Archive - Feb 12, 2013 - Story

Well, this is awkward, but in our always fair and balanced way, we present the two sides of the GOP's response to Obama's SOTU - the 'official' Marco Rubio response and Rand Paul's Tea Party Express response, with speech excerpts and streams...

“If Congress refuses to obey its own rules, if Congress refuses to pass a budget, if Congress refuses to read the bills, then I say: Sweep the place clean. Limit their terms and send them home!”

#SOTU fact check: American people do not actually deserve better

— Onion Politics (@OnionPolitics) February 13, 2013

5% fewer words, slightly shorter than last year but just as hope-full. From a hike (and inflation-indexed) in the minimum wage to a 140x multiplier of genome sciences investment (now that is Keynesian awesomeness); from extending homeownership (and refinancing plans) even more to energy independence; from Apple, Ford, and CAT's US Manufacturing to Bridge-Building and infrastructure spending; and from Trans-Pacific and -Atlantic Trade to cyber-security; it's all gonna be great - because as President Obama reminded us at the start... "Our housing market is healing, our stock market is rebounding," and this won't add a dime to the deficit... oh and that Student loan bubble - no worries, there's a college scorecard so now you know where to get the biggest bang for your credit-based buck. Summing it all up: Guns 9 : 3 Freedom ; Jobs 31 : 17 Tax ; Congress 17 : 40 Work ; Recovery 2 : 0 Unicorns ; Spending 3 : 2 Cutting

*OBAMA CALLS FOR MINIMUM WAGE TO INCREASE TO $9/HOUR

Last year's 6,977 word homage to jobs provided just over an hour's worth of applause-impacted rhetoric create much ado - more with what was not said than what was said. This year's 9pmET speech will likely be dotted with hope, and change, and jobs, and congress, and of course our union is strong... because the S&P is up 16% since last year's SOTU. But, by our measurement from Bloomberg's data from December 2011 (the last NFP before 2012's SOTU) to January 2013 (this year's last NFP) - Non-Farm Payrolls (NSA) dropped from 133.292 million to 132.705 million (or a 587,000 job loss).

• *OBAMA SAYS `GENERATION'S TASK' IS TO BUILD STRONG MIDDLE CLASS
• *OBAMA SAYS GOVERNMENT MUST WORK `ON BEHALF OF THE MANY' NOT FEW
• *OBAMA SAYS PROPOSALS WILL NOT INCREASE DEFICIT BY `SINGLE DIME'
• *OBAMA CALLS FOR `SMARTER GOVERNMENT' NOT `BIGGER GOVERNMENT'
• *OBAMA ORDERS DHS TO DEVELOP REAL-TIME CYBERSECURITY RESPONSE

Enjoy...

Over the past couple of hundred years, the State of the Union has been enjoyed by pamphlet, radio, TV, and webcast and each and every year, the citizenry has sat avidly awaiting their 'word' to come up on SOTU Bingo or for the bets they made on the average length to be confirmed. As WaPo notes, the average minutes spent on the address has grown from a mere 36:53 under President Jimmy Carter up to 1 hour and 5 minutes under the current president. From comparisons of various word frequencies (e.g. tax vs cut or job vs hope) to the ultimate SOTU Drinking Game, and from an 51/53 minute over/under to the color of Obama's tie, below is everything you need to know about SOTU but were absolutely embarrassed to ask...

Movements in equity prices are driven by many factors, such as the economy, government policy, earnings, interest rates and valuation. But we think tactical moves (<3 months) are often better explained by sentiment, positioning and technicals. While macro, policy and valuations matter, sentiment has worked well in recent years as a contrarian tool to identify short-term inflection points in asset prices. According to BofAML's new Bull & Bear Index investor sentiment toward risk assets is at a more bullish level today than 99% of all readings since 2002. The current reading of 9.6 (out of 10) is close to max bullish and thus triggers a contrarian "sell" signal for risk assets. In their view, the relative risk-reward of owning equities is unfavorable at this juncture. Since 2002 a "sell" signal of 8.0+ was on average followed by a 12% peak-to-trough correction in global equities within three months.

Since James Madison's 1815 Address, the 'linguistic standard' of the State of the Union speech has plunged. As The Guardian notes, the lowest on record was George H.W. Bush's 1992 address - only just beating Obama's 2011 address for 'dumbest' speech ever. Whether this is representative of the American people as a whole or the lowest common denominator is unclear but one thing in this evening's speech comes to mind; if you were the President, would you invite, as your personal guest, a CEO who 1) has overseen massive wealth destruction in the last six months, 2) refuses to spend his massive cash hoard in the USA, and 3) outsources his manufacturing to china? Dumb and dumber indeed...

