Archive - Feb 2014 - Story

Redefining "hands on" since the second coming of the USSR.

Factory Orders dropped 1.5% in December - their biggest fall since July - but modestly beat weak expectations. This drop despite the fact that inventories of manufactured durable goods in December, up eight of the last nine months, increased $3.2 billion or 0.8 percent to $387.9 billion to the highest level since the series was first published. This is the fastest year-over-year inventory build in 6 months - and fastest month-over-month build in 15 months.

Who says the only thing bankers are good at is relying on (then blaming) S&P and Moody's research reports to justify their investments in worthless toxic subprime, then levering up beyond all known limits and putting on unbelievably risky trades in hopes of striking it rich or blowing up and getting bailed out by taxpayers. According to Bloomberg "these young bankers are trying to save the world."

The potential for transformation can be expressed in one simple phrase: it doesn't have to be this way. The structures that benefit from dominating the current system maintain their dominance by convincing us that "the way it is" is inevitable and impervious to systemic change. That is the primary mythology that generates and maintains their dominance..."Induce people all to want the same thing, hate the same things, feel the same threat, then their behavior is already captive--you have acquired your consumers or your cannon-fodder."

Unlike the other Fed presidents who are all too happy to lie in order to instill some confidence not realizing that by doing so they hurt their own credibility, non-voting member Jeffrey Lacker and president of the Richmond Fed has a different approach - telling the truth. Which is why we read his just released speech this morning with interest since once again, it contains far more truth and honesty than anything else the FOMC releases. Sure enough, it has enough fire and brimstone to put even fringe bloggers to shame.

Introducing our new CEO, Satya Nadella: http://t.co/u5IGl1N78G pic.twitter.com/akgNY5euEJ

— Microsoft (@Microsoft) February 4, 2014

While Greece may be the most corrupt nation in Europe, there appears another problematic issue for finance minister Yannis Stournaras when he discusses the way forward with his Swiss counterpart this week. As Bloomberg's Niraj Shah reports, Greece's difficulties with tax evasion are the worst in Europe. Accprding to a study from Johannes Kepler University, the size of the Greek shadow economy is a stunning 24% of GDP. One can only wonder what lesson this unintended consequence has for a US (or French) President besotted with extraction - especially as 74% cite "taxes are too high" as a reason for 'informal labor'.

There is one main reason why complacency is bad: selloffs. Because as Bank of America explains, in an environment in which there are "too few bears", and where investors are "not prepared for a downside correction", when you do finally get a sell off for whatever reason, with nobody hedged and otherwise prepared for such an outcome, the only logical continuation is piling on until one gets selling exhaustion. And in a world in which hedge fund leverage is about 500%, by the time exhaustion comes, there will be very few left standing.

In the aftermath of yesterday's Developed Market rout, it may come as a surprise how - relatively - quiet the EM bourses were. Because while the now ongoing Argentina reserve depletion continues (the country has $28 billion left - a drain of over $2 billion in two weeks, the Turkish political instability is still there, and everyone from Hungary to South Africa to India are lamenting the Fed's taper, for the most part traders were ignoring developments out of the emerging world. This may change today when just over an hour ago, Russia announced it would cancel a bond auction for the second consecutive week after an emerging-market rout sent yields on January 2028 bonds to record highs. The reason cite: market conditions.

• Global makets plunge (Reuters)
• Goodbye Mrs. Watanabe - Japan Sees Worst Developed-Stock Rout as Nikkei 225 Drops (BBG)
• Who could have possibly predicted this - Firms Pinched by Pressure to Hold Down Their Prices (WSJ)
• RBA Shifts to Neutral as It Signals Comfort With Aussie’s Level (BBG)
• Fractures Emerge Between Obama, Congressional Democrats (WSJ)
• Brazil suffers record trade deficit (FT)
• El Salvador fisherman washes up in Marshall Islands after year adrift (Reuters)
• Apple Quietly Builds New Networks (WSJ)
• One-year prison sentence for 21-year-old Twitter user who glorified terrorists (El Pais)

It is still all about the Yen carry which overnight tumbled to the lowest level since November, dragging the Nikkei down by 4.8% which halted its plunge at just overf 14,000, only to stage a modest rebound and carry US equity futures with it, even if it hasn't helped the Dax much which moments ago dropped to session lows and broke its 100 DMA, where carmakers are being especially punished following a downgrade by HSBC of the entire sector.  Also overnight the Hang Seng entered an official correction phase (following on from the Nikkei 225 doing the same yesterday) amid global growth concerns and has filtered through to European trade with equities mostly red across the board. Markets have shrugged off news that ECB's Draghi is seeking German support in the bond sterilization debate, something which we forecast would happen a few weeks ago when we pointed out the relentless pace of SMP sterilization failures, with analysts playing down the news as the move would only add a nominal amount of almost EUR 180bln to the Euro-Area financial system. Elsewhere, disappointing earnings from KPN (-4.3%) and ARM holdings (-2.5%) are assisting the downward momentum for their respective sectors.

UPDATE: Nikkei 225 Futures back under 14,000 - down 15% from Dec 31st high; USDJPY back under 101.00

Despite the hope-driven exuberance exhibited immediately post the Abe/Kuroda show, the USDJPY-pumping stock-momentum fest has ended - abruptly. Japan's Nikkei 225 has lost all its gains and is now trading below US day-session lows (3-month lows) but it is the broader TOPIX index (more akin to the S&P 500) that is collapsing. Down almost 5% on the day (its biggest drop since the May collapse), the TOPIX is at 4-month lows. The TOPIX Real Estate index just hit a bear-market - down 20% from Dec 31st highs. Japanese sell-side shops are in full panic desparation mode as "suggestions" that a sub-14,000 Nikkei will prompt an acceleration of Japan's QQE money-printing idiocy. This is getting ugly fast.

While the Northeast is blanketed by another winter storm, California has its own, quite inverse, climatic problems in the form of a historic drought. Unfortunately for our California readers, it is going to get worse before it gets better because mountain snowpack is about 12 percent of normal for this time of year. The following picture of California from January and a year ago shows just this dramatic difference, which confirms that there is little hope for the parched state.

“There is a low level of strategic trust between the United States and China, which could make bilateral relations more turbulent,” warned a recent report. Although it would be preferable if the two countries trusted one another, this is an unrealistic goal. The U.S. and China are right to distrust one another and this won’t change anytime soon. Therefore, the goal should be to find ways to manage the bilateral relationship without strategic trust. Thus, at most states can trust other states to pursue their own interests (even this is not advisable since it assumes both sides are able to correctly identify that state’s interests). And this is preciously why the U.S. and China do not trust each other and aren’t likely to start anytime soon– namely because they largely have opposing interests in the Western Pacific. America’s interest is in preserving the current status-quo, which is a regional order built around the United States. China’s interest is in rebuilding the regional status-quo that existed before the arrival of the Europeans. That is, Beijing seeks a Sino-centric order.

Europe has an odd definition of recovery: we already knew that in Greece "recovery" means record high unemployment, an entire generation unable to find work, the return of neo-nazism, no ink with which to print tax forms, and even instances where people infect themselves with HIV to get medical benefits. That, and of course, soaring suicides. Now it is Spain's turn. While the Iberian nation is furiously scrambling to catch up to Greece in terms of sheer economic collapse, even if the government has changed the definition of GDP so many times, somehow Spain dares to look people in the eye and claim its GDP is growing with 26% total, and 54% youth unemployment, one statistic Spain can't change is that the suicide rate has soared and is now the highest in eight years.