Archive - Apr 2014 - Story

Since it's not Tuesday (the only day that matters for stocks, of course), call it opposite, or rather stop hunt take out, day. First, it was the BOJ which, as we warned previously, would disappoint and not boost QE (sorry SocGen which had expected an increase in monetization today, and now expects nothing more from the BOJ until year end), which sent the USDJPY sliding, only to see the pair make up all the BOJ announcement losses and then some; and then it was Europe, where first German retail sales cratered, printing at -1.9%, down from 2.0% and on expectations of a 1.7% print, and then Eurozone inflation once again missed estimates, and while rising from the abysmal 0.5% in March printed at only 0.7% - hardly the runaway inflation stuff Draghi is praying for. What happened then: EURUSD tumbled then promptly rebounded a la the flash crash, and at last check was trading near the high of the day.

"The leaders of the Developed World have chipped away at the solidity that would ordinarily justify confidence in their leadership, markets and currencies, such that confidence can be lost at any moment. If confidence in a sound system is unfairly lost, then countertrend forces can act to stem the panic and restore stability. But a justified loss of confidence in an unsound system would generate much more damage and be, for a period of time and price, unstoppable. That result is what governments have risked by their poor policies, their lack of attention to the risks posed by the inventions of the modern financial system, and their neglect of the fiscal balance sheet. Since this combination is relatively new, particularly the enormity of Developed World debt and obligations, as well as the complexity and extraordinarily high leverage of the financial system (especially given the size of derivatives books), there is no way to tell exactly how it all will end. Badly, we guess." - Paul Singer

It's all the Russians' fault? This does not exactly look like de-escalation to us...

America’s massive prison system is creating a long list of unintended consequences, some of which will effect all of us in the coming years. To help explain just how bad things have gotten, we’ve compiled this list of the most stunning facts and statistics on the America’s prison system today.

It’s one thing to read an academic study showing how cancerous the political system is, it’s quite another to hear a description of how things work from one of the biggest crony weapons of mass societal destruction himself, Mr. Larry Summers..."I had a choice. I could be an insider or I could be an outsider. Outsiders can say whatever they want. But people on the inside don’t listen to them. Insiders, however, get lots of access and a chance to push their ideas. People — powerful people — listen to what they have to say. But insiders also understand one unbreakable rule: They don’t criticize other insiders." Until the status quo gets the boot, this nation will continue to decline. Forget reforms, the entire status quo needs to be tossed aside once and for all. The insiders must be turned into outsiders.

As we noted previously, for the past year Abenomics has had the "get out of a jail free" card because while the plunging yen was crushing Japanese purchasing power, and sending nominal regular wages ever lower, at least the stock market was higher - so (some of the) locals could delude themselves they are getting richer, if only on paper. However, following the most recent 15% correction in the Nikkei which may soon become an all out rout if the 102 level in the USDJPY is ever "allowed" to break, all Japan suddenly has left, is the shock of soaring food and energy prices, and the hangover of declining wages that refuse to stop dropping. Case in point, tonight the Japan labor ministry reported that monthly wages excluding overtime and bonus payments fell 0.4 percent in March from a year earlier (the biggest drop in 2014), a series of declines which has now stretched to 22 consecutive months.

First-quarter growth in almost all Chinese provinces was below their annual targets, according to local media, with the most concerning data from resource-dependent and manufacturing-heavy provinces suffered the sharpest economic slowdown in the first quarter as the government pushed to tackle excessive factory capacity and pollution. As Reuters reports, the fastest growth regions are Chongqing, Guizhou and Tianjin and all saw growth drop significantly. Specific provinces affected by the government's reforms include Inner Mongolia, which provides one third of the coal supply in the country, saw GDP growth drop to 7.3% in Q1 from 9.9% a year earlier; Shanxi, a major coal producing province, which saw growth tumble to to only 5.5%; and Hebei province, the nation's top steel producer, collapsed to only 4.2% in the first quarter of 2014 from 8.2% in the previous quarter. It seems the sum of the parts is anything but the same as the whole.

