Archive - Apr 8, 2013 - Story

The jobs recovery is a complete and total myth.  The percentage of the working age population in the United States that had a job in March 2013 was exactly the same as it was all the way back in March 2010.  In addition, as you will see below, there are now more than 101 million working age Americans that do not have a job.  But even though the employment level in the United States has consistently remained very low over the past three years, the Obama administration keeps telling us that unemployment is actually going down. Anyone that tells you that "a higher percentage of Americans are working today" is telling you a complete and total lie.  The sad truth is that there has been no jobs recovery whatsoever. If things were getting better, there would not be more than 101 million working age Americans without a job.

Perhaps the best measure to gauge the European recovery is by the soaring number of companies going bust, because only from this perspective is Europe finally "fixed." As Reuters reports citing a report by Axesor, a record 2,564 companies filed for "insolvency proceedings", a more palatable version of the word bankruptcy, in the first quarter - an increase of 10% from Q4 and up a whopping 45% from Q1 2012. The reasons given: "tight credit conditions and meager demand." Or in other words: no actual cash flow to fund demand for products and services. Obviously it will take some truly phenomenal massaging and manipulation to represent GDP as rising in this environment, but we are confident the Spanish authorities are already on it, and somehow the Spanish pension fund, already 97% filled with Spanish government bonds, will somehow have a finger in yet another completely unbelievable economic print which will fool most of the algos most of the time on flashing red Bloomberg headlines.

While Q1 expectations have been marked down notably, the full year has hardly budged as the back-end of 2013 gets more and more loaded with margin expansion hope and earnings growth faith. As Goldman notes, consensus expects S&P 500 will deliver year-over-year EPS growth of +3% in 1Q 2013 driven by Financials earnings growth of 9%. Bottom-up consensus quarterly earnings growth rises from 3% in 1Q 2013 to 18% by 4Q 2013 using a recurring earnings 2012 base (Operating EPS is expected to surge to 29% growth by Q4). Against this, the level of consensus sales is highly correlated with economic growth expectations (i.e. moderate) and so it is on the shoulders of margins that the whole house of cards sits. Consensus expects margin recovery will begin in 4Q and extend throughout 2014. Consensus now expects full-year 2013 margins to reach a new peak of 9.2%. However, as Goldman notes, the prospect that margins may have peaked was a consistent theme that emerged during the 4Q 2012 earning conference calls; but we warn that 2013 earnings comparisons to 2013 will be problematic due to the significant differences between Operating and Adjusted EPS - which could also be quite telling in terms of accounting gimmickry.

Much has been said about "the Cyprus Template" (the so-called bail-in, where deposits are expropriated to recapitalize the insolvent banks), but virtually nothing has been written about the Real Cyprus Template. It appears the key preliminary step of the Real Cyprus Template is that money-center banks in Germany and other "core" Eurozone nations pull their money out of the soon-to-implode "periphery" nation's banks before the banking crisis is announced, "...this explains a lot about something that has always puzzled us: why the delay in resolving Cyprus after the Greek haircut?" We can now see there are two Cyprus Templates: 1. The public-relations/propaganda model; 2. The real one, that enables "core" eurozone banks to pull their deposits out of periphery banks before the deposit expropriation and capital controls kick in. Why are we not surprised the entire charade and expropriation is rigged to benefit the core banks?

European bank stocks are officially in bear market territory, now down over 22% from their highs with today's drop closing the index at seven month lows. Financial stocks have played catch down to credit's early warning weakness but still have more room to run. The correlation between financials and sovereigns has been notably broken down in the last few weeks - as it seems an external funding source has saved European sovereign debt (perhaps one that just wants to get away from its vicious cycle-like devaluation and diversify into anything non-JPY-denominated). On the day, Portugal blew wider at the open (+22bps) only to be magnificently bid back to unchanged by the invisible hand. Spain and Italy drifted slightly tighter on the day. Stocks were similarly low range today. Swiss 2Y closed at 3-month lows as EURUSD retraced back from its highs to close practically unchanged from Friday at 1.3000.

As part of its semi-annual update on "mapping the world's prices", Deutsche Bank has released the following index which we believe may be of interest to some of our more cash-strapped readers. Using a price parity calculation, DB has created the "cheap date" index which consists of i) a standard bouquet of roses, ii) cab rides, iii) pizza, iv) a soft drink, v) two movies tickets and vi) a couple of beers. What the "hit rate" of said basket of products in achieving the desired goal is unclear, but what is clear is that while the disparity between the most expensive (Sydney, Australia) and least expensive (Mumbai, India) place for a cheap date is vast at over 250%, and even a cheap date in Mumbai will set one back some $88.30 (and rising... the price that is).

Despite the ever-levitating nominal levels of Japanese stocks, and relative stability of European peripheral bonds, it appears the demand for 'safe-havens' is very high. Swiss 2Y interest rates just plunged to their lowest in almost 3 months at -4.7bps. It seems that even with the possibility of depositor haircuts, savers are more comfortable stashing their hard-earned cash in Switzerland than in high-beta US equities. This is the biggest 2-day drop in rates since Cyprus.

