Archive - Jan 2013 - Story

While it may be a little early for humor this week, this was just too ridiculous to pass up. As Keep Talking Greece notes, Charis Theocharis - Greece's new revenues general secretary - recently appeared at a conference and made the rather intriguing "me neither" reply to an audience member's “I have no money to pay property taxes" comment. “Me too, as all of you, I have difficulties to pay the property taxes,” a rather perplexed Theocharis told the audience in an effort to continue his speech. This follows former deputy PM Theodoros Pangalos, a PASOK MP for several decades, who had often claimed he could not pay property taxes for his more than 50 residences. If those who have salaries cannot pay property taxes, what should the unemployed or the pensioner do who has a roof over his head but no other income?

You might have to read this post twice to make sure your eyes didn’t deceive you.  This article is actually completely different from our recent pieces on stealth inflation, but is even more infuriating.  In this case, a grocery store called Fresh Markets decided to sell milk at a bargain basement price as part of a promotion, yet the state has deemed the price “too low.”  As a result, the chain is being forced to raise the price.  Yep, at a time when millions are struggling every day to make ends meet, this is what the state of Louisiana has decided it a priority that the cost of milk is higher for consumers in the state.  This is exactly what happens when bureaucrats exert to much influence in our daily lives. No one can seem to put a banker in jail, but sell milk too cheap and regulators are all over you.

Determining the “pain threshold” beyond which the euro appreciation would significantly impair the recovery is crucial at this juncture. Deutsche Bank's quantification of this “pain threshold”, is not fixed but depends critically on the pace of global growth. If world demand accelerates from a current pace of 1.3% YoY to 4.2% YoY by Q3 2013 (30% below trend), as per OECD forecasts, the EURUSD exchange rate which would be consistent with maintained competitiveness would stand at 1.37 (not far from where we are). However, if growth is lower (as we humbly suspect) the threshold for currency strength to hamper growth is considerably below current levels.

Maybe Uncle Warren doesn't like to 'make it rain' (see here) because Becky forgot her umbrella again? And yes, the fact that even TMZ is on to the Octogenarian of Omaha, and his perpetual arm candy, is probably most amusing of all.

Two months ago we demonstrated one of the biggest paradoxes of the current iteration of the US welfare state, in which a single mom earning gross income of $29,000 has the same disposable income after all net benefits as a worker who has gross income of $69,000. The same logic is applicable to all those who instead of working, opt to receive foodstamps, disability payments, and the occasional Obama phone, all the while dropping out of the labor force and making the BLS' job of indicating a dropping unemployment rate a little easier. And while the US is fully intent on converting an ever rising portion of the population into these "comfortably poor" zombies who no longer have any marketable skills, and are completely unqualified to be competitive in an increasingly more specialized workforce, one place where such welfare handouts will no longer be tolerated is Japan, of all places. As Japan Times reports, "welfare benefits will be slashed by ¥74 billion over a three-year period starting from fiscal 2013, after a government panel found that some people are making more on the dole than the average low-income person who is not spends on living costs, it was learned Sunday." We await with eager amusement as this attempt to impose austerity on the comfortably poor takes place in the US next. Considering there was nearly a revolution in California a few weeks back when EBT cards malfunctioned for a few brief hours, the outcome of a comparable belt-tightening in the US would have truly hilarious, not to mention lethal, consequences.

Hope is dying in the US. The performance of financial markets affects everyone. For savers and investors, these markets represent the means to an improved life, at least as they define it. We are twelve years into this new century and Americans are losing their hopes, dreams and aspirations. Twelve years in, the S&P 500 has returned a total of 14%. That puny return has not come close to covering the decline in purchasing power of the dollar during the same period. The country's financial condition is deplorable and cannot continue much longer. So, too is virtually everything else the government has touched whether it be education, Amtrak, the post office, Social Security, Medicare, ad nauseum. Nothing government has done has not been a Ponzi scheme dependent upon additional theft from taxpayers to keep going. The system is now broken. There is no one to blame for this other than government. Despite this obvious conclusion, government is still seen to be a savior by a large proportion of the country.

Cramer called it the greatest piece of financial TV history. He was the only one. Here is Art Cashin's take on last week's 1 hour slow motion trainwreck between Ackman and Icahn. "While it diverted trading desks and floors somewhat – like a car chase – it was about as meaningful. Traders wondered if the performance dented the confidence of mom and pop investors watching at home. It certainly didn't make the financial arena sound solid and businesslike."

Where ever you look - apart from AAPL (-0.5%) - risk-related assets are on another tear this morning. Following the better-than-expected (though totally noisy) goods orders headlines - which a mere scratch below the surface show to be considerably less exuberant than expected, EURUSD surged back up to unchanged, 10Y Treasury yields pushed back above 2% for the first time in 9 months, and S&P 500 futures touched 1500. Bonds and stocks are modestly recoupling but not as much as one would think given the 10Y shift. Meanwhile CAT is up 2.5% on a cautious outlook and BA is down 0.6% (as driver of the macro rally?).

