Archive - Jan 2014 - Story

While banks have been shown to manipulate every asset class (except of course stocks where HFT is merely a liquidity provider), it has largely been left to the Chinese to be blamed for 'plan' what data is released to the world and 'manage' expectations. With conspiracy 'theories' in market and macro data manipulations being proved 'fact'; we thought it intriguing that the US Macro data cycle has rapidly diminished since the financial crisis. This, of course, makes perfect sense in a world where fundamentals no longer matter; nevertheless, compared to the pre-crisis swings, things are different this time.

Evolutionary theory as a perspective for understanding human behavior within capital markets is a more useful perspective than what economic theory has become... a cloistered, brittle theology that day after day becomes more abstract in its formation and more narrow in its application. The first and most basic lesson of an evolutionary perspective properly applied: we are well served as investors to jettison the superiority complex that comes with living in the present and looking back on what naturally seems a benighted past. The notions of liberal progress and evolution-as-hierarchy are so deeply ingrained that we assume that whatever behaviors are new or modern, including modern investment management practices or modern investment strategies (or modern monetary policy), must be part and parcel of some advancement over what existed in the past. In truth there is no up-and-to-the-right arrow associated with evolution; there is no intelligent design pushing us “forward”.

As Samsung unveiled its new curved screen, presumably so that one can watch it around corners, Director-extraordinaire Michael Bay shows why he is better off behind the camera than in front of it... Behold, 2014's most embarrassing moment so far...

With the critical 50th Yes vote just being cast, Janet Yellen has officially become the first woman to head the central bank in its 100 years of existence. The vote continues, and the only question now is whether the current tally of 27 No votes will surpass the Bernanke record of 30 objections to the central bank head.

Workers at a tire plant in Northern France have taken two managers hostage until Goodyear (the firm that owns the plant and has been trying to shutter it for years) meets the mabor unions demands. WSJ reports, as Goodyear winds down operations with the plant almost idle, French labor law requires the company to keep all workers employed, which means many of them don't work more than a couple of hours a day while still getting full salary. The situation is why Titan International's Maurice Taylor blasted that he "would be stupid" to operate the plant on that basis.

And now, the saddest chart of the day: Greek poverty since the crisis, and in 2013, when the so-called "Grecovery" arrived.

It’s ironic that in a day and age where Keynesian economics is the “accepted view” we still don’t pay enough attention to what Keynes said about inflation: "By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some..." The problem today is that some people believe inflation is lower than it actually is. The Consumer Price Index CPI is used to measure the cost of maintaining a certain standard of living. Now it measures the cost of maintaining a certain level of satisfaction. You can argue the magnitude of the inflation understatement but you can’t argue that the official numbers are accurate. Under reporting inflation has led to many predictable outcomes.

US equities converged down to VIX's warnings from the holiday period as for the 3rd day in a row equities dropped. This is the worst start to the year for the S&P 500 since 2005. Equities improved during the European session but top-ticked at the US open, tumbling to 10-day lows by the time Europe closed. A leak higher with a vertical ramp to VWAP in the afternoon gave way to selling in the last hour. Trannies are the worst year-to-date (-2.2% from 2013 close highs). Treasuries gained further today, with yields down 6-8bps on the year. The USD lost ground during the European session then flatlined for the rest of the day (-0.25% on the day). From Friday's close, commodities are ending almost unchanged but all had a very volatile ride today (most notably in gold and silver).

Presented with no comment...

2013 was the year that the mainstream financial media went aggressively anti-gold. So, why do we continue to keep the faith with gold (and silver)? We can encapsulate the argument in one statistic.

While there were some concerns that due to adverse weather conditions, the Yellen vote may take longer than usual with many senators’ return to Washington D.C. delayed, for now proceedings are going according to schedule: the vote is expected to proceed at 5:30 pm Eastern, with one option being that the roll call could begin as planned, leaving the tally open for a number of hours to allow latecomers to vote. As a reminder, Yellen needs a simple majority (51 votes if no senators abstain) with Democrats holding 55 seats in the Senate, so there will be no major surprises and Yellen will receive confirmation. The only open question is how many Republicans will abstain from supporting Yellen, and whether this will surpass the previous record of 30 Senators refusing to support Ben Bernanke during his 2010 renomination. .  In the meantime, the actual debate surrounding Yellen's confirmation is set to begin at 3 pm Eastern.

The predictions of Blackstone's octogenarian Byron Wien (born in 1933) have been all over the place in the past 10 years, some correct, most wrong (with a recent hit rate of about 25%) - his 2013 year end S&P forecast was for 1300 - yet always entertaining. Which is the only value in the latest release of his 10 forecasts for 2014. Naturally, take all of these with a salt mine.

The possibility of a French recession is not exactly new: even the venerable Economist penned an an extensive article - with a humorous cover - over a year ago describing just such a possibility (the French were unamused). Yet to this date, not only has France managed to avoid the dreaded "Triple Dip" but its bonds continue to be well-bid, with the yield on the 10 Year well inside the US, at only 2.53%, nearly 1% below the wides seen in 2011. However, and especially now that Hollande's 75% millionaire tax has finally been enacted, the fuse on the baguette time bomb is getting shorter. So a French recession would be a bad thing, right? Well, yes - for the French population, and certainly whatever is left of its middle class. However, it is the wealthiest 1% and the stock market which, in keeping up with the old bad news is good news maxim, that may be the biggest beneficiary of a French triple dip. The reason, at least according to GaveKal and increasingly others, is that a French re-re-recession would be precisely the catalyst that forces the ECB out of its inaction slumber and pushes it to engage in what every other "self-respecting" bank has been doing for the past five years - unsterilized quantitative easing: an event which the soaring European stocks have largely been expecting in recent weeks and months.

Are current underwriting practices overly stringent? Yes and no. With the exception of the sub-prime era, underwriting has never been easier. At the same time, it has never been more difficult for many qualified borrowers to get a loan. This strange phenomenon is among the unintended consequences of ill-guided public policies. 

The volatility in JPY crosses has been considerable since the start of the new year - likely sending many carry-trade-driven risk manager's to the trading floors. USDJPY just broke back below 104.00 for the first time since 12/23, dragging the Nikkei 225 to its lowest level since the Taper. Notably, the Nikkei - having almost caught back up to the Dow on Boxing Day - is now at its cheapest in a month. The Nikkei is down 300 points from tofsay's highs (tripe that of the Dow).