Archive - Sep 27, 2013 - Story

There were no surprises in today's Personal Income and Spending report. At $14.188 trillion, Personal Income rose 0.4% in August, just as expected, and up from an upward revised 0.2% in July. On the spending side, US Personal Outlays were $11.94 trillion, an increase of 0.3% from July, and also higher than the upwardly revised July spending of 0.2%. The PCE Deflator came in at 0.1%, as expected, while the PCE Core rose 0.2% compared to expectations of 0.1% and up from 0.1% last month. The breakdown of components at both income and spending levels was uniformly distributed with nothing standing out. Real Disposable income rose 1.6% Y/Y but only due to a change in the current-dollar series as a result of an adjustment in the implicit price deflator which revised recent numbers to appear larger. Finally, since in nominal terms incomes rose a fraction more than spending, the implied savings rate rose by the same fraction: 4.5% to 4.6%, the highest since May.

It would appear that between the fears of a government shutdown and the battle over the 'full faith and credit' of the US, traders have decided that the stroke-of-midnight agreement is potentially less viable this time as both parties feel the other has more to lose. The USD is being sold against all majors and gold, silver, and WTI crude is well bid as investors seek the safety of hard assets over printable fiat. Of course, that could all change on the next economic data or Washington headline... buckle up...

Last night Japan reported August CPI/inflation news that at least on the surface were astoundingly good: at 0.8%, the core CPI (excluding fresh irradiated food) was more than expected and higher than July's 0.7%. And yet, even the most absurdly clueless economist is silent this morning in their praise of Abenomics, which supposedly has succeeded in its one goal - bringing sexy inflation back. Why? Perhaps the reason is that whereas Keynesian inflation in which prices and wages are broadly if modestly rising as a result of a properly functioning monetary system, is indeed just what the Doctor of modern economics ordered, soaring input costs driven by FX differentials and current account flows, "offset" by plunging wages is precisely the opposite of what Abenomics was supposed to be. Which is exactly what is going on in Japan.

Italy’s Stability Program targets a 5%-6% primary budget surplus, and 3% nominal GDP growth. Both strike JPMorgan's Michael Cembalest as unrealistic in the context of post-crisis Italy. Italy ran a 6% surplus for a brief moment in the 1990’s but it didn’t last, as it was the result of a prior devaluation helping growth, some asset sales and some tax increases. Only asset sales seem feasible in Italy right now, if anything. If Cembalest's concerns are correct, Italy will remain a country with almost twice the debt/GDP ratio as the US; unbreakable interdependency of the government, the banks, and the ECB; and low GDP and employment growth. If history is any guide, he will be right as the last few years have seen the biggest collapse in Italian GDP since The Unification in 1861...

• House GOP banking on Plan C (Politico)
• Pimco shook hands with the Fed - and made a killing (Reuters)
• BlackBerry's Torsten Heins has a $55 Million golden parachute (Reuters)
• JPMorgan Urged to Pay More in Mortgage Deal (NYT)
• Soros Adviser Turned Lawmaker Sees Crisis by 2020 (BBG)
• U.N. Members Agree on Syria Disarmament (WSJ)
• U.N. Says Humans Are 'Extremely Likely' Behind Global Warming (WSJ)
• The non-falsifiable threats emerge: Shutdown Would Shave Fourth-Quarter U.S. Growth as Much as 1.4% (BBG)
• Swaps Rules Worry Industry: Coming Regulations Have Market Players Concerned About Possible Disruption (WSJ)

It's official: the absolute wreck of a soon to be insolvent retailer that is JCPennyless, has just announced the pricing of its 84 million shares (thank you Goldman Sachs), and the price is $9.65. Putting this into context, this offering price is 25% below the $12.90 price at which Bill Ackman dumped his entire stake a month ago to even more clueless "investors", and about 26% below the $13/share price at which Vornado sold its entire stake last Friday. Existing shareholders: congratulations, you just got diluted by 44% (with the full overallotment), but at least you get to enjoy your misery for a few more months as the melting icecube of a company does what it does best: continues melting.

Following yesterday's modest bounce in equities punctuated by the traditional last minute spike, sentiment has reverted lower once again, driven by the uncertainty surrounding debt ceiling talks in the US, where lawmakers have until next Tuesday to agree to a spending bill, or much of the government will shut down. The Senate will vote on a spending bill later today, which will then be sent back to the House putting republicans in a quandary (Politico explains the complications surrounding the GOP's "Plan C"). It was reported that US House leaders are considering postponing action on a bill to extend the US government's borrowing power, with the leadership discussing a change of strategy to complete action on the stopgap spending bill before debating the debt-limit debate. In FX, GBP strengthened across the board this morning after BoE’s Carney said he does not see a case for more quantitative easing.