Archive - Feb 2013 - Story

After the spectacular moves of late 2008, currency market volatility slowly reverted to more normal ranges, with a few exceptions over the course of 2009-2011. However, as Saxo Bank notes, since the start of the year, firebrand rhetoric is forcing currencies lower. The yen has fallen a stunning 17% against the US dollar and over 20% versus the Euro in the three months since Japan’s newly elected prime minister Shinzo Abe took charge. This has reignited the global currency wars. But who are the winners and losers? Follow the three step process outlined in the infographic below and have your say at the #FXdebates. As you can see, currency debasement has given rise to a rally in equity markets (for now), but major economies, both advanced and emerging, have been slow to recover.

Presented with little comment except to note that US and European credit markets have been sending warning signals all year; whether they rally to meet stocks or stocks crack to credit's concerns is not for sure - though the truism that credit anticipates and equity confirms remains as prescient as ever. However, it appears the macro-economy is better reflected in credit and with the Fed suggesting its liquidity anxiety is rising, perhaps equities will recouple once again...

For a while there it was looking as if the market might actually make its high and move lower before Wall Street and corporate insiders were able to hand the bag over to the suckers in retail.  It looks like that was just wishful thinking, as new stats show the retail sheep taking stock from the oligarchs at the highs as usual.  I guess the more things change the more they stay the same.

Across the universe of hedge funds that Goldman Sachs covers, the net long exposure to the market reached a record-breaking 52% in Q4 2012 - the most bullish level on record. It would appear, as we noted here, that the 2-and-20 crowd of alpha generators have merely been corralled into beta-chasers as, just as they did in the run-up to the 2007/8 highs, their exposure is mirroring the broad market performance. It strikes us that a 'hedge' fund should, in general, be contrarily reducing exposure as the market rises but with turnover of all positions also at record lows it would appear the managers have set out their chips and are all holding on - as the reality of relative returns (in a fickle investing environment) trump absolute returns. Despite low turnover, hedge funds notably reduced holdings of underperforming long-time favorites Apple and gold (lowest holdings since the crisis began) while raising allocations to rallying Financials. Seems like deja vu to us?

Ten years after the infamous 'Supersize Me' movie highlighted the epidemic of obesity and fast-food in the US, it appears, from CDC data, that the message that greasy burgers and other artery-clogging food is not good (no matter how cheap). As NBCNews reports, the percentage of calories consumed from fast-food has dropped from 12.8% between 2003-2006 to 11.3% between 2007-2010. The reasons are not entirely clear though an aging population is certainly a factor as they comment, "Maybe you don't listen at 30, but you do at 60 when you are more vulnerable to clogged arteries of high blood pressure," as the 60-plus age group's consumption of fast-food dropped as low as 6% of calories (with the 20-39 age group consuming the most). Unfortunately, non-Hispanic black adults consumed a worrying 21% of their calories from fast-food. While this appears to be a positive thing, and indeed the aging of our population provides some backing for it continuing, we can't help but fear that the ongoing surge in food stamps and disability benefits suggests the fast-food 'breadlines' of today may be regrowing.

While yesterday's biggest S&P drop of the year to date, and today's risk off continuation, is merely a modest response to the completely baseless fear that the Fed will no longer create free beta for everyone, to most liquidity-addicts it is merely a chance to "BTFD." So for the benefit of those who just can't wait for the momentum to return (in a world where fundamentals are completely meaningless as a result of the Fed's soon to be $4 trillion balance sheet and only momo and hope-based strategies remain), we provide our quarterly update of the most hated stocks as represented by the percentage of short interest relative to float. Because as the recent Herbalife saga has shown, the only residual strategy from the Old Normal in a time when the only thing matters is what direction the Fed chairman sneezes, is to force epic short squeezes not based on fundamentals but purely on stock technicals and massive short overhangs.

We recently received the good news via an advert that we can buy healthcare insurance for as little as $3.16 a day. Wow, that's only $95 a month. Since my we are paying $1,136 a month for stripped-down, minimal coverage with one of the nation's non-profit care providers, imagine our delight at this revelation. Wow, this Affordable Care Act (ACA) a.k.a. Obamacare is already working! The advert doesn't provide any details on restrictions and exclusions, so we have taken the liberty of providing some typical fine print...

Several days ago we wrote about what we defined as the Fed's "D-Rate" - the interest rate at which the cash outflows from payments by the Fed on its Excess Reserves will surpass that cash inflows from its asset holdings, a very troubling day because as we further explained, from that point on the Fed would be "printing money just to print money." In other words, with every passing day, the Fed is getting ever closer to the point where the inflation it so very much wishes to unleash will force it to essentially request a technical bailout from Congress (and certainly will halt all future interest remittances to the Treasury), and the longer this takes, the lower the breakeven interest rate becomes, until one day it is so low the tiniest rise in rates will immediately put the Fed into the red. It now appears that Congress itself, the ultimate beneficiary of the Fed's free money policy as nearly half of all US spending is funded by the Fed's monetization of the deficit at ultra low rates, is finally catching on to what is the ultimate rock and hard place for Ben Bernanke. In a letter penned by the Chairman of the House Oversight & Government Reform Committee, Jim Jordan, says that he is "troubled by the corresponding effect that the Federal Reserve's expanding portfolio could have on current and future economic growth" and has asked the Fed what its "future plans to unwind the [$3 trillion and rising at $885 billion per month] portfolio" are.

