Archive - Apr 2013 - Story

One of the hallmarks of the ongoing European economic depression has been the complete implosion in the continent's automotive sales (here and here) and as Reuters summarized last week, there is little hope of a rebound for a long, long time. Curiously, where Europe has seen complete devastation, the US has been surprisingly resilient, and even when factoring in for such traditional gimmicks as channel stuffing, performed most notoriously by GM, which in March had the second highest amount of cars parked on dealer lots in its post-bankruptcy history, car sales have been rather brisk which in turn has allowed the US to report manufacturing numbers which, until the recent PMI and ISM data, were better than expected. One does, wonder, however, how much of a factor for this has been the forward demand-pull impact of Hurricane Sandy in late 2012, when as a result of tens of thousands of cars being totaled in tri-state area flooding, consumers scrambled to car lots to buy new autos. Well, we may have found the reason for the recent disappointing performance in both the Chicago PMI and the Manufacturing ISM - the positive effect from Sandy is finally fading, as today's domestic car sales show, which posted a surprising decline in March, especially in non-Trucks which dipped to the lowest since October 2013, and the first miss in total light vehicle sales SAAR since October.

It all looked great as we held the overnight rampathon (driven by EURJPY fiddling) into the US open and yay verily, the media was celebrating (and kept their exuberance going til the close with the Dow at another all-time closing high). The S&P was amusingly (and oh so humanly) bid 7 points vertically into the close to ensure a VWAP close in the futures (and another new closing high for the S&P) as the Nasdaq bounced perfectly off unchanged from Cyprus levels. But away from that idiocy, things were not so great. Builders were battered out of the gate (-2.4% on the week); The Dow Transports never saw green all day dropping 1.3% (and now down 3% post-Cyprus) and while the broad Russell 2000 opened gap up (like the rest) it was slammed slower all day and ends -2% from pre-Cyprus (while the Dow, S&P, and Nasdaq hold 0.5-1% gains). Silver was monkey-hammered (on no news whatsoever - and record US Mint demand) down 4% on the week and gold slipped ending -1.3% (even with the USD retracing yesterday's weakness to close unchanged on the week). Treasuries drifted higher in yield with 7Y underperforming (but only unch on the week). VIX compressed but remains considerably dislocated from stocks' exuberance.

Presented with little comment but it would appear that it is not just the American investing public that believes in miracles as the Japanese and European equity markets are now fully disconnected from dismal macro reality...

With the mainstream media becoming increasingly worked up about the pending real-estate 'parabolic' surge and 'now is the time to buy', the reality of 'zombie foreclosures' and 'foreclosure stuffing' that we discussed six months ago continues to grow. While most prefer to ignore inventory as an issue (apart from Bob Shiller and Karl Case who have adamantly refused to 'bless' this 'exuberant' housing recovery), knowing full well that at some point these huge volumes of vacated but still 'owned' homes must come to market (once the foreclosure process picks up). The reality is that with Nevada, Kentucky, Maine, and Indiana having over 50% of homes in vacant foreclosure, there is plenty of supply to come (and with it the accompanying downward pressure on prices)...

From 'why Cyprus could not bail out its banks' to its failed financing needs and the road to confiscation, Demonocracy provides the 'everything you wanted to know about Cyprus' infograph 'but were afraid to read'.

There is "not a chance," that the Fed will be able to unwind its balance sheet in an orderly manner, "because everybody is front-running [them]," as the Fed is creating "serial bubbles," that are increasingly hard to manage since "we're getting in deeper and deeper every time." David Stockman has been vociferously honest in the last few days and his Bloomberg Radio interview with Tom Keene was extremely so. While Keene tries his best to remain upbeat and his permabullish self, Stockman just keeps coming with body blow after body blow to the thesis that this 'recovery' is sustainable. "They are using a rosy scenario forecast for the next ten years that would make the rosy scenario of the 1981 Reagan administration look like an ugly duckling," he exclaims, adding that the Keynesian Krugmanites' confidence is "disingenuous" - "the elephant in the room - the Fed," that are for now enabling rates to stay where they are. The full transcript below provides much food for thought but he warns, if the Fed ever pulled back, even modestly, "there would be a tremendous panic sell off in the bond market because it is entirely propped up... It's to late to go cold turkey."

Over the past four years one of the dominant "deflationists" has been Gluskin Sheff's David Rosenberg. And, for the most part, his corresponding thesis - long bonds - has been a correct and lucrative one, if not so much for any inherent deflation in the system but because of the Fed's actual control of the entire bond curve and Bernanke's monetization of the primary deflationary signal the 10 and certainly the 30 Year bond. The endless purchases of these two security classes, coupled with periodic flights to safety into the bond complex have validated his call. Until now.

Infamous for little boys plugging holes with their fingers and grown-ups plugging their mouth with their foot (D-Boom), it seems Holland, Berlin's most important ally in the goal of greater fiscal discipline in Europe, has fallen into an economic crisis itself. As Spiegel reports, the once exemplary economy is suffering from huge debts and a burst real estate bubble, which has stalled growth and endangered jobs. The statistics make for some worrisome reading: no nation in the euro zone is as deeply in debt as the Netherlands, where banks have a total of about €650 billion in mortgage loans on their books; consumer debt amounts to about 250% of available income - by comparison, in 2011 even the Spaniards only reached a debt ratio of 125%; unemployment is on the rise; consumption is down; and growth has come to a standstill. The nationalization on SNS in February brought this reality home and as Spiegel reports, "there is no end to the crisis in sight."

