Archive - Apr 30, 2014 - Story

Vladimir Putin 'confirmed' yesterday that there were no Russian forces 'boots on the ground' in Ukraine and so it seems the daily growing list of cities that are falling to pro-Russian separatist forces throughout Eastern Ukraine - as the following chart shows - suggests an ever more divided nation is verging on civil war, despite the best efforts of the West to sanction their way to a fix. As Turchinov warned this morning, there is "real danger of the Russian Federation beginning a land war against Ukraine... our armed forces are on full military readiness."

While it will come as a surprise to exactly nobody, certainly nobody who understand that the US financial system is no better financial shape than just before the Lehman crash as nothing has been fixed and everything that is broken has been merely swept under the rug (for details see Paul Singer's explanation posted last night) of epic-er leverage, the news that when (not if) the US economy succumbs to a severe economic downturn Fannie and Freddie would require another taxpayer funded bailout, one of $190 billion or even more than the first $187.5 billion-funded nationalization of the GSEs, can only bring a smile to one's face.

ADP "beat" sent stocks and USD up, bonds and gold down. GDP "miss" sent stocks and USD down, bonds and gold up... and now the Fed's emergency meeting has sent all asset classes into a Tapering-the-taper frenzy as chaos hits markets sending stocks up to highs of day (less Taper), Bond yields to lows of day (low growth less taper), USD tumbling (less taper, moar QE vs ECB), and Gold jumping higher (less taper, more QE)... correlation is crumbling everywhere as the Fed's calming communications cause chaos...

Everyone knows that the FOMC announcement, due today at 2 pm, will be the culmination of an orderly, traditional 2-day meeting which started yesterday, April 29. What few know, however, is that in addition to the generic FOMC meeting which started yesterday at 10:30 am, at about the same time, the Fed also held an "expedited" emergency meeting between the four board governors  Yellen, Tarullo, Stein, and Powell. So what was discussed? We won't know because the "meeting was closed to public observation by Order of the Board of Governors because the matters fall under exemption(s) 9(A)(i) of the Government in the Sunshine Act (5 U.S.C. Section 552b(c)), and it was determined that the public interest did not require opening the meeting."

Police are the "fists and daggers" in the fight against terrorism and will "strike first", China's President Xi Jinping said on a trip to the western Xinjiang region where authorities say members of a Muslim minority are waging a violent separatist campaign. As Reuters reports, this is the same region that sufferred the knife-wielding terrorist attack in the city of Kunming that killed 29 people and injured 140. However, his warning seems to have sparked further action - though not confirmed as a terrorist attack - as a blast occurred at a railway station in Urumqi, capital of northwest China’s Xinjiang region. Details about the blast and casualties are sketchy but local reports suggest up to 50 injured.

Following last month's biggest miss in a year, Chicago PMI resurged to its highest level (and biggest beat) since October 2013. Optimism is rife in the report as the rise in new orders and production is now instantly extrapolated into escape velocity growth (as opposed to catch-up demand). Prices Paid dropped... which is odd if there's so much awesome demand? Employment improved, but did not offset March's decline. Of course, the 5 standard deviation beat of expectations is now considered the new normal...

It was back on January 30 that the Goldman economist team made its first downward revision to what then was a 3.0% forecast to Q1 GDP. Exactly three months later we find that Goldman was off by only 97% when Q1 GDP printed at 0.1%. That's ok - they are economists, and thus are expected to be massively, epically wrong. So here is Goldman with its first "tracking forecast" for Q2 GDP. It is.... drumroll.... 3.0%. How long until this number too is lowered to 0.1% (to be sure, all that rain in New York City has to detract at least 1%-1.5% from Q2 GDP right?).

As the day of the IMF's release of funds to Ukraine draws near - solving all their problems with yet more debt, we are told to believe - Russia's Gazprom has gently reminded the Ukrainian government that it owes them... $3.49 billion! and its due the 7th day of May!

For all the talk that imminent, inevitable, "any second now" CapEx spending renaissance is getting, we can only assume we are looking at a wrong chart of the change in quarterly fixed income spending that plugs straight into the US GDP calculation. There is no other possible explanation.

Stocks jerked higher on the ADP beat and dumped on the GDP miss to end approximately unchanged from pre-data levels but bonds and bullion are well bid (for now) ahead of the FOMC.

Here is a shocker: for all the damnation Obamacare, which according to poll after poll is loathed by a majority of the US population, has gotten if it wasn't for the (government-mandated) spending surge resulting from Obamacare, which resulted in the biggest jump in Healthcare Services spending in the past quarter in history and added 1.1% to GDP, real Q1 GDP, which rose only $4.3 billion sequentially to $15,947 billion, would have been negative 1%.

Despite consensus at 1.2% growth QoQ, the "weather" destroyed the fragile stimulus-led economy of the US which managed only a de minimus +0.1% QoQ growth (the lowest since Q1 2011). However, as Steve Liesman noted on the heels of Mark Zandi's comments "basically ignore this number" - ok then. Spending on Services, however, surged by the most since 2000 - heralded as great news by some talking heads - but is merely a reflection of the surge in healthcare and heating costs (imagine if it had not been cold and if Obamacare hadn't saved us). As a reminder - this is the growth that is occurring as QE has run its course, as stimulus ends, and as escape velocity nears... if the "weather" can do this much damage to the US economy, should stocks really be trading at the multiple of exuberant future hope that they are?

Since ADP is completely useless when it comes to actually hinting at the future and all it does is "confirm" whatever momentum the BLS reports on, today's print, like all those from the past, is absolutely meaningless. Still, for those who care, the April private jobs print, even though the month is not over yet, was 220K, above the 210K expected, with the last month revised once again higher from 191K to 209K - this was the highest number since November 2013. Sadly, since ADP continues to not report non-seasonally adjusted numbers (since it doesn't have them as all it does is take BLS numbers and gently massages them to appear relevant), there is no way of knowing what ADP is actually selling.

Last month it was a tribute to his cat. This month, the manager of the world's largest bond fund discusses sneezing: "A sneeze is, to be candid, sort of half erotic, a release of pressure that feels oh so good either before or just after the Achoo! The air, along with 100,000 germs, comes shooting out of your nose faster than a race car at the Indy 500. It feels sooooo good that people used to sneeze on purpose." He also discusses the aftermath: "The old saying goes that when the U.S. economy sneezes, the world catches cold. That still seems to be true enough, although Chinese influenza is gaining in importance. If both sneezed at the same time then instead of “God bless you” perhaps someone would cry out “God have mercy.” We’re not there yet, although in this period of high leverage it’s important to realize that the price of money and the servicing cost of that leverage are critical for a healthy economy. " He also talks about some other things, mostly revolving around long-term rates of return assumptions and what those mean for investors.

• Headline of the day goes to... Cold weather seen temporarily slowing U.S. economy (Reuters)
• Americans Want to Pull Back From World Stage, Poll Finds (WSJ)
• U.S. Plans to Charge BNP Over Sanctions (WSJ)
• What about Jay Carney: Putin Threat to Retaliate for Sanctions Carries Risks (BBG)
• Fed expected to take further step toward ending bond buying (Reuters)
• A Fed-Watcher’s Guide to FOMC Day: Steady Taper, Green Shoots (BBG)
• Alstom accepts 10 billion euro GE bid for its energy unit (Reuters)
• BOJ projects inflation exceeding 2 percent, keeps bullish view intact (Reuters)