Archive - Feb 2014 - Story

In a deja vu of yesterday's 10 Year auction, which saw a slide in the Bid To Cover even as the closing yield was well through the When Issued, so today's 30 Year saw a slide in the Bid to Cover (from 2.57 to 2.27, and well below the 2.46 TTM average) even as the closing yield of 3.69% priced through the When Issued by a whopping 1 bp. However, here the comparisons ends, because while in both the 3 and 10 year auctions from earlier this week, there was a surge in the Indirects, this time around the Indirects were more or less in line, rising to 46.0% from 45.3%, if above the 39.4% TTM average, while Dealers took down 40.8%, above the 38.1% in January. Directs ended up holding 13.9%. So a mixed auction overall, as if the market expect the Fed to continue buying the long end on one hand, even as tapering means the 30 Years will be the most convex instrument should tapering indeed mean the monetization of duration ends some time in the summer.

Sickcare/ObamaCare is fundamentally broken at every level. The incremental nature of change makes it difficult for us to notice how systems that once worked well with modest costs have transmogrified into broken systems that cost a fortune. Only those with no exposure to the real costs of ObamaCare approve of the current sickcare system. Government employees who have no idea how much their coverage costs, well-paid shills and toadies like Paul Krugman, academics with tenure and lifetime healthcare coverage--all these people swallow the fraud whole and declare it delicious. Only those of us who are paying the real, unsubsidized cost know how unsustainable the system is, and only those inside the machine know how broken it is at every level. Greed + cartels = Sickcare/ObamaCare. Love your servitude, baby--it's affordable, really, really, really it is.

Matteo Renzi's Democratic Party has voted to back his proposal fore a new government... and Prime Minister Letta has resigned.

*DEMOCRATIC PARTY VOTES IN FAVOR OF RENZI PROPOSAL FOR NEW GOVT
*ITALY PREMIER LETTA SAYS HE WILL RESIGN

This will bring the 65th government in Italy since World War II and the 3rd consecutive government that would not have been elected (the last elected Prime Minister was Berlusconi in 2008).

For the first time since in over 3 months, spot gold prices are back above $1,300 and continued to be the best performing asset since the December taper and the start of the year... $1,304.70 is the crucial 200DMA that has not been tested since over a year ago.

Word count of the word "weather" in Joe LaVorgna's latest note explaining away today's third consecutive miss in retail sales and initial claims: 8. The humor, however, is this punchline: "Eventually, though, we should see some impressive weather-related snapback in economic activity." Wait, so the weather will deposit a few thousand dollars in all tapped-out US consumers' bank accounts? You do learn something every day.

The Turkish Lira may have halted its record collapse against "reserve" currencies - for now - but the reality is that nothing has changed for the better in Turkey, and in fact things continue to get worse.

The US equity market took 16 hours to fall 15 points and 90 minutes this morning to recover amid an absolutely dismal retail sales print. The full bulltard farce of disastrous news being great news is writ large in stocks as they decouple from any FX carry or bond market sense of reality.

In short: young firms. As the following chart summarizing OECD data for the developed world, all the net job creation in the 21st century has come from firms that are 5 years old or less, having even created jobs during the peak years of the post-Lehman depression. And where do jobs go to die? Simple - old corporations, as firms older than 6 years having been net eliminators of jobs since the year 2001!

The machines have learned well that 1015ET is buying time... Why, you ask? Well, it's POMO time - when the Fed hands out its fully fungible, rehypothecatable, infinitely leveragable free-money and risk assets pop... apart from today, there is no POMO... USDJPY 102 was all that mattered - no excuses. At least the currency manipulation crack down has fully rooted out all the front-running, options-strike-searching behavior...

Winter Storm 'Pax' has already crippled much of the South, snarling traffic and dumping more snow than most can remember on places that are unarguably ill-prepared to cope. But, as The Weather Channel warns, up to 18 more inches of snow is forecast for the Northeast as Pax pushes up the East Coast. With no thaw expected in the South until at least the weekend (and freezing winds causing havoc), forecasters expect more power outages. Trouble has already started though further North with DC over 13 inches of snow and NYC having over 7 inches this morning alone. It's not everyday that snow is falling in Atlanta and Boston at the same time! 585,000 households are without power in 7 states this morning. Flight cancellations have begun from DC to NYC building on the 4,000 that were cancelled yesterday.

It was only two weeks ago when Goldman's Jan Hatzius, as we predicted he would, took a hammer to its GDP forecasts for Q1 GDP upon the shocking realization that Q4 "growth" was all inventory driven. This morning, the hammering resumes as Goldman, in the aftermath of today's disastrous retail sales, not only cut its Q4 2013 GDP forecast from 2.8% to 2.4% (vs the 3.2% initially reported), but slashed its current quarter estimate from 2.3% to 1.9%. As a reminder, this number was 3.0% three weeks ago. Once again, nothing beats an economist forecast to know what the future will not be.

The retail sales control group - the components of retail sales that feed straight into the GDP calculation - rose at a pace of 2.4% in December, the lowest since 2009, and dropped 0.3% sequentially, the biggest drop since December 2011. What this means is that GDP growth - expected to be flourishing until recently and which Joe LaVorgna has at about 4% for 2014 - is about to be monkeyhammered. Why? Snow in the winter, of course.

Having rallied yesterday and totally ignored the fact that Letta's 10-month-old government was about to collapse, Italian equity and sovereign bond markets are falling this morning by their most in two weeks. The main bone of contention for Renzi-Letta fight is jobs and growth - there is none of either - and while Prime Minister Letta assures that the Italian economy grew in Q4 (GDP data to be released tomorrow) for the first time in 10 quarters, as Bloomberg's Niraj Shah notes, real GDP is still smaller than it was in 2000. Letta has just canceled his UK visit (planned for 2/24) and did not take part in the Democratic Party meeting with a Renzi friend saying "[Letta] will resign." Italians are, of course, used to the farce that is politics - there have been 64 government since 1945.

And so, prepare to see much more of this chart which as we warned will be used as justification to explain why retail sales not only just tumbled, but posted their worst miss since June 2012. Retail sales, which incidentally, just happen to be seasonally adjusted precisely to account for such shocking phenomena as snow in the winter:

• Headline retail sales plunged -0.4% on expectations of a 0.0% print.
• December headline retail sales were revised from 0.2% to -0.1%, which also means that the December data was in fact a miss of expectations of 0.1%, not a beat as was reported at the time, and also means retail sales have now missed three months in a row. We know, we know: the weather.
• Retail sales ex autos were unchanged atg 0.0%, on expectations of 0.1%, with December also revised from a "beating" 0.7% to a miss of 0.3%
• Retail sales ex autos and gas dropped -0.2%, on expectations of a 0.1% increase, with December revised far lower from 0.6% to 0.1%

In other words: yet another confirmation that the US consumer is tapped out thanks to draining his savings during the holiday season, and also hinting that the inevitable untaper is coming far sooner than expected.

At 339,000 initial jobless claims, this is the 3rd miss in thelast 4 weeks and back above the 8-month average suggesting that the best in the layoff trajectory of this 'recovery' is over. Continuing claims remains slid modestly and, of course, emergency benefits remain at zero. Of course, as we showed here, it is not layoffs (and thus initial jobless claims) that matters - what is crucial is that there is no hiring...