Archive - Jun 2013 - Story

This is no time to be complacent.  Massive economic problems are erupting all over the globe, but most people seem to believe that everything is going to be just fine.  In fact, a whole bunch of recent polls and surveys show that the American people are starting to feel much better about how the U.S. economy is performing.  Unfortunately, the false prosperity that we are currently enjoying is not going to last much longer. Unfortunately, the majority appear to be purposely ignoring the economic horror that is breaking out all over the globe.

With JPY losing 100 and the Nikkei futures trading down to a 19.25% loss from the highs (12815 the dreaded bear-market 20% drop level), a combination of a desperate Japanese 2015 plan for the pension fund to buy moar stocks, bad-is-good economic data, and front-running of the now-ubiquitous Tuesday rally provided the ammo for a rally in equities - recovering almost 50% of their post Friday drop losses. Risk-assets in general correlated extremely closely on the day and while volume was well above average, this was driven by the surge to the downside (not the upswing). Treasuries ended the day unchanged (amid a 12bps range on the day) ending near the low yields (moar QE). VIX snapped above 17.5% (its highest in 6 weeks) before fading back in the ramp to unchanged at 16.25%. Credit tracked stocks closely but was less exuberant in the late-day ramp. USD weakness (JPY and EUR strength) supported commodities, with gold and silver outperforming on the day (up 1.65% and 2.2% respectively).

Since Mr. Krugman tells us all this spending and debt issuance/guarantees are not only good and necessary but in the long run, painless, why are we bothering with personal income taxes?
 
The US government will collect approximately $2.0bn this year in Personal Income and Payroll taxes.  But why?  Why are we even bothering with this when today’s leading economists and politicians are telling us that debts/deficits don’t matter and running up astronomical debts is a long-term painless process?  It’s practically patriotic.  So why shouldn’t we just add our tax burden to the list of items the Fed should be monetizing?  Seriously.  Why not relieve the burden on every tax paying citizen in the United States (about 53% of us according to Mitt Romney)?  You want an economic recovery?  Reduce my taxes to zero and see how fast I go out and start spending some of that extra income.

With Lerner pleading 'da fif' and Steven Miller now long-gone, it is up 'new' IRS Acting Commissioner Daniel 'Danny-boy' Werfel to face the House subcommittee hearing music. While the focus (for now) is the IRS' targeting of conservative groups seeking tax-exempt status, we suspect the Dance-Prance-Revolution clips that have been so broadly disseminated this weekend may make an appearance.

While preparing to leave for work Monday, U.S. Attorney General Eric Holder reportedly loaded up his iPod with dozens of Associated Press reporters’ confidential phone conversations to enjoy on his morning commute. “It usually takes me about 30 minutes to get to the office, so I’ll have something to listen to to pass the time,” said the Justice Department head while transferring the wiretap recordings taken from dozens of AP journalists’ work and cell phone lines from his home computer to his mp3 player.

Curious why (formerly) government-subsidized, ultra-luxury battery operated car maker Tesla has a market cap of $10.6 billio (a little over 25% of GM's market cap). Here's a hint

• AUTODATA ESTIMATES TESLA MAY U.S. MODEL S SALES WERE 1,425

And that's with the surge in daily publicity, the headline news articles resulting from the epic short squeeze, and the nearly daily CNBC infomercials.

Worried that manipulated official data is the only thing one has to "predict" on a day to day basis in a world drenched with "Baffle with BS", where China expanding and contracting at the same time is perfectly normal, and where Chicago PMI soaring by an 8 sigma beat to multi year highs precedes by one day the lowest US manufacturing print in 4 years? Turns out that's not all - in addition to everything else, one should also realize that key market moving data continues to be disseminated ahead of its official release time to those who have the "funds" and the interest in trading on early leaks. Take today's key economic data point: the Manufacturing ISM. As Nanex shows, trading in SPY exploded at 09:59:59.985, which is 15 milliseconds before the ISM's Manufacturing number released at 10:00:00. Activity in the eMini (traded in Chicago), exploded at 09:59:59.992, which is 8 milliseconds before the news release, but 7 milliseconds after SPY. Surely someone decided to perform a massive headfake and like a plunging goaltender during a penalty kick just happened to guess the direction right. That, or the clock on the CQS tape is just a little off. Oh, and this is merely today's example of early distribution of data to those who have the means(and the funds) to trade on it. Everyone else - well, the saying involving a sucker, a poker table and confusion, is quite applicable right now...

A German election is drawing close and it is evident in many small things that are happening lately. The latest is that Mrs. Merkel is now apparently distancing herself from her erstwhile demands to create a 'fiscal union' and give the eurocracy in Brussels more powers. Incidentally, her change of heart comes shortly after her summit with France's president Hollande, which indicates that the latter has probably let her know that France is none too happy with the idea either. She still talks about the alleged need for 'more policy coordination', but luckily handing more powers to the bureaucrats in Brussels seems to be off the table for now.

