beat sends stocks down) and now the bad news (ISM Services) which spikes stocks instantly up 1%. It seems increasingly clear from the last hour of trading that, as we proved here, the bulls are hoping for moar and moar bad news to keep the retirement dream alive... Notably nothing else is reacting in this manner to provide cover for stocks.

With the government shutdown which apparently had zero impact on the economy, moments ago the Census Bureau released not one but two New Home Sales reports together due to the delay in data reporting. The data showed that while in September new home sales declined from 379K to 354K annualized, or the lowest since early 2012, the subsequent rebound sent New Home Sales to 444K, or a 90K increase, +25.4%, in one month was the biggest month over month jump since May 1980! What was less noted is the prior revisions, with June revised 0.9% lower, July down 4.4%, and August revised by a whopping 10% lower. So what caused the October surge? Possibly it was pent up demand, because as the first chart below shows, an unbroken trendline suggests a modest decline in sales data net of the prior downward revisions. However, what was most likely the reason for the increase is that the Median new home sales price tumbled to $245,800, down from $257,400 and well below the recent highs of $279,300. In fact, this was the lost median new price in one year. Supply - meet demand, and equilibrium price.

Being the major part of the US 'economy' the disappointing performance of the ISM Services (soft data) - printing at 53.9 missing expectations of 55.0 - should be a concern. Under the covers, the data is a little more worrying than the stil-in-expansion mode headline data miss. New orders, business activity, and perhaps most worrisome, the employment sub-index all slid with the latter at its lowest since May. Combined with the manufacturing PMI, the composite ISM index fell from 55.1 to 54.3 in November. Despite the data, respondents remain optimistic...though tempered by its slow pace. This is the lowest November print for ISM Services since 2006. The last 4 times ISM Manufacturing was so far above Services it marked the turning point in manufacturing and a market correction.

After the initial post-Taper-talk rate-rise-driven marginal-buyer-crushing collapse in mortgage applications in the US, the un-Taper provided a brief period of hope for the NAR and market apologists that all-cash buyers are all we need and mortgage applications dead-cat-bounced on the rate drop. However, all that hope ended in early November and as of this morning's print, mortgage applications have plunged back to the almost record lows of October 2008 (levels not seen since December 2000). As Bob Shiller recently explained, "we can't trust momentum anymore," in housing and the speculators are leaving the buildings.

The chart below from the WSJ, summarizes perfectly the hell that US retailers find themselves in. In brief: sales down and inventories soaring, means liquidation sales have to surge, while profits and cash flows crater.

Treasury yields are surging on the ADP's Good news this morning with 10Y topping 2.84% - its highest yield in almost 3 months. The USD is surging, stocks are fading; but despite an initial dip... gold is rallying.

Moments ago, the Census Bureau announced that in October the US trade gap narrowed to $40.6 billion (which still missed expectations of "only" a $40 billion deficit) from an upward revised September deficit of $43 billion, as oil sales boosted exports to record level. Total exports rose to a record $192.7 billion up $3.4 billion from last month's $189.3 billion, while imports rose just $1 billion to  $233.3 billion resulting in a $40.6 billion gap. Among the report highlights: October exports of goods and services ($192.7 billion), exports of goods ($135.3 billion), and exports of services ($57.4 billion) were the highest on record; October imports of goods and services ($233.3 billion) were the highest since March 2012 ($234.3 billion); and perhaps the best news for shale fans: October petroleum exports ($12.5 billion) were the highest on record.

Judging by massive revision in the October print, from 130K to 184K, or nearly a 50% error, one would think that instead of actually tabulating specific private jobs as it by definition does, using the data entering the ADP private payrolls system, the ADP makes its estimate of jobs based on high inaccurate surveys just like the BLS. Either that, or it was desperate to catch up on the upside to the BLS' own propaganda numbers, which are just as "realistic." That said, the November ADP print soared from 130K to an upward revised 184K in October blowing through expectations of 170K and printing at a whopping 215K. And so the Taper dance is back on as everyone will now expected Friday's NFP to come in scorching hot, and force the Fed to cut its monthly flow by a whopping $10 billion to $75 billion.

It is only fitting that on the morning in which Europe levied the largest cartel fine in history against the criminal syndicate known as "banks", that Goldman Sachs would issue its #6 "Top Trade Recommendation" for 2014 which just happens to be, wait for it, a "long position in large-cap bank indices in the US, Europe and Japan." Supposedly, in a reflexive back and forth that should make one's head spin, this also includes Goldman Sachs (unless they specifically excluded FDIC-insured hedge funds, which we don't think was the case). So is Goldman recommending... itself? Joking aside, this means Goldman is now dumping its bank exposure to muppets.

• Deutsche Bank gets biggest combined penalty of €725.4mln.
• SocGen fined €445.9mln for Euribor manipulation.
• RBS agrees to pay €391mln in cartels
• JPMorgan fined €79.9mln in JPY LIBOR case.
• R.P. Martin Holdings Ltd fined €247,000
• UBS and Barclays escape fines as EU whistle-blowers.

• EU Fines Financial Institutions Over Fixing Key Benchmarks (Reuters)
• Euro-Area Economic Growth Slows as Exports, Consumption Cool (BBG) - someone has a very loose definition of growth
• Ukraine Officials Scour Globe for Cash as Protests Build (BBG)
• Oops: Franklin Boosted Ukraine Bet to $6 Billion as Selloff Began (BBG)
• Japan Plans 18.6 Trillion Yen Economic Package to Support Growth (BBG) - or about 2 months of POMO
• How Peugeot and France ran out of gas (Reuters)
• Iran threatens to trigger oil price war (FT)
• Abe Vows to Pass Secrecy Law That Hurts Cabinet’s Popularity (BBG)
• Brazil economy turns in worst quarter for 5 years (FT)
• Australia’s Slowdown Suggests RBA May Need to Do More (BBG)
• Biden calls for trust with China amid airspace dispute (Reuters)