Some time ago we used to joke that the Greek economy, and by implication society, is literally falling apart due to its sacrifice at the altar of preserving the European, and thus global, status quo. It is no longer a joke, and the latest confirmation of the absolute halt in the Greek economy, which is now way beyond the liqudity trap and is now in a liquidity (and everything else) tiger cage is data on Greece Construction activity which according to data released on Tuesday by the Hellenic Statistical Authority is in complete freefall. From Kathimerini "In November 2012, total activity dropped 66.6 percent year-on-year in terms of building permits, 63.3 percent in terms of surface area and 65.4 percent in terms of volume." Just 1,156 permits were issued across the country, corresponding to 197,000 square meters and 706,900 cubic meters. In the first 11 months of last year construction activity shrank by 36.4 percent in terms of permits, 30.3 percent in surface area and 28.7 percent in volume, compared with the same period in 2011. The statistics observed in private construction activity are virtually the same as the above, as activity in the public sector has effectively ground to a halt.

Money – we all want it, but few of us are willing to sacrifice to get it. Those that have it generally don't understand it, and those that don't have it come up with excuses why they can't get it. If this sounds confusing – it is. For all that we have accomplished in the United States in the last 200+ years we have failed miserably at teaching our children the basics of money management. We are not talking about stock and bond portfolios but rather the basics of spending less than you make, understanding of credit, and how to balance a check a book. We are inundated daily with credit card commercials that show how great life can be – just charge it. We are enticed to buy things that we don't really need though the use of zero percent financing – but only while it lasts. We are motivated to consume anything and everything in pursuit of the American dream but no one ever talks about the consequences of our actions. The secret, of course, is the true road to wealth and happiness. It is irrefutable, undeniable and absolutely achievable - spend less than you make.

It appears that the authorities have finally caught up with the infamous LAPD vigilante, who is now engaged in a shoot out with the police in the Big Bear area. Follow his last stand at the following CBS newsfeed live. A separate stream from the inland CHP can be found here.

Another low volume, low range, low average trade size day in stocks as recent high (stops) were run again with FX markets ruling the day in terms of volatility. The G-7's initial statement fell on deaf ears , after Draghi's early comments (on a higher EUR implying a stable Europe) pushed the USD lower against EUR, then the restatement rallied JPY and that USD weakness provided further support for US equities. New highs in the S&P (though not in the Nasdaq as AAPL slumped 2.5% because Tim Cook didn't unload all his cash into shareholders high beta pockets). Homebuilders saw their biggest gain in almost 8 months before pulling back a little in the afternoon. Oil prices continue to rise and Treasury yields bled higher (though 10Y remained below 2.00%). Gold and silver limped higher (along with the USD) after Europe's close. Credit markets (CDX) jumped tighter today (especially IG) after dislocating for the last few days - and HYG outperformed - as we suspect the credit-equity arb has become too tempting. Will SOTU be a catalyst for a pullback - VIX sure didn't think so as it dropped 0.3 vols to 12.6 - its lowest close in 3 weeks.

Those who traded credit in the frothy days of 2007 will recall that virtually every piece of new paper, including LBO debt, would come to market with the skimpiest of creditor protections, i.e., "covenant lite" which to many was an indication that money was literally being thrown without any discrimination in the last epic chase for yield, just as many were preparing for the imminent market backlash. Which they got shortly thereafter. Judging by the amount of covenant lite loans issued in 2012 as a percentage of total and compiled by Brandywine Management, which just surpassed the credit bubble frenzy of 2007 at more than 30% of total issuance, the bubble in credit is now well and truly back - a job well done Federal Reserve, just 5 years after the last credit bubble.

Count alongside Spain's economy minister as the IMF instructs him how many trillion in bonds the Spanish pension fund will have to buy before the IMF finally bails out the country.

Moments ago, and a few hours ahead of the president's State of the Union speech, the FMS announced (with a 20 minutes early leak), that in January the deficit of the US government was in fact a surplus of some $2.883 billion, better than the expected $2 billion deficit. This was the first January surplus since 2008, and was an improvement on the already impressive $1.191 billion deficit from December, which in turn brings the total fiscal year to date deficit to $290 billion. On the surface this would be great news as it indicates that tax hikes are having an impact on the US budget surplus, but of course, a quick glance below the surface reminds us that January was the month during which the Treasury was forced to raid the various government retirement funds to fund operations, and otherwise operate under the debt ceiling, which was only hiked in the last days of the month. And another glance indicates something fishier: while December and January combined resulted in a surplus of some $1.7 billion on the book, a quick glance at the total US debt over the period, shows an increase of some $137 billion in the same time period (or at least through February 4, when the accurate debt picture was once again revealed). In other words, while the US government was arguably generating funds from operations over the past two months and thus did not need a single penny in outside funding, debt soared.

While stocks suggest all is well, and anecdotal macro data (seasonally slandered by fiscal cliff drag-forwards and 'weather') might offer hope that green shoots are back; one glance at the following chart of US, Europe, and Asia (ex-Japan) EBITDA tells a very different story. With cashflow clearly barely budging, is it any wonder that companies are creating conservative balance sheets? It sure feels like a recessionary environment...