Archive - Jan 24, 2014 - Story

Gold...

VIX's 25% spike from yesterday's lows to over 17% is the largest jump in 7 months. Stocks are continuing to collapse broadly (even as Bonds are stable) with the Dow almost unchanged from Taper now. Trannies are back to their 50DMA for the first time in over 3 months and the Dow and S&P are well through the 50DMA. The USD is stable but JPY is leading the charge lower in stocks. Credit markets are at 7 week wides. Not "off the lows"

Back in the years just before the previous housing bubble burst (not to be confused with the current, even more acute one), one person did the math on subprime, realized that the housing - and credit bubble - collapse was imminent, and warned anyone who cared to listen - almost nobody did. That man was Kyle Bass, and because he had the guts to put the money where his mouth was, he made a lot of money. Fast forward to 2014 when subprime is all the rage again and the subprime bubble is bigger than ever: it may comes as a surprise to some that in 2013, subprime debt was one of the best performing fixed income instruments, returning a whopping 17% in a year when most other debt instruments generated negative returns. And this time, while Kyle Bass is busy - collecting nickels (each costing a dime) perhaps - it is someone else who has stepped into Bass' Cassandra shoes: that someone is Jeff Gundlach. “These properties are rotting away,”

Ukrainian protesters erected more street barricades and occupied another government ministry building on Friday after the failure of crisis talks with President Yanukovich, as opposition leader Klitschko feared "more deaths" pointing to a weekend of increasingly violent protests. Reuters reports that Yanukovich's party stated "the situation has grown sharper throughout the country," and called on people to disregard the calls of "radical troublemakers" to turn out for protest rallies. Klitschko punched back, "Yanukovich has declared war on his own people. He is trying to hold on to power at the price of blood and de-stabilization of the situation in the country. He has to be stopped." The international community is getting involved with Hollande calling for "dialogue" but it is Biden's threat of "consequences" that spurred a different protest at the US embassy - "The US is behind everything that is happening in Kiev’s downtown right now."

While the world of speculative capital is focused intently on the Twitter and Facebook #Ref/0 fundamental valuations in the publicly-traded equity markets, as the WSJ illustrates, the real dot-com 2.0 bubble is occurring in the private markets. Today there are more than 30 companies in the US, Europe, and China that are valued at $1 billion or more by venture-captal firms and the club is becoming less exclusive as venture capitalists (in their ever growing speculative fervor) funnel large sums of capital into start-ups.

A paper currency system contains the seeds of its own destruction. The temptation for the monopolist money producer to increase the money supply is almost irresistible. In such a system with a constantly increasing money supply and, as a consequence, constantly increasing prices, it does not make much sense to save in cash to purchase assets later. A better strategy, given this scenario, is to go into debt to purchase assets and pay back the debts later with a devalued currency. Moreover, it makes sense to purchase assets that can later be pledged as collateral to obtain further bank loans. A paper money system leads to excessive debt. This is especially true of players that can expect that they will be bailed out with newly produced money such as big businesses, banks, and the government. We are now in a situation that looks like a dead end for the paper money system.

Davos is about to end, and there is much good news to report: you see, the billionaires in the lovely Swiss town, surrounded by their own private (or public) armies, have fixed record global wealth inequality, which just happens to be the result of actions by... of Davos billionaires. And just to top the surreal idiocy off, here is Mario Draghi, Goldman's best known banker at the ECB, with a special address titled "the Path from Crisis to Stability"... ostensibly on the back of bailout mechanism that don't exist, and facilitating "reforms" that promote more spending and less revenue in a continent that just happens to be insolvent. #Ref!

Think it's bad in the US (which it is), the high-beta momo-chasers are running for the hills from Europe's best-performers. European stocks are down 3.4% this week broadly - the worst week since June 2013 and 2nd worst week since May 2012. Spain and Greece are the worst on the week (-5.8% and 6.7% respectively) with Spain's drop the largest since September 2012. Bonds were not unscathed as Italy's sovereign bond spreads have jumped in the last 2 days by the most in 4 months and are now wider on the year. Europe's VIX has exploded 30% higher in the last 3 days (the biggest jump in 10 months) to its highest since October.

S&P 500 futures just crossed below 1,800 - its lowest since the FOMC's taper announcement on December 18th. The cash S&P 500 (and small cap S&P 600) have crossed below their crucial 50-day-moving average (with no sign of dip-buyers yet). This is the biggest drop through that historically critical technical support level since early October. Perhaps more notably, most of the go-go sectors that were heralded by all the talking head momo queens on mainstream media as leading the next leg of stock gains have seen their post-Taper gains gone. From Builders to Banks and Industrials, taper-gains are now a dim and distant memory.

With emerging market currencies collapsing, US equity hopes fading, bond yields tumbling, and 1.4 million people having fallen off the government transfer receipts bandwagon this week; what better way to distract the US public from that awkward reality that it's all fake...

Yesterday's BofA's MacNeill Curry warned that once above $1270, gold becomes "explosive" as the squeeze trap slams shut, which explains why the shorts are desperately defending the critical resistance redline. Today, the chief technician of Bank of Countrywide Lynch looks at the two other key correlation pairs: the S&P500 (via the Emini ESH4) and the USDJPY, which by virtue of being the key funding pair determines the price of risk in virtually every corner of the globe. He is not too happy with what he sees.

If, as we are constantly told by the mainstream media, equity market performance is all that matters in the real world, then the following chart from The Economist should provide much food for thought for those praying at the altar of the elites in Davos. Despite hanging on their every word as if handed down by The Oracle herself, 'companies that regularly attend Davos' have dramatically underperformed the broad market... so, in the modern parlance of 'stocks are all that matters' - Davos attendees are less smart than the average business manager (and perhaps less smart given the costs of attendance for this lack of edge).

Spain's unemployment rate hit 26% again this week. Despite Rajoy's please for people to believe things are getting better, that the crisis is over (even as Draghi proclaims it otherwise and Axel Weber warns it is still festering), Spanish local ex-pat newspaper "The Local" has uncovered seven statistics that will help you understand just how serious the situation is. What is perhaps even more surreal is that in a year in which the economy supposedly grew, they depleted their pension reserve fund by 15%...

*SPAIN WITHDREW EU11.6B FROM PENSION RESERVE FUND IN 2013; Spain pension reserve fund ends 2013 With EU53.7 bln

So apart from that, here is how bad it really is in Spain...

After escalating higher and higher in the last few days as the rest of the market slipped further into the red for 2014, the Dow Transports has collapsed 3.25% at this morning's open - its biggest drop in 9 months. This, along with the plunge in the NASDAQ and Russell has dragged every major US equity index into the red once again for 2014... The S&P 500 cash index is now the most below its 50-day moving average in almost 4 months. VIX has spiked to 15.4% - its highest since pre-Taper as JPY carry unwinds drag US equities lower once again... Credit markets have no retraced all post-Taper gains (and stocks are rapidly catching down).