Archive - May 2013 - Story

It may come as a surprise to some that when distributed across all American adults, the average American spent just 3.57 hours out of every 24 on work and work-related activities in 2011, according to the BLS' American Time Survey. The number one time consuming activity? Sleep, at 8.71 hours (an all time high for the series), followed by Leisure and Sports with 5.21 hours in second place. The balance of the 6.51 hours remaining? 1.77 hours for Household Activities, 1.24 for Eating and Drinking, and so on, until we hit less than half an hour (0.47 hours) spent on education activities. At least the average time spent on telephone calls, mail and email is not more than the amount of time Americans spend edumacating themselves.

Treasuries underperformed but only modestly (ending the day 2-3bps higher in yield) but worth noting that the 10Y and 30Y and 29-30bps higher in yield post NFP. The S&P 500 made new all-time intraday highs (after ramping aggressively from the European close) but shorts seemed to know something and were heavy sellers from that point (with the 'most shorted' names actually closing down on the day). The Dow closed down 0.17% as there was no POMO to save us (despite a decent 330 ramp effort that dragged SPX into the green - just). It is elsewhere that cracks are appearing. VIX remains relatively bid to equity exuberance (as hedges remain) and the underperformance of credit is rather dramatic (typical underperformance has been reversed rapidly with in 2-3 days this year - not this time). A modestly stronger USD on the day (led by AUD weakness - not helping the carry traders) was not a factor for commodities where gold, silver, and oil (QE-sensitive) dropped 1% on the day. But then again, why worry, tomorrow is Turnaround Tuesday after all...

In a perfect follow-up to both President Obama's earlier comments and the news that a hearing is to be held ion May 17th, Rick Santelli has a few things to say. Clearly irritated at the incredible reality of big brother and government intervention, Santelli pushes his blood pressure to 11 on the dial as he comes to grip with the repercussions of the IRS actions. "Truth is power," he exclaims, "you can't assume someone is fair and honest," just because a politician says so. His bigger fears lie in the IRS administration of Obamacare where he is concerned that "No stent for you," will be heard when the powers that be know what groups you support, what thoughts you have, and what area you live in. Think he is exaggerating? Did you really believe the tin-foil hat wearers conspiracies that the IRS was doing this before it became mainstream news?

Things are escalating rapidly and the finger-pointing will only grow more violent in the next few days. The House Ways & Means committee has just issued a statement that:

• *HOUSE WAYS & MEANS CMTE TO HOLD HEARING ON IRS ON MAY 17
• *ACTING IRS COMMISSIONER, TAX INSPECTOR GENL TO TESTIFY MAY 17

Should make for some fireworks, lots of 'pleading da fif', and apologies. We just want to make sure all the key questions are asked and answered about this "outrageous" act...

Despite the aura of control, Fed officials (and casual observers) may sense things spinning out of control. Of course, hyper-fragility is exactly the effect that all the Fed’s own actions would predictably lead to. When you divorce truth from reality, strange things are bound to happen. There is one thing that we know for sure in this strange period when bankers have tried to manage reality in the absence of truth: that advanced industrial-technological economies designed to run on $20-a-barrel oil can’t run on $100-a-barrel oil, and that is why the US economy was subject to financialization in the first place - to offset declining productive activity by an attempt to get something for nothing. The world is about to find out that you really can’t get something for nothing. It will be a harsh lesson.

If we’ve learned one thing over the years from following markets, economics, and geopolitics is this: no man can push the Wheels of History. It unfolds in its own time and no other. The waves of human emotion, of optimism and pessimism both long and short term haven’t changed. So why are the markets still going up? Why can’t people respond to warnings of the blogosphere, or warnings of collapsing economies and accounts right before their eyes? Answer: Because they can’t. It isn’t time - yet... Human emotions and behavior run in cycles of set period. Obviously humankind cannot become infinitely more optimistic forever into the future. In the same way trees don’t grow to the sky, at some point human expectation must reverse and become less optimistic, more conservative and pessimistic until it reaches an opposite extreme. And this theory has a lot going for it: if governments truly controlled stock markets, economies, nations, then why would they ever decline? No government or market would ever voluntarily get smaller, less powerful, and prosperous. And yet despite everything they can do to prevent them, markets and economies always, always DO reverse. Always.

