Archive - Feb 2013 - Story

Initial claims beat expectations but remain in a narrow 'flat' range for the last year. Non-seasonally-adjusted claims dropped notably to their lowest in 5 months. Since January we have seen multiple estimated states and a lot of choppy noise in the initial claims data. Against this choppiness in the main headline data is the swings in Emergency Unemployment Compensation (EUC) benefits which rose 10% or 187k. One thing is for sure, the last two months have seen an unprecedented amount of noise in the claims data that we can only put down to seasonally-affected-disorder (or statistical idiocy with 5 sigma swings the new normal).

From -0.1% to +0.1% (on expectations of a 0.5% print): the Q4 GDP revision was the smallest possible to make it seem that the US economy grew in the fourth quarter. A quick look at the components, however, reveals more of the same, with a small drop in the consumption contribution to GDP (from 1.52% to 1.47%), Fixed investment growing modestly, as well as imports, while the negative components remained roughly in line, with Inventories detracting the most from growth in Q4, or 1.55%. If JCP is any indication, expectations of aggressive inventory restocking in Q1 may be very optimistic. One thing is clear - the general GDP trendline is ugly, and we may now see downward revisions to Q1 growth forecasts in the aftermath of today's number.

Money is not like a commodity; there is no end to it. You don’t have to grow it, find it in the ground, drill for it or plant it in the spring. It is not even that the supply of lumber will curtail the paper for most of it is not printed at all. Made from nothing, recorded on a spreadsheet, sent out across the wires, a digital divinity of man’s own creation. It is a world that none have seen before. It is not Huxley’s “Brave New World” but something far stranger; a financial system cobbled together in counting houses and made from nothing but air. In the last days Bernanke promised that the feeding would continue, Draghi promised a food laden table without end and the Band of Merry Men rejoiced and the gauge of their elevated mood, the markets, responded accordingly and the party continued.

In addition to currency, trade, and disputed islands, Japan can add one more form of covert warfare it is now engaged in with China: atmospheric. We first wrote about the relentless exports of Beijing's toxic smog, which has been migrating in an eastern direction, over the East China Asia, and parking right over downtown Tokyo, nearly a month ago,  but only now has Japan formally responded to what can only be classified as Chinese atmospheric sabotage. According to Japan Times, "Authorities will urge residents to stay indoors if the level of toxic smog spreading to Japan from China is expected to exceed twice the maximum limit set by the central government, officials said." And with Chinese smog overnight already literally off the charts virtually every day, one wonders just what is this great economic reflationary miracle Japan intends on conducting, with everyone ordered to stay indoors or better yet, not breathe? The good news, is that as explained previously, China's inbound toxic air should promptly fix Japan's untenable "top-heavy" demographic situation.

• Grillo kills move to break Italy deadlock (FT)
• Abe nominates Kuroda to run BoJ (FT)
• More WMT bad news: Wal-Mart Chief Administrative Officer Mars to Leave: WSJ (BBG)
• Japan's Abe: Islands Are Indisputably Ours (WSJ) - Except for China of course
• Low-key departure as pope steps down, to enter the final phase of his life "hidden from the world" (Reuters)
• Cuts unlikely to deliver promised budget savings (Reuters)
• European Union caps bankers’ bonuses (FT)
• White House, Republicans dig in ahead of budget talks (Reuters)
• Jockeying Stalls Deal on Cuts (WSJ)
• Argentina Says It Won’t Voluntarily Comply With Bond Ruling (BBG)
• Italian president says forming new government cannot be rushed (Reuters) - or happen at all
• Central Banks Spewing Cash Must Plan Exit Timing, Rohde Says (BBG)
• China Regional Targets Cut in Sign Debt Concerns Heeded (BBG)
• RBA Says Up to 34 Central Banks Holding Australian Dollars (BBG)

It has been yet another quiet overnight session, devoid of the usual EURUSD ramp, and thus ES, at the Europe open (although it is never too late), which has seen the Shangai Composite finally post a meaningful rise up 2.26%, followed by some unremarkable European macro data as Eurozone CPI came as expected at 2.0%, and German unemployment just a tad better, at -3K, with consensus looking for 0K. Italy continues to be the wildcard, with little clarity on just who the now expected grand coalition will consist of. According to Newedge's Jamal Meliani, a base case scenario of Bersani/Berlusconi coalition may see a relief rally, tightening 10Y BTP/bund spread toward 300bps. A coalition would maintain current fiscal agenda and won’t implement any major reforms with fresh elections being     called within a year. A Bersani/Grillo coalition is least likely, may slow reforms which would see 10Y BTP/bund spreads widening to 375bps. Of course, everything is speculation now, with Grillo saying no to any coalition, and moments ago a PD official saying against a broad coalition. But at least the market has it all priced in already - for more see Italy gridlock deepens as Europe watches nervously.

