Archive - Sep 2013 - Story

As Nobel Peace Prize-winning President Obama prepares to give his "Syria Strike" speech tomorrow, we thought the fact that The White House had begun selling its 'official' Christmas 2013 ornament was worth pointing out. The theme - "Peace On Earth" of course, is positioned in a wrath of olive branches, peace doves and the reverse of the wonderful tree decoration states in oh-so-ironic-language, "Peace must be planted upon the tested foundations of political liberty," - a phrase from Woodrow Wilson's address prior to World War I. Happy Holidays everyone...

The last hour has seen a sudden escalation in the Syrian-Strike-Nado. Following earlier comments from Hillary Clinton, President Obama also confirmed the Russian offer on Syria is "potentially positive" though "skeptical" that it will be followed through on. Harry Reid then hits the tape with news of a delay in the 'test vote' - hardly a signal of resounding support. Then Assad, via his twitter account, compares Obama to Bush among other things. And then finally, Obama announces he has not made a decision on next steps if Congress doesn't support military strikes. Gold is modestly higher, oil slightly lower. Equities remain happy with the uncertainty and are extending gains. In the meantime, Reuters finds that 63% of Americans now oppose intervening in Syria.

Always on the look-out for a silver-lining, the world's commission-taking asset managers are flooding into the new cleanest dirty shirt of European stocks (the more beaten-down, the better) - apparently on the basis of the exuberance in surging PMIs. Aside from the fact Draghi himself already poured cold-water on people's belief in the strength of the European recovery last week, and our note this weekend on the 'roughness' of PMI survey "soft" data, investors remain unmoved and momentum has taken over now. However, as Goldman explains some of the optimism on the basis of recent manufacturing PMIs may not square with evidence of a structural break in the link between the PMIs and growth. While a reading of 50 may in pre-crisis days have indicated positive growth on the periphery, it today may only indicate flat (or even negative) growth, as the external financing constraint prevents better sentiment from translating into activity.

Two weeks ago, the Syrian regime reportedly ordered the use of chemical weapons, which U.S. sources state killed over 1400 people. Over one year ago, President Obama declared that any movement or use of chemical weapons would cross a “redline.” Right from the start, officials in the Obama White House assured the public that any decision to use force against Syria would not be designed to impose regime change. Why would the administration take such an option off the table? As strategists and policymakers have understood since time immemorial, any decision to use military force must be guided by a strategy. If Washington’s strategy is to stop Assad from using chemical weapons, demonstrate that America is committed to enforcing this international norm, and undermine states that support such atrocious actions, regime change remains the critical instrument for the United States. In fact, all other options are highly susceptible to failure. In the end, the failure to put the instrument of regime change on the table demonstrates a lack of resolve, commitment, or weakness—all of which will be interpreted by friend and foe alike as acquiescence in the face of states using chemical weapons.

The South Texas city of Harlingen is the cheapest place in the U.S. to live, according to the sixth annual cost of living index, a study conducted by the Council for Community and Economic Research. By contrast, the cost of living in Manhattan, one of the most expensive places to live in the world, is almost three times that of Harlingen. If someone with an annual income of $60,000 in Manhattan moved to Harlingen, she’d need to make just $21,768 a year to maintain her standard of living.

Last week we presented the most recent map of US and Russian naval deployments in the Mediterranean surrounding Syria. Over the weekend, things appear to have heated up once more as yet more ships - mostly of Russian origin - arrive in what is rapidly becoming a formation in search of the tiniest provocation.

These days, you could put ‘safety and security’ in front of just about anything and get people to readily comply. Well, OK. After all, who is against ‘safety and security’? Only criminal terrorists, apparently. This is now the easiest way for governments to exact their agendas... whether it’s invading new countries, monitoring all Internet activity worldwide, or bailing out the big banks at taxpayer expense. Apparently the citizenry has become so scared that we collectively lay down and let governments walk all over us. At this point, the Founding Fathers’ list of grievances nearly pales in comparison to the indignities and injustices to liberty that people suffer today under their government. We’ve been talking about this trend for four years now. This is no longer theory. It’s real. It’s happening. And it’s coming soon to a bankrupt, insolvent nation near you. Have you hit your breaking point yet?

