Archive - May 2, 2013 - Story

The mobile gold rush of Web 2.0 continues to attract thousands of techie fortune seekers to San Francisco. It's an old story, and a compelling one: there's gold in them thar hills, and I'm a-gonna git me some. The only thing that changes is the nature of the gold. The dot-com boom of the late 1990s created a new gold rush in San Francisco and Silicon Valley that fizzled in the early 2000s as the same old reality hit home: only the first few gold-seekers hit it big, and most of the late-comers trudge home empty-handed. Over 50,000 people left the San Francisco Bay Area as employment in dot-com technology imploded. The new gold rush is mobile--mobile apps, mobile services, mobile anything. All this overlooks the basic mobile gold rush model: poaching advert spending in a stagnant economy.

Things in the 'economy' must be good - investors are nearing their most levered long to US equities ever. As Sean Corrigan notes, Net Margin (defined as NYSE Margin Debt minus Mutual Fund Liquid Assets) is within a hair of its all-time record high and relative to the March 2000 peak in the Wilshire 5000 (broadest US equity market cap), we are rapidly approaching 'peak' exuberance levels. Indicatively this should make sense since the market is at all time highs, but it is so because of central banks, not because of individual investors. So why would the investors themselves be just as stretched as the global central banks, and how does this leverage upon leverage unwind in the end?

Healthy female participation rates in the labor force and in leadership are a reflection of inclusiveness in countries and companies; and as Goldman Sachs recently noted, inclusive institutions lead to more innovation, more enduring competitive advantages and a more efficient use of available resources (capital, physical and people). The idea that empowering women employees and entrepreneurs contributes to a virtuous cycle as higher female disposable income trickles down to increased spending on education and healthcare, is not lost on Warren Buffett who writes at length in his latest Op-ed of the possibilities for America should the other 50% of America become productive, "women should never forget that it is common for powerful and seemingly self-assured males to have more than a bit of the Wizard of Oz in them. Pull the curtain aside, and you'll often discover they are not supermen after all." And with the oracular Omahan now on Twitter, can we expect more bitesize insights - perhaps the anti-Bill-Gross tweet.

Tuesday's Case Shiller update index showed something very troubling: as a whole, the US housing market in its broadest sense, has barely budged in the past four years (chart). And yet, what is unmistakable, and what has given many the impression that there is a "recovery" (despite clear recent signals to the contrary) are media attempts to spark a buying frenzy in several of the key markets that were responsible for the prior housing bubble, such as Florida, California, Nevada and Arizona. And how do we know they are succeeding, if only until the Bernanke liquidity bubble pops again? Courtesy of articles such as this: "25 markets where flipping homes is most profitable." Nuff said.

Presented with no comment...

With Lumber prices plunging to 5 month lows, we have just one question for those buying homebuilder stocks as they push new highs - what are they building houses in this new normal?

Gross: World awash in money. Fed buys 85 billion per month. BOJ 75 billion. ECB hints at neg interest rates. Don’t buy – sell risk assets.

— PIMCO (@PIMCO) May 2, 2013

With the Bank of England cutting its wholesale interest (bank) rate to historic lows and now the ECB slashing 50bps off its key rate (as well as remonstrating on the reduction in fragmentation across European nations), it is perhaps perplexing (or simply too obvious) that a bank would raise its mortgage rates. As the Daily Mail reports, government-owned Bank of Ireland (BOI) doubled mortgage rates for 13,500 customers in the UK leaving homeowners with huge increases in their monthly payments. The bank, exploiting small print in the legacy mortgage contracts, will hike the interest cost for 1-in-14 homeowners from 2.25% to 4.99% (raising the spread over the bank rate on these loans from 1.75% to 4.49%). Anger is rife as customers complain "it's all very frustrating," adding that they thought this was a 'tracker' mortgage but BOI defends their massive rate hike on increased funding costs and the need to maintain higher levels of capital. The disconnect between wholesale gorging provided by the Central Bank and wholesale gouging of the real economy grows ever wider it seems.

