Archive - Feb 8, 2013 - Story

Forget Ackman, Einhorn, Bass, And Hendry. There is only one name in the world of equity market performance in 2012 - Rachel Fox, of 'Desperate Housewives' fame. With a 30%-plus performance, the day-trading debutante has turned from actress to activist as she day-trades her way through the day. The 16-year-old actress who made 338 trades last year, based mostly on technicals, ""...fell in love with the idea and the concept of being able to just buy something, have it go up, or have it go down, depending on which way you bet it and have it make you money. I thought, oh, my, gosh, that's amazing, and so easy, I have to do this." If ever there was a sign of the extreme bubble that central planning has re-created for us - it has to be this. Her advice: "you have to really just trade on your own instincts and not just be like, oh, this person says this is great, let me just go for it." LOL, OMG, IKR ;-( Our advice: next time readers are discussing stock tips with a random employee of Hustler Club, Scores or Spearmint Rhino - don't just stare, listen! Said 'random employee' is almost certainly outpeforming the "smart money", and the broader market, by a wide margin. Thank you Ben.

This is just a disaster - and more prolonged than the depression of the 1930s. If British businesses don’t have confidence in Cameron and Osborne’s policies, if their policies don’t lower unemployment, don’t create growth, don’t boost imports and exports, don’t result in recovery, and don’t even result in less borrowing  (their stated aim), why do they continue to pursue them?

By now it is no secret that in the past decade, the "Big 6" global central banks have boosted their combined balance sheet by an unprecedented $11 trillion, from $3 trillion to over $14 trillion, just as it is no secret anymore that the only reason the global market trades where it does is courtesy of the "flow" or liquidity generated as a result of this unprecedented intervention, whose inevitable outcome is eventual inflation. What, however, was hidden in plain sight, was the chart responsible for this massive stock market surge, which has seen the S&P double in the past 4 years (if go nowhere in the past decade). Luckily, we now have "deciphered" the subliminal message contained in the global central bank liquidity "flow", which is shown as the deep blue line in the chart below. Technicians have a specific name for the pattern that has emerged: "the middle finger formation" and while others can call it by a plethora of other names, the central bankers' message to the rest of the world is now plain for all to see.

Central Banks have repressed the sovereign bond markets of the world's currency printers to extreme. This relative pricing makes stocks look extremely cheap on an equity risk premium basis (thank you Ben); however, everyone knows this and, as we have discussed many times, margin balances and net long positions are as high as they have ever been. A zealous belief in the power of the central bank has compressed the market's risk perception to near-zero - but at the same time, returns have been crushed as even junk bond yields are at record lows. In other words - there is no risk any more, and no conventional return. Or rather, the only "return" is in the wholesale herding of cattle into the "safety" of the equity beta butcher house.

We often turn to cycles - business, solar, Kondratieff, etc. - to better understand current events. But what if this era is not just a cycle but the terminal phase of Global Capitalism 1.0? This heretical thought arises from the school of economic history pursued by Fernand Braudel and those he inspired. We need a new model, and a re-hash of the old broken models will no longer do. The road for both global capital and the State is narrowing to a rocky trail that leads to a cliff.

As was reported in the latest Tecne poll for Italy's SkyTG24 released a few hours ago, support for Italian frontrunner Bersani's coalition has dropped once more, declining by 0.8% to 33.2% in the week ended February 7, while the ratings of the bloc headed by Italy's former prime minister Silvio Berlusconi keep rising on momentum generated by Monte Paschi scandal, boosting his popularity to 29.2%, or +1%, and now entirely within the margin of error. At the same time outgoing PM Monti has seen yet another drop in popularity, now down 1% to 12.9% while ex-comedian Beppe Grillo's support keeps rising, and is now at 16.3% up 0.8%. Combining all this data means that with three weeks to go until Italy's February 24-25th election, courtesy of the seemingly improbable surge in Berlusconi's popularity in recent weeks, the biggest emerging risk for Europe in the coming month is that of an Italian "Hung Parliament" which would then likely result in another round of elections in a matter of months, jeopardizing the Italian "success story" and pushing headline political risk once again into the open.

With immigration reform the new hot topic in Washington (along with pretty much everything else that is), we thought it intriguing that, as Bloomberg notes, the government's program allowing foreign 'entrepreneurs' to purchase so-called EB-5 visas saw its numbers more than double in 2012 (up from 69 in 2002 to 3,677 in 2012). The program allows the foreigners 'Alien Residence' status providing they 'show' they will spur 10 jobs for every $500,000 spent. We wonder how much of that 'investment' has flowed directly into cash purchases of REO-to-rent property with some well-drafted white paper explanation for how real-estate-based Keynesian multipliers will create magnitudes more jobs from that spending. "Give me your tired, your poor, Your huddled masses yearning to breathe free... your 'anyone with some cash please...."