To paraphrase:

• Kerry to Syria: Turn over your chemical weapons!
• Syria to Kerry: Ok
• Kerry to Syria: I was being rhetorical. We will just bomb you anyway, as soon as we are done gassing you.

With the White House increasing its rhetoric in the face of Russia/Syria headlines and growth-inspired commodities like copper and oil suffering, the meme of the day that today's rally was a combo Asian growth and Syrian 'ease' is bullshit. Simply out, it's just another day in paradise as we noted earlier the 'most-shorted' names in the US equity market were squeezed dramatically higher - the most in 15 months (+2.8%). Interestingly, as the Russell surged to highs of the day, the Dow and S&P diverged lower in the afternoon. Homebuilders were the best choice for this idiocy as they soared 5% from Friday's lows (even as WFC and BAC shut their mortgage departments?) and are now 2% above pre-Kerry levels. Carry-mongers were equity bulls best friends as EURJPY lifted stocks all day and the USD dumped - led by EUR and SEK). Gold and silver flatlined for most of the day along with copper with WTI dumping into the pit close to around $109 (still its highest for this date ever). Treasuries were bid 5bps (belly) to 2bps (long-end). Trannies remain the only major index below pre-Kerry levels. War schmoar...

Less than 10% of the House publicly supports President Obama's plan for a military strik on Syria. As Bloomberg notes in this updated visual description of the hill he faces, at least 202 House members currently oppose military action.

There has been much jubilation in recent months over the so-called end of the consumer deleveraging (and implicitly, the start of releveraging) - that key missing link so needed for a truly sustainable, Fed-free recovery. The problem, unfortunately, is that this jubilation has been once again misplaced (read wrong) and following the just released July Consumer Credit data, we know that US consumers continued to pay down their credit cards (i.e., delever) for the second month in a row, reducing total outstanding revolving debt by $1.8 billion, which when added to June's revised $3.7 billion reduction in credit card borrowings, is the biggest two month drop in revolving debt since January 2011. The offset? Same as always: non-revolving i.e., student and car loans, debt soared once more by $12.3 billion this month, representing 118% of the total increase of $10.4 billion (less than the $12.7 billion expected), and down from last month's downward revised $11.9 billion.

It wouldn't be the US equity market if the worst-of-the-worst companies were not getting bid to the moon. With all the event risk ahead, those who suggest that "stocks dont like uncertainty," appear to be talking anally once again. Today's best day in stocks in 2 months is driven not just by EURJPY carry-mongers, but by the largest short-squeeze in US markets in 15 months. Why, we hear you ask? Why not... Just ask the homebuilders - which are up a new normal 5% from Friday's open.

We were wondering if Hillary Clinton, who back in June 2012 made the first demand for a regime change in Syria, had disappeared to. We now know the answer:

Use of chemical weapons by Syria’s Assad “violates a universal norm,” warrants a “strong response from the international community led by the United States,” former Sec. of State Hillary Clinton says at White House event.
Immediate surrender of Syria’s weapons “would be an important step,” Clinton says; Russian proposal on weapons “can’t be another excuse for delay, for obstruction”

Then again, what difference does it make, if the US will get the "support" for another war of aggression? The decision in Saudi Arabia has been made long ago. And what difference does it make if Hillary received hundreds of thousands worth of expensive Saudi jewerly. Seriously.

So much for the revised US plans, now revealed to have been about overthrowing Assad all along, to be derailed by the Syrian attempt to appease the aggressor.

• REID SAYS SENATE WILL HOLD PROCEDURAL VOTE ON SYRIA WEDNESDAY

More importantly, DE Shaw's headline algo now appears to have been finally recalibrated to respond to "moar woar" flashing red headlines as bullish for confidence, represented as always in the New Normal, by the S&P as stocks just hit new intraday highs on the news.

Today's equity market exuberance is being pitched as due to to Asian strength... We hate to burst that bubble but... The Nikkei 225 actually fell after GDP was released; JGBs rallied (well that doesn't fit with the meme of Japanese growth); Japanese GDP missed expectations (oops); Japanese trade balance was the 3rd worst on record; Chinese imports missed expectations (as copper demand fell since liquidity has eased and less need for cash-for-copper deals). So what is the catalyst for today's S&P 500 rally... behold the EURJPY cross rate...