Archive - Sep 2013 - Story

While the market has been fixated lately on the question of when and how the Fed will taper its asset purchases, perhaps as important for the rates market (and the magic that levitates stocks) is the outlook for the Fed’s forward rate guidance. On this front, BofAML suggests that recent evidence shows the effectiveness of forward guidance is diminishing... already. Simply put, policy makers are finding it harder to convince markets that central bankers have more insight into the future course of the economy and policy than they actually do. Meanwhile, markets are learning that it can be painful to rely too heavily on forward guidance when the risk/reward of being long fixed income is asymmetrical when close to the zero lower bound. In BofAML's view, this should lead to a return to persistently higher front-end risk premiums than have prevailed over the last two years, barring a sharp deterioration in the economic outlook.

If ever there was an investor reaction that summed up just how much the Federal Reserve has broken the markets it was yesterday morning's post-dismal-jobs-report surge. As John Phelan notes, we now appear to be in a position where the interests of financial markets are precisely at odds with the interests of the rest of the economy; where the good news for us is bad news for them and bad news for us is good news for them. The one way bet of the Greenspan Put maintained, so far, by Ben Bernanke, has created a market of monetary-punch-drunk liquidityholics. On its 100th birthday the Federal Reserve has the tricky task of sneaking the punch bowl out of the party, a task it seems they’ll struggle to manage without starting a riot. They may have printed themselves into a corner.

While one can speculate if the sarin gas attack on August 22 was ordered and orchestrated by Saudi/Qatari petrodollar interests, with the assistance of the CIA and the funding of al Qaeda, and executed by the Syrian "rebels" (there is much circumstantial evidence pointing in the false flag direction: here, here, here and here), the reality is that since the narrative behind Obama's offensive Syrian air strikes has been staged as punishment for Assad, the onus is on the affirmative proof, namely clear and unequivocal evidence that it was Assad who ordered the attack. So far, despite repeated vows and promises that such proof exists, none has been presented, aside from numerous YouTube clips which show an attack did take place (and even that is in question). When it comes to the actual perpetrator, John Kerry and company are reduced to emotional pleadings to the audience to look at pictures of dead children redirecting from the most important question of all: did Assad actually do it. The reason for such Copperfieldian tactics is that there simply is no link - Reuters reports that  "No direct link to President Bashar al-Assad or his inner circle has been publicly demonstrated, and some U.S. sources say intelligence experts are not sure whether the Syrian leader knew of the attack before it was launched or was only informed about it afterward." And yet Obama's entire publicly stated motive is to punish Assad... for something there is zero evidence he did.

The Pew Research Center has released a comprehensive 13 question quiz which does a surprisingly good, and broad, job of testing readers' knowledge about "prominent people and major events in the news", and comparing the results to a sample of 1052 people. See how well you fare in comparison to everyone else on topics that are considered mainstream.

As most know by now, over the past month or so, pressure on the currencies of EM deficit countries has intensified again. Goldman's EM research group, however, remains negative on EM FX, bonds, and even stocks suggesting using any strength, like this week's exuberance to add protection or cover any remaining longs.  Central banks in most of these countries have become more active in attempting to stem pressure in the last two weeks. But with a Fed decision on ‘tapering’ looming, investors have also become more cautious and are now focused on the parallels with prior crisis periods. In what follows, Goldman provides some concise answers to the questions on the EM landscape that we encounter most often, confirming their longer-held bearish bias.

• Arab press pans Obama on Syria
• EU Backs 'Clear and Strong' Response to Syria Attack
• Putin Says Russia Will Continue to Help Syria’s Assad
• Hollande Says He’ll Wait for UN Inspectors’ Report
• 10 Nations Join U.S. in Condemning Syria Chemical Weapons Use
• 9 G-20 Nations Don’t Join Statement

"At what point do we just start calling these guys the Stasi,” asked a friend over coffee today. He was, of course, referring to the latest news out of the Guardian that the NSA and its British counterpart GCHQ have ‘cracked codes’ across the Internet that were once thought uncrackable. We're deeply suspicious some of the NSA’s assertions. They seem to be claiming that they have cracked nearly everything, and that they have backdoor access to privacy software. But this is practically impossible. Our assessment is that this is an intimidation campaign. The NSA wants people to think that they have this capability. If everyone thinks that the NSA is Big Brother’s Big Brother, all-seeing and all-knowing, then not only will everyone be terrified, but everyone will simply stop using encryption. After all, why bother going through the hassle of encrypting/decrypting if the NSA can still read the contents of your email?

