Archive - May 27, 2014 - Story

Following last month's drop and missed expectations - just when a post-weather bounce was hoped for - May's 83.0 print (in line with expectations) is disappointing to those seeing all-time highs in stocks. As  reminder, the US consumer decided they were most confident in March - amid the shitty weather and stumbling stock market - and now with warm weather and record highs, things are less exuberant. Looking forward, plans to buy an appliance dropped as did plans to buy a home (even as rates drop).

Markit's US Services PMI soared to 58.4 in April - blowing away the expectations of 55 - just shy of the record high 58.5 seen in March 2012 and early 2010. All sub-indices rose providing just enough comfirmation that all is well in the world.. but one has to ask whether the fastest rise in new work orders in 3 years is sustainable or simply a post-weather bounce. Input prices are up once again though even as output charges dropped - so much for the dream of ever-expanding margins. Is good news bad?

Bonds are unchanged from Friday... and VIX is surging higher (11.7)... but it's Tuesday so stocks are higher... The S&P 500 cash index is at new record intraday highs... but for how long?

If you said San Francisco, you are very wrong (as recently shown in "Bizarro Housing Bubble Spills Over Into "Overbid Madness"). No, according to the latest Case Shiller data, the one city (out of 20) where home prices dropped in March, somewhat inexplicably considering the ridiculous flipping of houses taking place in the ultra-luxury segment, was New York.

Following the fourth consecutive decline in home prices as reported by Case Shiller (remember, it was the weather), it was inevitable that in the last month of Q1, when the weather warmed up and when Americans went on a spending spree that took their savings rate to the lowest since 2009, home prices, those tracked by the Case Shiller index, would post a rebound. Which they did: According to the just released Top 20 City Composite Index, home prices bounced by 0.88%, higher than expected, with the composite printing at 166.80, more than the 166.23 forecast, following fourth consecutive sequential declines. This represented a better than expected 12.37% annual price increase, even if the pace of annual price increases appears to be slowing: this was the lowest annual price increase since August.

Another month, another indication that the spike in "harsh unweathering" took place in the last month of Q1 and momentum slowed down entering the balmy Q2.

It's that time again... like clockwork, as 8amET rolls around gold and silver become the object of derision for some entirely unrigged decision-maker at a bank... pressing gold prices down to 3 month lows. The question is will the selling prompt buying like on Friday or beget more selling because it is after all a Tuesday... With $450 million notional flushed through futures contracts, someone was in a hurry after seeing Europe's extreme left and right uprising to unload any protection against an ECB capable of only one trick to save the world.

The Ukraine conflict continues to simmer, with the conclusive presidential election perceived as a positive even as the fighting in the eastern part of the nation intensifies, but it is NATO member Lithuania where today's action was, where according to the Lithuanian Defense Ministry, NATO sent two fighter jets from Estonia after Lithuania said Russian vessel disturbed civilian shipping in Baltic Sea, and two Russian warplanes flew over Lithuanian airspace.

A week ago, in retaliation to the inane charges lobbed by the US accusing 5 Chinese army officials of spying on US companies (when the NSA spying scandal on, well, everyone refuses to leave the front pages), China announced it would ban the use of Windows 8 on government computers (considering the quality of Windows 8, this is likely a decision government computers would have taken on their own regardless). Today, China has expanded its list of sanctioned companies from Microsoft to include IBM as well, following a Bloomberg report that the Chinese government is pushing domestic banks to "remove high-end servers made by International Business Machines Corp. and replace them with a local brand."

• Vietnam, China trade accusations after Vietnamese fishing boat sinks (Reuters)
• SEC Set to Spur Exchange Trading (WSJ)
• Bank of Japan quietly eyes stimulus exit (Reuters)
• Japan Risks Low Growth Even as Easing Spurs Inflation (BBG)
• Hello Japan: Bond Market Message to Fed: Your 4% Rate Outlook Is Too High (BBG)
• Malaysia, UK firm release satellite data on missing MH370 flight (Reuters)
• Fighting rages in eastern Ukraine city, dozens dead (Reuters)
• Bad Credit No Problem as Balance-Sheet Bombs Rally 94%  (BBG)
• Draghi’s Asset-Backed Drive Rouses Academic Skeptics (BBG)
• For-Profit Colleges Face Test From State, Federal Officials (WSJ)

The melt up is accelerating and with the momentum tailwind back, newsflow is once again irrelevant: any news that are even remotely good are trumpeted, and any bad news - such as Europe's right storm rising in the northern states, and left storm surge in the states that demand more handouts from the northern states or China sinking a Vietnamese boat, the most serious bilateral incident since 2007 - are once again (and as usual) nothing more than a catalyst for even more liquidity injections. End result: the S&P futures this morning are 5 points above Goldman's year end target of 1900 and 45 points away from its June 30, 2015 target. Can this breakneck scramble on zero volume continue until Grantham's bubble peak level of 2,200 is hit? Well of course: after all anything goes in the centrally-planned new normal.  To be sure, this is an equity only phenomenon: moments ago the Bund future hit its highest level since May 19, while the 10 Year remains unchanged at 2.53% as it continues to price in the new "deflationary" (and Japanese) normal. And as has been the case during all such divergences of late, either bonds or equities are making a horrible mistake: the question remains: who? Since all equities are doing is tracking FX pairs to the pip and have completely forgotten all about fundamentals, we have a pretty good idea what the answer is.