According to shocking new numbers that were just released by the Bureau of Labor Statistics, 20 percent of American families do not have a single person that is working.  So when someone tries to tell you that the unemployment rate in the United States is about 7 percent, you should just laugh.  One-fifth of the families in the entire country do not have a single member with a job.  That is absolutely astonishing.  How can a family survive if nobody is making any money?  Well, the answer to that question is actually quite easy.  There is a reason why government dependence has reached epidemic levels in the United States.  Without enough jobs, tens of millions of additional Americans have been forced to reach out to the government for help.  At this point, if you can believe it, the number of Americans getting money or benefits from the federal government each month exceeds the number of full-time workers in the private sector by more than 60 million.

Despite the endless claims by Maduro and his merry men that the new-and-improved SICAD II anti-hyperinflation FX allocation system is working well, it seems it is anything but...

*VENEZUELA'S EMPRESAS POLAR HALTS PASTA PRODUCTION ON FX SHORTAGE

The firm, which produces multiple pasta products, has been forced to 'suspend' operations due to a lack of raw materials (wheat) because it has no foreign currency to use for settlement. Polar says it is working with authorities to find a solution.

Not much to add to this total and utter disaster... Markit's Japan Manufacturing PMI plunged from 53.9 to 49.4 - it's first contractionary print since Feb 2013 and its biggest MoM drop on record. Under the surface the picture is just as bad with output falling at the fastest pace since December 2012 and New orders also down. The blame for all this - the tax hike... hhm (well, it's better than the weather we guess). Both prices charged and input prices rose in April with some panellists attributing inflation to an increase in raw material prices (stunned?). And if you think this terrible news is great news (because more QQE), forget it - Kuroda already say no and inflation is near the BoJ's target.

Speaking on the House of Representatives floor on September 17, 1997, then-Rep. Ron Paul warned of the “massive buildup of a virtual army of armed regulators.” We saw the United States government’s armed agents in action recently at the Bundy ranch in Nevada. We also saw them back off, at least for now, when confronted by armed protestors. Paul’s concluding sentences of his 1997 speech seem apropos: "The gun in the hands of law-abiding citizens serves to hold in check arrogant and aggressive government. Guns in the hands of the bureaucrats do the opposite. The founders of this country fully understood this fact."

On a closing price basis, the trading range for the US 10 year note since January 24th has been 22 basis points which is the narrowest in that length of time in over 30 years. Often times, narrow trading ranges act like coiled springs.  The longer markets stay in those ranges the greater the pressure builds.  Tight ranges over longer time periods cause ever-more-powerful movements once the ranges break. Over the next two weeks, there are multitudes of events and economic data which could set the tone of trading for the next several months and potentially provide the catalyst necessary for markets to break out of ranges.

When times are tough - for example when this quarter's revenue is the lowest for IBM since the first quarter of... 2009, it seems Big Blue has decided no job is too small and no job unworthy of utilizing the brain... presenting - with little comment - the key to IBM's Q2 revenues...

The G-8 may be no more as the G-7 throws every possible case of harsh language known to man at the Kremlin, which obstinately refuses to back down, while re-escalating sanctions against a Russia which merely has done what the US does every single time its national interest abroad is threatened, but one thing is becoming ever clearer: while the west isolates Russia with ever stricter measures, Russia has decided to make some new friends.

Citadel's head of Execution Services (cough HFT cough) Jamil Nazarali, proclaimed Monday that small investors have never been so fortunate and said, with regard to Michael Lewis' now infamous book Flash Boys, "The most important thing that the market can do is stop... pointing fingers at everyone else." Citadel, who allegedly provides the NY Fed's VIX trading capabilities, are among the very largest high-frequency traders in the market (and the most levered), so one would surely expect that Citadel would like us all to stop pointing fingers at them. As Bloomberg reports, Nazarali said yesterday during a panel discussion at the Milken Institute Global Conference in Beverly Hills, California, "things are much better today than they were 10 to 15 years ago." For him, yeah.