With the labor force participation rate at 35 year lows still being shrugged off as some 'cyclical' (definitely not structural) issue that will correct just around the corner, we thought it perhaps worth taking the long view, the really long view, of jobs in America. As the following two charts show, all was apparently 'sustainable' until the mid 1970s and then things changed...

"When it comes to market events, there have been no impactful black swans - the so-called unexpected 'tail events," Mark Spitznagel notes in his excellent new book, The Dao Of Capital: Austrian Investing in a Distorted World, explaining that, "what were unseen by most, were indeed highly foreseeable" by others. The Fed planted the seeds for the last financial crisis and "when you prevent the natural balancing act, you get growth that shouldn't be happening." 

The financial crisis of 2008 could have been the wake-up tall that, like the Yellowstone fires of 1988, alerted so-called managers to the dangers of trying to override the natural governors of the system. Instead, the Federal Reserve, with its head "ranger," Ben Bernanke, has deluded itself into thinldng ft has tamped down every little smolder from becoming a destructive blaze, but instead all it has done is poured the unnatural fertilizer of liquidity onto a morass of overgrown malinvestment making a even more highly flammable. One day - likely sooner than later, it will burn, and when that happens, the Fed will be sorely lackng in buckets and shovels and must succumb to the flames.

Hopes for a positive G20 summit crumbled today as President Obama blurted to Russia’s Vladimir Putin at a joint press appearance, “Everyone here thinks you’re a jackass.”

As fast-food workers of the world unite under a common banner of "higher minimum 'livabale' wages", one can't help but reflect on the terrible jobs data this morning and the potential inability of workers to get anything but a low-skill 'part-time' job flipping burgers. But most importantly, these workers may soon not be able to afford the product they manufacture. Concerns over rising wage costs can be put aside for now as it is the soaring costs of beef (as we discussed here previously) that are causing "Dollar Menu" items to be adjusted upwards. "You can't sell a burger for $1 anymore because the cost of beef has gone up so much," and sure enough, as Bloomberg reports, McDonalds is testing a new version, dubbed 'Dollar Menu and More', that includes items selling for as much as $5. As one analyst notes, the industry's "definition of value has moved up from the Dollar Menu to $1.50 or $2.”

With gold 'handled' back below $1,400 and bonds 'tapering' through 3.00% yields as equity bulls proclaim 'Mission Accomplished' today on the Dow 15,000 trigger, it seems markets remain entirely confused as to whether there will be moar printing, less-and-then-moar printing, or no moar printing. The following 61 page compendium from Incrementum offers 'everything you wanted to know about gold and bonds' but were afraid to source yourself as a guide for debt bears and bullion bulls... with a sprinkling of china bubbles, wealth effect lies, and regulation imbecilities.

Succinctly summarizing the weekly bull/bear recap, positive and negative news, data, and market events of the week...

Today's price action in Chevron will come as no surprise to any reader of ZH, but maybe, just maybe, in flipping from porn site to porn site, the SEC will stumble across our earlier note on unemployment in the 'adult movie' business and will look at the following remarkable charts. As Nanex shows, with 37 seconds to the close, one of the largest market-cap firms in the entire world saw its stock price attacked by an HFT algo that oscillated it by +/-2% about twice-per-second. As Nanex exclaims, "no longer can any HFT'ers or exchange or regulator blame THIS on humans." Perhaps the odds of another black-out on NASDARK should be higher than the current 28%.

Frequent readers are well aware that in addition to having broken the story about America's conversion to a part-time worker nation nearly three years ago, another topic we have been closely tracking over the past year has been its conversion to a gerontocratic worker society (from October 2012: "55 And Under? No Job For You"), which confirms that contrary to yet another urban legend that old workers are retiring in droves, it is the old workers who are getting the bulk of the jobs, at the expense of everyone else (those 55 and younger). Which brings us to today's chart of the day which shows the August job additions broken down by age group, and as tracked monthly by the household survey. The additions, or rather job losses, need no additional commentary aside from what we have provided so far.