Archive - Jul 2013 - Story

The ongoing fight between Elliott Capital (et al, i.e., "the holdouts") and Argentina may moved to the backburner recently as the topic of sovereign bond impairment is not as actual today as it was a year ago (it will be again soon once the European double bluff of OMT and Japan's carry trade finally fizzle and European political crises return) nor have any Argentinian ships been confiscated recently by the multi-billion hedge fund, but that does not mean it is any less relevant or has any less implications for the global sovereign debt market. But while global consensus had largely been largely against Argentina in its treatment of holdouts, that may soon change in a very dramatic manner with a new and very unexpected entrant, one supporting the Argentinian position, and for all the wrong reasons too: the US president.

QE and hopes/beliefs in its perpetual nature continues to be the key market catalyst. Tracking estimates for Q2 GDP continue to drop below 1%. This is setting up a scenario where GDP for the previous 3 quarters will likely average 1%. If we didn't think that job creation is going to sustain its current pace of growth, we would say this market is heading towards the “Bearmageddon Scenario”. QE3 has fallen short on job creation and GDP growth. The only inflation it has managed to create is in the prices of financial assets- and yet the consensus view of Central Bankers and the market expectation is to do more of the same policies that have not worked. This is Central Banker hubris, believing they can fine tune an economy to specific inflation and unemployment levels only serves as a distraction to markets.

Presented with little comment aside to say - Thanks for nothing Ben...

Between Kansas City Fed's George's comments on Tapering sooner rather than later and the end of today's POMO, US equities are sliding the most intraday since Bernanke said "moar" last week. Interestingly, the USD is being sold rather notably - a trend that began following yesterday's retail sales miss; but bonds are little changed despite the drop in stocks. Homebuilders have retraced all of their spike gains from the NAHB idiocy and financials are now negative for the week with only Utilities in the green. Gold and Silver are up - as is WTI but oil is leaking lower as stocks fade.

Since the US monetary system is (mostly) a closed loop, it has become impossible to rely on the US stock market for anything besides "analyzing" how many hot potatoes the excess reserve-funded Primary Dealers are juggling with each other. However, there may be one place that remains untouched by the Fed's intervention: foreign opinion of the US, which manifests itself in capital fund flows, the same fund flows that the TIC data reports every month with a 2-month delay. Because if foreign capital flows remain the only remaining objective indicator of US economic health, then the US has some very serious problems on its hands...

Homebuilder stocks are already giving back their spike gains from the surreal "if we hope it, they will buy" numbers from the NAHB on future sales expectations but we thought - given the unprecedented spike in mortgage rates, collapse in mortgage applications, and slowing home sales - that a couple of charts were in order to reflect upon the best two-month rise in 'hope' for futures sales in 22 years...

As car sales collapse once again in Europe (and Fiat at the top of the pile of dismal results), and the Italian Senate set to hold a no-confidence vote in the Deputy PM, we thought it an opportune moment to revisit the most ridiculous chart in the world. Presented for your eye-rubbing pleasure, Italy - market vs macro... Can you see when the central-planners 'promise' took over, and reality ended?

While the US has had its share of race-related social issues in recent days, nothing compares to Italy where not only was the country's first black minister (of integration!) of Congolese origin, Cecile Kyenge, compared to an orangutan two days ago by Roberto Calderoli, vice president of Italy's Senate and a senior parliamentarian in the anti-immigration Northern League, but following a visit to the city of Pescara she was met with a "protest" where nooses were hung from lammposts. And just so the message was not lost, "he nooses appeared on lampposts with posters signed by far-right group Forza Nuova: "Immigration, the noose of the people!" read one of the slogans on the posters. Another said: "Everyone should live in their own country." Nothing like Italy, whose economy has been ravaged by the worst depression in decades, developing its own Golden Dawn movement to really help with integration issues and globalized worker mobility.

Former House Speaker and presidential hopeful Newt Gingrich said a then-struggling U.S. economy can't afford to spend billions of dollars overseas to buy foreign oil when there was plenty of that Texas tea at home in the United States. Gasoline prices, he said, could drop to $2.00 per gallon if drilling activity increased dramatically in the United States. A year later, nearly 90 million barrels of oil was produced worldwide and almost half of that came from new drilling operations in the United States. Gasoline is still nowhere near $2.00 per gallon even though the United States is mentioned in the same breath as Saudi Arabia...