Here's the challenge the Status Quo monetary and fiscal authorities faced in the 2008 global financial meltdown: how do we maintain the power structure and keep the masses passive while masking the fact that the Status Quo is broken? The solution: sell bonds to fund benefits to the masses, lower interest rates to zero to keep the explosive rise in fiscal deficits affordable, and rapidly inflate new bubbles in assets that painlessly enrich the top 25% of households who then increase their borrowing and spending, i.e. the "wealth effect." The political calculus is simple: the bottom half of households don't vote, don't contribute to political campaigns and don't have enough income to borrow huge sums of money to enrich the banks. They are thus non-entities in the fiscal-monetary project of maintaining the power structure of the Status Quo. All the Status Quo needs to do is borrow enough money to fund social programs that keep the masses passive and silent: food stamps, Section 8 housing vouchers, Medicaid, Medicare, Social Security, SSI permanent disability, unemployment, etc. Unfortunately for the Powers That Be, the cost of placating the rapidly increasing marginalized populace is rising much faster than tax revenues.

Ever feel like you can't put that math PhD to good use anymore and make money scalping ahead of order flow, sub-pennying and frontrunning retail in normal and dark pool markets because volumes are just off 1929 levels? Then the Chicago Fed has an offer you just can't refuse. And since money printers can't be choosers, the Fed may also have a spot for those who tried their hand at the New Media (i.e., churning slideshows): "Develop presentations and clarify complex issues for broad audiences." Yet what is most interesting is the following requirement: "Interact with highly informed and technically skilled outside stakeholders while preserving the reputation and credibility of the Reserve Bank." We'll just let that one slide...

The only thing more ominous for the world than a Hindenburg Omen sighting is a Bilderberg Group meeting. The concentration of politicians and business leaders has meant the organisation, founded at the Bilderberg Hotel near Arnhem in 1954, has faced accusations of secrecy. Meetings take place behind closed doors, with a ban on journalists. We suspect the agenda (how the US and Europe can promote growth, the way 'big data' is changing 'almost everything', the challenges facing the continent of Africa, and the threat of cyber warfare) has been somewhat re-arranged as market volatility picks up and the status quo begins to quake once again.  The annual gathering of the royalty, statesmen, and business leaders, conspiratorially believed to run the world (snubbing their Illuminati peers and Freemason fellows), will take place this week at the Grove Hotel in London, England. The Telegraph provides the full list of attendees below - for those autogrpah seekers - including Britain's George Osborne, US' Henry Kissinger, Peter Sutherland (the chairman of Goldman Sachs), the Fed's Kevin Warsh, Jeff Bezos?, Peter Thiel, Italy's Mario Monti, and Spain's de Guindos.

We can only imagine that the unemployment data must be so good that the French need a little more time to get positioned for the market's exuberance. It seems the government's statistical agency has proclaimed that:

• *INSEE WON'T BE ABLE TO PROVIDE FULL 1Q FRENCH UNEMPLOYMENT DATA
• *INSEE WAS SCHEDULED TO PUBLISH 1Q UNEMPLOYMENT DATA ON JUNE 6

Of course, we are sure this has nothing to do with the nation being near depression (as we discussed here and here most recently) and jobseekers at all-time record highs. It seems 'when the news is bad, "lie"' is trumped by 'when the news is dreadful, "don't report it"'.

If the further away from USDJPY 105-110, the latest BOJ "soft target" on the pair, we go, the weaker the case for Abenomics, than we wouldn't be surprised if Japan's marionette PM, whose only bidding was to reflate global stock markets, price stability, quality of Japanese life and soaring import costs, be damned, is about to see an escalation in bathroom runs, leading to yet another disgraced exit, hopefully his final this time, from Japanese politics. And with that the great Japanese reflation experiment will end. Nikkei futures continue to fade - getting closer and closer to the 20% correction that marks the start of the Japanese bear market. In the US, everyone's favorite ETF - homebuilders - are now down 7.4% from Friday morning.

It may come as a surprise to some that the total level of commercial bank loans outstanding as of the most recent week, May 22, was "only" $7.303 trillion. We say only because this number is $20 billion less than the total commercial loans outstanding as of the weeks following the Lehman failure, just before the most epic deleveraging episode in recent US history began. It is also just $600 billion higher than the cyclical lows of $6.7 trillion (net of the February 2010 readjustment of the commercial loan terminology).  So does this mean that deposits in the US financial system have been unchanged in the past nearly 5 years? Not at all. As the chart below shows, while commercial loans have flatlined, deposits, which previously used to track loans on a dollar for dollar basis, took off, and are now at $9.4 trillion (as per the latest H.8), or $2.2 trillion more than the $7.2 trillion when commercial banks loan hits a record in October 2008, just after Lehman filed. What's more notable, is that as of the latest week, the excess of deposits over loans just hit an all time record of $2.079 trillion

While the new normal knee-jerk reaction to the dismal ISM print was the bad-is-good surge in buying, it seems reality is setting in...