Just days before the UK's Barclays bank is set to unveil the number of staff who earned more than GBP1 million last year in its annual report, as part of a push for more transparency, the FT reports that a provisional EU deal - set to go into place in January 2014, will bring the most severe pay crackdown since the 2008 crisis began. European Bankers' bonuses (and their US subsidiaries) are to be capped at two times bankers' salaries and banks will be subject to a strict transparency regime after a late Wednesday European parliament vote secured agreement on a mandatory 1:1 ratio on salary relative to variable pay, which can rise to 2:1 with explicit shareholder approval. With the UK 'threatening' referenda in the future, the deal, if confirmed, is a major victory for the EU parliament negotiators, who insisted on pay curbs as their price for passing Basel; and a sign of London’s relative isolation on some financial services issues. As far as a workaround, the EU commissioner responsible for the reforms, said it was "difficult to imagine now that we would scrap this compromise," though we are sure they will find a way, especially as MEPs want the tougher version eventually to apply to hedge funds and investment managers.

This letter is a few days old, but is very important for every American to be aware of. Essentially, Rand Paul is threatening to filibuster Barack Obama’s nominee for the CIA, John Brennan, due to his refusal to answer a simple question: Do you believe that the President has the power to authorize lethal force, such as a drone strike, against a U.S. citizen on U.S. soil, and without trial? This should not be a complicated question to answer, yet it seems Obama, Brennan and pretty much every other little power consumed bureaucrat is incapable of doing so.

Two weeks ago, Wal-Mart stunned the world when a leaked memo discloses that February sales had been a "total disaster" and the company was facing the worst February start since 2006. Today, Bloomberg's deep throat in Bentonville strikes again, as a new leak emerges. "Wal-Mart Stores Inc (WMT), already struggling to woo shoppers constrained by higher taxes, is “"getting worse" at keeping shelves stocked, the retailer’s U.S. chief told executives, according to minutes of an officers’ meeting obtained by Bloomberg News. "We run out quickly and the new stuff doesn’t come in," U.S. Chief Executive Officer Bill Simon said, according to the minutes of the Feb. 1 meeting. Simon called “self-inflicted wounds” Wal-Mart’s “biggest risk” and said an executive vice president had been appointed to fix the restocking problem, according to the minutes."

The increasingly inverted structure of Japan’s population pyramid, with fewer young people than old people, means that it will be very difficult to generate the tax revenues necessary to pay for the healthcare needs of the elderly. Many have argued that a smaller population in Japan is a good thing, because the country is currently very crowded—indeed, many Japanese feel this way.  Whether or not this is true, it is certain that Japan will face major challenges in responding to the pragmatic issues of managing and maintaining an infrastructure built by and for a much larger population, as well as issues such as shifting economic patterns and workforce composition as a result of a changing age structure of the society. Today, the Japanese have no desire for empire and expansion, but the fact remains that population is a variable that remains central to how Japan, and its neighbors, will interact and respond to tensions, such as the current problems surrounding disputed territory in East Asia.

Those who listened to Bernanke's three hour oratory before the House Committee today noticed something different: the Chairman's tone was far more resigned, and as noted previously, on occasion devolved into incoherent, illogical ramblings that may be satisfactory for an introductory economics class at Clown College (aka Princeton), but certainly are inappropriate for the man who runs the world's most important printer. And while as expected the bulk of the Q&A session focused on the sequester, there were enough pearls one could shake a GDP hockeystick at. We have extracted the best of these exchanges below. However, the definitive five minutes comes from this fiery confrontation between Sean Duffy and the Chairman, in which the republican has obviously had enough with the monetary policy chief coming in Congress and telling Congress how to conduct fiscal policy, when it is Bernanke's deficit-monetizing actions that allow zero-cost borrowing and thus profligate, indiscriminate spending to result in such lunacy as total US debt just hitting a record 16,618,701,810,927.77.  From the negative jobs impact resulting from cutting Moroccan Pottery Classes, no longer handing out Obamaphones, stopping the payment of travel expenses for the watermelon queen in Alabama, and most importantly preventing shrimp from running on a treadmill, to Bernanke explaining how a 2% cut in the budget would result in mass mayhem, in the context of a 1% interest rise resulting in $100 billion in additional interest expense, and much, much more, the Chairman ties it all together.

Democratic lawmaker Representative Edward Markey of Massachusetts has used information from the Interior Department to form a report which claims that more than 100 oil and gas producers, including Chevron Corp., BP Plc, Exxon Mobil Corp., Royal Dutch Shell Plc, and ConocoPhillips, have benefitted from bungled leases awarded by the federal government. The leases enabled the companies to drill for oil and gas in federal waters without paying, or at least paying at a much lower rate, any royalties.

"Wealth Effect"