Archive - Sep 2013 - Story

Greek government authorities are on alert after a union of Greek army reservists of Special Forces issued a statement urging the Greek administration to step down and make way for a national unity government. As Keep Talking Greece notes, the statement on the union' website included 15 demands - including the resignation of the Greek President - and urged people to gather at the infamous Syntagma Square on Saturday. The statement was interpreted by some as a call to a "coup d'etat" - denied by the union - but prompted Greece's Supreme Court to meet to discuss it.

Things are getting better; the nice man on the TV said so...

"In every city and state I have visited, the jails have become the de facto mental institutions," warns the president of the American Jail Association as the WSJ notes, America's lockups have become its new asylums. After scores of state mental institutions were closed beginning in the 1970s, few alternatives materialized. Many of the afflicted wound up on the streets, where, untreated, they became more vulnerable to joblessness, drug abuse and crime. Stunningly, the number of mentally ill prisoners the country's three biggest jail systems - Cook County, IL; Los Angeles County; and New York City - handle daily is equal to 28% of all beds in the nation's 213 state psychiatric hospitals. "We're finding sicker and sicker people all the time" who have to be treated for their mental illnesses. Prisons "can't say no to the mentally ill. They have to solve the problem."

BREAKING. Iranian FM Zarif: there has to be a lifting of all sanctions, hope to be able to move in that direction in a short span of time

— Charlie Kaye (@CharlieKayeCBS) September 26, 2013

"Has J.C. Penney (JCP) bottomed? How many times have I heard that one? It has to be the most asked question now that we are seeing some of the highest quality hedge funds in the situation, including Perry Capital (run by my old friend Rich Perry) as well as Glenview Capital and Kyle Bass. Suffice it to say that I don't think there could be many investors as wise as these people. They aren't approaching the situation idly and I think they are going to be right. To me, that's a lot of ways to get the stock to $18.... Can this stock go up $5 on a new CEO and a better holiday season? Yes. And that's why it is worth joining these great hedge funds. Not because they are in it. But because the time and the price are right. You don't need to know anything else for the moment."

- Jim Cramer, September 5, 2013

Remember when one after another JCPenney executive lined up earlier today, mostly using that damage control TV outlet known as CNBC, to promise that JCP does not, repeat not, need emergency public equity funding? Guess what: they were lying. Just out from Bloomberg:

J. C. PENNEY ANNOUNCES PROPOSED PUBLIC OFFERING OF COMMON STOC
J. C. PENNEY COMMENCED PUBLIC OFFERING OF 84 MILLION SHARES

And the punchline:

• JC PENNEY TO OFFER SHARES VIA GOLDMAN SACHS

Yep: the same firm that just killed JCP two days ago, is now diluting the stock some more.

You may have seen recent revelations that Detroit routinely raided its pension funds to award extra cash – including bonuses dubbed “the 13th check” – to both retirees and active employees. These payments were far in excess of the city’s negotiated obligations and hidden from both the public and Detroit’s bond investors. There may be no cleaner account of the repercussions of handing power to those who show their compassion with the public purse. However well meaning the union reps controlling Detroit’s pension board may have been, their politics clearly compromised the city’s long-term health.

It would have been the worst streak since May 2012 but thanks to a damp squib of a day, the S&P (and other US equity indices) managed to hold on to gains in another 'spikey' day's trading in stocks. USD strength (on EUR and JPY weakness) spooked gold and silver modestly (with gold underperforming) as copper rallied to recouple with them on the week. WTI lifted very quietly to $103. Treasury yields lifted very gently higher all day ending +1 to 2bps only. Once again, the S&P found resistance at the pre-Un-Taper levels from last week and was sold quickly on recovering that level and the Dow remains below pre-Summers-Out levels. All-in-all a very quiet day as individual names from JNY to JCP and from MBI to HTZ caught all the attention.

Today at 4:15 pm Eastern, Doubleline's Jeff Gundlach will be sharing his latest outlook on the markets via an audio-only webcast, and as usual addressing what he believes are the best investment strategies. The audio for this webcast can be accessed at the link below (link to register here). Phone lines are be available for dial-in at (877) 407-1869 or for international calls (201) 689-8044.

Almost 4 years ago, The FT's Mike Mackenzie penned a very prophetic article explaining exactly the dilemma the Fed is now facing: "No matter how bulled up the equity market becomes, should data improve, the Fed is likely to remain very cautious, mindful that it needs to keep the bond market happy. Becoming the buyer of last resort in the past year resulted in the Fed crossing an important line in the bond market." The full piece is well worth a read as a reminder that plenty of people saw this coming, Mackenzie concludes: "the eventual end of QE will be a messier affair than perhaps many investors care to think. And one that bodes ill for the dollar and US fiscal policy down the road."

Now that "bail-ins" have become accepted practice all over the planet, no bank account and no pension fund will ever be 100% safe again. In fact, Cyprus-style wealth confiscation is already starting to happen all around the world. As we warned two years ago, "the muddle through has failed... and there may only be painful ways out of this."

The last 4 days have seen the price of protection against a default on US Treasuries spike by the most in 4 years. While USA CDS trade on both a default and devaluation basis (as well as technical issues related to which Treasury is cheapest to deliver) this spike to 5-month highs (from what was extremely high levels of complacency) is very notable in light of today's Kocherlakota "whatever it takes" speech. While still well off 2011's debt ceiling debacle panic highs, this move does suggest more than just the politicians are worried about a technical default occurring on US debt. By way of comparison, Germany trades at 23bps and Japan at 61bps against USA's 32bps. But there is a way to trade the debt-ceiling debacle that doesn't invlove leveraged speculation in credit derivatives...

Taper or no Taper. Tapering is not tightening but flow is more important than stock. Doves being hawkish and hawks fearfully dovish... We have seen it all in the last few weeks. In order to keep it all in perspective, Credit Suisse have created this simple cheat-sheet of their informal determination of the Fed official's policy biases based on each official’s voting history and public comments.

Rising income disparity in the U.S. troubles many of us, for a number of reasons. If more of the national income is flowing to the top 1/2 of 1% and less to those earning income from their labor, the foundations of both a vibrant economy and stable democracy are undermined. Many observers identify education as one solution for rising income disparity, as those with higher education (college) have more skills and knowledge and tend to earn more. Statistically, the connection between getting a college degree and higher incomes is weakening as those with college degrees are now in surplus. "More education" of the current sort is not a panacea to wealth inequality, as the widening gaps in education, employment and income are all reflections of a much larger set of forces at work.

While everyone knows that there is a profound ideological schism when it comes to those for and against the Affordable Care Act, aka Obamacare, what may not be appreciated is that Obamacare was, and still is, the most contentious and polarizing legislation in the history of Congress. At least, it is according to JPMorgan. In the chart below, JPM's Michael Cembalest shows that the "disagreement gap" between Republicans and Democrats in the House and Senate, over 100 years of impactful legislation, has never been greater than with Obamacare.