Archive - Apr 2013 - Story

David Stockman’s New York Times Op-Ed has ruffled a lot of feathers. Paul Krugman dislikes it, saying Stockman sounds like a cranky old man, and criticising Stockman for throwing out a load of meaningless numbers that sound kind of scary, but are less scary in context. What Krugman overlooks is Stockman’s excellent criticism of crony capitalism, financialisation, systemic rot and Wall Street corruption of Washington, something Stockman has seen from the inside as part of the Reagan administration. There are plenty of other writers who have pointed to this problem of propping up casino finance, including myself. But very few of them are doing so on the pages of the New York Times. In the long run, I think it will become patently clear that throwing liquidity at the financial system won’t solve anything other than immediate liquidity concerns. The rot was too deep. The financial sector needed real reform in 2008. It still needs it today.

From a January 2nd price of $13.16, the price of a Bitcoin in USD had risen to $46 on March 16th - right before the Cyprus 'solution' was announced. Since then, in two short weeks, the price of a Bitcoin has more than doubled, reaching $101 today. This 'exuberance' in non-fiat currency, should perhaps warrant caution as we noted here, the US is now not only actively monitoring but has commenced regulating the Bitcoin market and those who participate should be well aware that when uncle Sam is involved, things tend to have an unhappy ending.

Typically, when the ISM-leading Chicago PMI has a horrible print as it did last week, the subsequent ISM response in a "baffle with BS" centrally planned regime is one of a stunning beat just to make sure all vacuum tubes are kept on their binary toes, and the bad news is good news, good news is better news meme continues propagating. Not this time: moments ago, the March ISM printed at 51.3, the biggest miss to expectations (of 54.0) in 13 months, in fact below the lowest estimate, driven by a collapse in New Orders which tumbled from 57.8 to 51.4, as the rapid deceleration in the US economy is confirmed in virtually every recent metric. The good news, and what will be used to spin the market back into green following its epic 0.2% selloff on the news, is that the Employment Index rose from 52.6 to 54.2, the highest since June 2012. Elsewhere, the 1.2% increase in construction spending came in better than estimated... on a seasonally adjusted basis. Unadjusted it had its biggest drop since July 2011 but who cares: we all live in a seasonally-adjusted "reality" in which only the daily record S&P prints matter. And now, with yet another economic miss in tow, we resume your regularly scheduled no-volume Federal Reserve mandated "stock market" levitation.

Our April Fool's wish: someone in the inner circle of power would finally tell the truth. In an unprecedented abandonment of his carefully scripted responses to Congressional questions, Federal Reserve Chairman Ben Bernanke unleashed what appeared to be a heart-felt and spontaneous disavowal of the financial and political systems of the United States.

According to the updated NYSE Q2 circuit breaker levels, it will take a 4,350 point drop in the NYSE for an all day trading halt. Of course, if the DJIA tumbles by 30% intraday, whether to close the several hundred shares trading on the NYSE will be the last thing on people's minds.

The head of Greece's National Confederation of Greek Commerce has slammed the Troika and the European leaders for their treatment of Cyprus as the first wave of contagion begins. "The tragic situation.. will have immediate effects on the Greek market," he noted as at least 1600 Greek businesses will suffer from the Cyprus deal - with the haircuts and capital controls expected to dramatically impact the EUR1bn of Greek exports to Cyprus. The so-called "German Plan" will "cripple" Cyprus, he added, and "sentences" Cyprus to a long period of recession and debt.

We showed this chart over the weekend, but it bears repeating simply because in this case, one chart does indeed speak a thousand words. Presenting: unemployment in Iceland and Greece - pick the "just say no to the status quo" winner out.

Summary of key US events in the week ahead.

• Goldman's Mario Draghi convinced Italy president Napolitano not to resign (Reuters)
• David Stockman Warns of Crash Of Fed-Fueled Bubble Economy (BBG)
• Cyprian archbishop calls on Central Bank's head, Finance Minister to resign (Voice of Russia)
• Cyprus Parliament President Says Country Should Exit Eurozone (Zero Hedge)
• Cyprus seeks to find people behind bank crisis (FT)
• Argentina sticks to its guns over holdout creditor payments (FT)
• 40% of all trading is now done in dark pools and off exchanges (NYT)
• Sequester Impact Remains Elusive (WSJ)
• China’s Home Prices Increase Most in 26 Months, SouFun Says (BBG)
• Beijing, Shanghai Add to Home Curbs as China Acts to Cool Market (BBG)
• Two men die in Shanghai in first human cases of bird flu strain (SCMP)
• Economics will catch up with the euro  (FT)
• How much gold is there in the world? (BBC)
• Fannie Mae Regulator Sets No-Doc Modifications for Borrowers (BBG)

With Europe and the UK closed today, it was unclear if the traditional overnight futures levitation would take place as scheduled. To nobody's big surprise, it did, driven as usual by the EURUSD, which rose from an overnight low in the mid 1.27s following news that the Cypriot parliament head wanted to pull his country out of the Eurozone as reported here, but more importantly as that second ramp funding carry pair of choice, the USDJPY fell to the lowest in a month following yet another miss in the Japan Tankan big manufacturer index, touching under 93.30 for the first time since March 6, pushing the Nikkei 225 lower by over 2% - has the magic of Japanese rhetoric finally worn off and is the market finally demanding action instead of hollow promises, threats and simply, words? In China we got a miss in the official PMI data setting up yet another Schrodinger PMI split in Chinese economic growth indicators where the official details once again deteriorating while those tracked by HSBC/Markit are mysteriously improving. Also in Asia, rumblings out of South Korea, which continues to miss on key export and economic growth indicators, that it should cut rates mean the export-driven country is on the verge of joining the global currency warfare at which point the free Japanese lunch is over.