Archive - Aug 1, 2013 - Story

Another example of the unintended consequence of a taper-growth-rotation rise in interest rates? Who knows, but yet another pillar of the 'recovery' just started to crack... Where's Phil LeBeau, when we need him the most, to tell us how great this?

Someone is going to face the music after all. It seems the SEC has its mid-level (non-executive) crisis scapegoat:

*TOURRE LOSES SEC CASE CLAIMING FRAUD IN $1 BILLION CDO

Tourre has been found guilty on 6 of the 7 cases - we await news on the financial penalties. Perhaps more critically, this finding (in favor of the SEC) may open the door for more lawsuits against Goldman with regard similar transactions.

Equities appear to be celebrating the bond market's rapid collapse today but there are already unintended consequences. With the entire complex seeing yields spike the most in a month (cracking back above yesterday's post-FOMC spike highs), 30Y yields have broken to new two-year high levels at 3.77%. As rates rise, issuers are struggling. Whether it is because of Detroit concerns or the sell-off in bonds, Michigan's Genesee County just pulled its $53mm muni offering  as "investors wanted a much higher interest rate than the county wanted to pay." The offering didn't attract buyers for a 29-year bond, the longest maturity in the deal, at an interest rate or 5.34%. Perhaps they should have issued stock?

The conventional wisdom of the moment is that a weakening global economy will push the cost of commodities such as oil down as demand stagnates. This makes perfect sense in terms of physical supply and demand, but this ignores the consequences of financial demand and capital flows. The total financial wealth sloshing around the world is approximately $160 trillion. If some relatively modest percentage of this money enters the commodity sector (and more specifically, oil) as a low-risk opportunity, this flow would drive the price of oil higher on its own, regardless of end-user demand and deflationary forces. If we grasp that financial demand is equivalent to end-user demand, we understand why oil could climb to $125/barrel or even higher despite a physical surplus.

There have been 10 senior-level management departures since Ron Johnson left the company in April. As Citi notes, the current state of the business is making it difficult for JCP to attract management talent and without a turnaround team, there is no turnaround. Key positions that remain vacant include Chief Marketing Officer, Chief Technology Officer, GMM of Home, and EVP, Real Estate. But apart from that, JCP is great...

The U.S. is "extremely disappointed" in the move by Russia to grant 'temporary asylum' to Edward Snowden, White House spokesman Jay Carney told reporters this morning. Carney appeared to add a threat, as the WSJ reports, he added that the Russian decision undermines law-enforcement cooperation between Moscow and Washington. Russia's decision also threatens to derail a planned September summit in Moscow between Obama and Putin (oh to be a fly on that wall), as Carney advised "we are evaluating the utility of a summit in light of this." Snowden's earlier comments that "over the past eight weeks we have seen the Obama administration show no respect for international or domestic law, but in the end the law is winning," did not help, adding that he thanks "the Russian Federation for granting  asylum in accordance with its laws and international obligations." US politicians see it a little differently, U.S. Sen. John McCain (R-A.Z.) called the move "a disgrace and a deliberate effort to embarrass the United States." Seems they are managing that all on their own.

In what is a relatively surprising headline, the Italian court has decided to uphold Berlusconi's Mediaset Tax fraud conviction... but appears to have left the door open for some more fun and games...

• *COURT CONFIRMS BERLUSCONI CONVICTION
• Court confirms Berlusconi prison sentence (Reuters)
  

But, it would seem, we may just see him make a run at the PM spot once again (once he gets out of clink)...

• *ITALY COURT ORDERS REVIEW OF PUBLIC-OFFICE BAN FOR BERLUSCONI

Of course, his 'sex with an under-age person' trial remains...(along with its potential life-time ban)

The real wages of the typical working man in the US have gone down for the last 60 years. In terms of his time, his most important purchases are more expensive today than they were in 1950. How did American workers survive with lower real wages and higher living costs? First, they began to work longer hours. Wives went to work. Husbands worked a second job. Now Americans work more hours than any other group. Second, and most importantly from our point of view, they began to borrow. Aided, induced and bamboozled by the feds’ EZ credit policies... they went deep into debt to keep up with their own standards of living.

While vainly attempting to look like he is still in the driver's seat, it would appear that John Boehner has once again folded on fiscal conservancy. "It’s clear that we're not going to have the appropriations bills finished by Sept. 30," Boehner noted this morning, adding "I believe a continuing resolution for some short period of time would probably be in the nation’s interest." So it's for our own good - especially as the Fed is set to Taper - that we keep borrowing and spending. But, Boehner adds after seemingly kicking the can, "the idea of operating for an entire year under a CR is not a good way to do business. And I’ve been working try to find a way to actually do all of these appropriations bills." Indeed, get back to work, Mr. Boehner.

Presented with little comment aside to note that 'reaching for yield' may soon having an entirely different meaning...

While much is being made of the ISM smash this morning and China's 'official' PMI overnight, it seems cognitive dissonance is on the rise as China's 'other' PMI collapsed and US Construction Spending dropped precipitously. It was only a month ago that ISM was sub-50 and that housing (and construction spending) was set to lift us out of the growth-scare. Apparently not. But there is another pillar of this recovery that has been stalwart during the equity market rally - that of US auto sales... until now...

*FORD U.S. VEHICLE SALES UP 11%, EST. UP 17%
*GM JULY U.S. VEHICLE SALES RISE 16%, EST. UP 20%
*CHRYSLER JULY U.S. VEHICLE SALES UP 11%, EST. UP 16%

It seems that all that channel-stuffing, subprime-lending, term-extending has hit its peak as, despite smiles and being 'pleased', US auto companies are underperforming expectations (as Ferrari exceeds).

Edward Snowden's first taste of fresh Russian air in weeks...

Those who follow the mainstream media’s “all Federal Reserve, all the time” coverage of financial news naturally conclude that Senator Chuck Schumer neatly summarized reality last year when he declared that the Federal Reserve “is the only game in town.” This lemming-like belief in the power of the Federal Reserve generates its own psychological force field, of course; the actual power of the Fed is superseded by the belief in its power.  The widespread belief in the Fed’s omnipotence is the source of the Fed’s power to move markets. We can thus anticipate widespread disbelief at the discovery that the Fed is either irrelevant or an impediment to the non-asset-bubble parts of the economy. There is much we, as individuals, can do to ignore the Emperor's clothes (or lack thereof) and focus on how to pursue our own prosperity and happiness irrespective of the meddling of central planners. The real power is in our hands, should we choose to believe it.

Record-breaking temperatures have been searing large swaths of China, resulting in dozens of heat-related deaths and prompting authorities to issue a national alert. As CNN reports, people are packing into swimming pools or taking refuge in caves in their attempts to escape the fierce temperatures. Local governments are resorting to cloud-seeding technology to try to bring rain to millions of acres of parched farmland. The worst of the smoldering heat wave has been concentrated in the south and east of the country, with Shanghai experiencing its hottest July in at least 140 years. In Shanghai, the heat was being blamed for mounting numbers of dead fish in ponds and rivers and is likely to continue into the middle of August.

*FERRARI SAYS 1H NET INCOME RISES 20%

*PORSCHE JULY U.S. SALES UP 36%