Archive - Feb 2014 - Story

... Morgan Stanley's "research analyst" David Risinger, who today, February 18, 2014, a day after the WSJ broke the news yesterday around 10:30 pm that Forest Labs would be acquired by Actavis for $25 billion, decided to upgrade FRX from Equal-Weight to Overweight, and boosted his price target from "NA" to $86 or about where the stock was trading first thing this morning after the WSJ news. And that, ladies and gentlemen, is undisputed sell-side research value added.

This morning's catastrophic drop in the National Association of Hope Home Builders sentiment index has rapidly been spun as due to the weather... of course, makes perfect sense, right? What would happen if these drops were actually real fundamentals? If the status quo, the "common knowledge" was shown to be full of shit (once again). Well, riddle us this Batman... if weather was to blame, then why did the "West" region plunge the most? In fact, why did The West plunge the most on record? Too much sunny dry weather not good for sales? In fact, even the entirely indpendent provider of real estate research Trulia said that weather is not to blame...

While the bulk of the quantity data contained in the Fed's quarterly Household Debt and Credit Report is known in advance courtesy of the Fed's monthly tracking of household revolving and non-revolving debt, the quality components always provide a welcome insight into the state of the US household. It is there that we find that the most disturbing trend in recent years: the encumbering of students with record amounts of loans continues. In fact, as of December 31, the total amount of non-dischargeable (for now) student loans hit a new all time high of $1.08 trillion an increase of $53 billion in the quarter. By comparison, total credit card debt as of the same period was "only" $683 billion. At this rate, total student loans will be double the size of all credit card debt within 2-3 years. What's worse, while the 90+ day student debt delinquency rate did post a tiny decline from 11.8% to 11.5% in Q4, on a total notional basis due to the increase in outstanding balances, as of this moment the amount of heavily delinquent student loans has just hit a fresh record high of $124.3 billion, up from $121.5 billion in the prior quarter.

Despite all the hoop-la of the UK economic recovery - and Mark Carney's credibility-sapping dynamic forward guidance "we'll know it when we see it" perspective - billions in QE has failed to spark enough 'inflation' to break the Bank of England's oh so critical 2% inflation target. For the first time since November 2009, UK CPI fell below the 2% 'threshold' in January (must be the weather) as Japan's deflation exporting (what goes up there must go down everywhere else) spreads from the US to the UK. Of course, the silver lining for equity markets is that this provides Carney just the right ammo to keep rates lower for longer at their record lows; but price pressures are building...

As was expected, President Maduro's forces have detained Leopoldo Lopez - the leader of the anti-government protesters. Having earlier stated, "I present myself here, willing for my arrest to wake up Venezuelans," it appears Venezuelan authorities have stepped in...

*VENEZUELA'S LOPEZ SAYS HE HAS NOTHING TO BE AFRAID ABOUT
*VENEZUELA'S LOPEZ DETAINED BY NATIONAL GUARD IN CHACAITO

Despite the ongoing proclamations of "absolute calm" the streets (below) appear anything but with hundreds of thousands on the streets... and protesters are blocking the National Guard van that holds Lopez.

Independence Square Is Ablaze

Days after Kazakhstan broke out is tanks post-devaluation, the promise to "Restore order by all means envisaged" is under way in Ukraine as military vehicles are being mobilized into the city center. As Martin Armstrong so eloquently noted recently, "the Western powers represented by the EU and the US have nothing to stand on to protect Ukraine and can only offer lip-service at best. So once again, it appears that Ukraine is doomed and the best one can hope for there, is that Russia will allow the West to leave. The countdown goes forward and the political and economic crisis is indicative of what we see with the first shot across the bow in the rising trend of the Cycle of War." The US has 'demanded' an end to the violence...

Thailand's Government Savings Bank (GSB) president admitted that clients withdrew 30bn Baht (around $1bn) in a single-day last week and Bank for Agriculture and Agricultural Cooperatives (BAAC) and Krungthai Bank (KTB), although of a much smaller magnitude, have also seen withdrawal spikes of similar magnitude according to The Bangkok Post. The 'bank run' comes after speculation that cash at the state-run banks are being used by the government (which is in turmoil) to fund farmers (who have not received their 'promised' rice subsidies of over 130 bn Baht). Withdrawal requests are met with banks warning that there were insufficient funds at the time due to many depositors withdrawing cash. One depositor, rather ironically summed it up, "I started to feel concerned that my money may become only paper."

