Archive - Feb 28, 2013 - Story

Chris Martenson is issuing an official warning of a major stock market correction within the next few months. He's only done this once before (in 2008). He's seeing a convergence of both technical and fundamental data that are flashing oversized risks to the downside for asset prices, despite the Federal Reserve's money printing mania (which is showing signs of hitting diminishing returns). He expects the fall in equity prices to happen within the May-September window. This downdraft will be characterized by lots of volatility, formed by market routs and Fed-inspired rescues, alternating until some form of bottom is reached. Along the way there will likely be a flight for "safety" into the dollar and Treasury paper, but only during the first stage of this crisis. Once a bottom is reached - he expects anywhere from 40% to 60% lower than the current ~1500 level on the S&P 500 - the process will begin to be dominated by rising government borrowing which will cause interest rates to begin to rise. When that happens, expect capital to flee the paper market for hard assets. In particular, that's when the upwards price revolution in the gold and silver markets will kick into high gear.

This is not Bill Ackman day. After getting creamed on JCP, here comes Icahn to make sure Ackman never forgets the day the DJIA is set to rehit all time highs.

• HERBALIFE SAYS ICAHN CAN BOOST POSITION UP TO 25% OF COMPANY
• HERBALIFE TO NOMINATE TWO ICAHN REPRESENTATIVES TO BOARD

HLF stock halted, then unhalted and, not unexpectedly, up.

Usually, when the administration needs a distraction from just how broke and insolvent in reality the country is, it sends the stock market soaring higher. As such it is beyond ironic that as the S&P is set to hit an all time high, Detroit - that shining symbol of the Obama administration's bailout of General Motors - effectively goes broke.

MICH. GOV SNYDER TO ANNOUNCE STATE TAKEOVER OF DETROIT

At 13:19:58, in a brief 1 second interval, it appears someone (or thing) decided it was time to slam $138mm notional to work with no consequence for market impact or cost basis. 15,700 S&P 500 e-mini contracts surged through in that second, running all the stops above the highs of the day to test up to the highs from Monday (pre-election). Meanwhile, FX and Treasury markets are not at all enthused... but whetever it takes to get the Dow to all-time highs...

If the past three months have been any indication of what Japan has to look forward to from Abenomics, we have a feeling his tenure will be as short, if not shorter, than all of his recent (and numerous, among which he, himself) predecessors. Because while the stock market may have risen in lock step with the plunge in the Yen, what has also soared are costs. And while a very select few benefit from the transitory surge in the Nikkei, the rising costs, i.e., inflation, hit everyone equally. But while the "no free lunch" reality has until now mostly been felt by those who need energy, as shown in "You Wanted Inflation, You Got It: Japanese Gasoline Price Rises To Eight Month High" the inflationary impact on Chinese imports is about to hit everyone like a sledgehammer right where it hurts the most: in the stomach, as the inevitable has finally happened, and the agriculture ministry announced that wholesale wheat prices are set to rise by a near-record 9.7% in April, which will shortly thereafter send regular food prices soaring.

We noted the strange divergence between the surge in physical demand for precious metals and the falling price of gold and silver yesterday and today; sure enough, just as they give back some short-term gains, we find that with one day left in the month, the US Mint has seen the largest demand for physical silver coins ever for a February at 3.37mm ounces. We are sure this all makes perfect sense somewhere in the leasing, backwardation, securitization, paper world of precious metals pricing but one thing appears sure, more than just Russia is backing up the truck for physical bullion.

The discovery of oil in the Middle East around the 1930s has had a drastic effect on the lives of the people in the region.  In most instances this black gold buried under the sands of Arabia has impacted the lives of the people in a rather positive manner. But not always. Syria today is burdened with the largest refugee crisis in the world - mostly displaced internally - a clear indication of population shifts. And as population shifts so too do demarcation lines, with the rebels claiming now to be in control of some of the oil producing sites. Will the opposition fare any better once they manage to get the oil facilities to operate once more? Or will they also contribute towards making the people who sell guns all that richer? How will they use the revenue if the manage to operate the facilities?

