Archive - Jun 2013 - Story

Eager to take advantage of NSA-whistleblower Edward Snowden's current unincarcerated status and to ask him questions about his motives or thoughts? Here is your chance courtesy of the Guardian which is holding a live Q&A session with the famous leaker. As the Guardian notes: "He will be online today from 11am ET/4pm BST today. An important caveat: the live chat is subject to Snowden's security concerns and also his access to a secure internet connection. It is possible that he will appear and disappear intermittently, so if it takes him a while to get through the questions, please be patient." Some more from the Guardian:

• Edward Snowden is answering your questions about the NSA leaks live
• Post your questions in the comment section below and recommend your favorites
• We are posting Snowden's replies above the line
• You can also follow along on Twitter using the hashtag #AskSnowden

The live blog can be reached at the following link.

Is recent market behavior the beginning of a market turndown? No one knows, although it is easy to find people providing “answers.” The value of these predictions approach those of astrologers and fortune-tellers.

Our "silver lining" concluding remark to last week's lackluster 10 Year bond reopening auction was that "the good news is that with the reopening, dealers should have some additional collateral for a while, or at least until the Fed monetizes it. Look for this CUSIP - VB3 (On The Run) to remain on the POMO exclusion lists for white a while." Sure enough, following the Friday settlement of this auction, things in the Treasury repo market have normalized somewhat after hitting very dangerous levels. How bad did it get? The following chart of failures to deliver from the NY Fed shows just how acute the shortage of "high quality collateral" (where the 10 Year is the fulcrum instrument) got in the past two months, with the total rising to $129 billion, or the biggest freeze in the repo market since the debt-ceiling crisis in the summer of 2011 when this number hit $280 billion.

Not only did all three segments of the NAHB's index rise but the headline print saw its largest month-over-month increase since 1996. Despite falling mortgage applications, an REO-to-rent model that is disintegrating amid higher rates (which notably saw no mention in the text of the NAHB's PR), and slumping Lumber prices, the homebuilders (and sellers) remain self-confirmingly exuberant at the outlook for their industry as the index hits 52 - its highest since March 2006 - surging to its best 2-year gain in the almost 30 years of recorded data.

While the headline print of this morning's Empire Fed beat expectations, as we noted earlier, the underlying characteristics were an unimitgated disaster by any measure. The current business climate, reflecting more a rear-view-mirror-based world was weak but the future expectations index - which should be more important for an equity market that supposedly discounts the future - had some significant headline risk. There is however, one chart that sums up the confidence of the CEOs in this nation. Capital Expenditure expectations (the measure of reinvesting in organic growth producing assets - as opposed to buybacks and shareholder-reacharound funding) plunged at its fastest rate on record and printed at its lowest since the collapse in 2008/9. It seems, to us at least, that the future is not so bright.

It is difficult enough, in our world, to ferret out the truth and then make rational decisions based upon what you have found. Europe is a good example of this as liabilities are not acknowledged or counted while the propaganda machines roll out the officially mandated numbers. It doesn't take Sherlock Holmes to get at some of the truth though and liabilities, counted or not, still have to be paid. In the case of Europe a great deal of enlightenment may be found in the data available from the Bank for International Settlements and that has been my primary source for arriving at some reality. Every Chinese joke starts in the same way. "First you look over your shoulder." In the case of China, and trying to find some glimmer of truth there, the situation is far more difficult.

And yet another baffle with absolute and unbelievable BS economic number is out, this time the Empire Fed index which magically spiked from -1.43 to 7.84 on expectations of a 0.00 print. We say magically, because besides the headline number, virtually everything else was down! To wit: New Orders down, Shipments down, Unfilled Orders down, Delivery Time down, Inventories down, Number of Employees down, Avg Workweek down, should we continue? The Empire Fed report admits as much: "The general business conditions index—the most comprehensive of the survey’s measures—rose nine points to 7.8. Nevertheless, most other indicators in the survey fell." Almost as if the NY Fed apologized for having to make up headline numbers.

Over the weekend, Dick Cheney emerged from his lair, and staunchly defended the NSA surveillance programs that started under his tenure as Vice President, telling Chris Wallace on Fox News Sunday that the programs could have stopped 9/11 had they been in effect. More to the point, Cheney shared his view of Edward Snowden, whom he accused of being a traitor and went so far as hinting that he could be a spy for China. "I'm suspicious because he went to China. That's not a place where you would ordinarily want to go if you are interested in freedom, liberty and so forth," Cheney said, adding: "It raises questions whether or not he had that kind of connection before he did this." The last statement finally generated an official response from China whose Foreign Ministry on Monday, which had been silent for the past week over all issues surrounding the whistleblower, denying Edward Snowden was a Chinese spy and said the United States should give the world an explanation regarding its international internet surveillance programme.