The banker suicide wave that started in late January has now become an epidemic, and it seems to be focusing on one bank: JP Morgan. After the first suicide that took place in JPM's London headquarters, ending the life of 39 year old Gabriel Magee, a vice president in the investment bank’s technology department, next it was 37 year old Ryan Crane, an executive director in the firm's program trading division, who died under still unknown circumstances. Moments ago a third JPMorgan banker committed suicide, this time at the JPMorgan Charter House Asia headquarters in central Hong Kong, where a 33 year old man who was said to have been an FX trader for JPM, just jumped to his death.

Silver and gold were slammed early in the European day but have now recovered those modest losses to extend their winning streak. Gold is holding above $1,320 but Silver is outperforming +1.4% today and is now up 13 days in a row... this is the longest winning streak since at least 1968. Both gold and silver have broken through their 200-day moving averages (and the often-watched 150-day).

Surprise! For the 3rd time in the last 20 years, homebuilder sentiment got way ahead of reality... and as the February NAHB data shows, reality is starting to catch up to them. The NAHB sentiment index crashed by its most on record in Feb, missed expectations by its most on record, and fell back below the crucial 50-level, as it starts to play cyclical catch-down to home sales and mortgage apps. Think it's the weather? nope...It's across every region (with The West dropping the most on record - hot dry weather?)

Despite the ongoing efforts of the rest of the world to ignore what is rapidly escalating into a potential pivot point in global geopolitics, Ukraine has gone from bad to worse in the last few hours with 3 dead and hundreds injured:

• *UKRAINE RIOT POLICE AMASS ON PERIMETER OF INDEPENDENCE SQUARE
• *KIEV SUBWAY SYSTEM SHUT DOWN, INTERFAX SAYS
• *UKRAINE OPPOSITION: ALL WOMEN SHOULD LEAVE INDEPENDENCE SQUARE
• *UKRAINE RIOT POLICE DISMANTLING BARRICADES APPROACHING MAIDAN

The riot police have been told to 'impose order by all means envisaged' and it appears they are rapidly moving towards that goal.

Last week, Federal Reserve Chairman Janet Yellen testified before Congress for the first time since replacing Ben Bernanke at the beginning of the month. Her testimony confirmed what many of us suspected, that interventionist Keynesian policies at the Federal Reserve are well-entrenched and far from over. Isn't it amazing that the same people who failed to see the real estate bubble developing, the same people who were so confident about economic recovery that they were talking about “green shoots” five years ago, the same people who have presided over the continued destruction of the dollar's purchasing power never suffer any repercussions for the failures they have caused?

Winter storms and cold weather dominated much of January and somehow Empire State managed its greatest beat in a year; however, we are sure the weather will be blamed for the biggest miss in 3 months for the data in Feb (printing 4.48 vs expectations of 8.5). New Orders tumbled from 10.98 to -0.21; inventories plunged, and expectations for the average work week and future Capex spend expectations collapsed to their lowest since July 09.The drop from January's exuberance is the largest in 18 months.

Nearly two months ago, when we commented on the recent string of unprecedented failures by the ECB to sterilize its legacy bond buying operation, the SMP, we commented that "judging by the feverish pace of purchases of every peripheral bond available, is this merely just another indication how little the ECB cares about sterilization, and is just a hint at an upcoming full-blown and unsterilized bond monetization about to be launched by Mario Draghi?" Sure enough at the subsequent February 6 ECB meeting Mario Draghi hinted as much when he said that among the things the ECB was looking at was precisely the "de"sterilizing of the SMP program. However, one stumbling block was getting the Bundebsbank's tacit approval to proceed with this plan which would make the ECB's bond monetization mirror that of the Fed where bonds are purchased on an unsterilized basis. And, as expected, overnight the Bundesbank threw in the towel on sterilization, meaning that the SMP will no longer be sterilized with an announcement divulging just this likely as soon as the next ECB meeting.

• Carl Icahn wins again: Actavis to Buy Forest Labs for $25 Billion (WSJ)
• ECB governing council member attacks German court ruling on OMT (FT)
• China Tackles $1 Trillion Data Gap as Xi Changes Metrics (BBG)
• FX Traders Facing Extinction as Computers Replace Humans (BBG)
• BOJ Boost to Loan Programs Signals Room for More Easing (BBG) - actually no it doesn't as it was "factored in"
• Four killed in Thai clashes; PM to face charges over rice scheme (Reuters)
• Goodbye unsterilized SMP: Bundesbank Backs Measure to Boost Funds in Banking System  (WSJ)
• Iranian Hacking to Test NSA Nominee Michael Rogers (WSJ)
• Ukraine Clashes Leave Dozens Wounded as Putin Resumes Bailout (BBG)