European macro data surprises have dropped into negative territory for the first time in 3 months as the last 3 weeks have seen the biggest drop in 19 months. Of course, none of that matters, as EURJPY was bid all the way through the European day, lifting European stocks and the all-important Italian and Spanish bond markets. Markets were relatively thin still today but just as we have seen around the world (most specifically in Japan and the US recently) equity markets push on ahead despite the collapse in macro data - but we've seen this before a few times (and it did not end well)...

Just when you thought it was safe to play fowl again, China's CDC-equivalent has raised its level of concern to level-3 amid concerns that the bird flu virus is back (but this time in a different form). China reported on Tuesday that four more people in one province were seriously sickened by a bird flu virus new to humans. SCMP reports that the four latest cases follow three earlier ones reported on Sunday, including two men who died in Shanghai, resulting in the city activating an emergency plan that calls for heightened monitoring of suspicious flu cases. Cases of severe pneumonia with unclear causes are to be reported daily by hospitals to health bureaus, up from the weekly norm. The plan also called for stronger monitoring of people who work at poultry farms or are exposed to birds. The H7N9 strain has previously been considered not easily transmitted to humans, unlike the more virulent H5N1 strain, that has since killed 360 people worldwide. There is no evidence, as yet, that any of the three earlier cases, who were infected over the past two months, had contracted the disease from each other but on the bright side, the announcements, as lacking in details as they are, show that the government is mildly more transparent in handling health crises than it was a decade ago during the Sars pneumonia epidemic.

Remember that under a fractional reserve banking system only a small percentage of deposits is kept on hand for dispersal to depositors. The rest of the money is loaned out. Not only are many of the loans made by these banks going bad, but the reserve requirement in Euro-system countries is only one percent! If just one euro out of every hundred is withdrawn from banks, the bank reserves would be completely exhausted and the whole system would collapse. Is it any wonder, then, that the EU fears a major bank run and has shipped billions of euros to Cyprus? The elites in the EU and IMF failed to learn their lesson from the popular backlash to these tax proposals, and have openly talked about using Cyprus as a template for future bank bailouts. This raises the prospect of raids on bank accounts, pension funds, and any investments the government can get its hands on. In other words, no one's money is safe in any financial institution in Europe. Bank runs are now a certainty in future crises, as the people realize that they do not really own the money in their accounts. How long before bureaucrat and banker try that here?

Jerome Cahuzac, the French "budget minister" who was tasked with rooting out tax fraud by his socialist "75% tax or the capitalist pigs win" overlord, and who resigned two weeks ago to avoid "hindering" an investigation into allegations he had a secret Swiss account, all the while maintaining his innocence, has just been exposed as the latest lying Eurocrat politician.

FORMER FRENCH BUDGET MINISTER SAYS LIED ABOUT BANK ACCOUNT, HAD THE FOREIGN BANK ACCOUNT FOR ABOUT 20 YEARS
EX-FRENCH BUDGET MINISTER SAYS HAD EU600,000 IN FOREIGN ACCOUNT
EX-FRENCH BUDGET MINISTER APOLOGIZES TO HOLLANDE, AYRAULT

In other words: just another politician. But that's ok: it got serious - he could have gone to jail or been fired in disgrace, so naturally he had to lie.

We noted last night the 'six charts' that represent the sum total of the hopefulness of these markets with relation to fundamental earnings but it is the ratio of negative to positive earnings guidance - which stands at a record high - that should worry investors the most (and doesn't). As the WSJ notes, in the last bull market, the negative corporate guidance ratio hit a peak of 2.38 in the third quarter of 2007 - just as that bull market was ending (and troughed at 0.97 right as the bottom was in in stocks in Q1 2009). The current 3.55 ratio is the highest on record. But what is more representative of the market's absolutely sanguine nature is that just 2 days after guiding earnings down, stock prices are down just 0.3% (and half the stocks actually rose). As the WSJ concludes, and we tend to agree, watch out. There may be a nasty drop on the other side of this wall.

That the US manufacturing sector has hardly performed in line with a record stock market is not news to anyone, and was confirmed most recently when the February CapEx number was revealed (i.e., Durable Goods non-defense ex aircraft) and missed expectations. Today, we closed to page on February production with the monthly Factory Orders, which printed just better than expected at the headline level or 3.0% vs expectations of a 2.9% number. However, just like with the Durable Goods data, this was entirely driven by the transportation industry, i.e., Boeing airplanes. Stripping transports, the increase from January to February was a tiny 0.3%, far below the 2.0% sequential increase in the prior month, as the entire delta in the headline increase from $477.5 billion to $492 billion was purely as a result of transports. Finally, when looked at correct on a Year over Year basis, this is how Factory Orders (headline and ex-trans) look. Surely this chart of economic activity should explains record stock prices, as sadly no other one can.

Debt-serfdom and the dominance of Financial Power are two sides of the same coin. Let's be clear about three things: 1. Too Big to Fail financialization is the metastasizing cancer that has crippled democracy and capitalism; 2. Financialization feeds on expanding debt and cannot survive without it; and 3. Debt is serfdom. Debt is the mechanism of the Financial Powers' dominance and the chains of our serfdom. Eliminate debt and you eliminate the foundation of banks' power and the financial bondage of serfdom. Though it would dearly love to, the State cannot force anyone to take on debt except as taxpayers. We do not have to remain debt-serfs, nor accept our servitude as unavoidable or fated. Debt = serfdom. There is another way to live, frugally, with only short-term debts that are paid off in a few short years. We either accept the consumerist-narcissist debt-serf programming or reject it. We are neither victims nor bystanders. The choice is ours.