Archive - Jan 2014 - Story

The economy is Boom(er)-ing...

With the Fed once again in the late stages of an easing cycle (affectionately dubbed QE3), we find the 2s/5s curve steepening yet again, hitting its widest level in 30 months at more than 135 basis points on January 1. Given this curve’s uncanny track record, one can’t help but wonder if it will ring the 160 bell yet again when the Fed completes its final purchase operation of QE3. With tapering now upon us, and the end of QE3 almost in sight, one might even be tempted to sell a few 5s against twos in the hopes of catching that final 25 basis points of steepening. A closer examination of that trade, however, reveals that one might be better off doing just the opposite.

Even if you don’t buy that QE and ZIRP will lead to a dollar collapse, you do have to admit that these Fed policies have severely brainwashed investors. The Federal Reserve is the boiler room operation that has pumped up the equities market by way of QE and ZIRP. You are investing in a pump-and-dump scam. And like in all such scams, you will lose. Clear enough for ya?

While BofAML's Macneil Curry remains a longer-term Treasury bear, in the near-term (and potentially medium-term) the evidence for a pause and corrective yield pull-back is too much to ignore. Given the momentum conditions, he notes, these levels are not going to give way without a fight - Treasur bears beware. He also fears a correction lower in EURUSD and USDJPY (JPY strength) but worries that gold has further to fall.

Proving once again that if you want something done wrong, and preferably at massive cost overruns, then just leave it to the government, moments ago news broke that the main IT contractor behind the embarrassment that is healthcare.gov - CGI Federal - has been fired. Who could possibly foresee this? Well, anyone who had actually done some diligence on the clusterfuck that is CGI Federal, and which as WaPo profiled some time ago, "is filled with executives from a company that mishandled at least 20 other government IT projects, including a flawed effort to automate retirement benefits for millions of federal workers, documents and interviews show." Make that 21. "A year before CGI Group acquired AMS in 2004, AMS settled a lawsuit brought by the head of the Federal Retirement Thrift Investment Board, which had hired the company to upgrade the agency’s computer system. AMS had gone $60 million over budget and virtually all of the computer code it wrote turned out to be useless, according to a report by a U.S. Senate committee." Sounds like the perfect people to hire in order to make a complete disaster out of the Obamacare portal - almost as if by design. But the best news? Obama's little tryst with CGI Federal cost US taxpayers only $292 million. As Vanity Fair revealed recently, "According to congressional testimony, CGI stands to be paid $292 million for its work on healthcare.gov."

While this morning's dismal jobs data is being blamed on the weather (despite no other recent indicator reflecting the same effect), it seems New Yorkers are not afraid of the cold. In fact, as FoxNY reports, it seems there is a new 'must-have' for the New Year - a Union Job. 1,500 people have been on line since 1pm on Tuesday for a 'coveted' union job that pays $17.20 per hour (for painting and decorating apprenticeships) and could lead to a full-time union position. Forget the iPhone5S, union jobs is where it's at...

While excess risk-taking and broken markets likely dominate their thinking, the 'real economic recovery' meme the Fed is using to enable them to 'taper' their excesses. However, investors remain assured that if things get worse once again then the Fed will crank the presses and save the assets. It seems they have found their new excuse - no matter what...

*LACKER EXPECTS 'A LOT OF TURMOIL' IN HEALTH CARE INDUSTRY
*LACKER SAYS FED WILL BE WATCHING HEALTHCARE CLOSELY IN NEXT FEW YEARS

So, despite admitting asset-bubbles, fears over stock-multiples and excessively easy lending; the Fed will launch QE5 when Obamacare drags the US economy into trouble...

With the FBI joining investigations into the New Jersey Governor's Bridge-Gate scandal (and David Wildstein 'pleading da fif'), it would appear Chris Christie is calling in some favors. Bloomberg TV's Stephanie Ruhle reports this moring that the billionaire money manager Stan Druckenmiller proclaimed, "Governor Christie's actions yesterday reinforces my admiration for him," as he (rightly) pointed out that "the country thirsts for a great leader. A leader's actions in crisis are revealing." Druckenmiller went on to explain in his statement that he "believes Chris Christie is a once-in-a-generation leader... and he is showing essential executive skills as a manager: ensuring accountability and taking responsibility."

Even Draghi proclaimed anyone calling the crisis over as 'premature' but that was ignored by the fast-money momo chasers looking for where to rotate their cash on the sidelines as US momentum fades. Greece, Portugal, and Spain stocks literally exploded higher this week:

Greece +7.7% - best week in 8 months
Portugal +4.7% - best week in 9 months
Spain +4.98% - best week in 16 months

Sounds right?! Efficient markets, indeed...

Once again, in its sheer panic to tout the quantity, or lack thereof, in the case of the December jobs number, the frenzied media and pundits completely ignored the quality of the jobs gained in the last month of December. Or lack thereof. Because as the simple breakdown below shows, of the 74K jobs gained in December, 55%, or 40K were the worst of the lot when it comes to wages or benefits: temporary jobs.

In a memo to employees today, Bank of America has made some 'improvements' to its recommendations for analysts and associates working hours...

*BOFA ANNOUNCES IMPROVEMENT IN WORKING CONDITIONS FOR JUNIORS
*BOFA SAYS JUNIOR BANKERS SHOULD TAKE 4 WEEKEND DAYS OFF A MONTH

There have been a litany of articles written recently discussing how the stock market is set for a continued bull rally.  These are some primary points that are common threads among each of these articles which are:  1) interest rates are low, 2) corporate profitability is high, and; 3) the Fed's monetary programs continue to put a floor under stocks.  The problem is that while we do not disagree with any of those points - they are all artificially influenced by outside factors.  Interest rates are low because of the Federal Reserve's actions, corporate profitability is high due to accounting rule changes following the financial crisis and the Fed's liquidity program artificially inflates stock prices. However, while the promise of a continued bull market is very enticing it is important to remember, as investors, that we have only one job:  "Buy Low/Sell High."  It is a simple rule that is more often than not forgotten as "greed" replaces "logic."

Whether one sees this as a worrisome indicator of social unrest to come; or confirming evidence that the safety net in America provided by an increasingly fearsome government is only going to get bigger... there can be little doubt that this index is a dismal reminder of the 'real' recovery in America today...

President Obama has just nominated Lael Brainard as a Fed Governor, Jerome Powell to his second term and most notably, Stanley Fischer (ex Head of the Bank of Israel) as Vice-Chairman of the Fed. "These three distinguished individuals have the proven experience, judgment and deep knowledge of the financial system to serve at the Federal Reserve during this important time for our economy,” Obama said in statement. Bear in mind that Fischer is skeptical of forward-guidance (as we note below) which is soon to become the Fed's main weapon to jawbone markets.

Stanley Fischer's term as governor runs through 2020 (vice chair through 2018), Brainard's term through 2026 and Powell's through 2028!

Tenure anyone? We are sure they will still do a great job...