Archive - Jun 2013 - Story

Anyone expecting NY Fed's Dovish "edible iPad hedonic adjustments" expert Bill Dudley would join the hawks in being an uber dove, just hot spanked:

• DUDLEY REITERATES QE TAPER MAY BE APPROPRIATE LATER IN 2013
• DUDLEY REPEATS UNEMPLOYEMENT MAY BE ABOUT 7% AT QE BUYING END... and higher when Tapering begins?
• DUDLEY SAYS REDUCING QE BUYING WOULDN'T MEAN POLICY TIGHTENING
• DUDLEY SAYS FED WILL PROBABLY KEEP MOST ASSETS FOR A LONG TIME
• DUDLEY SAYS `MEASURED' QE TRIMMING MAY OCCUR IN 1ST HALF 2014

Welcome the latest rabbit hole in Bernanke's centrally-planned bizarro world, where hawks are doves, and doves are hawks.

Following yesterday's 'Queerbait' comments and pleading 'Da Fif', we suspect more of the same to follow today as the House Ways and Means committee continues its investigation into the IRS targeting practices at 10amET.

"If the Fed was removing stimulus because of a desire to reduce the risk of asset bubbles then we'd have sympathy but we would argue that maybe the time to do this was around 15 years ago. To start conducting policy in this manner in 2013 after years of rolling bubbles and an extremely high global debt burden is quite dangerous." Deutsche Bank

Gold premiums doubled in India on Wednesday as suppliers struggled to meet surging demand after a ban on consignment imports, even as futures prices fell to their lowest in more than a month. As Reuters notes, India, the world’s biggest buyer of gold, now requires importers to pay upfront for inventory, making it difficult for smaller jewelers with lower working capital to source supplies. The government also raised the import duty to 8 percent in May to keep a lid on the surging current account deficit." There may be some demand from jewelers for raw material,” said Bachhraj Bamalwa, former chairman of All India Gems and Jewellery Trade Federation, adding that premiums charged on London prices shot to $20 an ounce on Wednesday from $8-$10 on Tuesday. “We are unable to supply, though there is demand... we give deliveries after 2-3 days,"

There was little of note in today's May Personal Income and Spending report (aside from the now-traditional backward looking revision of Q1 data): personal spending was expected to come increase 0.3% in May, and so it did, up from a revised 0.3% drop in April. Income, however, spurted by 0.5% in the month, more than double the expected 0.2%, up from an adjusted 0.1% increase in April. The income rise was as a result of a $24 billion increase in wages, and a $31 billion rise in income on assets (interest and dividend income).  Finally $19.4 billion in personal current transfer receipts (government generosity) completed the picture of why Americans' incomes rose in May. However, despite this beat in income, spending was in line with expectations, and following the revisions of January-April data, the May 3.2% savings rate was the highest reported so far in 2013. For the Keynesians out there, this is hardly the strong indicator of consumer spending they have been looking for.

The last few weeks have seen initial claims somewhat flatline stalling the downtrend of the previous six months (even as today's print dropped 9k from the previous week's revised data). Today's very small miss (346k vs 345k expectations) is the second week in a row. While delayed a week, 39 states saw an improvement in claims while 14 saw claims rise but it is most notable that California saw over 15,300 layoffs in the services industry, not exactly the sign of a strengthening recovery and the trickling down wealth effect (especially given the pace of real estate gains on the West Coast).

Another month, another update on the inefficiency of Cypriot capital controls, where following the latest release by the central bank on the May level of deposits in the banking system, we learn that total cash holdings in Cyprus banks dropped by another EUR 1.4 billion in May to EUR55.9 billion, and 23% lower from the same month last year. And with ongoing and unchecked deposit flight continuing, with EUR 14 billion in cash pulled or confiscated since the start of the year, one can see why the administration and the president are about to throw in the towel and demand, this time for a real, a much bigger bailout for Cyprus to plug the ever bigger gaping liquidity hole in the local banks as otherwise all that good money chasing bad will be for nothing. In the meantime, expect deposit flight to continue as anyone with half a brain can finally see the writing on the wall, if only with a slight delay and following much personal losses.

