Archive - Jan 17, 2014 - Story

Visa and American Express are up over 4.5% each today (the latter more earlier) to new record highs (on a day when Facebook, Google, and Apple are plumbing the day's lows). The combined effect of the Visa and American Express gains are over 67 Dow points... the Dow is up 65.8 points on the day...

US equity investors have not been this "euphoric" since the peak of the US equity market in 2000. As Citi's Tobias Levkovich notes, while he is longer-term a believer is the secular bull, one has to remember that there can be a secular run with substantive bumps along the way. No one questions the 1982-2000 equity bull market but there were some awful moments in that 18-year period including the stock market crash of 1987 and the sharp pullback in 1990 as well as in 1998. With Citi's proprietary Panic/Euphoria model at levels that imply an 80% probability of a negative return in the next 12-months, Levkovich warns chasing the tape simply on the basis of momentum may not be a good strategy since expecting another 25%-30% appreciation in 2014 seems rather excessive.

Why is hiring important? Because that is the actual process by which those without a job end up with a job. And as we just learned today after the latest JOLTS release, which showed that there were over 4 million job openings (4,001 to be precisely) for the first time since 2008, a far more important number is the update on Hires which at 4.5 million barely changed from last month, but more importantly, is barely a fraction of where it should be based on the number of job gains reported by the BLS monthly. The chart below confirms this stunning discrepancy: a surge in jobs with barely half the pre-recession hiring?

It's just not Whitney Tilson's year/decade... the "money-manager" and co-founder of the invaluable Value Investor Insight newsletter has decided, with the exit of yet another partner - John Heins - that it is time to sell. In an email from the ex-financial-media-darling, Tilson explains "the business is a beautiful, high-margin cash cow," is looking for a partner to buy the business.

The housing recovery is ultimately a story of the "real" employment situation. With roughly a quarter of the home buying cohort unemployed and living at home with their parents the option to buy simply is not available. The rest of that group are employed but at the lower end of the pay scale which pushes them to rent due to budgetary considerations and an inability to qualify for a mortgage. The optimism over the housing recovery has gotten well ahead of the underlying fundamentals. While the belief was that the Government, and Fed's, interventions would ignite the housing market creating a self-perpetuating recovery in the economy - it did not turn out that way. Instead, it led to a speculative rush into buying rental properties creating a temporary, and artificial, inventory suppression. While there are many hopes pinned on the housing recovery as a "driver" of economic growth in 2014 - the lack of recovery in the home ownership data suggests otherwise.

Gold and silver are rising notably this morning with little specific news aside from the Bafin precious metals manipulation furore. Silver bounced off $20 and is now over $20.40 and Gold is back over $1250. What is perhaps more notable is that the USD is higher once again which supports the fact that the relationship between precious metals and the US Dollar is at its weakest since October (as opposed to its more normal negatively correlated relationship). As Dean Popplewell notes, "we are seeing a short-term phenomenon of physical demand supporting gold and helping to negate the strength in the dollar," as sales of American Eagles coins in January have topped the previous month. However, the tumble in correlation on a longer-term scale suggests gold has more upside to go in the short-term.

While all eyes are transfixed on US equities - do we buy the dip now... or now? The rest of the world has been a little less exuberant. From China's 6 month lows to Argentina currency collapse, it's not been pretty but Erdogan and his ongoing totalitarianisation of Turkey has seen capital flight accelerate and plunge the Lira by 10% since the Fed announced its Taper in mid-December. The Turkish Lira has tumbled 27% in the last year - Abe and Kuroda would be proud - but for Turkey this is bad 'capital flight' news.

*TURKISH LIRA WEAKENS TO RECORD AGAINST DOLLAR AT 2.2242

Will the trend continue? It's unclear as little looks to stabilize the political situation but BofAML's Macneil Curry has just cut his long (having reached profit target) and that may slow the momentum. External funding requirements remain extremely high for Turkey and as MS notes, the political outlook looks hazy.

The question of just who, what, where, and when the US government spied on and stored metadata about is moot now... thanks to Edward Snowden; but President Obama will be firing on all his teleprompter-based cylinders today as he explains the "changes" to NSA data collection and the likely "punt" deferrals to Congress:

HAYDEN SAYS OBAMA MAY 'PUNT' SOME QUESTIONS TO CONGRESS ON NSA
OBAMA SAID TO ORDER END OF SECTION 215 METADATA PROGRAM (as it currently exists)
NSA SAID TO NO LONGER KEEP BULK PHONE RECORDS UNDER OBAMA PLAN

Calling for an 'overhaul' of the NSA (seeking input from Congress and intelligence officials) will, we are sure, appease those who cannot believe the 'hope-and-change'-monger could have sanctioned such things; but we suspect little will change in reality.

You know it's bad when...The smog has become so thick in Beijing that the city's natural light-starved masses have begun flocking to huge digital commercial television screens across the city to observe virtual sunrises. Following this week's practical shutdown of the city of "beyond index" levels of pollution, as The Mail Online reports, residents donned air masks and left their homes to watch the only place where the sun would hail over the horizon that morning...

Following December's biggest-surge-in-4-years for UMich consumer confidence (though a miss), UMich data has fallen back to 80.4 - missing expectations by the biggest margin in 8 years. This is the 4th miss in the last 5 months as hope for moar multiple expansion begins to fade. Both current conditions and the outlook indices fell (for the first time sicne October). As UPS would says, confidence dropped because there was too much confidence...

Europe is recovering, right? Wrong. As Nigel Farage raged last night, things are not what they seem and even the IMF is now beginning to get concerned again (especially after Lagarde's call yesterday for moar from Draghi and every other central banker). As Bloomberg's Niraj Shah notes, it's not just the PIIGS we have to worry about (or not), Denmark, Finland, Norway and Poland have been added to the IMF’s list of countries with the potential to destabilize the global economy.

The most notable number in today's Industrial production report was the update of Capacity Utilization, which rose once again from 79.1% to 79.2%, 10 basis point higher than expectations. This was also the highest Cap Utilization print since May 2008 and makes a further case that the economic cycle is in its late stages and that slack, contrary to what economists are repeatedly, and incorrectly, claiming is rapidly dropping to the point where it is indeed time to start thinking about the arrival of the next dreaded "R" word.

Moments ago UPS released its Q4 earnings which missed EPS expectations of $1.43, printing at $1.25 instead (too bad it was not a bank or it could just add back half of SG&A to the bottom line and slap a 10% tax rate on it). Additionally, the company concurrently lowered full year 2013 guidance saying "Full-year 2013 adjusted diluted earnings per share are expected to be $4.57, below the previously provided guidance of $4.65 to $4.85." Good to know the guidance cut waited until literally the last possible moment for it to be revealed. Naturally, one of the factors blamed for the miss was the weather: "weather events in December weighed on results." Events? But the punchline is the other thing UPS blamed for missing earnings (and supposedly for the weaker forecast): a surge in business! That's right - for the first time ever a company blames too much business... for not generating enough business. "U.S. results were negatively impacted by the challenges of the compressed peak season coupled with an unprecedented level of online shopping that included a surge of last-minute orders. In an effort to maintain service standards and commitments, UPS took extraordinary measures deploying additional equipment and people. For example, the company utilized 85,000 temporary employees, 30,000 more than planned."