Archive - Feb 2013 - Story

One can stretch and spin the Q4 earnings reality to suit their particular sales pitch, or one can look at the facts. And the facts, as we first showed a week ago in "Q4 Earnings Season: Far Worse Than Most Suspect", is that before the start of Q4 earnings, the S&P 500 was expected to make $25.51 in earnings. Three weeks later, after half the companies had reported, the number declined to $24.03, with some $9.70 of actual reported earnings and the balance estimated. Now, a week later, the latest revision shows even more deterioration in earnings, which with 66% of companies my market cap reporting are now just $23.48, 8% lower than the estimate at the start of earnings season, with under $10 of earnings left in estimated EPS and the balance already in the books. As Goldman explains what this means for earnings on a year over year basis: "Our interim revised 4Q 2012 EPS estimate is now $23.48 implying negative 1% growth versus 4Q 2011 ($23.73)."

There are no limits on Central State and financial Aristocracy exploitation, but there are limits on what debt-serfs can pay. Since we can't print money, there are limits for us debt-serfs. There are also limits on how much we can extract from a neocolonial/neofeudal system as wages. This neocolonial/neofeudal financialization model will implode under its own weight, and that will be the crisis.

There was a time when Goldman's Tom Stolper lost money for Goldman's clients with such speed and fury, it left people's head spin (see here when he was closed out in a matter of days). There was also a time when Stolper was supposed to be stopped out but refused to do so until the EURUSD cross actually closed trading inside his stop zone (which it eventually did). Today, however, the second the EURUSD touched above 1.3700 the Goldman strategist decided to get the hell out of dodge and has picked up his 400 pips since putting on the long EURUSD reco several weeks ago. With that last reco, Stolper has modestly redeemed himself, and all those who had listened to his previous recos have made some 400 pips, which hopefully should compensate for some 5000+ pips in cumulative downside to date.

There is a rising roar of bulls stampeding to the Japanese stock market. Whether due to Abe's apparent "this time it's different" cratering of the JPY to aid exports (and avoid deflation) or just plain old momentum (as the Nikkei 225 is nominally up almost 8% in January). However, just a little reminder that this return is priced in those increasing worth-less JPY. For all those exuberant overseas investors eying the gains, the reality is that, in USD, Japan's stock market is almost perfectly unchanged since 12/28 - Currency Wars indeed...

Between Hess' plant closing and scheduled maintenance, the squeeze appears to be on the refining space and wholesale gasoline prices are smashing higher. Along with flares in geopolitical risk (Ankara today and Israel/Syria earlier in the week) driving underlying crude prices,  Gas prices (at the pump) are surging - to record highs for the first week of February as per AAA, hitting an all time high of $3.465 for this day and just surpassing last year's price of $3.455; and based on where wholesale prices are (given the lag), we could be seeing $4.00 gas at the pump in the next few weeks.

Before today's NFP number, the biggest news of the day was the substantial slowdown in European LTRO repayments, which ground to a halt from last week's repayment of €137 billion, to only €3 billion. Whether this is because banks decided that there is no more need to telegraph their health by keeping "excess liquidity", or because they actually did need to €878 billion in additional LTRO funding is unclear for now, although the overnight nationalization of a Dutch bank coupled with a return of Italian bank problems where Monte Paschi is next on the nationalization conveyer indicates that as always, nothing has been fixed in Europe. A full post-mortem of today's second LTRO repayment comes from Goldman, which concludes that as of the two repayments, the excess cash in the European financial sector is now in tune with the open market operations' reduction. When the next scramble for liquidity hits, it means that banks in the continent will once again start crawling to the ECB for incremental cash.

Events are rapidly unfolding in Europe which may bring something more than the “blink, wink and nod” of the famous children’s poem to the forefront of everyone’s thinking. There is great wisdom in Pinocchio actually beyond what is generally known. At one point the puppet heads into the “Field of Miracles” where he plants his gold and waits for it to grow. Pinocchio then heads off to “Catch-fools” which is a place where everyone has done something exceedingly foolish and suffers as a result. The world presently believes that there is no “event risk” and upon this foothold and the money poured into the streets by the central banks the markets rest in peace. Roads do not go on forever, the day eventually fades into the night and the peace of the morning is often shattered by the shrill cry of the dove being attacked by the falcon. The Great Game is not “Toyland” and great care is now called for before we awaken to find that we have turned into donkeys, or worse, ourselves.

