Archive - Jul 2013 - Story

While there are many positives to declining energy consumption, the question is: does this reflect a better standard of living or a lesser standard of living? In terms of replacing the ownership model with the access model and replacing long commutes with remote work, the answer is "better." In terms of overall economic activity, these charts scream recession, i.e. a declining standard of living.

Or why we must delay it, to find what's in it...

In November 2009 the IMF decided it was an opportune time to authorize the sale of 403.3 metric tons of gold. Very quickly after announcing this China, India, Russia, and some EU central banks piled in snapping up the IMF's offer. The current price of gold is around CNY7,300 per ounce, exactly what it was when China last loaded the boat...

It should come as no surprise to most ZeroHedge readers but sometimes the facts and data need to be reiterated to ensure the message is not getting lost. As Michael Snyder rhetorically asks,  did you know that U.S. banks have more than 1.8 trillion dollars parked at the Federal Reserve and that the Fed is actually paying them not to lend that money to us?  We were always told that the goal of quantitative easing was to "help the economy", but the truth is that the vast majority of the money that the Fed has created through quantitative easing has not even gotten into the system.  Instead, most of it is sitting at the Fed slowly earning interest for the bankers.  Our financial system is a house of cards built on a foundation of risk, leverage and debt.  When it all comes tumbling down, it should not be a surprise to any of us.

With a 180 point high to low plunge during the day, the Dow underperformed the rest of the major US equity indices which ended practically unchanged on the day. The market appears to be replaying the same opening POMO/EU pump to afternoon dump mode - with today's late-day ramp attempt to scramble back to VWAP. Treasury yields also oscillated but closed +/-1bps. But elsewhere, markets were turmoiling. The USD is up 0.5% on the week with 1.5% drop in JPY today which entirely disconnected from US equities after Europe closed. Credit markets were the voice of reason and equities (once again) ripped and dipped back to their sanity. WTI crude surged up near $100 (+3% on the week) as the USD weighed on gold and silver which are -0.6% and 1.6% on the week. Another day, another failure for the S&P's 50DMA.

While Portuguese Prime Minister Coelho exclaims "You can count on me," in tonight's TV address, it seems the market is not so sure. In fact things are so bad that Nigeria, that bastion of western capitalism and stability, has just issued 5Y and 10Y bonds at yields in line with Portugal's. With news breaking that the opposition party is calling for new elections in Portugal, we suspect Nigeria will be out soon with a dismissal noting that "Nigeria is not Portugal".

Day after day we are bombarded by self-referential talking-heads bloviating on the last extrapolated data point and how that means to buy the dip because at "Name Your P/E ratio" stocks are still cheap. Well on a long enough timeline, the current 16.3x P/E is in fact extremely fair. While many point to entirely bubble-prone 28.6x peak in 2000 as 'evidence' that we can go much higher, the facts are that over the last 113 years of US equity markets, as P/E between 15.1x and 18x has indeed marked the 'top'. So are stocks cheap?

And so, in two short days, Portugal has gone from a "poster child" of European periphery success to a full blown "Crise Politica." In moments, the country's PM Coelho will address the nation and while he is not expected to announced his resignation, according to local media he will announce a vote of confidence in parliament to test his majority. Even so, now that his coalition is blown, it is unlikely he will have a comfortable majority and the country will see early elections adding even more uncertainty to a continent where Greece is also on the rocks, and where Italy and Spain (despite the now blatant data manipulation) are constantly on the edge. Of course, to those who listened to our short EURUSD call in the aftermath of the latest Stolper reco, congrats: 100 pips in 24 hours beats a fausterity stick in the eye.

With the highest close in 13 months, WTI tested as high as $99.87 intraday. Must be all the global growth? Not good for the US economy/market...

Our interventionist foreign policy is the gift that keeps on giving. Here are 15 photos from the Tahrir Square protests you'll likely not see in the mainstream media...

From the open last Thursday, high-yield bonds (as priced by the HYG ETF) are down notably while stocks are in ignore any taper news mode. The last 4 days have seen a very similar pattern play out where stocks jump exuberantly at the open, ride through POMO and the EU close, and then drop back in hurry to credit's less sanguine view of the world. It seems each and every ramp in the S&P away from credit stalls at the 50DMA and today was no different.

Tuesday humor struck early, courtesy of Goldman's head of the New York Fed, Bill dudley:

• DUDLEY SAYS FED AT TIMES WAS `TOO OPTIMISTIC' ON FORECASTS

That in itself is not the humor. The humor is, as always the context. Such as this:

• DUDLEY SEES STRONG CASE GROWTH TO PICK UP 'NOTABLY' IN 2014

Now that is funny when one considers the following past headlines...

Following finance minister Vitor Gaspar's resignation, the foreign affairs minister Paulo Portas has just added to Prime Minister Coelho's problems and quit in light of who the PM chose as replacement for Gaspar. Gaspar was one of the key Portuguese policy makers to oversee the country’s bailout program, and in his letter of resignation, noted that he had lost the public's support to continue with the deeper-than-expected recession and above-target public deficit developments. Mr. Gaspar's replacement will be the current treasury secretary, Maria Luís Albuquerque, and that is what sparked the Portas to exclaim, "the Prime Minister decided to follow the path of mere continuity at the Finance Ministry. I respect that but disagree." Coelho is due to make a statement at 1900GMT but in the meantime, Portugal's bond market has spiked its most in 10 months relative to its risky neighbor Spain back above 200bps.

It appears the market is in sell-first, question-later mode as a series of confusing headlines just hit from Bloomberg, citing a Merkel interview from SDZ, in which the German leader appears to have said that Greece May and/or May not get the next Troika bailout package...

*GREECE MAY NOT GET NEXT EU8.1B AS PLANNED, MERKEL TELLS SZ
*GREECE MAY GET NEXT EU8.1B IN TRANCHES, MERKEL TELLS SZ
*MERKEL SEES NO ADDITIONAL DEBT CUT FOR GREECE: SUEDDEUTSCHE Z

As we noted here, the IMF has already warned on non-payment (and a 3-day ultimatum has been set) and with the election so close, it seems Frau Merkel is between a populist rock (keeping the leash tight and explaining that they may not get the full amount but may get a tranched amount based on smaller performance hurdles) and a hard place (of saying nein and losing Europe).