Premia for gold bars (physical over paper) rallied to their highest since late-2008 according to SocGen, even as 'professional' investors look to position the exact other way. The combined short positions of futures and options speculators in COMEX gold is now at a record high for the third week (having surged from 4.3 million ounces in late September to a a stunning 13.9 million ounces short now. At the same time, Gold ETFs have only seen one in-flow day in the last 34 days. It seems investors are well-and-truly on one side of this boat - even as price continues to buck the supposed structural weakness.

Meet the new "WMD" whose merest ownership is sufficient to get you arrested. That and having an Arabic sounding name of course.

Out of the gate and then again soon after the EU close, shorts were forced to cover this morning but in the last few minutes, the 'most shorted' names in the Russell 2000 have plunged...

There is no plan, no scheme that the Fed can concoct for exiting their support for the U.S. economy that will not negatively affect both the bond and equity markets and have a positive effect on the Dollar. The markets have relied upon the manna from Heaven to rise and virtually nothing else. The American economy cannot justify either the absolute levels of yield or the compression that has taken place or the lofty levels of our stock markets. All of this has had a single driver which is the Fed. The Fed has spent four years providing gifts for those that borrow and for the banks while penalizing those who save and invest. What one group gained the other lost. Now the Fed faces the dilemma of its own making; how to gradually exit their current strategy without setting the financial markets on their rear ends.

Another day, another US city on the brink of insolvency. This time it's Detroit, whose recently appointed emergency financial manager Kevyn Orr said may run out of cash next month and must cut costs such as long-term debt and retiree obligations. According to Bloomberg, "Orr’s report says the cost of $9.4 billion in bond, pension and other long-term liabilities is sapping the ability to provide such basic services as public safety and transportation. He listed cutting debt principal, retiree benefits and jobs among options he may take. “No one should underestimate the severity of the financial crisis,” He called his report "a sobering wake-up call about the dire financial straits the city of Detroit faces."

Presented with little comment aside to remember what we said the market ignored in 2007... and as a reminder, we warned last night that the Hilsenrath article would be spun to the equity-eating retail public as a positive (just another reason to buy stocks)...

Not much to add here. If there still is any confusion why China is desperately manipulating its economic data, so balatantly in fact that virtually everyone has now noticed, this chart should put all doubt to rest. According to CLSA's Chris Wood using NEA data, China's monthly power consumption (the most accurate proxy for underlying economic strength according to the current premier) growth slowed from 5.5% YoY in Jan-Feb 2013 to 1.9% YoY in March, the slowest growth rate since May 2009 (as discussed in-depth here).

The irony that the 'no taxation without representation' nation's Prime Minister David Cameron is on stage with President Obama amid the IRS-Gate scandal is not lost on us... We are sure the President will distance himself at pace from the witch-hunt - though it could get awkward on stage with the British PM looking on.

Neither side wants to talk about the real lesson of Benghazi: interventionism always carries with it unintended consequences. The US attack on Libya led to the unleashing of Islamist radicals in Libya. These radicals have destroyed the country, murdered thousands, and killed the US ambassador... Previously secure weapons in Libya flooded the region after the US attack, with many of them going to Islamist radicals who make up the majority of those fighting to overthrow the government in Syria. The US government has intervened in the Syrian conflict on behalf of the same rebels it assisted in the Libya conflict, likely helping with the weapons transfers... The real lesson of Benghazi will not be learned because neither Republicans nor Democrats want to hear it. But it is our interventionist foreign policy and its unintended consequences that have created these problems, including the attack and murder of Ambassador Stevens. The disputed talking points and White House whitewashing are just a sideshow.