Archive - Jan 9, 2014 - Story

We are not sure how to interpret the fact that Hilter's manifesto Mein Kampf is #3 and #4 on iTunes Political books list; but undoubtedly it marks something of significance...

How fortunate for governments that the people they administer don’t think.
- Adolf Hitler

We remain hopeful that these sales trends spring from a curiosity on behalf of the population, rather than from a darker more hateful place.

From "The Appla Store" to "Sffcccks Coffee", the southern Chinese city of Wuxi has seen a "street of fakes" sprout up that flaunts modified name of famous international stores. As the South China Morning Post reports, on this commercial street, located near the Wuxi East Railway Station, the "shanzai" (translated - knock-offs) are in fact all empty - designed to entice buyers of commercial and residential property in yet another ghost city to lever-up and speculate.

Goldman forecasts a gain of 200k non-farm payroll jobs tomorrow (against a 196k consensus +/-25k). Factors arguing for a solid print include the recent trend, an improvement in most employment indicators already released for the month, the compressed holiday hiring period, and a potential "couriers and messengers effect." On the negative side, Goldman warns cold weather is a downside risk. With respect to other aspects of the release, in general they note that the December report has not shown an overwhelming tendency to contain back-revisions in one direction or the other; and forecast an unchanged unemployment rate at 7.0%, and a 0.2% month-on-month gain in average hourly earnings.

Last week, Grant Williams reviewed the equity markets in an attempt to see how equity investors managed to scamper through 2013 with the friskiness of puppies when all about them lay doubt and potential disaster. His answer - of course - quantitative easing. This week Williams takes a deep dive into bonds and bullion in an effort to comprehend how the bond market managed to navigate the same 12-month period and see what can be learned about 2013 in order to forecast for 2014. The effect on the Fed’s balance sheet is plain to see - a very steady, predictable line; and markets love steady and predictable. So what happens when the 'predictability' ends...? The guardians of the global economy are relying on numerous logical fallacies to continue their path to oblivion...

In what can be described a truly ironic event and a major failure for America's stated mission (because one can't help but wonder at all the support various Al Qaeda cells have received from the US and/or CIA) of eradicating the Al Qaeda scourge from the face of the earth, we learn today that al Qaeda appears to control more territory in the Arab world than it has done at any time in its history. According to a CNN report "from around Aleppo in western Syria to small areas of Falluja in central Iraq, al Qaeda now controls territory that stretches more than 400 miles across the heart of the Middle East, according to English and Arab language news accounts as well as accounts on jihadist websites."

Despite an apparent belief among the US mainstream media that 'taper' is priced in, Saxo Capital Markets warns that Emerging Market countries with large current account deficits like Brazil, India, South Africa, Indonesia, and Turkey face increasing problems. As the following chart shows (and highlghted most recently by Brazil's highest FX outflows since 2002!) could see their currencies weaken even further if the Fed's taper plans result in a deterioration of global risk appetite.

If you are anxiously awaiting the arrival of the "economic collapse", just open up your eyes and look at what is happening in Europe.  The entire continent is a giant economic mess right now.  Unemployment and poverty levels are setting record highs, car sales are setting record lows, and there is an ocean of bad loans and red ink everywhere you look.  Over the past several years, most of the attention has been on the economic struggles of Greece, Spain and Portugal and without a doubt things continue to get even worse in those nations.  But in 2014 and 2015, Italy and France will start to take center stage.  France has the 5th largest economy on the planet, and Italy has the 9th largest economy on the planet, and at this point both of those economies are rapidly falling to pieces.  Expect both France and Italy to make major headlines throughout the rest of 2014. The following are just a few of the statistics that show that an "economic collapse" is happening in Europe right now...

There is the full-time vs part-time jobs debacle, the questions over job-quality, the "no country for young workers" problem, and Bernanke's "born-again jobs scam," but nowhere is the real 'recovery' in American jobs less evident than in the actual number of employed males...

A month ago, we showed a chart of median household income in the US versus that just in the District of Columbia. The punchline wrote itself: "what's bad for America is good for Washington, D.C." Today we got official verification that Bernanke's wealth transfer in addition to benefitting the richest 1%, primarily those dealing with financial assets, also led to a material increase in the wealth of one particular subgroup of the US population: its politicians.  According to the OpenSecrets blog which conveniently tracks the wealth of America's proud recipients of lobbying dollars, aka Congress, for the first time ever the majority of America's lawmakers are worth more than $1 million.

In 1970, when 11% of adult Americans had bachelor's degrees or more, degree holders were viewed as the nation's best and brightest. Today, with over 30% with degrees, as the WSJ notes, a significant portion of college graduates are similar to the average American - not demonstrably smarter or more disciplined. Furthermore, declining academic standards and grade inflation add to employers' perceptions that college degrees say little about job readiness. As we noted recently, change is coming as more and more realize college may not be worth it. Educational entrepreneurship offers hope that creative destruction is coming to higher education. The cleansing would be good for a higher education system still tied to its medieval origins - and for the students it's robbing.

While Ford and GM struggle somewhat, demand for the eilte-of-the-elite Bentley is soaring. As BusinessWeek reports, 2013 saw the firm sell 10,120 vehicles worldwide - dominated by the Americas - a 19% rise over 2012. Coincidentally, since Fed policy went extreme, Bentley has seen double-digit growth rates each and every year leading to the best performance in its 95-year history. As BusinessWeek ironically notes, it requires no small amount of consumer confidence to roll away in a Bentley Mulsanne, which has a sticker price just shy of $300,000.

Just a few short weeks away, the opening ceremony of the Sochi Winter Olympic may go off with a bang, literally, judging by the amount of "terrorist" chatter surrounding the games. Today however, it is more than just chatter: earlier the Russian media reported that Russian security forces had come across multiple unexplained deaths and explosive devices in a region near Sochi, resulting in an aggressive "anti-terrorism sweep."

The one item that caught our attention in the just released earnings was the GAAP EPS: a whopping loss of $2.19/share. Ok so, Alcoa added back a few things to get the Non-GAAP number: about $2.1 billion in goodwill impairment and restructuring charges to be precise - happens all the time. The only problem is that for Alcoa, this indeed happens all the time! The chart below shows just how freely Alcoa abuses the non-GAAP EPS definition, and how adding back charges has become ordinary course of business for the alluminum company. Very much in the same way as adding back litigation charges for JPM is now a quarterly ritual...

Another day of 'spot the difference' between AUDJPY and the S&P 500 saw an odd overnight spike in stocks fade soon after the US open, bounce higher (again) at the European close then oscillate around VWAP (with the ever-ready-to-please 330 RAMP). Stocks remain red for the year and still the worst start since 2008. "Most Shorted" names continue to outperform. Copper and WTI crude were notable underperformers (both ending an oddly similar -1.75% on the week so far) with oil rebounding modestly off 8-month lows into the close. VIX and credit markets were quiet - ending practically unch ahead of tomorrow's NFP. CAD weakness continues (-2% on the week) but the USD leaked lower to unch on the week. Treasuries rallied 2-3bps (and the curve flattened very modestly) with 2Y unch and 10Y -3bps.

"Remember the Greenspan/Bernanke put?" BNP's Julia Coronoado asks, well "welcome to the Bernanke/Yellen collar." As some expected, Coronada notes that there was substantial discussion in the December FOMC minutes about concerns about financial stability stemming from QE, and the role it plays alongside progress on their dual mandates in making monetary policy decisions.This implies a shift in the Fed's reaction-function. Simply put - the Fed will react to falling asset values that destabilize economy "and" asset values that rise too far and too fast or are fueled by leverage that may put economy at risk.