In the week ahead, we get the usual middle-of-the-month batch of early business surveys, including the New York Empire, Philly Fed and Eurozone Flash PMIs. The second key focus will be a number of important monetary policy meetings, including the FOMC, as well as the Swiss, Norwegian Turkish and Indian policy decisions. The latter two are particularly interesting in the light of the recent EM weakness. The main event this weak will be the FOMC meeting after the recent market focus on the timing of tapering of the QE3 program. Swings in bond markets related to the FOMC meeting could be the primary source of FX volatility this week.

• Obama prepares for chilly talks with Putin over Syria (Reuters)
• G8 opens amid dispute on Syria arms (FT)
• Economists Blame Fed for Higher Bond Yields (WSJ) - wait... what? Isn't the "stronger economy" to blame?
• What a novel concept - In the Czech Republic, a spying scandal has forced the PM to resign (BBG)
• Rigged-Benchmark Probes Proliferate From Singapore to UK (BBG)
• Economists Wary as Fed's Next Forecast Looms  (Hilsenleak)
• Banks Balk at New Rules for Small Loans (WSJ)
• Sporadic clashes in Turkey as Erdogan asserts authority (Reuters)

First it was the "most important" payroll print in years, then the "most important" retail sales number, and now we are just days ahead of the "most important" FOMC statement in years as well, as the fate of the centrally-planned markets lies in the hands of Bernanke's decision to taper, or not to taper. The main catalyst for now still appears to be an ongoing wrong interpretation of Hilsenrath's Thursday blog post in which some still see reaffirmation by the Fed that it won't taper, when all the Fed's mouthpiece said is that the short-end would be anchored even as the long-end is allowed to rise. Looking at the well-known no volume levitation futures action, which in the overnight session has wiped out all of Friday's losses and then some simply due to a 2.73% rise in the Nikkei overnight back above 13,000 driven by the USDJPY briefly regaining 95.00, the market has made up its mind (if only for the time being) that whatever decision the Fed takes regarding the monthly level of liquidity injection is a bullish one. At least until it changes its mind next.

Almost three years ago we first highlighted the real math behind the surging entitlement class that America has become. So why does a large portion of the population choose not to work when there are many jobs available? The answer is simple. If you can receive 2-3 times as much money from unemployment, disability, and/or welfare benefits (subsidized housing, food stamps, free cellphones, etc.) as you can from a temporary or part-time job, and live a life of leisure, why work? This is the ugly reality we illustrated just six months ago and the situation - amid what is apparently called a 'recovery' remains a depressingly real sign of the times. The political allure of free is so strong that an alarming number of people choose to become wards of the entitlement/welfare state rather than captain their own destiny. Indeed, while many are 'proud', 49% of American households now receive one or more government transfer benefits amounting to 18% of all personal income and a burden of $7,400 for every American - seemingly threatening the supposed self-reliance that has long characterized the American national psyche.

The recent market weakness (selling off in equity indices and widening in credit spreads) shares many elements of the previous dips this year, which should give bulls some comfort (the Italian- and Cyprus-led dips didn't last very long). However, there are elements which are concerning - as Citi notes, positioning in long equity and credit positions are notably 'long', and how weak cash credit has been this time around. As Citi points out, investors and the Fed are trapped in a prisoner's dilemma. Will everyone collaborate (investors hold to cash positions & dovish Fed) or betray (investors start unwinding cash positions & hawkish Fed)? The strategy each player follows will determine whether the weakness this time around is to be faded (like the previous ones this year) or not.

Two weeks after the break out of protests in Turkey, often times violent, the local discontent is nowhere closer to resolution. In fact, it is getting worse, and is on its way to converge with the "resolutions" adopted in its neighbor Greece following news that two Turkish union federations said on Sunday they would stage a one-day nationwide strike on Monday in protest at the forced eviction by riot police of hundreds of anti-government demonstrators from an Istanbul park. From Reuters: "The Confederation of Public Workers' Unions (KESK), which has some 240,000 members in 11 unions, and the Confederation of Revolutionary Trade Unions (DISK) announced the strike in a joint statement. Three other groups representing doctors, engineers and dentists will also join the action, it said."