While the baffle with BS theme was strong earlier, when the UMich consumer confidence soared, rejecting the plunge in the consumer confidence tracked by the Conference Board, contrary to our expectations, the manufacturing ISM did not do a "China", which last night was reported to have grown and ungrown at the same time, did not drop to disprove yesterday's Chicago PMI and instead soared to 53.1 from 50.2, well above the expectations of a 50.7 print, and above the highest Wall Street estimate. This was the biggest beat of expectations in 16 months, and was driven by virtually every series rising except for Exports and Deliveries, but mostly by a surge in Inventories, which soared from 43 to 51.

Presented with one comment... 'wealth'

The markets cannot make up their mind what to make of the Payrolls data this morning. Gold (and Silver) spiked and are holding gains; Treasury yields plunged and are trading lower in yield on the week now; EURUSD spiked then faded rapidly (not helped by Italian banking fraud); and stocks surged and are (for now) holding gains through the US open...as it awaits UMich confidence...

While it is enticing to fall for the same old trick of reading the "quantitative", or headline, jobs data, driven entirely by the Establishment Survey, which as the BLS itself showed today, is nothing but mere noise based on seasonal adjustments and population estimates which is revised at least once a year based on new and improved exit assumptions, below we show the actual unvarnished truth contained in today's jobs reports. Recall that in our pre-NFP post we pointed out something critical: "an even more disturbing trend is the conversion of America into a gerontocratic worker society, where the bulk of jobs are handed out to those 55 and over, which puts all young workers, not to mention college graduates, at a major disadvantage relative to far more experienced older workers." And sure enough, a quick update of the jobs by age-group change in January based on Household Survey data, the same data that showed that the unemployment rate actually rose from 7.8% to 7.9% (to give Bernanke more runway for QEternity as we predicted in December) shows that in the past month, 115,000 jobs were.... lost?

As we warned last week when the BMPS fraud story broke, this is highly likely to be the canary in the Italian banking system coalmine; and sure enough today, Reuters reports that:

ITALIAN PROSECUTORS INVESTIGATING MONTE PASCHI, BNL, UNICREDIT, INTESA SAN PAOLO AND CREDEM - JUDICIAL SOURCE

Italian bank stocks (still under short-selling bans) are plunging (and the EUR is dropping) but, as Reuters notes, the winner in this growing debacle is Berlusconi as Italians blame the Democratic Party for the problems at the banks. Most pollsters, however, still think it unlikely that Berlusconi can overtake Bersani with little more than three weeks to go - after being more than 15 points behind in early December. And just as a reminder Mario Draghi was running the Bank of Italy during this era of evasion.

As part of today's non-farm payroll release, the BLS also issued its revision to the Establishment Survey as a result of updated population estimates, which, as the name implies, adjusted monthly data to the Establishment Survey which is the actual headline print that moves the market, not the data in the household survey which is what the unemployment rate is based on. In short: of the 12 monthly revisions, there were just 2 months in which the post-revision data was adjusted downward, July and August, with all other months supposedly adding jobs to the cumulative total, which as of December stood at 134,668 jobs as revised, compared to 134,021 pre-revision. So for those curious how the sequential change in jobs would have looked on a pre vs post-revision basis, we summarize the 2012 data in the chart below. In short: the revision would have added a total 335,000 jobs to the Establishment Survey headlines over the 2012 NFP headlines. The point of the chart is to show just how variable the actual monthly swing is based on exit assumptions, yet this is precisely the data that the kneejerk collocated algos trade on.

Spain's IBEX stock market index has plunged by around 6% this week - the biggest weekly drop in six months. Spanish sovereign bond spreads are flat-lining, entirely ignorant of this devastation; and of course, EURUSD continues to surge. The EUR surge and IBEX plunge coincidentally began at the same time (Wednesday) as Rajoy's alleged kickback scheme was uncovered... oh yeah, and Spain lifted its short-selling ban (oops). Spanish stocks are now red for 2013...

The goldilocks economy continues as January nonfarm payrolls number comes in right as expected, or 157,000, a tiny miss to expectations of 165,000, down from the upwardly revised 196,000 (was 155,000 previously), leading to an unemployment rate of 7.9%, higher than the 7.8% expected. The seasonal adjustment for January was in line with expectations, or 2.120 million, as the actual decline in jobs December to January was a whopping 2.84 million. The NSA Birth/Death adjustment subtracted some 314K jobs in January.