Archive - Dec 2013 - Story

Update, and it's official:  JUDGE: DETROIT ELIGIBLE FOR IMMEDIATE BANKRUPTCY PROTECTION, DETROIT TO REMAIN UNDER BANKRUPTCY COURT PROTECTION, JUDGE SAYS

As somewhat expected - though hoped against by many Detroit union workers - Judge Steven Rhodes appears to have confirmed Detroit is eligible for bankruptcy protection (after pointing out that the city's accounting was accurate and it is indeed insolvent) making this the largest ever muni bankruptcy.

JUDGE RHODES SAYS HE WILL ALLOW PENSION CUTS IN DETROIT'S BANKRUPTCY, DETROIT JUDGE: NOTHING SEPARATES PENSIONS FROM OTHER DEBT

The city will now begin working toward its next major move - the submission of a plan to re-adjust its more than $18 billion in debt - including significant haircuts for pension funds (possibly 16c on the dollar recovery) and bondholders. With Detroit as precedent, we can only imagine the torrent of other cities in trouble that will be willing to fold.

In the most dramatic evidence yet that Britons are paying for the rising cost of living by raiding savings, Yahoo UK reports that households are pulling money out of their savings accounts at the fastest rate in modern record, according to Bank of England figures. Since the recent recession began, millions of workers have suffered repeated effective pay cuts as inflation has outstripped pay rises, and while consumer spending was one of the main contributors to the sharp rise in gross domestic product in the third quarter, "consumer strength usually reflects increased borrowing but this hasn't been the key factor recently."

While most of the world's elites are bathing in a sea of liquidity and propagandizing the status quo to keep the dream alive, Richemont Chairman Johann Rupert has unleashed a torrent of uncomfortable truthiness this morning:

• *REMGRO CHAIRMAN RUPERT 'VERY CONCERNED' ABOUT GLOBAL ECONOMY
• *GLOBAL ECONOMY 'VERY, VERY PRECARIOUS,' RUPERT SAYS
• *WORLD HEADING FOR 'BIG INFLATION' OR `BIG DEPRESSION': RUPERT
• *GLOBAL ECONOMY HEADED FOR 'TEARS': REMGRO, RICHEMONT CHAIRMAN
• *RUPERT SAYS HIS BIGGEST CONCERN IS JOBLESS GROWTH

And while things are good now, the owner of the Cartier brand warned if the global economy doesn’t do well, Richemont is not well positioned.

Overnight, the WSJ reported a financial factoid well-known to regular readers: namely that as a result of a broken system that ever since the LTCM bailout has encouraged banks to become take on so much risk they become systematically important (as in their failure would "end capitalism as we know it"), and thus Too Big To Fail, there has been an unprecedented roll-up of existing financial institutions especially among the top, while the smaller, less "relevant", if far more prudent banks have been forced out of business. "The decline in bank numbers, from a peak of more than 18,000, has come almost entirely in the form of exits by banks with less than $100 million in assets, with the bulk occurring between 1984 and 2011. More than 10,000 banks left the industry during that period as a result of mergers, consolidations or failures, FDIC data show. About 17% of the banks collapsed."

The overnight session was relatively quiet as precious metals trod water while equity markets tumbled. However, as the US equity cash session looms, silver and gold are coming under renewed selling pressure (and the USD bid) in a seeming effort to provide some rotational bid to stocks into the open (just like yesterday). This is the lowest for Gold ($1218) and Silver ($19.01) since July.

Over the Thursday-Sunday Black "Weekend", Shoppertrak reports that traffic fell a notable 4% from last year with sales up a measly 1% - very much in line with our expectations of a weak holiday spending season. Total in-store shopper traffic increased by 9.4% in the apparel sector, while traffic in the electronics sector decreased by 6.5% for that same time period. Regionally, traffic fell the most in the Northeast (-9.8%) and the Midwest saw the largest drop in sales (-2.9%) with only the West increasing notably (+5.5%).

While on the surface total cash earnings posted the smallest possible monthly increase, or 0.1%, in October - the first rise in 4 months - the reality is that this was driven by overtime pay, which increased by 5.4%. However, the far more important component of worker compensation, regular pay, declined by 0.4% in the month. This was the 17th consecutive decline in core pay and is a glowing testament to just how flawed Abenomics has been since its inception due to its staunch inability to shift employer eagerness to boost pay even in an economy where unemployment is supposedly so much less than in the US and thus worker slack is far less prominent. Turns out that is not the case.

First the ECB, then the Fed, and now the Dutch central bank have come out and explicitly warned of the dangers of virtual currencies like Bitcoin and Litecoin. Their explicit statement this morning, raising questions about deposit guarantees, central issuer responsibility, and volatility do their best to inform potential users (or traders) of the alternative currency that it is the devil incarnate. It seems, despite the mainstream media's guffawing at the swings and outrageous fortune in the market's early days, that the powers that be see these crypto-currencies as anything but benign.

