Archive - Jan 15, 2014 - Story

The S&P 500 managed to get back into the green for 2014 - which means new all-time highs (topping the all-important 1850 level for the first time today). This is the best 2 days for the S&P since mid-October. Only the Dow remains red for 2014 (a 200bps underperformer versus the Trannies!) among the major indices as JPY carry once again dragged its equity cousins higher in fits and starts. Interestingly, VIX and 30Y bonds were not amused and did not join the party - both unchanged on the day. 5Y and 7Y bonds sold off modestly but rallied off the post-data spike highs in yields all through the US day session. The USD strengthened notably (+0.5% on the week) as JPY weakness led stocks. Oil jumped higher on the day to $94.50 (slamming the WTI-Brent spread) and despite USD strength, gold and silver lifted off early lows to close green. Volume was solid today as the 1.5% dip has been well-and-truly ripped (as banks and tech lead the charge).

With around 110,000 workers globally, who Amazon claim are compensated above average for retail workers and have generous benefits, the news that 30 Amazon mechanics in Delaware are voting on unionization may strike fear into the heart of Jeff Bezos. With razor-thin margins,  the "cult stock" could hardly cope with any broad-based action to raise wages (though we are sure that would be a buying opportunity no matter what):

• AFL-CIO: WORKERS' LIVES 'NOT GETTING BETTER' DESPITE RECOVERY
• AFL-CIO: SEEKS TO UNIONIZE AMAZON AND OTHER LARGE COS.

While local union officials claim not to have targeted the workers, the 'small' vote will take place today but there are hundreds of other workers in the Delaware factory.

SocGen's Albert Edwards, who refuses to pull a Hugh Hendry and to "stop looking at himself in the mirror", remains one of the few coherent realists in a world where soaring nominal asset prices have managed to confuse virtually every pundit into believing central bank balance sheet and stock market expansion means an economic recovery. Today he shares the one chart which as he says "the importance of which we cannot emphasise enough", and which he believes highlights the biggest risk equity investors - hypnotized by the Fed's H.4.1 weekly statement and its weekly record high balance sheet - take when they put all their faith in the Bernanke/Yellen grand behavioral experiment.

After a botched rollout that was universally panned, it may seem like things are finally moving more smoothly for Obamacare. But 2014 and beyond promise more turbulence for consumers, with premium tax credits likely to be another crisis.

The market just hit a fresh all time high today which means another major default must be just around the horizon. Sure enough, the FT reported moments ago that a Puerto Rico default "appears increasingly likely" and is why creditors are meeting with lawyers and bankruptcy specialists (supposedly Jone Day, which means where Corinne Ball is Ken Buckfire, fresh from its recent league table success with the Detroit bankruptcy, can't be far behind) on Thursday in New York.  The FT cited a restructuring advisor, supposedly desperate to sign the engagement letter with creditors and to force the bankruptcy, who said that "the numbers are untenable" and "to issue new debt the yield would have to rise and where they can’t raise new money they will have to stop paying."

As India continues its anti-gold stance (and does nothing but drive the undergound smuggling business), China is continuing its opening of the world's biggest physical bullion market. As India's Economic Times reports, China has granted licenses to import gold to two foreign banks for the first time. "China is actually increasing its transparency," noted on analyst, allowing more banks to import gold could increase the supply of the metal into the country, easing local prices that are higher than in most Asian nations (premiums are currently about $15 an ounce over London prices, compared to less than $2 in Singapore and Hong Kong). They rose to a record high of $30 in April-May last year. "This is the first step that the regulators are taking to ensure that its gold futures contract in the free-trade zone can take off."

The Beige Book may well be renamed the Boring Book due to the uniformity of its monthly pronouncements, but a few things stands out in a report that saw moderate expansion in the economy across most of the US:

• the Fed said most districts reported increases in home sales... except we assume for San Francisco where home sales plunged to 6 year low,
• the Fed sees "very few reports of staff cuts of plant closings"... which we guess ignores the December jobs reports where the least jobs were added since January 2011,
• the Fed said nine districts reported an increase in retail spending... which is curious considering retail traffic plunged and the holiday spending season was the worst since 2009,
• the Fed said almost half of district reported prices were stable... which probably means the Fed's inflation benchmark is now well below 2%
• and Finally, the Fed said eight district reported upward movement in wages...  which also is confusing considering real disposable income per capita just dropped into the negative.

Oh well: we suppose we will take the Fed's word for it.

What could be worse than a falling cost for things that the increasingly cash-strapped consumer desires? We are not entirely sure but Christine Lagarde is deathly afraid of it...

