Archive - Feb 2014 - Story

Afghanistan’s insurgents have endured hard times before, but nothing quite like this. At first glance the war might seem to be turning in their favor. Hundreds of Taliban foot soldiers - the heart and soul of the armed struggle against the U.S.-backed Kabul government - are running out of food, money and ammunition. As Vocative reports, their plight is unlikely to improve anytime soon - people familiar with the Taliban’s finances say the organization’s main sources of revenue have dried up. Wealthy Arab donors, Afghan businessmen and even Pakistan’s powerful and secretive spy agency have all reduced or stopped funding, each for their own reasons. “Anytime I’m out there, I could be martyred,” he says. “And God does not forgive anyone—even a martyr—who dies without paying his just debts.”

With Japanese stocks down 13.6% from their 12/31 highs, the big guns just hit the tape to try to save the day:

• *ABE:BOJ WILL MAKE APPROPRIATE DECISION ON EXIT STRATEGY
• *ABE: NOT EASY TO CHANGE 'DEFLATIONARY MIND'
• *KURODA: BOJ CAN CONDUCT APPROPRIATE EXIT POLICY AS NEEDED
• *KURODA: BOJ EASING HAS HAD INTENDED IMPACT SO FAR

Following Amari's earlier "markets are over-reacting" jawboning, so far this is having little to no effect. USDJPY is actually fading back lower and perhaps stunningly Japanese 20Y bond yields and stocks are back at the same levels seen in May 2013 (1 month after the BoJ unveiled QQE). Time for some Depends Mr. Abe.

In the years since the Financial Crisis, major Central Banks have been engaged in incredible easing programs that included the injection of massive amounts of liquidity into the financial system. That liquidity, Citi notes, had to go somewhere, and in a search for yield, much of it went indiscriminately into Local Markets. So far, the exodus of money from Local Markets has been “tame” compared to previous EM crises and it has also been selective since countries with weaker economies and foreign reserves have been the ones taking the largest hits. However, as Citi warns, our bias is that this is just the beginning.

Would you like to buy a house for one dollar? If someone came up to you on the street and asked you that question, you would probably respond by saying that it sounds too good to be true. But this is actually happening in economically-depressed cities all over America. Of course there are a number of reasons why you might want to think twice before buying any of these homes...

Goldman's Global Leading Indicator's January reading and the latest revisions to previous months paint a significantly softer picture of global growth placing the global industrial cycle clearly in the ‘Slowdown’ phase. They add, rather ominously, While the initial shift into ‘Slowdown’ (which we first noted in October) had a fairly idiosyncratic flavor, the recent growth deceleration now looks more serious than in previous months. Of course, as we noted yesterday, Jan Hatzius us rapidly bringing his optimistic forecasts back to this slowdown reality.

Say what you will about Mike "sugary drinks are illegal" Bloomberg, but at least the trains ran on time. And so did the snowplow. Sadly for his replacement, the same can not be said as was revealed following just one of the first modest snow storms in Bill de Blasio's career as mayor. In his own words (via AP): "Mayor Bill de Blasio says the snow has been falling faster than New York City workers can plow it." So New York gets 8 inches of snow and suddenly it is a snow panic? What happens in case of a blizzard: de Blasio request assistance from the Soc Intern, or perhaps the only solution is to tax the "wealthy" an arbitrary, but "fair", amount more?

The BBC caption-machine discusses the Chinese new year (the year of the horse)... but goes a little too phonetic. Are they wrong?

Equities have the worst day of the year and really no exchange around the globe was left out. Now every one on our screen is down YTD. For US markets, today was the worst day since last June. Overall, while today was active, it was still an orderly session. We did have some interest to buy topside options... Serious pain in risk assets lent a bid to US treasuries as yields continue to retreat from their New Years’ day highs.