Think frontrunning clients, trading against recommendations, manipulating LIBOR, and slamming gold at the London fixing is all investment bankers do? Wrong. What really happens in banker life is far more exciting and enjoyable (at least for preferred banker clients) as the following story by the WSJ's David Enrich shows. In reality, the activities that bankers seem to spend the most time on, is treating their "preferred clients" with free gambling trips to Las Vegas, skiing in Chamonix, flying wives and girlfriends in helicopters, doing blow in industrial amounts, and, of course, cavorting with strippers and hookers. All paid for by some unwitting clients of course. It is this environment of utter and perfectly permitted, if not encouraged, debauchery that allowed scandals such as the Libor fixing "conspiracy" (first theory, then fact of course), to flourish, and which makes being a banker still the most desired job in the world (contrary to beliefs that it was all about the passion of crunching goalseeked DCFs at 2 am in the morning).

It is just incredible how quick NYC Mayor Michael Bloomberg is to throw a temper tantrum whenever anyone dares question his crusade to rid the nation of its remaining civil liberties.  In this case, his targets are those that criticize his feudalistic and extraordinarily racist "stop and frisk policy."

In what may be a historic first, as part of his answer to the last conference question on whether it is time for the ECB to start onboarding risk on its balance sheet, Draghi had a simple answer:

• DRAGHI SAYS ECB DOESN'T GO AROUND WITH HELICOPTER MONEY

Now... is that just a little chopper envy, bourne out of disdain for the Buba's "just say 9,9,9" position, or is this the start of an actual slamdown between the ECB and the Fed. Surely even Draghi realizes that with the private sector in Europe hibernating with zero or negative loan creation in the past four years, and with the ECB unwilling to inject unsterilized liquidity, there is no hope of actual European growth ever (because sadly we live in a Keynesian world in which economic growth is always and only a function of new money injected into the system). And yes, BOJ and Fed cash will only push stock markets higher for so long before the economic tide goes out, youth unemployment hits 100% and the revolution finally takes place.

The first relatively big bombshell has been dropped:

*DRAGHI SAYS ECB HAS OPEN MIND ON NEGATIVE DEPOSIT RATE
*DRAGHI SAYS WILL COPE WITH NEGATIVE CONSEQUENCES IF WE ACT

This has crashed EURUSD and smashed German 2Y rates into negative territory

Must to the chagrin of our algorithmic friends, no matter how hard they try this morning, the JPY-carry-based momentum ignition is not sparking sustainable gains in US equity futures. EURUSD has about faced from its post-ECB gains and is unch; S&P 500 futures have followed EURUSD's path and are also unchanged now from the ECB decision; but JPY, in a world of its own has smashed 130 pips lower (up to 98.40)...

Mission Accomplished it would seem. Initial claims printed at its lowest since January 2008 at 324k. This is well below expectations of 345k - the biggest beat since September 2011. California and New York dominated the data with over 70,000 claims between them (though both dropped from last week). Michigan added the most from last month's rolls with 'educational service indutrsy' job losses affecting MA, CT, and RI. Emergency Unemployment Claims appears to have shaken off its statistical aberration of 2013 and is down a modest 12k this week.

With the ECB's rate cut decision already wreaking havoc on logic and common sense everywhere, pushing the EUR much higher, and the USd and JPY lower, one can't wait just what non-standard measures Mario Draghi will come up with next to send the EUR to record highs, providing a boon to German IMports. Wait, but the GDP calculation said that net imports are... oh, nevermind. Perhaps Not so super Mario will announce a free Forex trading account for every unemployed European, with half functionality allowing only purchases of EUR, not sales. Look for that, and for further confirmaion from the former Goldmanite that the bailout mechanism at the heart of Europe's "sustainability", the OMT, still does not exist and never will, as it is simply impossible to actually agree on a legal term sheet which will govern it.

• *DRAGHI: CREDIT CONDITIONS FOR SMALL, MEDIUM-SIZED FIRMS TIGHT
• *DRAGHI SAYS ESSENTIAL TO REDUCE FRAGMENTATION FOR TRANSMISSION