• *LAGARDE SAYS RISING RISK OF DEFLATION MUST BE FOUGHT DECISIVELY
• *LAGARDE URGES OFFICIALS TO `FORTIFY THE FEEBLE GLOBAL RECOVERY' *LAGARDE SAYS U.S. MUST AVOID EARLY WITHDRAWAL OF FED SUPPORT
• *LAGARDE: JAPAN'S INITIAL BOOST FROM `ABENOMICS' WEAKENING A BIT
• *LAGARDE SAYS EURO-AREA MONETARY POLICY `COULD STILL DO MORE'

In other words, 5 years of debt monetization on an unprecedented scale were not enough! Get back to work Mr Draghi, Mrs Yellen, and Mr Kuroda.

Delighted by the Goldman Sachs et al commodity cartel hoarding aluminum inventory in one of their warehouses and pushing prices artificially higher? Happy that JPM is reprising the role of Enron (without admitting or denying it) and creating "schemes" with which to boost prices for end consumers (and have FERC furiously slap its wrist in response)? Ecstatic by that whole "precious metals" manipulation 'thing' by assorted unnamed banks (aside from the London fix of course - that has now been confirmed)? Then take this opportunity to tell the Fed how happy you really feel.

As long as we ignore that data last week, the jobless recovery is mediocre at best... let's see how great it really is as President Obama explains how exceptional America still is...

Among the epicenters of the echo-bubble in the US housing 'recovery' is the San Francisco (and Bay Area) region. Between the weather, the frenzied IPOs of non-profitable tech firms, and free-money-funded hedge fund speculation, prices have surged - as DataQuick reports up 23.9% YoY in December! However, it seems perhaps the laws of economics may just have some relevance; as this price spike has had the following impact:

• *SAN FRANCISCO AREA HOME SALES FELL 12.7% IN DEC VS YR AGO
• *DATAQUICK: SAN FRANCISCO AREA DEC HOME SALES DROP TO 6-YR LOW

We are sure this is nothing to worry about. All we need is one marginal home to sell for more than the median $548,500 that San Francisco homes went for and we all feel the wealth effect...right?

Americans have never had less economic freedom than they do right now.  The 2014 Index of Economic Freedom has just been released, and it turns out that the level of economic freedom in the United States has now fallen for seven consecutive years.  But of course none of us need a report or a survey to tell us that.  All we have to do is open our eyes and look around.  At this point our entire society is completely dominated by control freaks and bureaucrats.  Our economy is literally being suffocated to death by millions of laws, rules and regulations and each year brings a fresh tsunami of red tape.  As you will see below, the U.S. government issued more than 80,000 pages of brand new rules and regulations last year on top of what we already had.  Even if we didn't have all of the other monumental economic problems that we are currently facing, all of this bureaucracy alone would be enough to kill our economy.

So much for China's mission to gradually deleverage in 2013. Despite two near-taper episodes, one in June and one in December, which send short-term lending rates soaring, the PBOC party line has been that the Chinese banking system is slowly but surely issuing less debt as it already has an epic debt overhang, much of which is turning sour at an accelerated pace. One needs to look nowhere else than the country's declining GDP to visualize the declining marginal utility of every dollar in newly credit loans. And yet following last night's release of Chinese lending data we found that in 2013, the broadest measure of Chinese credit issuance, the so-called aggregated financing, just hit a record high of 17.3 trillion, a 9% increase from the prior year if still slower than the 23% increase in 2012. So much for the deleveraging myth.

First the Volcker Rule was defanged when last night the requirement to offload TruPS CDOs was eliminated, and now here comes Europe where the ECB just lowered the capital requirement for its "stringent" bank stress test (the one where Bankia and Dexia won't pass with flying colors we assume) by 25%. From the wires:

• ECB SAID TO FAVOR 6% CAPITAL REQUIREMENT IN BANK STRESS TEST
• ECB SAYS DECISION ON CAPITAL REQUIREMENT NOT YET FORMALLY MADE

Why is this notable? Recall from three short months ago: "the ECB confirmed that it will require lenders to have a capital ratio of 8 percent."

When Google bought Nest (for its smart, intrusive thermostat technology that gives the NSA a front-row seat into the heating requirements of Americans), little did it know that it was purchasing an OTC penny stock with the ticker NEST and a market cap of a few hundred thousand. Or maybe, Google knew very well what it paid $3 billion for, and it was the increasingly prevalent idiots that make up the stock market that were confused. Either way, just like TWTRQ was TWTR for a few short days, so NEST (not to be confused with the GOOG acquisition target if even that is precisely what happened) is now the second coming of the unmitigated idiocy that defines the "market" NEST was up 4900% at its peak yesterday on massive volume.