Archive - Mar 2013 - Story

Recent news about Federal plans to "help" manage private retirement accounts renewed our interest in the topic of capital controls. One example of capital control is to limit the amount of money that can be transferred out of the country; another is limiting the amount of cash that can be withdrawn from accounts; a third is the government mandates private capital must be invested in government bonds. Though presented as "helping" households, the real purpose of the power grab would be to enable the Federal government to borrow the nation's retirement accounts at near-zero rates of return. As things fall apart, Central States pursue all sorts of politically expedient measures to protect the State's power and the wealth of the political and financial Elites. Precedent won't matter; survival of the State and its Elites will trump every other consideration.  All this raises an interesting question: what would America look like at $5000 an ounce gold?

Italian stocks have fallen five weeks in a row ending this week down over 3%. The rest of European stocks (including Spain) ended either side of unchanged. A similar picture in Sovereign bonds where Italian 10Y spreads smashed 50bps wider on the week (and Portugal +25bps) while the rest ended +5-10bps only on the week. Today was a weak day overall with the most obvious place to see that weakness the plunge in EURUSD which broke below 1.30 for the first time since early December. Swiss 2Y rates ended negative, EUR-USD basis swaps were leaking worse, and Europe's VIX closed up around 1 vol at 21.5% (well off its highs of the week). Critically, we saw no BTFD appetite in Italian risk assets this week - even with the auction going well - which suggests that Italian banks are as stuffed as they can be and fast money is fleeing.

At 11:35ET, President Obama will address the nation over how well the sequestration discussions are going. Following this morning's rumor-driven ramp, and Boehner's very recent comments that "discussions are over", we await the President's calming tones or hell-fire conjuring warnings... the question is - how many park rangers will be standing behind the President?

We saw what happened yesterday when the unknowable vote went exactly as everyone expected - the supposedly totally-priced-in equity market dumped. Today, the rumor is that a deal is on the cards and sure enough S&P 500 futures ramp almost 20 points. Interestingly, this ramp has stopped just as Gold and stocks have recoupled relative to each other on the week. Of course, once the rumor is flatly denied or rejected, we would expect little to no selling pressure in this broken market because there is always hope...

For the first time in two years, Italy's youth unemployment rate is now higher than Portugal's at a staggering 38.7% (which is where Greece was just two years ago). Apart from Germany (which fell from 8.0% to 7.9%), every other nation saw youth unemployment rates rise with a record 24.2% of European youth unemployed. Greece (59.4%) and Spain (55.5%) remain the most concerning as we noted in the past, austerity sounds straightforward as a policy, until the consequences bite in terms of social unrest.

Hedge fund icon Stanley Druckenmiller sat down with Bloomberg TV's Stephanie Ruhle, saying that he’s decided to speak out now because he sees "a storm coming, maybe bigger than the storm we had in 2008, 2010." His fear is that the ballooning costs of Social Security, Medicare and Medicaid (which with unfunded liabilities are as high as $211 trillion) will bankrupt the nation's youth an pose a much greater danger than the debt currently being debated in Congress.  He said, "While everybody is focusing on the here and now, there's a much, much bigger storm that's about to hit... I am not against seniors. What I am against is current seniors stealing from future seniors." While not exactly Maxine Waters' sequestration-based 170 million job loss, this concerning interview is must-see for his clarity and forthrightness from who is to blame, to the consequences of gridlock, our society's short-term thinking, and the concerning demographics the US faces.

The headlines will exclaim ISM Manufacturing beat expectations and reached its highest level since June 2011 (and that is true) but a scratch below the surface shows what really counts. New orders rose as did Production (all good) but the Employment sub-index dropped (what with all these new orders?) and Prices Paid surged to the highest in 20 months. Interestingly New Export Orders improved - though we are unclear (given the PMIs overnight) just who they are exporting to. In other news, the housing recovery is trotting along - apart from the biggest MoM plunge in construction spending in 19 months.

Apple is under pressure this morning -1.8%. It has broken recent lows and is traversing the gap from 1/24/12 (meaning if you bought at any time after that you are now losing money - and notably relative to the market). These are 13-month lows - great buying opportunity we are assured by Topeka et al. Just think, an iWatch, iTV, iDunno...

