Archive - Jul 26, 2013 - Story

Over the past several decades, people around the world have become so brainwashed that few people really give much thought anymore to the safety of their currency. It’s not something people really understand... there’s apparently some Wizard of Oz type figure at the top of the hill pulling all the levers of the monetary system. And we just trust them to be good guys. This power rests primarily in the hands of four men who control roughly 75% of the entire world money supply. So, how are they doing?

Earlier this week we showed what happens when a momentum ignition algo goes berserk in microcap USEC Inc (USU). We are happy to announce that the stock which has become a microcosmic representation of all that is broken with emarket, is back at it, and the algo which doubled the stock in minutes on Monday, is back and desperate to ignite enough momentum to stop all out upside orders as well as all open shorts (the shorts in the name doubled in the week ended 7/15 to 25% of the float).

European financial stocks had their best week of the year - jumping an impressive 6.2% on the week and over 10% in the last two - as once again 'Europe is fixed' (except credit markets don't seem as enthused). At the same time as this exuberance is taking place, Germany's DAX and Switzerland's SMI saw almost their worst weeks of the year (down 1% and 1.7% respectively). The week was very oddly dispersed with Spain, Portugal, and Greece (up 5%, 4%, and 3%) having an incredible rip while the broad-based Bloomberg Europe 500 (Europe's S&P) dropping 0.25%. Bond markets were just as enthused with Portugal, Spain, and Italy continuing their un-Taper rallies (spreads down 49bps, 20bps, and 15bps respectively). All of this as the EUR strengthened, composite PMI peeked over the 50 mark, French unemployment hit a record high and Italian bad loans surged to a new record. Schrodinger has moved from China to Europe it would seem...

Only a decade ago, drones were the purview of the military, but today we are realizing the commercial potential of this technology and the numerous cost-cutting applications for the oil and gas industry in the future. For everything from exploration and pipeline leak detection to oil spill clean-up assistance, drones are poised to become a necessity rather than luxury. First, let’s just clarify: Drone is just another name for robot, but what we’re talking about here is the Predator-style, unmanned aerial vehicle—maybe a bit smaller, and certainly not weaponized. It turns out that drones have a number of applications that don’t involve annoying Pakistan by launching bombing raids from across the border in Afghanistan, or sending them out to spy in Iranian airspace (and sometimes getting caught).

In a brief two-page letter (below) to Russia's Minister of Justice, AG Holder offers to graciously allow Edward Snowden to return to the US promising that he will be neither tortured ("Torture is unlawful in the US") nor put to death ("The charges he faces do not carry that possibility.") Holder's plea ends on a hopeful note that he believes "these assurances eliminated grounds for Mr. Snowden's asylum." We are sure Snowden (and the Russians) feel better already. On a sidenote, we were surprised a Dreamliner was not offered as means of transport just to ensure his safe arrival.

S&P 500 futures just lost the lows of yesterday's session on heavier than average volume. JPY is well bid breaking back under 98 against the USD. Despite USD weakness, gold and silver just got monkey-hammered down 1% in a minute. But US Treasuries are stoically rising above this tempest in a teapot and tracking sideways (for now). Oh, and AMZN is up 1% (makes perfect sense).

... Well, not today's Ben Bernanke of course - a far more honest version of the current Fed Chairman, one speaking before the New York Chapter of the National Association for Business Economics, on October 15, 2002.

"I worry about the effects on the long-run stability and efficiency of our financial system if the Fed attempts to substitute its judgments for those of the market."

So do we Ben.

As municipal bankruptcies become the New Normal, it's worth noting that litigation does not generate more wealth to distribute, it simply burns existing wealth, leaving less to distribute. Yes, this is stating the obvious, but what's obvious is precisely what's ignored when fantasy attempts to trump reality. Every constituency in every municipal bankruptcy believes they're the most deserving, and they believe that litigation will reveal the obvious truth of their claim. Unfortunately for those counting on the Grand Federal Bailout, the queue at the Federal bailout window is already long: $100+ billion bailout of FHA, which issued hundreds of billions of dollars of mortgages to unqualified buyers; $100+ billion in uncollectible student loans owned or guaranteed by Federal agencies, and of course the $1+ trillion annual deficits needed just to fill the massive feeding troughs of the Status Quo.

Here is the cover of the latest New Yorker magazine, which one can only hope puts to rest the latest surreal episode of a man who has become a walking parody of himself, and which increasingly blurs the boundary between US politics and reality TV (and cunningly so: 69% of 18-29 year olds believe he should continue his mayoral campaign).

Despite more than two-third of respondents expecting interest rates to rise in the year-ahead, and inflation to increase; and despite dramatically higher current mortgage rates and a surging gas price, consumers haven't been this 'happy' since July 2007. Unfortunatley for those expecting something more, it appears the slightly-better-than-expected print is not good enough to cause the market to plunge (in a good-is-bad "we've done our job" manner) and not bad enough to cause the market to soar (in a "we need moar animal spirits manner). Of course, we've seen this before (here and here) and it doesn't end well.

There appear to be three critical aspects playing out behind the scenes in markets that are little discussed as potentially catalyzing events. With all eyes focused on FOMC next week (and Kuroda Sunday), the ABCs (Angela Merkel's election, Bankrupt Detroit's fallout, and Corrupt Cohen's potential contagion) make few strategists' notes but could quickly ascend to public enemy number one for the secular bull case. Little Red Riding Hood thought it a lovely day to walk to Grandma’s house. Then look what happened.

In the last month not a day appears to pass without some news about a glitch, malfunction, or full-blown fire, affecting the ironically named Boeing Dreamliner (resulting in the stock soaring to daily all time highs). Today promises to be no different, with not one, not two, but three separate incidents impacting the airplane. Reuters reports that Qatar Airways has taken one of its 787 Dreamliners out of service following what it described as a "minor" technical issue. "Minor" as in a burnt-out indicator light, or "Minor" as in the plane nearly fell out of the sky burnt to a crisp? The distinction can be important.

With hotter than expected inflation in Japan (yes we know that's what they wanted), it appears (from Nikkei and JPY) that there is a growing concern Kuroda will back off just a little during his speech on Sunday night (NY time) from the print-til-we-stink paradigm. Japanese stocks are down over 5% since Tuesday and the JPY is surging (suggesting markets are crying out for Kuroda to do a Bernanke and shift to longer/lower forward guidance). US equities - dragged by JPY-related carry unwinds - are also diving, back near yesterday's lows.

Government efforts to curb imports is meant to limit that downward pressure on the Rupee but has instead driven a surge in illegal imports (smuggling) of the precious metal. As the WSJ reports, the measures are having an effect. Gold imports declined 11% to 859.7 tons in 2012 from 969 tons in 2011 and the total for June fell about 80% to 30 tons from 162 tons. But while supply may be falling, demand isn't - "Trying to manage this demand, which is so diversified, by restricting supply will lead to undesirable consequences." Sure enough, "smuggling of gold seems to be increasing month on month," the number of people arrested by the department for gold smuggling rose to 32 in Q2 2013 from just 4 the year before - and officials are able to "detect only about 5% to 10% of the gold smuggling." The value of the gold seized during the quarter was 270 million rupees, more than 10 times that of last year.