Archive - Apr 8, 2014 - Story

As we have discussed numerous times, nothing lasts forever - especially reserve currencies - no matter how much one hopes that the status-quo remains so, in the end the exuberant previlege is extorted just one too many times. Headline after headlines shows nations declaring 'interest' or direct discussions in diversifying away from the US dollar... and as SCMP reports, Standard Chartered notes that at least 40 central banks have invested in the Yuan and several more are preparing to do so. The trend is occurring across both emerging markets and developed nation central banks diversifiying into 'other currencies' and "a great number of central banks are in the process of adding yuan to their portfolios." Perhaps most ominously, for king dollar, is the former-IMF manager's warning that "The Yuan may become a de facto reserve currency before it is fully convertible."

Russia’s defense spending will increase by 18% in 2014, and another 33% over the next two years. Nonetheless, it’s far from clear that Russia will be able to meet its military modernization goals given the darkening economic outlook for the country. Already, the massive military rearmament program has elicited significant criticism from certain sectors of Russian society.

Since 2007, when the financial crisis touched down across the world, the proportion of people going hungry in Europe has soared, according to the OECD. As Bloomberg's Niraj Shah notes, the number has doubled in Greece alone from 8.9% in 2007 to almost 18% currently unable to afford food. Across the European Union, the proportion of people going hungry ranges from 4.6% in Germany to over 30% in (ironically) Hungary. However, before one gloats at the weakness in Europe and the cleanest dirty shirt the US pretends to be, at 21.1% of Americans unable to afford food, only Hungary and Estonia are in worst shape... USA USA USA...

Fundamentals are always important over the long term. That said, it has become quite clear that company financials are not what’s moving this market. If fundamentals mattered then the words and decisions of central bankers wouldn’t be the most important headlines. Simply put, the economic fundamentals do not support stock prices. Is this the top? There’s no way to tell. Do some areas of the market look like past bubbles once did? Without a doubt. The last step up before the fall is often characterized by a feeling that the market is invincible. Despite the S&P’s incredible run, it cannot continue to rally forever. Eventually, economic fundamentals will matter again and when that happens it’s likely that the market will sell off.

Back on March 21, before the release of Michael Lewis' Flash Boys and before the infamous 60 Minutes interview, when Goldman COO Gary Cohn wrote his infamous WSJ Op-ed bashing HFT, it was clear that something was afoot. That something became promptly clear when it was revealed that Goldman is among the core backers of the pseudo dark-pool IEX exchange popularized as the protagonist in Flash Boys, and juxtaposed to the frontrunning, and faceless, HFT antagonist that Lewis maanged to demonize so well in the span of a few hundred pages, he promptly provoked a renewed investigation by the FBI, the SEC and DOJ into HFT. A few days later, the shocker became a double whammy when Goldman announced that in addition to turning its back on HFT which had served it so well for years, the firm would also say goodbye to the NYSE and its designated market maker post, the last remaining legacy of its $6.5 billion Spear Ledds & Kellogg acquisition from 2000. Moments ago we got the third and final "shocker" in this series of stunning disclosures by Goldman, this time involving Goldman's own "unlit" venue - one involving its own Dark Pool - the infamous, and market dominant Sigma X, which according to the WSJ, is about to be shut down!

Cows in the San Francisco area will be sleeping better at night since, for the last few days, gangs of angry internal combustion engine-likers have taken to a new trend - Smart car tipping. NBC Bay Area found four of the targeted Smart cars between Sunday night and Monday morning. "Whoever is doing this just has misdirected anger," noted one upset owner, as another witness joked, they reminded him of little dogs: "They look like they are dachshunds sitting up on their hind legs." The exact motives behind the vandalism are unclear, as a parody Facebook page was set up called "Smart Car Tipping" by a creator who does not "practice, promote or condone Smart Car Tipping,' and another site called the Smart Car tippers, "heroes." At a price starting at $13,000 for the tiny cars, perhaps it is the relative cost-benefits that the vandals are considering.

The mainstream recovery narrative has an astounding “recency bias”. According to all the CNBC talking heads, the 192,000 NFP jobs gain reported on Friday constituted another “strong” report card. Well, let’s see. Approximately 75 months ago (December 2007) at the cyclical peak before the so-called Great Recession, the BLS reported 138.4 million NFP jobs. When the hosanna chorus broke into song last Friday, the reported figure was 137.9 million NFP jobs. By the lights of old-fashioned subtraction, therefore, we are still 500k jobs short—notwithstanding $3.5 trillion of money printing in the interim. The truth is, all the ballyhooed “new jobs” celebrated on bubblevision month-after-month have actually been “born again” jobs. That is, jobs which were created during the Fed’s 2002-2007 bubble inflation; lost in the aftermath of the September 2008 meltdown; and then “recovered” during the renewed bubble inflation now underway.