On the first workday of a new month, global PMI manufacturing surveys are released around the world. That gives us an early read on the state of manufacturing. As the nearby table from BofAML shows, out of the 22 countries that have reported so far, the message is not good. A reading above 50 reflects expansion while below 50 indicates contraction. In this regard, there were 12 countries in negative territory and 10 in positive. Europe remains a disaster with the divide between core and periphery now starting to be matched by the divide (which we recently discussed) between France and Germany. The UK's plunge from expansion to contraction (just beating Italy's weakness) was its largest drop in 8 months (seemingly once again confirming that you can't print real economic growth) as Holland and Norway also fell notably. While still theoretically in expansion, China also slid raising concerns over the global growth meme that we see highlighted in stock prices this morning.

When the US income and spending figures for December came out, the punditry couldn't contain their exuberance following the massive surge in income which as we explained was merely a function of the pulled forward wages and bonuses in December due to fears of what the Fiscal Cliff and the expiration of the payroll tax cut would do to incomes in 2013 (nothing good), as well as a surge in stock dividends to avoid a dividend tax hike resulting in yet another boost in income. The spike in personal income without an offset in spending sent the savings rate to the highest in three years. Today it's payback time as moments ago we learned that the US consumer gave back all the December gains and then much following news that while spending did nothing, and came in as expected at 0.2%, personal income imploded by 3.6% on estimates of a modest 2.4% drop. This was the biggest drop in personal income in 20 years just as the US consumer's confidence was soaring at least according to such manipulated aggregators as UMich. What this also led to was that not only is the stock market back to 2007 levels, but so is the personal saving rate, which crashed from 6.4% to 2.4%, the lowest since November 2007, and leaving Americans with the least purchasing power just as the full impact of a government that is flirting with austerity is starting to be felt.  And just as bad was the material 4% pullback in real disposable personal income or adjusted for inflation.  "Consumers can’t spend what they don’t have, and they don’t much much,” summarized Bloomberg economist Rich Yamarone.

It's an ugly start to the day wherever we look. Europe is a bloodbath as the dead-cat-bounce hopes fade with Swiss 2Y rates notably negative once again and Italian bond spreads 55bps wider on the week (near the wides of the week) as Italy's equity market plunges back to the lows (-4%) on the week. US equity futures are fading rapidly and after tracking gold for most of the last 12 hours, we are now seeing gold (and silver) resurge as stocks continues to slide back towards bonds un-exuberance. Treasury yields are at the lows of the week (-11bps). From weak macro data overnight to the whocouldanode sequestration, there's plenty to worry about, but then again we have POMO in a few hours...

• US braced as cuts deadline passes (FT)
• U.S. stares down start of steep "automatic" budget cuts (Reuters)
• Yeltsin-Era Tycoons Sell Resources for Distance From Kremlin (BBG)
• Italy's center-left leader rules out coalition with Berlusconi (Reuters)
• Apple Required Executives to Hold Triple Their Salary in Stock (WSJ)
• BOJ Seen Spiking Punchbowl in April Under New Chief Kuroda (BBG)
• Diplomatic fallout from EU bonus cap (FT)
• Italy’s Stalemate Jeopardizes Resolution of Crisis, Finland Says (BBG)
• Chinese trader accused of busting Iran missile embargo (Reuters)
• JPMorgan No. 1 Investment Bank Amid a Flurry of New Deals (BBG)
• Eurotunnel’s Ferry Strategy at Risk as Rivals Cry Foul (BBG)
• Telepathic rats team up across continents (FT)

The "great rotation" illusion may have ended just as rapidly as it arrived. Bank of America reports that in the past week, "commodity funds reported their largest historical weekly outflow, in dollar terms, of -$3.2bn this week and US equity funds reported an outflow of -$4.1bn this week, which is their largest weekly outflow this year." So much for anyone rotating anywhere. And while we await for the delayed ICI to confirm this data, we can only remind readers that this is precisely the same inflow followed by outflow that was seen in early 2011, which was then followed by nearly two straight years of relentless and persistent outflows.  Oh well - better luck in 2014.