Archive - Jan 28, 2014 - Story

"Today, most workers don’t have a pension. A Social Security check often isn’t enough on its own. And while the stock market has doubled over the last five years, that doesn’t help folks who don’t have 401ks. That’s why, tomorrow, I will direct the Treasury to create a new way for working Americans to start their own retirement savings: MyRA. It’s a new savings bond that encourages folks to build a nest egg. MyRA guarantees a decent return with no risk of losing what you put in." - Barack Obama

In other words - if you like your retirement account you can keep your retirement account.

President Obama unveiled 12 key executive actions in his 6,778 word tome this evening at a reading level that was lower than the average of George W. Bush's SOTUs and the same as Clinton's (Flesch-Kincaid 9.8). From 'raising the minimum wage' to 'myRA' savings plans ("a guaranteed return with no risk"?) and from redesigned high schools to teach real-world skills (like EBT-card-usage?) to increasing college opportunities (blowing that bubble even bigger), it was a corporate-bashing, hopeful-job-creating manifesto that had less "hopes" and "dreams" than MLK's speech, but more "believing."

Given the fact that the S&P 500 is up over 18% since the last State of the Union address, we suspect the state of the Union will be "strong." However, a glimpse over the shoulder of Tom Perkins and his pals and one can't help but wonder how "strong" the Union is when there are 2.845 million more people not in the labor force than a year ago. Last year's 6,990 words were strewn with "hope", "change", "jobs" and "wall street" - we suspect the term "inequality" pops up more than once this time along with the ubiquitous lambasting of the opposition for counterfactually buggering the whole "recovery" plan up. If only there was no 'opposition' - oh wait, we forgot to add "unilateral" and "executive order" as suggested words for tonight's show.

Over the past couple of hundred years, the State of the Union has been enjoyed by pamphlet, radio, TV, and webcast and each and every year, the citizenry has sat avidly awaiting their 'word' to come up on SOTU Bingo or for the bets they made on the average length to be confirmed. So while the drinking and gambling man has plenty to do; it is perhaps dismal to report that the thinking man will be under-utilized. Sadly, the State of the Union speech has been getting dumber and dumber.

While Bitcoin (and Litecoin) garner the most attention in the cryptocurrency world, there are now 83 (and counting) virtual currencies to store your wealth in. Bitcoin's market cap (at over $10 billion) is by far the highest but we wonder whether the miasma of mimiccers - from Unobtainium to the ironically-named StableCoin and from 'Philospher Stones' to HoboNickels - serves to reduce the confidence in Bitcoin as a new method payments, or bolsters it as the clear market winner.

Today's short squeeze, EM-is-fixed, Fed-hope-fueled relief rally (in the face of compounding errors in earnings expectations and outlooks) we thought reminiscing on what happened the last time stocks were this high and over-levered and debt-bloated entities were rapidly revealed for what they were would be useful. While the 'just three charts' we showed two weeks ago provide plenty of concern, when the NYSE Composite, which accounts for 1,900 companies representing 61% of the world's publicly traded stock market capitalization, shows eery similarities to the tipping point in 2007 as NewEdge's Brad Wishack pointed out earlier, we thought it worth sharing.

Tomorrow we prepare for a “new” Fed.  It looks a lot like the old Fed, but one can hope. In the meantime we wonder if QE is worth it?  Does it do what it is “supposed” to do?  No.  We don’t think it has done much for jobs or inflation or housing.  We look at the pre QE data and the post QE data and we are underwhelmed. But what real evidence is there that QE is helping the economy?  Would we be the same without it?  Better even?  I am told no, but I am told a lot of things that turn out not to be true.  If it was clear that QE was really helping the economy, I wouldn’t be wondering why we do it. But is there any harm to QE?  That is the other side of the coin.  Ask any person from an Emerging Market whether QE is harmful and you will likely get a very different answer than the one Ben has given.