Curious why Michael Dell was so eager to take the company he founded private? So he could do stuff like this without attracting too much attention. According to the Channel Register, the recently LBOed company is "starting the expected huge layoff program this week, claiming numbers will be north of 15,000." Of course, with a private sponsor in charge of the recently public company, the only thing that matters now is maximizing cash flows in an environment of falling PC sales, a commoditisation of the server market and a perceived need to better serve enterprises with their ever-increasing mobile and cloud-focused IT requirements - things that do not bode well for Dell's EBITDA - and the result is perhaps the largest axing round in the company's history. But at least the shareholders cashed out while they could.

While the Fed remains convinced (and they would know) that there is no bubble in asset markets - in the face of record issuance of covenant-lite loans, record high stock prices in the face of declining fundamentals, and record low spreads in credit markets as leverage rises - as we noted yesterday, investors "are stretching to find reasons not to cut" their allocations. The bursting of the bubble was dismissed by many late last year as "bubble" talk reached highs - providing psychological non-confirmation that a market drop is unlikely when bubble talk is so high. It seems, in the last few weeks that has shifted as bubble chatter has dropped rather notably. Does that free up investor psychology to sell? Being "greedy when others are fearful" has an equal and opposite trading meme - cover when no one is worried.

Reality will reassert itself in 2014, with lemmings, flippers, and hedgies getting slaughtered as the housing market comes back to earth with a thud. The continued tapering by the Fed will remove the marginal dollars used by Wall Street to fund this housing Ponzi. The Wall Street lemmings all follow the same MBA created financial models. They will all attempt to exit the market simultaneously when their models all say sell. If the economy improves, interest rates will rise and kill the housing market. If the economy tanks, the stock market will plunge, creating fear and killing the housing market. Once it becomes clear that prices have begun to fall, the flippers will panic and start dumping, exacerbating the price declines. This scenario never grows old.

The Nasdaq plunged by the most in over 8 months today and broke all the way back to unchanged from the December taper decision of the Fed. All major US equity indices are now negative from the time the Fed decided to slow its flow of free money. The Dow closed below its 200DMA for the first time since December 2012. The S&P 500 closed the furthest below its 100DMA since QE3 started. USDJPY was in charge and everything was higher or lower beta off of that as it broke 102 early then 101 later in the day (with the Nikkei -700 points from the day's highs). Treasuries rallied around 5bps to fresh 7-month low yields for 30Y. Gold and Silver surged, adding 1% on the day as the USD lost 0.25% on the day (led by the 1% strength in the JPY). VIX smashed to 14 month highs over 21%. Credit deteriorated but stocks are catching down.

Confirming the floating rumor from last week that yet another Wall Streeter from a bailed out company is going to set US economic policy, moments ago the Treasury announced that indeed the Citigroup economist Nathan Sheets - the bank's global head of international economics - will start working next week as a counsellor to U.S. Treasury Secretary Jack Lew.  This is the same Sheets, who ten days ago wrote that "our empirical work presents evidence that over the next few years, 10-year U.S. Treasury yields are likely to move toward 5 percent (slightly above our projections for nominal GDP growth) and to stabilize near that level. Our work suggests that Japanese rates may be on a sharply rising trajectory as well, if policymakers there get traction in taming the deflationary demons that have plagued the economy." We already know why the Treasury likes him so much.

It's just getting worse for global interconnected, correlated markets where every expression of risk is the USDJPY, and of course for the Nikkei and for Japan's PM Abe, who is now on strict Imodium watch.  Should the USDJPY tumble to double digit range, we are officially in "global central banker intervention is imminent" territory. And yes, for those asking, there is nothing quite as efficient as the "fair value" of stocks being determined by currency stop losses at even, round numbers.

While the bulk of retailers are blaming plunging kitchen sink sales on unprecedented and completely unexpected cold winter weather, and shocking snow - that defunct relic in a global cooling warming world - one company apparently did not get the "scapegoat the weather" memo: Mercedes. "Mercedes-Benz USA (MBUSA) today reported the highest January retail volumes in its history with sales of 24,413 units across the Mercedes-Benz, Sprinter and smart model lines, a 1.5% increase from the 24,059 vehicles sold the same month last year."