Archive - Jan 2014 - Story

If the stock market were already crashing then it would be simple to blame the dismally sad rash of dead bankers in the last week on that - certainly that was reflected in 1929. However, for the third time in the last week, a senior financial executive has died in what appears to be a suicide. As Bloomberg reports, following the deaths of a JPMorgan senior manager (Tuesday) and a Deutsche Bank executive (Sunday), Russell Investments' Chief Economist (and former Fed economist) Mike Dueker was found dead at the side of a highway in Washington State. Police said the death appeared to be a suicide.

In economics the chicken must always come home to roost. Man can only live beyond his means for so long. Bernanke’s reputation hinges upon the market not tanking as his successors close up the spout of gushing currency. The endpoint is coming. When it happens, the house of cards will tumble down. And with it will come the livelihoods and hopes of many. With every boom there is a bust. It’s an immutable fact of government intervention into the economy. As Bill Bonner writes, articles full of lavishing praise for Bernanke will begin appearing in coming weeks. Writing puff pieces on state bureaucrats is often a high-paying gig. But they all reveal a particular trend: celebrating the wise achievements of someone empowered to govern society. When businessmen are praised in print, their accomplishments are chalked up as minor victories reserved for the few. When the selfless man of charity is given his due, the praise is mild. When a lord of government sees the pages of a major periodical, it’s the kind of brown-nosing that would make a teacher’s pet uncomfortable. For now, Bernanke will bask in exaltation. But his just deserts are coming. You can bet $4 trillion on it.

A common interpretation of history, Jordan's Prince Zeid told the UN this week, helps smooth tensions between former enemies, "as we have seen repeatedly, fighting that ends without reconciliation – especially fighting inside States – is fighting that can, and often does, resume." To those following the tensions between Japan and China (as well as South Korea), the implications are obvious. While the fighting between these nations ended almost 70 years ago, the process of reconciliation remains incomplete. The “deeper reconciliation” Zeid described, one based on “a shared memory of a troubled past,” has not yet emerged. The current tensions in Northeast Asia have another analogue: the conflicted legacy of the U.S. Civil War.

With analysts preferring gloss over the massive bellwether stock earnings misses, focus on non-GAAP manufactured releases, and cling optimistically to hopes that weak performance, inclement weather, and volatile currency fluctuations will all go away soon and that the future looks rosy. However, as Bloomberg's Richard Yamarone notes, the US economy continues to cling to an historical subpar growth and CEO comments hardly support any hope for a change.

Why would the central bank of Nigeria decide to sell dollars and buy Yuan? At first glance it might not seem the most interesting or pressing question for you to consider. But we think it is one of those little loose threads that if pulled upon carefully begins to unravel the hints and traces of a much larger story.

Despite every talking head having written off the miners, they were the best performer across US equity sub-indices. In the US equity markets Biotech and REITs also performed well. On the other hand,  Nasdaq Insurance and NYSE Arca Oil ETF were the worst...along with the NYSE Composite Index (which represents 61% of all global market capitalization).

For years, Bloomberg Businessweek notes, the American residential dream went something like this: Move to a city, work hard, and eventually you’ll make enough to move out. So perhaps it’s not surprising that today many of America’s largest metropolitan areas house their highest earners on the outskirts of town. Exactly where they live varies from city to city — or rather, from suburb to suburb. Perhaps this is what they mean by 'rotten to the core'?

Who says Amazon is only good for putting other retailers out of business with its 1% margins: in the aftermath of Jeff Bezos' announcement that the online retailer is considering launching drone delivery, one company took the concept from merely the theoretical stage to practical implication. The company in question is a Minnesota Micro Brewery called Lakemaid Brewery and the product it had hoped to deliver by remote control airplane to ice fishermen is beer. However, before beer fans around the country rejoice at the prospect of having a buzzing airborne beer delivery, we have some sad news: less than a week after the company posted a promotional YouTube video showcasing the first test flights across mid-sized lakes, the Federal Aviation Administration called Lakemaid Beer to immediately pull the unmanned beer from the skies.

It would seem, after 8 years at the helm of the Federal Reserve, that Ben Bernanke's colleagues were a little too busy fielding calls from Emerging Market bankers to wish him good bye.

The sharks are circling Chris Christie who just sprung a bloody leak (either that or the population must really need to be distracted from a horrible January for stocks and what may be coming next). Moments ago the NYT reported that the former Port Authority official who personally oversaw the lane closings on the George Washington Bridge "said that the governor knew about the lane closings when they were happening, and that he had the evidence to prove it." Of course, if such evidence exists, Christie can call it a career after claiming the opposite on numerous occasions in the past month. Of course, one wonders whether Obama would have been impeached by now had the "independent and impartial media" hounded him with the same fervor for his numerous transgressions and repeated lies to the American public. Alas, we will never know the answer.

This past week we read some very diverse articles, which, hopefully, will stimulate your grey matter over the weekend as you indulge in melted artifical cheese, processed fillers, and copious amounts of artificial colorings and flavors during the Super Bowl showdown (assuming you did not order any of the party packs). With everybody hoping that someone else is going to pull them out of the quicksand - who is left to do the pulling?

Another volatile day ended with the Dow is down around 5% in January - the worst start to a year since 2009 (and 2nd worst since 1990) and the worst month since May 2012 (a 3-sigma miss of the average +1.5% per month gain since 2009's lows). Japan, Brazil, and Russia suffered greatly on the month as gold miners, Egypt?, and US Biotech did well. There is a huge 380bps spread between the performance of the Industrials and the Transports YTD. Gold had its best month in the last 5; Treasuries rallied with 10Y yields dropping their most since May 2012; USD rallied the most in 8 months with JPY's biggest rally (and Nikkei's biggest loss) since April 2012.

Rothschild has identified four different scenarios that, in their view, are the most likely to occur. The series of scenarios for GDP growth and inflation in the main western economies, Japan and China may guide investor thinking but their somewhat ominous conclusion is worth bearing in mind: "Further monetary 'experiments' are becoming less probable. However, significant imbalances and risks persist. This is the reason why we have left the size (probability) of our depression scenario unchanged," and while they remain exposed to equities they warn "valuation support is limited, exposing equities to a potentially sharp correction."

It’s fairly clear if you look at the data objectively that Mr. Bernanke’s policies have left the Fed (and consequently the global financial system) in far more precarious condition than when he started, yet disproportionately benefited the US government and small percentage of society at the expense of everyone else. This is not to say that Mr. Bernanke is some evil mastermind bent on nefarious ends. Unfortunately the road to ruin is almost always paved with good intentions.

It used to be conventional wisdom that shorting on POMO days is a sure way to drain one's P&L in no time. However, since the arrival of tapering, this has changed, and no longer is the surgeon general advising against shorting on POMO days especially if concurrent with an implosion in this emerging market or that. Moments ago the Fed released its February POMO schedule, where we find, that as expected, the Fed will now monetize "only" $35 billion in duration paper, down from $40 billion in January and the $45 billion monthly in all of 2013. Of note: there will be a POMO on Monday, and a double POMO - the only one in February - on February 5. There will be no POMOs on February 11, on February 13, and February 17 - the most non-POMO days in a month since the launch of QEternity. All the other days: just keep an eye on the USDJPY, especially if the epic support barrier at 102 is finally breached. In that case, it's is every colocalized vacuum tube and HFT algo for itself.