Those hoping that the Stalingrad & Propaganda 471 would soar above 1700 today on some abysmal Industrial Production will have to taper their hopes, as the number printed right on top of expectations, or at 0.3%, up from last month's 0.0%. This was driven by a better blend of Manufacturing (+0.3%), Mining (+0.8%), both the highest since February, and Utilities which dipped -0.1%, but far better than the prior two months' -1.6% and -2.8% declines on "cooler|warmer" weather. Parallel to the IP data the Capacity Utilization printed at 77.8, up from an upward revised 77.7 last month, and a fraction above expectations, leading to the first "beat" in the series since 2010 even though the headline number was 0.1 above the lowest print of 2013 to date. Alas, with the Old Normal average in the 80+ range, there is much room to go before the legacy manufacturing slack is absorbed. One thing is certain: QE is not helping.

Following the hopes and dreams of green-shooters everywhere with April's +0.6% YoY growth in European car sales, the last two months have been a bitter disappointment as sales have collapsed once again - down 6.3% YoY in June. Sales have been negative year-over-year for 18 of the last 19 months - longer than the 18 months during the financial crisis in 2008/9. Car manufacturers are not amused and are demanding action, as Reuters reports, "What is the government waiting for to enact measures to support investment in this key sector?"

For those who don't eat or use energy: feel free to stop reading now - your inflation came in just as expected, at 0.2% up from May, and 1.6% higher compared to a year ago. However, those unlucky few who are forced to eat, use and A/C and/or commute, your inflation just saw its biggest monthly hedonically-adjusted jump (don't forget the deflationary impact of that 80 inch LCD TV you have zero intention of buying), or 0.5%, since February's 0.7% and well above the 0.3% expected. This was driven by a 6.3% surge in gasoline prices, and a nat gas price index soaring 11.7% leading to a 3.4% increase in Energy prices, even as the Food increase of 0.2%, tied for the highest since December 2012 was subdued. And while non-food and energy components did not see major spikes, June apparel prices jumped 0.9%, the highest since 2012, as did Medical Care Commodities and Services, rising 0.5% and 0.4% respectively, both posting the highest M/M jump since well into 2012.

Goldman is baaaaaack.... if only in soaring compensation.

While KO just reported EPS in line with guided down expectations of $0.63, it was the top line where the behemoth missed, printing $12.75bn on expectations of $12.97bn. The company promptly admitted that Q2 volumes were weak but just as has been the case with every other company, the biggest culprit promptly emerged: the weather even as it had to admit that not all was well in the world: "Our second quarter volume results came in below our expectations, reflecting an ongoing challenging global macroeconomic environment and unusually poor weather conditions in the quarter." To the surprise of nobody except the Fed Chairman, sellside analysts and the C-suite, the surging USD in the quarter did very little to help profitability:" Currency was a 2% headwind on comparable net revenues and a 3% headwind on comparable operating income in the quarter." Finally, wrapping it all up, when all else fail keep the hopium: "Despite the headwinds in the quarter, we are committed to improving upon our results, with current dynamics leading us to believe that our performance will be better in the second half of the year." That's ironic because that's what everyone else "believes" about everything else.

• India Joins Brazil to China in Efforts to Tighten Liquidity (BBG)
• Seven dead as police and protesters clash in Egypt (Reuters)
• U.S. senators fail to cut deal, head for showdown on filibuster (Reuters)
• Gasoline Tankers Beating Crude for First Time on Record (BBG)
• Smithfield's China bidders plan Hong Kong IPO after deal (Reuters)
• Bitcoin ETF plan struggles to find support (FT)
• Big Home Builders Gobble Up Rivals Starved for Cash (WSJ)
• Putin wants Snowden to go, but asylum not ruled out (Reuters)
• Zimmerman's lawyer calls prosecutors 'disgrace' to profession (Reuters)
• McDonald’s to bring Big Mac to Vietnam (FT)
• Korean Pilots Avoided Manual Flying, Former Trainers Say (BBG)