• Hilsenrising interest rates Business Feels Pinch of Swift Rate Rise (WSJ)
• Yellen Betting Defies 100-Year Jinx of Fed No. 2 Never Elevated (BBG)
• No sign of cyber leaker Snowden on flight to Cuba (Reuters)
• Back to the Future 2 is finally coming: Honda Sees ‘Flying Sports Car’ Making Profit by Decade’s End (BBG)
• Europe’s Richest Person Kamprad to Move Back to Sweden (BBG)
• Li’s Shock Treatment to China Lenders Evokes Ex-Reformer (BBG)
• In India, Gold-Related Shares Melt Down (WSJ)
• Citigroup Opens in Iraq to Tap $1 Trillion of Oil Spending (BBG)
• France warned on budget deficit  (FT)

It's almost as if the manic-depressive market has gotten exhausted with the script of surging overnight volatility, and following a week of breathless global "taper tantrumed" trading, tonight's gentle ramp seems modest by comparison to recent violent swings. With no incremental news out of China, the Shanghai composite ended just modestly lower, the Nikkei rushed higher to catch up to the USDJPY implied value, Europe has been largely muted despite better than expected news out of Germany on the unemployment front. This however was offset by a decline in Europe's May M3 (from 3.2% to 2.9%) while bank lending to NFCs and households simply imploded, confirming that there is no hope for a Keynesian, insolvent Europe in which there isn't any credit creation either by commercial banks or by the central bank (and in fact there is ongoing deleveraging across the board). US futures are rangebound with ES just shy of 1,500. We will need some truly ugly data in today's economic docket which includes claims, personal income/spending and pending home sales to push stocks that next leg higher. To think the S&P could have been higher by triple digits yesterday if the final Q1 GDP has just printed red. Failing that, the Fed's doves jawboning may be sufficient for a 100+ DJIA points today with Dudley, Lockhart and Powell all set to speak later today.

Turns out that for Europe, Cyprus was a "bail-in" template after all, and following an agreement reached early this morning, Europe now has a joint failed-bank resolution mechanism. Several hours ago, EU finance ministers announced that they had reached agreement on the principles governing the imposition of losses on creditors in bank 'bail ins'. Having already agreed to establish "depositor preference" in the pecking order of creditors at risk, the stumbling block to agreement was the availability of flexibility at the national level to complement the bail in with injections of funds from other sources. Under the compromise achieved overnight, once a bail in equivalent to 8% of total liabilities has been implemented, support from other sources can be used (up to 5% of total liabilities) with approval from Brussels. So investors (i.e. yield chasers) will foot the cost of bank bailouts? Maybe on paper. In reality, last night's agreement is the usual fluid melange of semi-rigid rules filled with loopholes designed to benefit large banks whose impairment may be detrimental to "systemic stability". To wit, from the FT: "While a minimum bail-in amounting to 8 per cent of total liabilities is mandatory before resolution funds can be used, countries are given more leeway to shield certain creditors from losses in defined circumstances." In other words, here is the bail in regime... which we may decide to ignore under "defined circumstances."

The People's Bank of China (PBOC) released an official statement addressing directly the latest liquidity conditions in the banking system and indicating that the central bank intends to maintain sufficient liquidity conditions in the interbank market. As Goldman notes, this clear communication of policy intentions is highly important to guide market expectations, avoid liquidity hoarding, and contain excessive volatility of market. While they hope this calms markets in coming days, Goldman notes that the interbank rates are likely to settle back to a level higher than before to rein in leverage growth. However, in a helpful prompt for more jawboning, the squid notes, continued communications on policy intentions and actions will be helpful to further ease market uncertainties, given the extreme volatility in recent weeks; though we note the tightening bias will remain as the new leadership appears to prefer to take their pain early (and blame previous parties) than wait.

It’s not mere anecdotal evidence: Visibly melting sea ice is the best evidence that the planet is warming. So prospecting for oil in the Arctic is a tricky endeavor that must be undertaken slowly and with extreme caution. So just how hot is it going to get? Hotter than we can handle if we fail to reduce greenhouse gas emissions significantly...

Wild swings in asset prices have produced two recessions in the last 15 years - and, we suspect, FOMC members are keen not to see a repeat of the collapses of the last decade. As the following chart shows, measured relative to an equally nominally inflated USD-based disposable income, the wealth effect is nothing like as strong as some suggest and indeed it should be clear that time after time in the last 20 years we have seen the artificially blown 'wealth-effect-creating' bubbles implode back to what was an old-normal level of 'sustainable' wealth (and in fact the Fed is having to work harder to keep us from that level).

The Japanese stereotype of excessive courtesy is being confirmed by the actions of prime minster Shinzo Abe who is giving the world a free and timely lesson on the dangers of overly accommodative monetary policy. Whether or not we benefit from the tutorial (Japan will surely not) depends on our ability to understand what is currently happening there. This time around investors in the Japanese market were similarly deluded by fairy tales. Leading economists told them that Japan could cheapen its currency to improve trade, use inflation to create real growth, increase prices to encourage spending, and drastically increase inflation without raising interest rates. In short, monetary policy was seen as substitute for an actual economy.

The Supreme Court struck down the 1996 Defense of Marriage Act (as we noted here), leaving states to decide on the legality of same-sex marriage. As the infographic below from Bloomberg shows, laws ban same-sex-marriage in 35 states, with five of those allowing civil union or domestic partnerships.