Those who have been following our year-long series exposing the student debt bubble are by now well aware that this latest $1 trillion+ reincarnation of subprime will have a very unhappy ending. Which is why today's release of the quarterly Fed report on household debt and credit will hold few surprises for them. There is however, one data point which is notable: as of December 31, 2012, the soaring delinquency rate on student loans (first reported here, and subsequently confirmed by the Fed itself), has surpassed that of credit card debt.

On the heels of Abe's final decision to appoint a somewhat middle-of-the-road 'dove' as BoJ Governor, we thought it appropriate to look at the year's FX performance to see who is 'winning' the currency wars so far this year. The answer may surprise you (or not if you had read this or this).

The question is will he (fold) or won't he? It seems the market still believes he will...

When it comes to provocative financial magazine covers, until now this has been the domain mostly of the Economist and Barrons. Which is why we were not surprised to see Bloomberg do all it can (and it sure can afford to do a lot) to steal the spotlight. With this week's cover page of "The Great American Housing Rebound" it may have done just that, for obvious reasons, or rather one politically uncomfortable reason. And just as expected, the blistering critique is already quite fast and certainly furious - precisely as had been intended all along.

That the policies of central states and banks have led to one disastrous asset bubble after another over the past 15 years is undeniable. This poses the question: is this serial bubble-blowing intentional, or are the bubbles merely unintended consequences of the neoliberal, neofeudal model of financialization that dominates global finance? The answer boils down to this: inflate assets or die. Inflating phantom assets to collateralize expanding debt is failing due to diminishing returns on stimulus, zero-interest rates, money-printing and monetization of Federal debt.

While last night's earnings (and conference call) were anything but promising, credit markets appear to have grown even more concerned about JCP's future than the equity market. As Barclays notes that JCP will "likely need bridge liquidity", CDS on JCP has surged 90bps crossing the worrying 1000bps level (+1.5pts to 15pts upfront), implying fears of insolvency growing very fast. With Groupon having lost a quarter of its market-cap this morning, it appears JCP is not be outdone as it stock (and Ackman's dreams) cross the down 20% mark. The question is - will Icahn provide the DIP financing? Finally: why, oh why, can't JCP just expand its multiple a few turns: works for the S&P every day, and after all it's not like cash flow, or rather lack thereof, matters in the New Normal.

The Chinese PMI may be slowing down (first HSBC, official one coming out soon), but why bother when according to MarkIt it is now the US' turn to carry the torch of economic growth, reality notwithstanding. As the just released Chicago PMI indicated, in February the broad index rose to 56.8, higher by 1.2 points and beating expectations of a 54.0 print. It is only logical that with the rest of the world in contraction mode, and China about to enter, that the US would have the highest print in 11 months (or Q1 2012, when US GDP was just a tad higher). Or not. Remember: it is all about playing along the script that always, at some place, there is at least some growth taking place. That said, while last month cojoined PMI and Mfg ISM were flipped, as has happened nearly every month in the past year to keep everyone baffled with BS, today's PMI beat likely means that the Manufacturing ISM will be a miss, which according to GETCO's algos will be just as positive for stocks, as today's beat.

Greece is facing a serious shortage of medicines amid claims that pharmaceutical multinationals have halted shipments to the country because of the economic crisis and, as The Guardian reports, concerns that the drugs will be exported by middlemen because prices are higher in other European countries. Rubbing further salt into the Greek (un-medicated) wound, the Red Cross slashed its supply of donor blood to Greece because it had not paid its bills on time. Pharmacies in Greece describe chaotic scenes as clients desperately search from shop to shop for much-needed drugs. Greece's Pharmaceutical Association said "around 300 drugs are in very short supply," adding that "It's a disgrace. The companies are ensuring that they come in dribs and drabs to avoid prosecution. Everyone is really frightened." The fear for the multinationals remains that wholesalers can legally sell to other nations at higher prices and a "combination of Greece's low medicine prices and unpaid debt by the state." Lines form early and 'get very aggressive' one pharmacy exclaimed, "We have reached a tragic point."