Archive - May 2013 - Story

With part two of today's Fed-a-palooza due out shortly in the form of the May 1 FOMC meeting minutes, here is an informative recap of the current roster of assorted birds at the FOMC via Bank of America. Of course, since every decision always begins and ends with Ben, and soon his replacement Janet, all of below is largely meaningless.

Following the first quarter rout in AAPL stock, some wondered if there would finally be rotation at the top floor of the hedge fund hotel of stocks held by most hedge funds. The answer is no: as of March 31, AAPL still retains the title of stock with the largest number of hedge fund investors at 188, more than GOOG with 184 and above AIG with 180.

It seems that the recent rise in interest rates, instead of the typical (pre-depression) behavioral tendency to make people nervous and rush to lock in low rates, has once again stalled any hope of an organic housing recovery occurring. While the reams of hard data show that the housing recovery remains a fast-money investment-driven enigma (here, here, and here) - as opposed to real confidence-driven house-buying; we are still told day after day that housing is the backbone of the economy (despite construction jobs languishing and affordability plunging again). The fact of the matter is that the last 2 weeks have seen mortgage applications plunge at their fastest rate for this time of year (a typically busy time) since the financial crisis began. But that doesn't matter because housing must be recovering because the homebuilder ETF is up 2% today...

"The most notable statement made by Bernanke during the Q&A session was that the FOMC could potentially cut the pace of QE purchases "in the next few meetings," although this was predicated on a continued improvement in the outlook for the economy and confidence in the sustainability of that improvement. He also stated that the purchase pace will depend on incoming data and that the FOMC could either raise or lower the pace of purchases in the future. Our view continues to be that the December meeting and subsequent press conference is the most likely time that the Committee would announce QE tapering, although September is a possibility if the economy picks up more than we expect in coming months."

The last time Hilsenrath was relevant was two weeks ago (in a flashback to those days before QEternity when infinite QE was not assured and Jon's input was actually relevant), when following an article of his, and due to his "proximity" with the New York Fed, many assumed that the Tapering suggested by Hilsenrath was being telegraphed by Bernanke to the market. Turns out it was nothing but yet another baffle with bullshit headfake by a central planning regime that is now merely engaged in observing market responses to indirect stimuli: if reduce monthly flow by $20 billion then X (-1%); if cut QE off entirely then Y (-50%?), and so on. Moments ago the same Hilsenrath just released another piece, which effectively refuted everything his previous piece suggested, and in fact made his position as Fed mouthpiece absolutely irrelevant, courtesy of the following disclosure: "this time, when the Fed shuts off bond buying, it won't be... predictable." He goes so far as to say that the term "tapering" is no longer even applicable! Funny that, considering on May 11, none other than Hilsenrath said: "Federal Reserve officials have mapped out a strategy for winding down an unprecedented $85 billion-a-month bond-buying program meant to spur the economy."

Sparked by the police shooting of a machete-wielding 69 year-old man, traditionally calm-and-collected Sweden is suffering amid its third night of riots. It seems underlying tensions from high youth unemployment and rising nationalism against the nation's large immigrant population have been catalyzed by this seemingly unrelated event. As the Daily Mail notes, immigrant ghettos have been created where unemployment is high and there are few opportunities for residents with left-leaning commenters adding that the riots represented a 'gigantic failure' of government policies, which had underpinned the rise of ghettos in the suburbs - "We have failed to give many of the people in the suburbs a hope for the future." An anti-immigrant party, the Sweden Democrats, has risen to third in polls ahead of a general election due next year, reflecting unease about immigrants among many voters. What is driving this tension? After decades of practicing the 'Swedish model' of generous welfare benefits, the country has been reducing the role of the state since the 1990s, spurring the fastest growth in inequality of any advanced OECD economy. Given Sweden's 24.7% youth unemployment, we wonder just what will happen to the 60% of unemployed youths in Greece and Spain when school lets out this summer?

Perhaps the best answer to the question posed to Bernanke moments ago whether US unemployment is structural or cyclical comes courtesy of Microsoft, which announced earlier that it was set to hire "several thousand" workers. Sadly, the catch is that the hires will be in China.

MOAR Orderly... oops... Bernanke: "Fed could reduce bond purchases in the next few meetings if data supports it" and perhaps most disturbing is that reality is finally seeping into the corner offices of the Marriner Eccles building when Bernanke says that concerns about "frothiness" and "bubbles" has increased? Was it the sub-5% yield in high yield that tipped them off?

'Orderly'...

Update: Bubbles Bernanke slams any hopes for tapering goodbye, as long predicted: PREMATURE TIGHTENING RISKS SLOWING OR ENDING RECOVERY

Bernanke's quarterly hearing with the Joint Economic Committee this morning will be today's must-see event (with FOMC minutes a close second). It seems the equity market has no fears but many in the high-yield market are anxious for the words 'frothy', 'taper', 'bubble', 'clueless', and 'I plead da fif'.  While Bernanke's words will be the most important, these hearings typically include their fair share of ironic ignorant 'humor' from the politicians who sit in awe of the most powerful man in the world and his CTRL+P prowess.

Or maybe this is a trick question, and the answer for the "New Normal", when all central banks are coordinating on reflating the biggest asset bubble of all time, is "all of them"...

As we noted yesterday, the IRS' head of exempt organizations who started the whole IRS targeting scandal, is testifying this morning and is expected to plead the Fifth. One wonders why, if as the IRS claims, there was no illegal or illicit activity involved. Watch her plead "da Fif" live here...

Global risk appetite surged to 4.53 (5 being 'euphoria'), its highest level since the euphoria event of 2006, and up from 1.76 one month ago according to Credit Suisse. Other risk appetite indices, as well as market anecdotes, confirm the “almost euphoric” environment. US credit risk appetite has charged higher and is now at 3.22. Furthermore, as they note, the current risk rally has several unusual features. First, it clearly lacks the usual support of strong global growth momentum. Global IP momentum (as we noted here) is almost always above its long-term average when risk appetite hits euphoria, but currently is below 5%, which is somewhat sluggish. Second, the current near-euphoria is strongly driven by one asset class: Japanese equities. The bottom-line, they conclude, is that the current risk-loving environment is related much more to recent policy innovations than growth data. And confirming this 'euphoria' Investors Intelligence notes that newsletter writers classified as bulls rose to 55.2% from 54.2% with readings of ~55% "suggestive of a trading top," last seen in Oct. 2007. No surprise there but with markets statistically 'euphoric' caution seems warranted at least...

A week ago it was the better than expected weather's fault for the big Wal-Mart miss. Today, it is the turn of that other retail bellwether, Target, to blame sunny days. From the release: "Target’s first quarter earnings were below expectations as a result of softer-than-expected sales, particularly in apparel and other seasonal and weather-sensitive categories,” said Gregg Steinhafel, chairman, president, and chief executive officer of Target Corporation. “While we are disappointed in our first quarter performance, we remain confident in our strategy, and we continue to invest in initiatives, including Canada, our digital channels and CityTarget, that will drive Target’s long-term growth."

For all those curious why all real money managers (and not those who spend 18 hours a day on the modern day Yahoo Finance known as Twitter, "trading" with monopoly money while selling $29.95 newsletters) are furious at what Bernanke and company are doing as shown in the most recent Ira Sohn conference, we present the chart below from Goldman which confirms what most have already known: the Federal Reserve has made hedge funds a thing of the past, whose investors are sure to keep underperforming the S&P until the moment when it all goes tumbling down.