As we warned here, the compression in realized volatility to the levels we were experiencing early in the week was simply unprecedented for any length of time. Furthermore, the relative compression of equity volatility to credit volatility was a concern - sure enough - two days later, spot VIX has just seen the largest two-day percentage jump since November 2011; and equities are catching down to credit's less exuberant view of the world.

The great unrecovery just accelerated with more great unrotation out of stocks following today's February Philly Fed which just plunged from -5.8 to -12.5 on expectations of a positive print of +1. This was the worst print in 8 months, the biggest miss in 9 months, and the biggest two month drop in the New Orders index which crashed to -7.8 in 18 months. Even the attempts at spin were weak: "The survey’s broadest measure of manufacturing conditions, the diffusion  index of current activity, decreased from a reading ?5.8 in January to ?12.5 this month (see Chart). The demand for manufactured goods also showed slight declines this month: The new orders index declined from a reading of ?4.3 in January to ?7.8 in February. Despite negative readings for general activity and new orders, the shipments index showed improvement: The index remained positive and edged slightly higher to 2.4. The percentage of firms reporting increased shipments (25 percent) was slightly greater than the percentage reporting declines (22 percent)." But fear not: optimism abounds - after all, that's all there is: "The survey’s future indicators suggest that firms expect recent declines to be temporary." Oddly enough survey participants have been hoping for a brighter future for 4 years now. Expect the sellside penguins to say that this number too should be ignored, just like the initial claims earlier, and the new housing starts yesterday. After all one should ignore all data that does not fit the goalseeked script of a centrally-mandated "recovery."

Presented without any comment (see original Titan letter here), and google translated to add Babel fishing insult to an already injurious, or is that hilarious, exchange between a hard core capitalist and a socialist... perfect ignorance, admiration of Obama, trade tariff threats, oh, and don't mention the war.

Much has been made of President Obama's non-deficit-increasing desire to raise the minimum wage by around 20%. This all sounds so good in front of a teleprompter but, as we noted here, a higher price for a good (low cost labor) simply means less of it will be demanded (higher unemployment). However, while setting a federally mandated minimum wage may make sense in the mind's eye of a President's panderers, a glance at Europe will blow most people's minds. The disparity across the nations of the European Union is 12-to-1: from Romania's EUR157 to Luxembourg's EUR1874 per month. This compares with an equivalent EUR998 for the US. As Bloomberg's Niraj Shah notes, this disparity drops to 6-to-1 if adjusted for local prices but two critical points come to mind; first, how can a 'union' with such massive disparity in labor function under a single monetary policy (hint: it can't); and second, with nations such as France, UK, and Ireland offering higher minimum wages than the US, it is hardly inspiring for any benefits Obama hopes to reap from his new deal.

It's that time of day. Commodities exchanges are opening. And yet, today has a different feel to it. For some strange indiscernible reason, the incessant offer on gold and silver that appears every morning for most of the recent weeks has yet to appear. Did the central bankers get busted? Are too many people aware of the manipulation? Did a 3% drop in China spook them back at the margin? Who knows - its early yet...

Last week's initial claims "miracle", when it printed at 341K on expectations of a 360K print when the DOL estimated IL and CT claims, has once again been undone. Moments ago we got the February 16 number which, as could be anticipated, jumped by a solid 20,000, from an upward revised 342,000 to 362,000. And like last week, the Labor Department once again engaged in a huge guessing game, this time forecasting the claims for California, Virginia, Hawaii and DC, meaning next week's data will likely be even worse. Which is troubling. As the chart below shows, one would expect just a little more improvement from a recovery in which the just released initial claims of 362K are doing "so much better" compared to initial claims from precisely a year ago which were... 362K. Perhaps, keeping in line with greatly rotating themes, we can just call this "the 360 degree recovery  - where you always end up where you started." Or maybe, just maybe, the Fed's tinkering with the economy for 4 years running has broken the whole thing?

To say that Germany does not love Silvio Berlusconi would be an understatement. But not even we thought European "democracy" would stoop so low as to tell Italians not to bring Bunga back or else. As Reuters reports, the German president of the European Parliament, once compared to a Nazi concentration camp guard by former Italian prime minister Silvio Berlusconi, warned Italians on Thursday not to back the scandal-ridden media tycoon at the ballot box. Martin Schulz is the latest in a line of German politicians to express fears about a possible Berlusconi comeback largely due to worries he will halt Rome's reform drive that has helped to lift investor confidence in the euro zone. "Silvio Berlusconi has already sent Italy into a tailspin with irresponsible behavior in government and personal escapades," Schulz was quoted as saying in German daily Bild.