Archive - Jan 2014 - Story

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."

Last month's record-breaking surge in housing starts has rapidly reversed and fell 9.8% MoM - the biggest drop since April 2013. Despite a plethora of revisions, single unit housing starts tumbled to 610k - the lowest since July. However, permits were dismal (which is what we should be caring about if we are looking ahead at how the 'recovery' will play out). Building Permits dropped 3% MoM, far more than expected, missing by the largest gap since June. This was the 3rd biggest monthly drop in total starts since Lehman. However, year-over-year, the data is abysmal - Starts rose at the slowest pace since Aug 2011, and Permits at the slowest pace since April 2011.

Remember when Obama said he would have engaged in a dramatic overhaul of the NSA with or without Edwards Snowden? Funny as that statement may have been at the time (and recall that Comedians have psychotic personality traits, study finds), we will never know just what Obama would have done if... but we do know that at 11 am this morning, Obama will say he is ordering a transition that will significantly change the handling of what is known as the telephone "metadata" program from the way the NSA currently handles it. In other words, if you like your phone records, you can keep your phone records. It goes without saying that the number of people who believe anything the president says at this point is the same number or less than the dozen or so Chinese enthusiasts who waited in "line" to get a new China Mobile phone.

The NYT reports that if judging by the initial response to Apple's expansion into China, then this too latest Apple "rollout" is set to be a major flop. To wit:  " Apple has been counting on a long-awaited agreement with China Mobile, the world’s largest cellular operator, to reverse its fortunes in China. If the muted reception Friday, when customers were finally able to buy iPhones from China Mobile, is any indication, the companies may have to work harder to whip up enthusiasm. Instead of the round-the-block lines that have greeted Apple product introductions in China and other countries in the past, only about a dozen customers showed up to buy iPhones at the opening of a store in Beijing — despite the presence of a special guest, the Apple chief executive, Timothy D. Cook."

• NSA phone data control may come to end (AP)
• China to rescue France: Peugeot Said to Weigh $1.4 Billion From Dongfeng, France (BBG)
• China to rescue Davos: Davos Teaches China to Ski as New Rich Lured to Slopes (BBG)
• Hollande’s Tryst and the End of Marriage (BBG)
• Iran has $100 billion abroad, can draw $4.2 billion (Reuters)
• Target Hackers Wrote Partly in Russian, Displayed High Skill, Report Finds (WSJ)
• Nintendo Sees Loss on Dismal Wii U Sales (WSJ)
• Goldman's low-cost Utah bet buoys its bottom-line (Reuters)
• Royal Dutch Shell Issues Profit Warnin: Oil Major Hit by Higher Exploration Costs and Lower Oil and Gas Volumes (WSJ)
• EU Weighs Ban on Proprietary Trading at Some Banks From 2018 (BBG) - so no holding of breaths?
• Sacramento Kings to Accept Bitcoin (WSJ)

Weak results from Intel, American Express and Capital One, not to mention Goldman and Citi? No problem: there's is overnight USDJPY levitation for that, which has pushed S&P futures firmly into the green after early overnight weakness: because while the components of the market may have such trivial indicators as multiples and earnings, the USDJPY to which the Emini is tethered has unlimited upside. And now that the market is back into "good news is good, bad news is better" mode, today's avalanche of macro data which includes December housing starts and building permits, industrial production, UofMichigan consumer confidence and JOLTs job openings, not to mention the up to $3 billion POMO, should make sure the week closes off in style: after all can't have the tapped out consumer enter the weekend looking at a red number on their E-trade account: they might just not spend as much (money they don't have).

While manufacturing and services PMIs disappointed, the big problem in big China remains that of an out-of-control credit creation process that is blowing up. As we previously noted, instead of crushing credit creation, the PBOC's liquidity rationing has forced distressed companies into high-interest-cost products in the shadow-banking world. Investors on the other side of "troubled shadow banking products" had assumed that 'someone' would bail them out but this evening Reuters reports that ICBC has confirmed that it will not rescue holders of the "Credit Equals Gold #1 Collective Trust Product", due to mature Jan 31st with $492 million outstanding. The anxiety from contagion concerns of the first shadow-banking default has pushed the Shanghai Composite back near 2,000 for the first time since July - and to its narrowest spread to the S&P 500 in almost 8 years.