When we said several months ago, that the French military incursion in Mali would have a hilarious, if sad ending, we didn't quite have this in mind but it will do. It turns out that after the French "liberation" of Mali, French president Francois Hollande, already the most unpopular president in French history and last week's Cahuizac tax-evasion affair hardly doing much to boost his popularity, was awarded a two-humped (there is some debate if it had one or two humps) camel as a present for driving away the "evil" Al Qaeda and various other "evil" extremists. Sadly for Hollande, and for animalistic symbolism as indicative of French foreign policy, said camel was just killed and "put in a stew". And it only goes downhill from here.

In more than a dozen states, legislators are pushing for a movement back to a world where gold is considered money. As Bloomberg reports, lawmakers in Arizona are poised to follow Utah, which authorized bullion for currency in 2011. Similar bills are advancing in Kansas, South Carolina and other states to recognize gold and silver coins as legal tender. "The legislation is about signaling discontent with monetary policy and about what Ben Bernanke is doing," which seems confirmed by the recent shift in Texas to bring its gold back from the New York bank warehouse. The new measures would give "people the option of using money that won’t lose any purchasing power to inflation," one supporter of the bill explained, with another adding, "there is a fear that the government, or Bernanke in particular and the Federal Reserve, is pursuing a policy that will lead to the collapse of the dollar." The U.S. Constitution bars states from coining money and also forbids them from making anything except gold and silver coin tender for paying debts. Advocates say that opens the door for the states to allow bullion as legal tender.

Shanghai just can't catch a break - first it was floating dead pigs, then ducks, then black swans, then mass chicken exterminations, and now fish. From the Telegraph: " Just weeks after over 16,000 putrefying pigs were pulled from Shanghai's Huangpu river, more than 250kg of dead carp had to be retrieved from a river in the city's Songjiang district. Mystery still surrounds the cause of death, but numerous explanations have surfaced in the Chinese media since residents first complained about the foul-smelling fish last Monday. Theories reportedly include climate change, electrocution, an explosion or even a drug overdose. The Shanghai Daily quoted a local government official who "speculated" the fish could have been "drugged." So, in China things are so good, even the fish are ODing on sleeping pills? Hardly, but the fact that this is even floated "out there" just shows how miserably The Onion has missed its IPO window.

It is hard to make sense of the markets these days. For instance, gold showed no support while the geopolitical situation in Asia deteriorated, Japan embarked in the mother of all monetization programs, and a member nation of what is supposed to be a monetary union was imposed controls on the movement of capital. Or take the case of the Euro, which jumped from $1.2750 to $1.2950 on the day of one of the most confusing and embarrassing press conferences the president of its central bank ever gave. However, in a faraway land, where there is no shadow banking, leverage or even capital markets, economic fundamentals still hold, which can help us, inhabitants of the developed world, visualize a dynamics lost in the shelves of our collective memory. The land we are referring to is Argentina, but not Argentina of 2001. Today, we want to write about Argentina of 2013, and no, we will not discuss their legal battles with Mr. Singer.

Q. What is your view on gold?

Soros: That’s a complicated question. It has disappointed the public, because it is meant to be the ultimate safe haven. But when the euro was close to collapsing in the last year, actually gold went down, because if people needed to sell something, they could sell gold. Therefore they sold gold. So gold went down together with everything else. Gold was destroyed as a safe haven, proved to be unsafe. Because of the disappointment, most people are reducing their holdings of gold. But the central banks will continue to buy them, so I don’t expect gold to go down. If you have the prospect of a crisis, you will have occasional flurries or jumps. So gold is very volatile on a day-to-day basis, no trend on a longer-term basis.

We live in a world that is dislocated, on a different axis, where the economy is doing one thing and the markets are doing something else that is not connected. As political nonsense becomes the world's normal banter; the official language in the Press is little more than printed or spoken noise - all caused by the Fed's outpouring of money into the system. Rational reactions become irrational when confined to an irrational world. The world will return to its senses once again either driven by some "event" or by the Fed beginning some sort of withdrawal. In the meantime the markets are beginning to back-up some as moved by becoming accustomed to the continuing flood of money. It is rather like a fine Bordeaux. One meal, two meals, a week's worth of meals and the experience is marvelous but if you drink it every night for dinner the magic begins to dissipate. It is no longer special; it is something expected, it is just the normal fare.

Slew of headlines out of the UK reporting that after suffering a stroke, the Iron Lady and former Prime Minister of the UK, Margaret Thatcher, has died. Rest in Peace.

The week ahead is light on major market moving data releases. From a policy perspective and in light of the recent moves in treasuries, FOMC minutes are likely to be followed by markets. Retail sales in the US are likely to print below consensus both on the headline and on the core metrics. That said, this needs to be seen against the backdrop of first quarter retail consumer spending data surprising to the upside. Producer prices are also likely to come in on the soft side of market expectations. Finally, do not expect large surprises from the U of Michigan consumer confidence.