Archive - Jan 16, 2014 - Story

Despite Lagarde's call for more manipulation and money-printing from the world's central banks yesterday, US Treasury Secretary Jack Lew is not amused with his Japanese 'colleagues'. Speaking in Washington, Lew had plenty to say on Europe (not out of the woods), China (need to open markets more), and the IMF (US commitment remains solid - oh, apart from the funding part); but it was his entirely ironic comments aimed at Abe and Kuroda that were risible:

*LEW SAYS JAPAN NEEDS TO `GET THEIR DOMESTIC ECONOMY GROWING'
*LEW SAYS JAPAN CAN'T RELY ON FX RATE FOR ECONOMIC ADVANTAGE

Pot calling kettle black? Or a person who lives in a currency-war "glass-house" throwing stones? Pick your tortured analogy but the US hypocrisy continues.

It would appear that the meteoric 300% rise of Best Buy's shares last year was promoted to the general investing public as the renaissance of the on-the-verge-of-bankruptcy warehouse store and sure enough, the world and his mom piled in to chase the momo higher and higher... until today. With a 30% tumble this morning, those momo-chasing moms and pops may be less enamored to buy-the-dip but there was one 'smart-money' insider who was selling as fast as retail was buying. Co-Founder Richard Schulze (who indicated in August he would be selling to 'diversify' his holdings) piled out of the stock through most of the fourth quarter (at a level well above this morning's opening print).

If we don't understand the problem or the dynamics that are generating the problem, it is impossible to reach a solution or practical plan of action. The four points of ignorance below doom us just as surely as the actual underlying dynamics of insolvency, corruption, debt servitude, and Tyranny of the Majority.

If yesterday's rising PPI print suggested the Fed may continue its $10 billion a month taper at its next meeting, today's comparably rising CPI for December will likely mean that absent another payroll-like shock, the Fed will soon monetize "only" $65 billion per month. The reason: in December core consumer inflation rose by 0.3%, compared to the 0.0% change in November, and in line with expectations. Stripping away food and energy however, the increase was only 0.1%, also in line with expectations, and a decline from November's 0.2% increase. More importantly, on a Y/Y basis, core CPI was up by 1.7%, still shy of the Fed's 2% target but not too far.

Initial claims beat expectations very modestly (326k vs 328k expected) and hover at their average level of the last 6 months. Non-seasonally-adjusted saw initial claims surge to 438k. It would appear the trend of improving claims has ended for now. What is perhaps more worrying is the continuing claims surged by their most in over 5 years - at 3.03 million, this is the highest in 6 months (and the biggest miss in 6 months. It is worth noting that this is before the emergency benefits for 1.3 million Americans disappear (which will likely begin to show up next week or the week after).

Despite several apparently well respected sell-side shops proclaiming that all would be well, the electronics warehouse missed comps (Sales at stores open at least 14 months were down 0.9 percent in the US (compared to expectations of +2.0%) and is being punished. Revenues fell 2.6% for the comparable period also. Shares are down 30% in the pre-market to 7-month lows as the company claims an "intensely promotional holiday season." It seems, perhaps, that following several other retailers' earnings updates the holiday season was even worse than many had expected (especially in the bricks-and-mortar stores that actually employ real people).

Yesterday Bank of America beat thanks to (among other things) ye olde "plunge in the effective tax rate" gimmick which let it beat EPS by two cents instead of missing by three. Today it was Goldman's turn to "beat" lowered EPS expectations of $4.18, posting a substantial beat of $4.60. So did Goldman also fudge its tax rate? Not exactly: instead, what Goldman did was to reduce its compensation benefits from $2.4 billion to $2.2 billion, which meant the firm's compensation margin declined from 35.2% to a tiny 24.9% of revenue. Had Goldman kept the comp margin flat it would have missed EPS by about 50 cents. However, unlike the other "banks" Goldman at least did post a notable beat in GAAP revenues (it was reluctant to use a non-GAAP top line, hear that Jamie?) as well, with Q4 sales rising from $6.7 billion in Q3 to $8.8 billion, on expectations of $7.8 billion. However, compared to a year ago, the top line was 5% lower, while Net Income of $4.60 was 21% lower than a year earlier.

• Charter, Comcast in renewed talks on Time Warner Cable bid (Reuters)
• Bankers' Stock Awards Jet Higher (WSJ)
• Yahoo CEO Mayer Dismisses Operating Chief De Castro (BBG)
• Amazon Employees Vote to Reject Union (Reuters)
• Luxury in China loses luster as wealthy flee (Reuters)
• UnitedHealth Profit Up on Stronger Enrollments (WSJ)
• U.S. government failed to secure Obamacare site: experts (Reuters)
• Spain Sells Bonds at Record-Low Yield as Rajoy Touts Rebound (BBG)
• Newport Beach’s $100,000 Lifeguards Feel Pension Squeeze (BBG)
• Bailed-Out Euro Nations Expect Painful Challenges to Remain (BBG)

The positive momentum in equities slowed in Asian trading with losses seen on the Nikkei (-0.4%), and HSCEI , the SCHOMP unchanged and EM indices such as the Nifty (-
0.1%). In Australia, a disappointing December employment report saw a 23k fall in jobs for the month against consensus expectations of rise of 10k. The 10yr Australian government bond has rallied 5bp and the front end is outperforming as a number of investors expect the RBA to continue its easing bias over 2014. AUDUSD has sold off -1.1% to a three year low of 0.881. The ASX200 closed up 1.2% however, boosted by mining-giant Rio Tinto (+2%) who reported better than anticipated Q4 production. Amid recent fears of a Chinese growth deceleration, Rio Tinto reported record levels of production of iron-ore, coal and bauxite. In FX, USDJPY is finding further support in Asia, adding 0.1% to yesterday’s 0.38% gain to trade not too far from the 105 level. Which is also why the S&P futures are trading modestly lower: without a major breakout in the Yen carry, there can't be a sustained ramp in the US stock market which is driven entirely by the value of the Yen, which in turn is a reflection of the expectations of future BOJ easing.