Overnight China reported great trade data which saw exports and imports soar by more than 20% each compared to 2012. Of course, when one adjusts for January calendar effects the "rise" was virtually non-existent but that was too much work for the Shanghai Composite algos. A few hours later, the US did the same, reporting even better trade data which saw the trade deficit plunge the most in nearly three years. So far so good: we just have one question - who is lying more. Because unlike all other sole-sourced economic manipulated data which is solely a function of some excel goal seek model and various spreadsheets, bilateral trade has to foot. One country's net exports have to equal its countepart's net imports and vice versa.

Chinese economic data is always good for a laugh. So, courtesy of some observations by Diapason's Sean Corrigan, let's laugh.

Both the spring maintenance period in the US (creating a 'glut' of WTI), Seaway pipeline, and tensions in the Middle East are exaggerating the Brent-WTI spread which traded back to two-month highs. In the last week or so the differential has surged from around $16 to over $22 as WTI fell and Brent prices surged. There is a great degree of seasonality in this shift (and typically the Spring maintenance period has ended within the next week) but Iranian sanctions remain at the forefront (as does the belief that Germany's growth will be the engine of European demand - especially if EUR drops). This year was 'different' in so much as WTI outperformed for the first few weeks - potentially on the back of the global rise in risk-assets thanks to global central bank largesse. It appears the oil market is hinting at some slowdown.

Following November's massive trade deficit surge, when the final print of $48.7 billion was far worse than the $41.3 billion expected, it was only (il)logical that the December trade number would reverse this trend to the other extreme, which it did with the December trade balance plunging from a revised $48.6 billion to a tiny $38.5 billion - the lowest deficit since January 2010, and the biggest beat to expectations of $46 billion since February 2009. The deficit was the result of December exports which were $3.9 billion more than the $182.5 billion in November, and imports some $6.2 billion less than November's total $231.1 billion. Broken down by category, the goods deficit decreased $9.4 billion from November to $56.2 billion, and the services surplus increased $0.7 billion from November to $17.7 billion. A key driver of this move was a spike in Petroleum exports which shrunk the Petroleum product trade gap to the smallest it has been since August 2009 as the US imported the least amount of crude oil since February 1997. Whether this is due to rising domestic production, or just the ongoing collapse in end demand (which is to the US economy as electricity is China's traditional "8%" GDP) remains unclear.

With EURUSD having lost over 2 handles since Draghi began to speak at the press conference, we thought it worth examining just what he did (and did not) say. As Citi's Steven Englander notes, for the ECB it was a twofer.  They can claim they are not engaging in currency wars while giving a big wink and nod on monetary policy ease that says 'sell my currency'.  Yesterday when they said they were not too worried about currency, they didn't mention that they would sound very dovish on liquidity and monetary policy and stress the EUR's level  as a factor in inflation and economic forecasts. So while they did not do the currency war thing, they did the next best thing.

Today (February 8) at 11:00 GMT, the ECB announced the LTRO funds returned to it through the (third) weekly put-back option. Banks repaid €5 bn, bringing the cumulative repayment to €146 bn or 14% of the initial take-up. The cumulative amount of LTRO cash left in the system now stands at €873 bn.

After the now several week old exploding battery fiasco, Boeing is nowhere closer to resolving the recurring problem for its appropriately renamed Nightmareliner. But the worst for the company may be yet ahead: as the following chart from Stone McCarthy shows, January new aircraft orders collapsed from 183 in December to a meaningless 2 in January: a seasonally strong month, with some 150 orders a year ago, and more weakness to come as Boeing just warned its first Norwegian delivery due in April may be delayed. But while it was expected that the company's quality control failure would eventually catch up to it, the broader implication is that this month's Durable Goods number, released February 27 and of which transportation is always a key variable at least at the headline level, will be a disaster.

• Rate-Rig Spotlight Falls on 'Rain Man' (WSJ)
• Blizzard Cancels U.S. Flights, Threatens Snow in New York (BBG)
• Monti says he did not know of bank probes (FT)
• Japan's Aso: yen has weakened more than intended (Reuters)
• Japan Pledges Foreign-Policy Response to Territorial Incursions (BBG)
• Paratroops mutiny in Bamako in blow to Mali security efforts (Reuters)
• China, Japan engage in new invective over disputed isles (Reuters)
• Asteroid to Traverse Earth’s Satellite Zone, NASA Says (BBG)
• EU leaders haggle over budget tightening (FT)
• China Trade Tops Forecasts in Holiday-Distorted Month (Bloomberg)
• Buffett’s Son Says He’s Prepared Whole Life for Berkshire Role (BBG)