Archive - Sep 20, 2013 - Story

Whether we want to admit it or not, we find ourselves in pre-revolutionary times at the moment. This doesn’t mean we predict violent upheavals everywhere followed by chaos and bloodshed, it means that the current paradigm is no longer sustainable because it is not longer working. More and more people now recognize this. In case you needed anymore insight into the complete and total insanity of the “elite” Central Planners driving the U.S. economy off a cliff, we have decided to highlight a couple of articles explaining the rapid reflation of two important subprime markets: Homes and Autos. Clearly the only lesson learned from the 2008 crisis was that connected oligarchs can steal all they want with total impunity. There’s only one way this ends. With a complete and total collapse and then a massive paradigm shift. We're quite hopeful our next system can be far better than this one.

There was a time when the only geographic region that made up for contracting global Caterpillar sales was Latin America, which was the only silver lining amongst an otherwise dreary year-over-year sales performance landscape. As of August, that is no longer the case, with LatAm sales for the heavy industrial equipment maker plunging from a positive 11% to -3%. This was the first Y/Y drop in LatAm sales for Cat since September of 2012, and joins virtually every other global region in posting a drop in year over year sales. It also dragged total world sales down to -10% on a year over year basis, down from -9% and -8% in July and June, and is the lowest sales "growth" since March. Just three more percentage points and Cat will have the biggest annual drop in global sales since 2010. The only good news in the report: North American sales cautiously peaked out from negative territory where they were hiding since December, and posted a measly +1% growth in August, even as every other world region was substantially in the red. The implications of this report are of course great for stocks: bad CAT, bad end demand, bad global economy, no taper, Turbo QE. Because bad news has never been gooder for the BTFATH chasers.

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72% of the poor and 71% of the middle-class believe government policies (fiscal and monetary) have done little or nothing to help them. Of course, this will be eschewed by the academics (as Santelli recently exclaimed regarding the arrogance of the intellectuals) because "the people" just don't get it. But when 69% of all Americans, according a new Pew study, say large banks and financial institutions have benefited the most from post-recession government policies; communications policies are going badly awry. Despite a surging stock market, exploding home prices, and low rates spurring all kinds of subprime auto loan exuberance, there has been little change in these perceptions since July 2010.

With Septeper an epic disappointment, some terms being casually thrown now include Octaper and Dectaper. But while the first is quite improbable, despite Bullard's attempt at a trial balloon floated on BBG TV moments ago, the prevailing consensus has now shifted to December. Which incidentally is when Bank of America, which was the only big/TBTF bank to correctly forecast a Snotaper announcement, has marked its calendar in expecting the first $10 billion reduction in the monthly $85 billion flow injection by the Fed. To wit: "In line with our out-of-consensus call, the Fed surprised most market participants and did not taper at their September meeting. Moreover, the FOMC statement, updated projections, and tone of Chairman Bernanke’s press conference all were dovish, as we had anticipated. Thus, our base case remains for a December taper. We now expect a modest-sized reduction of $10 bn, split evenly between MBS and Treasuries, followed by a gradual, data-dependent wind-down of purchases likely to end in October 2014. We also now expect the first rate hike in late 2015 at the earliest (previously we had looked for the first hike that summer), putting the target funds rate at 50 bp at the end of 2015 and 1.50% at the end of 2016."

It seems just as a plethora of Fed heads had to walk back Bernanke's last press conference hawkishness, that the uber-dovishness interpreted by the market from Wednesday's FOMC is now being tapered back. Speaking on Bloomberg TV, Fed's Bullard warns an October Taper is on the cards:

• *BULLARD SAYS ECONOMY ISN'T THAT FRAGILE
• *BULLARD SAYS $10 BILLION TAPER VERSUS NO TAPER NOT `BIG THING'
• *BULLARD SAYS NO TAPER, SMALL TAPER WAS A `BORDERLINE' CALL
• *BULLARD SAYS `SMALL TAPER' POSSIBLE BY FOMC IN OCTOBER

The market (bonds, stocks, and gold) reacted accordingly and is unwinding the exuberance in a hurry. The question now, of course, is what key data is due out that will shift them off the fence. For traders, clearly good news is now very bad news - especially over the next month.

Global central bankers really need to work on their "clear" communication skills: first, the Fed shocked everyone by not tapering on Wednesday, and now, in his first decision since taking over the reins of the Reserve Bank of India, its new head Raghuram Rajan, stunned the world even more, and all 36 analysts who predicted an unchanged decision by the central bank, with the first hike of the country's repurchase rate since 2011, by 25 bps to 7.5% in an attempt to rein in inflation. And just to keep the confusion to a maximum, the RBI also piled on the stunners by concurrently pursuing various other policies that contradicted the repo rate hike, and directly seek to inject even more liquidity into the market, thus offsetting any inflation-battling measures.

• JPMorgan Guilty Admission a Win for SEC’s Policy Shift (BBG)
• Pricing Glitch Afflicts Rollout of Online Health Exchanges (WSJ)
• This will end well: Japan LDP Considers Draft Bill to Put Government in Control of Fukushima Cleanup (WSJ)
• How a German tech giant trims its U.S. tax bill (Reuters)
• Despite Merkel's Popularity, Angst Creeps In (WSJ)
• Hank Paulson warns of regulatory conflict (FT)
• Rajan Surprises With India Rate Rise to Quell Inflation (BBG)
• Apple Begins Selling New iPhones (WSJ)
• Pope Says Church Should Stop Obsessing Over Gays, Abortion (BBG)

It has been a quiet start to Quadruple Witching Friday (expiration of stock index futures, stock index options, stock options and single stock futures) but expect that to change, as erratic price action is a recurring hallmark of Quad Witches, especially with persistent low volume and markets that tend to shut down for no reason. So far stocks have traded steady in Europe this morning, credit spreads widened and Bunds traded in positive territory as market participants positioned for the much-anticipated German elections which are to be held on Sunday, with exit polls to be made available after the close of polling stations at 6pm local time. Ahead of that, and as reported here previously, Germany’s AfD Eurosceptic party could win enough support in the general election on Sunday to gain seats in the German Bundestag, an opinion poll published for a leading newspaper has forecast for the first time. Basic materials and utilities underperformed in Europe, with RWE trading sharply lower in Germany after the company announced plans to cut its dividend by half (and with the Adidas fiasco yesterday, one wonders just how bad things in Europe really are).