Archive - Sep 2013 - Story

In all the stories surrounding mass interception, recording (and abuse) of every form of private electronic communication by the NSA, there was always one missing link: encryption. After all, the NSA's primary task has always been to decrypt data, not to record and store every bit of communication traversing the ether or the internet. And yet, with the advent of recent encryption technologies, it would, or at least could, have made such pervasive interception by the spying agency problematic at least. However, according to a just released exposed by the NYT and ProPublica, it turns out the NSA had that base covered too. Presenting Bullrun, or "there's a hack for that."

Ahead of tomorrow's all-important facade of the NFP print, US equity markets traded on very low volume in the 2nd narrowest range in 6 months. Sectors were a litte more disprsed with rate-sensitive names hurt and Utes underperforming. The real story of the day was the "Taper-On" trades in Treasuries, precious metals, and the USD. The belly of the Treasury curve smashed another 10-11bps higher (now up 21bps from Friday's pre-Obama speech) as the 10Y trod water at 2.98% from the European close only to jump up to 2.99% into the close. As we crossed the US open, gold and silver were summarily punched lower, down 1-2% on the week as the USD surged following Draghi's chatter and better macro data this morning. Credit markets were decidely more nervous going into the close than stocks. Gold and the S&P 500 are now exactly equal with each other and unchanged from the 6/18 FOMC "Taper" moment (and Silver is up 7%).

Asia is a damned excited part of the world. And Singapore is the financial epicenter of all of it. For the last 24-hours, banker and fund manager friends of mine have been telling me stories about oil refinery deals in North Korea, their crazy investments in Myanmar, and the utter exodus of global wealth that is finding its way to Singapore. In the last few weeks we are seeing two new groups moving serious money into Singapore - customers from Japan and India. The contrast is very interesting. From Japan, people who see the writing on the wall just want to be prepared with a sensible solution. They’re taking action before anything happens. From India, though, people are in a panicked frenzy. They waited until AFTER the crisis began to start taking any of these steps. As a result, they’re suffering heavy losses and taking substantial risks... some wealthy Indians are trying to smuggle out diamonds... anything they can do to skirt the government's capital controls.

With all eyes squarely focused on Syria, attention spans have drifted from Iraq but as Stratfor explains, things are once again going from bad to worse in that 'stable democratic' nation. Coordinated, high-casualty attacks have become common in Iraq since the withdrawal of U.S. forces from the country at the end of 2011. The geographic focus of the attacks indicates that the reach of militants is limited to areas in which they can routinely operate freely, typically where the Shiite, Sunni and Kurdish spheres of influence intersect.

Where does one even start with this one. Six months ago we discussed the plight of Revel - New Jersey's "state of the art" casino - which filed for bankruptcy less than a year after opening its doors, despite numerous sunk incentives an millions of dollars in an "economic development incentive" by the financially troubled state. A few months later, following a prepackaged debt-for-equity, the casino has emerged from bankruptcy with $1.2 billion of its pre-petition $1.5 billion in debt converted into equity. While it is unclear if the casino will ever turn a profit even with the much streamlined balance sheet one thing is clear: it is trying. So hard, in fact, that as the AP reports Local 54, Atlantic City's main casino workers' union, is complaining to state labor and political officials about Revel Casino Hotel's use of part-timers. Is the irony here becoming apparent?

If there is any one strikingly obvious feature of the U.S. economy in the past 15 years, it's the serial asset bubbles, one after another. So who benefits from serial bubbles? The financial sector and the central government...

Amid the G-20 headlines ("nobody mention the war"), leaders are proudly commenting on the global co-ordination on growth and tackling joblessness (and group hugs), but it was President Obama's comments that raised a few eyebrows:

*OBAMA TOLD G-20 STIMULUS WILL BE WITHDRAWN GRADUALLY: RUSSIA

It would seem, the President has decided the decision to taper - gradually - will be his, which is odd, because - as if one needed reminding - the decision is not his to make (unless he decided to nominate himself for Fed chair?).

Russia’s only aircraft carrier will visit Moscow’s small naval base in Syria later this year, BBC Monitoring reported citing a newspaper published by the Russian government. Earlier this year a Russian naval officer told Interfax that the Navy had decided to end the Admiral Kuznetsov’s scheduled maintenance early and deploy it on a mission that would include a stopover in the Mediterranean Sea, where Russia has established a permanent naval task force in response to the hostilities in the Middle East. That report did not specify whether it deployed to the Tartus military base in Syria, although speculation abounded.

We are sure this is just a 'transitory' storm-in-a-teacup, but for those who 'use' energy, the price of the most important raw material in the world has never been higher on this day of the year than it is today... must be all this growth?

War-weary 'real' Americans appear to have the ear of their representatives (for once). Message such as "you don't stop a war by getting involved and shooting more," and "once you start launching missiles, anything can happen," appear to have moved both the staunchest tea-party Republican and the most anti-war Democrats to shun the position of Boehner and Pelosi. As Bloomberg reports, only about 20 members (or 5%) of the House is publicly supporting a military strike. Against this, 68 lawmakers (an uncomfrtable alliance of Dems and Reps) are actively opposed to a strike. 350 House members are 'undecided', with 217 required to make or break the vote. With 60 votes required in the Senate, Obama can currently only count on 20 'confirmed' yesses. Obama's problem arises from the fact that whipping the members in line is tough with a number of different strains of thought resisting Obama's urgings.

If you know you are adding more fuel to the latest and greatest credit bubble - that of student loans - and the blended return will be zero at best, why do it? That's precisely the question JPM appears to have asked itself, and when taking into consideration the persistently rising debt rates and thus the even lower probability of repayment, came to the only logical conclusion possible:

• JPMORGAN CHASE TO STOP MAKING STUDENT  LOANS -MEMO - RTRS
• JPMORGAN CHASE WILL STOP ACCEPTING APPLICATION FOR STUDENT LOANS ON OCTOBER 12
• "We just don't see this as a market that we can significantly grow," said Thasunda Duckett, chief executive for auto and student loans at Chase

Which means that the government, that one lender that can't and won't pull out from the student loan bubble until it finally blows up, will be even more on the hook, and require yet another bailout of this latest $1+ trillion debt house of cards.

Pouring forth from all of the nations on the Continent, like a Preacher with the "Good News," is the notion that Europe is over the recession, that every country is doing just fine and that all problems have been solved. This, in our opinion, could not be further from the truth. It is the spiel of the day and reality will be found in the footnotes of tomorrow as long as tomorrow is after September 22... Even Draghi was forced to admit that thing smay have got a little ahead of themselves...

*DRAGHI SAYS CAN'T SHARE ENTHUSIASM ABOUT RECOVERY

As a reminder, September 22 is the date for the German Elections. All of Europe and the IMF are keeping their heads down, playing nice and saying very little until this date comes and goes.

While the leaders of the two superpowers are shaking hands for the camera in St. Petersburg, their navies are sending a different message. Here is the latest  breakdown of the world's key navies in the Mediterranean theater of naval operations as of last night. By now it is likely woefully outdated, now that there are reports the Chinese have joined the fray too (not on the side of the 'free droning world').

While US equities remain immune, bonds, bullion, and the greenback are moving in a very "Taper-On" mode. Gold and Silver have been slammed hard this morning for the fourth time in the last four regional openings. 10Y interest rates on US Treasury yields are spiking to 2.98% (and 5Y is up 20bps this week alone); and the USD is well bid, up nearly 0.7% today alone as EUR and CHF crumble. It seems the great rotation from Fed-Kool-Aid trades is beginning... can stocks really withstand such liquidity conditions?

Two old pals meet in St. Petersburg.