"What keeps us up at night? Well I can’t speak for the others, having spoken too much already to please PIMCO’s marketing specialists, but I will give you some thoughts about what keeps Mohamed and me up at night. Mohamed, the creator of the “New Normal” characterization of our post-Lehman global economy, now focuses on the possibility of a” T junction” investment future where markets approach a time-uncertain inflection point, and then head either bubbly right or bubble-popping left due to the negative aspects of fiscal and monetary policies in a highly levered world.  ... investors are all playing the same dangerous game that depends on a near perpetual policy of cheap financing and artificially low interest rates in a desperate gamble to promote growth. The Fed, the BOJ (certainly), the ECB and the BOE are setting the example for global markets, basically telling investors that they have no alternative than to invest in riskier assets or to lever high quality assets. “You have no other choice,” their policies insinuate....  Deep in the bowels of central banks research staffs must lay the unmodelable fear that zero-bound interest rates supporting Dow 16,000 stock prices will slowly lose momentum after the real economy fails to reach orbit, even with zero-bound yields and QE." - Bill Gross

• With website improved, Obama to pitch health plan (Reuters)
• Joe Biden condemns China over air defence zone (FT)
• Tally of U.S. Banks Sinks to Record Low (WSJ)
• Black Friday Weekend Spending Drop Pressures U.S. Stores (BBG)
• Cyber Monday Sales Hit Record as Amazon to EBay Win Shoppers (BBG)
• Ukraine's Pivot to Moscow Leaves West Out in the Cold (WSJ)
• Investment banks set to cut pay again despite rise in profits (FT)
• Worst Raw-Material Slump Since ’08 Seen Deepening (BBG)
• Democrats Face Battles in South to Hold the Senate (WSJ)
• Hong Kong reports 1st case of H7N9 bird flu (AP)
• In Fracking, Sand Is the New Gold (WSJ)

If the London Whale trade was JPM selling CDS in tranches and in whole on IG9 and then more, and then even more in an attempt to corner the entire illiquid IG9 market and then crashing and burning spectacularly due to virtually unlimited downside, Goldman's top trade #5 for 2014 is somewhat the opposite (if only for Goldman): the firm is inviting clients to sell CDS on the junior Mezz tranche (3%-7%) of IG21 at 464 bps currently, where Goldman "would apply an initial spread target and stop loss of 395bp and 585bp, respectively. Assuming a one-year investment horizon, the breakeven spread on this trade is roughly 554bp (that is, 90bp wider than where it currently trades)." In other words, Goldman is going long said tranche which in an environment of record credit bubble conditions and all time tights across credit land is once again, the right trade. Do what Goldman does and all that...

Something snapped overnight, moments after the EURJPY breached 140.00 for the first time since October 2008 - starting then, the dramatic weakening that the JPY had been undergoing for days ended as if by magic, and the so critical for the E-Mini EURJPY tumbled nearly 100 pips and was trading just over 139.2 at last check, in turn dragging futures materially lower with it. Considering various TV commentators described yesterday's 0.27% decline as a "sharp selloff" we can only imagine the sirens that must be going off across the land as the now generic and unsurprising overnight carry currency meltup is missing. Still, while it is easy to proclaim that today will follow yesterday's trend, and stocks will "selloff sharply", we remind readers that today is yet another infamous double POMO today when the NY Fed will monetize up to a total of $5 billion once at 11am and once at 2 pm.

As the "peoples' coup" in Thailand gets the blessing of the country's Military leader (who stated he would not intervene), the police have also undertaken an unexpected reversal of strategy by removing barriers from the heavily fortified police and government buildings. The government no longer wants to confront the protesters in the 3rd of fighting with 3 dead and at least 230 injured. As AP reports, the protesters have made no attempts (yet) to enter Government House but are milling around the entrance. The government has 'asked' people to stay inside and police helicopters are reportedly dropping leaflets warning demonstrators to move out of the rally sites (on grounds of insurrection and possibel death penalty). The anti-government protesters have declared "victory" as the police state "there will be no tear gas today."

Although the GAO has made clear the limitations of its data, its $394 million tally for work through March 31 has been widely cited as the price tag for the entire launch of the "Affordable" Care Act. However, as Bloomberg's Peter Gosselin finds, looking at the full range of ACA-related contracts for just 10 firms, more than $1 billion worth of contract awards. Perhaps even more mind-blowing is that more than one third of the funds going to the top contractors working on the federal exchanges were awarded in the last six months - even as it was clear the project was failing.

One economic myth is that paper money is wealth. The proponents of big government oppose honest money for a very specific reason. Inflation, the creation of new money, is used to finance government programs not generally endorsed by the producing members of society. It is a deceptive tool whereby a “tax” is levied without the people as a whole being aware of it. Since the recipients of the newly created money, as well as the politicians, whose only concern is the next election, benefit from this practice, it’s in their interest to perpetuate it. For this reason, misconceptions are promulgated about the “merits” of paper money and the “demerits” of gold. Simply put, “Easy” money causes hard times.