For the first time ever in the history of US-Russian relations we are seeing a public debate about a threat of economic sanctions that may have a long-range negative effect on global energy security. The Obama administration acts as if it is guided by a chapter out of an old Soviet textbook on political economy. At the moment, apparently, the sacred dogma of the free market, from Samuelson to Friedman, can be conveniently overlooked for the sake of punishing a sovereign nation. When the head of the most influential state in the world talks about manipulating market prices to punish recalcitrant players, what kind of “global free market” and fair play are we really talking about? After a series of headline-grabbing statements about the possibility of “switching” European consumers over to American gas, the US media hastened to announce the launch of Obama’s oil and gas offensive against Russia. In reality the EU is not currently prepared, neither technically nor in terms of price, to buy its energy resources from the US.  It would take at least ten years to adapt even the technically advanced German energy system to work with American gas supply. In a crisis, when it is particularly urgent to see a quick return on an investment, such projects are unrealistic.

Ealier we learned that a great number of Americans don't even know where the Ukraine is located. We also learned that those who actually were familiar with the location of the former USSR nation were the least interested in a US military intervention (as opposed to those who inexplicably thought Ukraine is right next to Omaha or in Alaska). And now, we learn that according to the Defense Ministry of the Ukraine, which is citing a "military expert", one Dmitry Tymchuk whose pretty maps have graced these pages in the past, Ukraine is sounding the alarm on what it reports is an imminent invasion by Russia into east Ukraine, which could take place as soon as tonight.

New York City, for example, is the most unequal in the nation, and so is Yankee Stadium.  The most expensive seats this season cost almost 59 times more than the “bleacher seats,” while the spread for tickets to a Minnesota Twins game is just 5.4 times.  Minneapolis/St. Paul, coincidentally, is among the least unequal metro areas in the U.S.  But before you storm the baseball barricades, consider that the lowest priced tickets in highly unequal cities is $17, only $3 more than the more equal ones.  The inequality actually comes in the form of higher prices for the good seats - $206 in the more egalitarian areas and $501 in the cities with more inequality.  Score it as “Real Fans: 1, Oligarchs 0”.  

The founding principle for this new form of government which emerged in the 18th century, was that the Common Man was the ultimate source of power. Citizen legislators would enact the laws and shape the nation’s destiny. But instead, our republic is now strong-armed by professional politicians. The two dominant concerns of these careerists are to STAY in power and to do the bidding of those who ENABLE them to stay in power. America is no longer a world-wide exemplar of how to sculpt a civilized society. Instead, it is far down the road to becoming a full-blown Corporate Police State. It has fallen so tragically, that it is now just a self-deluded leper strutting about the global stage - unaware that the theater has already emptied.

So much for new GM's transparency... After failing to respond to over a third of NHTSA's requests:

• *NHTSA: GM STILL HAS 'FAILED' TO PROVIDE SUBSTANTIVE RESPONSE

NHTSA has thrown the book at General Motors (kinda)..

• *NHTSA SAYS GM SUBJECT TO CIVIL PENALTY UP TO $7,000/DAY

That will teach them!! There are some teeth there, as NHTSA added that it may refer GM to the Justice department.

This is just getting embarrassing.

While the Nasdaq was unable to get back above its crucial 100DMA, it outperformed today (Biotechs went nowhere) as the S&P 500 dipped-and-ripped off its 50DMA (and the crucial 1840 level for bulls). The problem with all this "the correction is over" chatter... nothing else is buying it... Treasury bond yields slumped lower (7Y -15 bps from Friday highs and back to FOMC levels) with 10Y < 2.70% again. Credit spreads on high-yield debt made new swing cycle wides (did not hold teh dead cat bounce gains). Gold jumped back above $1310 (and on a separate note oil prices surged as "tanks" hit the headlines once again in Ukraine). But perhaps the most notable 'negative' for this being anything but a dead-cat-bounce was the collapse in JPY carry - USDJPY's biggest drop in 8 months. VIX was pegged to the S&P 500 all day - but even there we saw notable steepening (as hedgers termed out protection). S&P 500 futures close perfectly at yesterday's closing VWAP.

The 1900 target for the S&P 500 that Credit Suisse since the start of the year but are seeing increasing signs of a market top with a meaningful correction lower likely to emerge. Volume divergences, DeMark clusters, and reversal days all point to weakness and, as CS concludes, a break of 1844/34 (for the S&P) could lead to a decline to 1800 and then to 1768.