Yet another government data release, yet another epic case of baffle with BS. As expected (and as pretweeted by us) The headline Durable goods orders was a massive 4.6% increase M/M, rising to $230.7 billion from $220.7 billion, the biggest beat to expectations of a 2.0% headline print since December 2011. A key reason for this was the ridiculous 56.4% explosion in Nondefense aircraft and part from $5.1 billion to $7.9 billion, while Nondefense aircraft soared by 10.1% to $14 billion. Excluding this incredibly volatile data set, the headline number would have been a miss, and will likely be revised lower next month, because the primary driver of the boost was Boeing, which said it had received 183 orders in December, compared to 124 in November. One wonders how many of these fully cancelable orders were for the Dreamliner. Ah details. And more details: the only consistent series that matters for a credible Capital Expenditure picture without monthly aberations, is the orders of Non-defense Capital Goods excluding Aircraft category, which rose by a whopping 0.2% month over month. But more importantly, looking at this on a Year over Year basis, as this is a seasonal series and looking at it on a sequential basis makes zero sense, we just experienced a whopping -4.3%, negating the transitory 1.5% Y/Y bounce posted in November, and resuming the downward glideslope in the key corporate CapEx indicator.

In one sense the trajectory of money is similar to what recently occurred with Lance Armstrong which is that he admitted to doping. The financial markets have been living on the drugs provided by the world’s central banks and that has been more and more and ever more money pumped into the system. We have become addicted to the stuff and never mind that more pieces of green and blue paper decrease the value of the currency because, with the possible exception of gold, there is nowhere else to go and so the global slosh of capital keeps driving the markets higher; all of the markets. Many point to the rise in the markets as a sign that conditions are improving but this is not the case. If things were getting better then the fundamentals would be telling a very different story.

Why? Because once it hits 0 in a few months, it can't go any lower.

Russia, Kazakhstan and Turkey expanded their gold holdings in December, seeking to diversify their foreign reserves and protect from currency devaluation risk. Russian gold holdings climbed 2.1% to 957.8 metric tons or 30.793 million ounces, according to data on the International Monetary Fund’s website. The increase in December takes the increase in Russian gold reserves in 2012 to 8.5%.  The Russian central bank has said that they will continue buying gold. The pace of the purchases may vary, First Deputy Chairman Alexei Ulyukayev told reporters this month.  He denied that there is a 10% target for gold’s share in the reserves according to Bloomberg

It's going to be a week of being bombarded with data and earnings from all angles. This week will see the first reading of US Q4 GDP as well as the first FOMC statement, Payrolls and ISM print of the year. In Europe we will get a handful of confidence indicators in the earlier part of the week but the main highlight will be the Spanish and Italian manufacturing PMIs on Friday.  The coming week could see further sizeable moves in FX, mainly because investors – and policymakers – have become a lot more focused on currency markets. Finally, a few potentially interesting policy speeches are scheduled in the upcoming week. In Japan, Prime Minister Abe will likely talk in parliament about his economic policy, which could contain more comments on the BoJ and the Yen. In Germany, Buba President Weidmann will talk at the car manufacturers association and the recent sharp move in EUR/JPY may well be a subject given the competition between German and Japanese brands. Interestingly, Mr. Weidmann already mentioned the BoJ in a recent speech about global pressures on central bank independence.

• CAT beats ex-Chinese fraud: $1.91, Exp. $1.70; Warns 2013 could be a "tough year"; sees 2013 EPS in $7.00-$9.00 range, Exp. $8.54, sees Q1 sales well below Q1, 2012
• Yi Warns on Currency Wars as Yuan Close to ‘Equilibrium’ (BBG)
• Monte Paschi seeks new investor as scandal deepens (Reuters)
• Assault Weapons Ban Lacks Democratic Votes to Pass Senate (BBG)
• Toyota Again World's Largest Auto Maker (WSJ)
• Curious why all those Geneva Libor manipulators moved to Singapore? Bank probes find manipulation in Singapore's offshore FX market  (Reuters)
• Japan eased safety standards ahead of Boeing 787 rollout (Reuters) - so like Fukushima?
• Goldman is about to be un charge: Osborne cools on changing inflation target (Telegraph)
• Abe Predicts Bump in Revenue as Japan Emerges From Recession (BBG) - actually, "hopes" is the correct verb here
• Toxic Smog in Beijing Fueling Auto Sales for GM, VW (BBG)
• Fed waits for job market to perk up (Reuters) ... any minute now that S&P to BLS trickle down will hit, promise
• BofA shifts derivatives to UK (FT)

While the overnight session has been relatively quiet, the overarching theme has been a simple one: currency warfare, as more of the world wakes up to what the BOJ is doing and doesn't like it. The latest entrants in global warfare: Taiwan, whose central bank overnight said it would step in the FX market if needed, then Thailand, whose currency was weakened on market adjustment according to Prasarn, and of course South Korea, where the BOK said that global currency war spreads protectionism. Last but not least was China which brought out the big guns after the PBOC deputy governor Yi Gang "warned on currency wars." To wit: "Quantitative easing for developed economies is generating some uncertainties in financial markets in terms of capital flows,” Yi, who is also head of China’s foreign-exchange regulator, told reporters. “Competitive devaluation is one aspect of it. If everyone is doing super QE, which currency will depreciate?” “A currency war, a series of tit-for-tat competitive devaluations, would trigger trade protection measures that would damage global trade and therefore growth globally,” said Louis Kuijs, chief China economist at Royal Bank of Scotland Plc in Hong Kong, who previously worked for the World Bank. “That would not be good for any country with a stake in the global economy.” Which brings us to the fundamental question - if everyone eases, has anyone eased? And is there such a thing as a free lunch when central banks simply finance global deficits while eating their soaring stock market cake too? The answer, of course, is no, but we will cross that bridge soon enough.