Archive - Sep 12, 2013 - Story

"We’re diverted totally from what this bill is about. Why? Because the anarchists have taken over. They’ve taken over the House and now they’ve taken over the Senate... People who don’t believe in government - and that’s what the Tea Party is all about - are winning, and that’s a shame." - Harry Reid on the Senate Floor earlier today.

The best thing about inept, crony, powerful politicians is that when they realize they are losing the battle for the hearts and minds of the public they simply don’t know what to do. We suppose it’s also anarchic to want to not start World War III, right Harry? Enjoy!

Following Barroso's State of the EU speech, we thought it useful to reflect on the true state of the EU. Nigel Farage's recent tirade slamming "Communist" Barroso's pro-bureaucrat policies are poignant as he exclaims the "disaster" that the EU has become for the poor and unemployed. To further color this rant we note Charles Gavekal's recent note on why Europe's still broken as worthless IOUs are 'transferred' around the union and "no one really knows who is going to take the final loss." Perhaps it is The Hamiltonian's summary of the structural problem (an interlocking set of European political, bureaucratic, media, academic and financial elites) and the sad fact that history suggests a crisis deferred is a crisis magnified.

Equity markets have to explaining to do, regardless of where you think they are heading.  As ConvesrgEx's Nick Colas notes, if bullish, riddle me this: are stocks just going to hop-skip-jump over Fed tapering, U.S. budget battles, a new Federal Reserve Chair, Syria, Greek bailout 3.0, German Elections, and other near term speedbumps?  Last time we checked "hope" still isn’t a strategy.  And for the bears: Colas asks, how has that been working out for you over the last week of boa constrictor-like squeezes higher?  Not so good. In the following note, Colas takes an out-of-the-box approach to explaining the recent rally by looking at some new academic work on the subject of stress.  As it turns out, stress is only harmful if you believe it is.  Maybe markets have 'learned' that lesson and view all these potential stomach-churning headlines as annoyances, rather than existential crises-in-waiting.

An increasing cacophony of prognosticators are of the status-quo sustaining belief that stock and bond prices will rally next week when the Fed announces the taper. As Scotiabank's Guy Haselmann notes, the thinking goes that alleviation of the uncertainty will cause a "relief rally." However, as Haselmann notes, since the Fed has provided 5 years’ worth of massive stimulus that has launched asset prices to record highs, the commencement of the withdrawal process is significant... and any relief rally that ensues next Wednesday should be sold. His thoughts extend from Indonesian central bank's dilemma to European political instability, and the next stage of the Syrian crisis...

Starting with the day Lehman Brothers collapsed, Bloomberg Businessweek examines the financial crisis as it affected the lives of the people who created it, tried to stave it off, protested it, profited from it, and lost everything to it.

With bonds and stocks rallying (and the USD dropping) notably in the last few days, one could be forgiven for believing the Taper is off but Goldman's baseline forecast remains for a $10bn reduction in asset purchases - probably all in Treasuries - and $15bn is possible (though recently mixed labor data may choke that a little) and a strengthening of forward-guidance. As they note, the current redction in uncertainty (or rise in complacency some might say) has the potential to offset the tightening in financial conditions, barring another major outbreak of DC strife in the run up to the debt ceiling in late October/early November. However, what is most notable is Goldman's expectation that the Fed will start walking-back its unemployment-rate threshold as it has been clearly shown not to be a good catch-all indicator of broad economic and labor market performance. So it's data-dependent - but the data is unreliable at best and false at worst.

85-year-old Shintaro Tsuji is the founder of Sanrio - the firm that introduced "Hello Kitty" in 1974. Sanrio's shares have doubled this year making the founder a billionaire, amid the Abenomics levitation. The success of the brand appears to be its ubiquity - as Bloomberg reports "it must be way up there in terms of the most recognized franchises in the world", - adorning everything from wallets, bags, golf clubs, and iPhone cases. But it's his latest venture - into "Hello Kitty" vibrator massager mastubrator - new from Japan" that caught our eye. As one shopper in a Times Square store noted, "it’s nice to have something a little girly and flashy and fun," and it doesn't show any sign of slowing with sales of around $900 million last year, "it’s very hard to see any diminution for the Japanese fondness for cuteness."

In a world in which "can kicking" has become the only way out, it appears that the only thing that can prevent systemic collapse due to is even more financial innovation. And while we have no idea what is the next milestone in financial ingenuity, we present the key milestones over the past 2600 years that defined modern finance as we know it.

Sometimes you have to step back and laugh... spurious correlation perhaps, but over 10 years, 2 years, 2 months, or 2 weeks; the ebbs and flows of AAPL shareholders and spot gold prices seem oddly similar... so which is in a bubble and which is a screaming buy?

The growth rate of employment is declining over time, as positive growth weakens and recessionary declines deepen. For all the reasons addressed here and many other sites over the years - offshoring, global competition, labor-replacing technologies, the perverse incentives of financialization, structural changes in the economy, etc. - there is no one simple way to boost full-time, higher-wage employment. If wages cannot easily be increased, the alternative approach is to dramatically lower the cost of living.

New SEC Chair May Jo White's motto "you have to be tough" and plans to toss out the SEC enforcement policy that allowed almost all defendants to settle cases without admitting wrongdoing sound great; but the reality is, as the WSJ reports, the policy shift comes as the SEC turns the page on its financial crisis work. New investigations into misconduct linked to the meltdown have slowed to a trickle. And a statute-of-limitations deadline that generally restricts the sanctions the SEC can get for conduct more than five years old is looming for many cases. The SEC's crisis-related actions are producing diminishing financial returns as the following charts suggest... As one law professor noted, "they've not had the big case that everybody wanted to see... a major player being held really accountable." Perhaps more reading and less porn would be a start?

We’ve confidentially submitted an S-1 to the SEC for a planned IPO. This Tweet does not constitute an offer of any securities for sale.

— Twitter (@twitter) September 12, 2013

For the right answer, we look to the past....

It started early this morning as Asia really went to bed - when gold markets were temporariliy halted. Someone decided that was the perfect time to sneak a few thousand contracts through the futures market (and clearly has no fiduciary duty to a client for best execution). As the US day-session opened, it was silver's turn totake a hiding (and gold less so that time); and then into the close, with both precious metals (and copper) heading towards their lows, Silver nose-dived (now -8% on the week) and its worst day in almost 3 months. Away from precious metals, Oil surged back over $109 as Syria chatter hotted up again (from Assad this time), the USD slid further (though ended flat on the day after an opening dump), and Treasuries shrugged off early gains to close red even as stocks closed lower (despite a late-day ramp effort) - breaking the streak and stunning a few TV anchors as VIX-slam and the 'short squeeze' seems over for now.

It will likely come as no surprise but the political one-up-manship continues as the Obama White House try to rescue themselves from a face-melting Putin Op-Ed... As Politico reports, WH press secretary Jay Carney stated: “If we were to see a situation unfold where Assad were to give up his chemical weapons to international supervision that would be an enormous accomplishment ... would be due to the decisions made by the Russian leadership but also the decisions made by the United States, by the president, to take the approach he has taken in response to the horrifying use of chemical weapons on his own people." Feeling the need to make one more jab at the Russians, Carney added, "The United States, in part because it is an exceptional nation, is called upon the lead in situations like this." Indeed, that's what it felt like eh? Under control the whole time...