Beginning by disavowing Mario Gabelli of any belief that rising stock prices help 'most' people, Marc Faber discusses his increasingly imminent fears of the markets in this recent Barron's interview. Quoting Hussman as a caveat, "The problem with bubbles is that they force one to decide whether to look like an idiot before the peak, or an idiot after the peak. There's no calling the top," Faber warns there are a lot of questions about the quality of earnings but "statistics show that company insiders are selling their shares like crazy." His first recommendation - short the Russell 2000, buy 10-year US Treasuries ("there will be no magnificent US recovery"), and miners and adds "own physical gold because the old system will implode. Those who own paper assets are doomed."

Judging by the reaction from SocGen and JPY crosses (and thus global equity markets), the Turkish Central Bank's decision - to tighten aka ubertaper -has solved all the tapering, tantruming, turmoiling problems in markets. TRY obviously dumped on the news (now at 2.18 -2100 from highs). JPY crosses instantly exploded higher, automatically lifting US (Dow +60) and Japanese (NKY +110) stock futures markets before they closed. Gold fell very modestly ($1). JPY continued to weaken and when markets re-opened, gold dropped a little more but no sustained pressure; Dow is now +110 from pre-Turkey, NKY +175pts; S&P futures are up 10points on the news as stops are run to 1800 but the EEM ETF rallied around 1% (only).

"Governor Basci, you have avoided a domino crisis in EM.... I definitely feel much better about the TRY, at least on a tactical basis. The TRY crisis is over." - SocGen

The much anticipated Turkey Central Bank Decision is out and it is a stunner:

TURKEY'S CENTRAL BANK RAISES OVERNIGHT LENDING RATE TO 12.00% - this is the key rate, which was just hiked by an unprecedented 4.25%
TURKEY'S CENTRAL BANK RAISES BENCHMARK REPO RATE TO 10.00% - from 4.50%
TURKEY'S CENTRAL BANK RAISES OVERNIGHT BORROWING RATE TO 8.00% from 3.50%

Wondering who will take over the mantle of Treasury bond buyer now that the Fed is stepping away? Curious of the government's next steps towards repression and control of wealth? Wait no longer. As the AP reports, President Obama will unveil a new retirement savings plan tonight that allows first-time savers to buy US Treasury bonds tax-deferred for retirement. Of course, this is not the mandatory IRA that remains somewhat inevitable (as the muddle-through fails) but is certainly a step in the direction we alerted readers to a year ago by which the government generously offers to help manage your retirement savings. Two words spring to mind... remember Poland.

On Friday, when we remarked on the biggest recorded withdrawal from the JPM gold vault, we said: "Something tells us the next few days will see matching withdrawals from JPM's gold vault, which at last check was officially owned by the Chinese." As it turns out we were absolutely correct: according to the just released update from Comex, on Monday the infamous gold vault located below 1 C(hina)MP saw an identical withdrawal of 321,500 ounces, matching the record withdrawal, and amounting to 28% of all JPM gold in storage.

Despite AAPL's tumble (and Seagate), the NASDAQ ended the day green along with the rest of the major US indices as the Dow broke its 5-day losing streak. Stocks in general recovered from the pre-Taper levels but remain notably down on the year. Most of the day's gains occurred in the first hour of the day as "most shorted" names were ripped higher (+1.8% vs the market's +0.75% at 11ET) which helped the Trannies outperform. The USD oscillated once again but ended practically unchanged (on the day and week) as AUD strengthens and JPY weakens providing just enough support to hold stocks higher. The USD stability was entirely missing from commodities which cracked around teh durable goods data with oil surging and bullion bulls purging. Treasuries were mixed but practically unchanged (despite some notable volatility around the Dur Goods data) with very modest steepening. VIX dropped 1.6vols to 15.8% - its biggest drop in 6 weeks.

Mr. Speaker, Mr. Vice President, members of Congress, fellow citizens:

...Make no mistake: the consequences of our actions are here. And the days of the United States as the world's dominant superpower are finished.

...No, this may not be the country that you all grew up in. But it is the state of our union... whatever remains of it.