Archive - May 2014 - Story

Last month, when we noted the massive surge in Personal Spending which was funded entirely by the depletion of personal savings, we said that "since spending was so much higher than income for one more month, at least according to the bean counters, the savings rate tumbled and at 3.8% (down from 4.2% in February), was the second lowest since before the Lehman failure with the only exception of January 2013 after the withholding tax rule changeover. So for all those sellside economists who are praying that the March spending spree, funded mostly from savings, will continue into Q2 (because remember March is in Q1, which as we already know had an abysmal 0.1% GDP growth rate), we have one question: where will the money come from to pay for this ongoing spending spree?" Turns out the answer was... nowhere.

With yields at record lows and stocks soaring, is it any wonder that the politicians of Europe's periphery are proclaiming victory over the crisis (and yet oddly imploring Draghi to do moar?). Perhaps, just perhaps, they are keeping one eye on the 'real' economic progress that is being made (or un-made) in their nations... such as Spain, where there are now 1.26 million people who have been jobless since 2010 and the long-term unemployment rate has risen by more than 500% since 2007.

In the footsteps of the smashing success that was the #AskJPM and #MyNYPD social outreach by the two beloved institutions, yet another renowned entity has decided to take its comedic genius to the people: none other than the place where it all started - the Bank of England. So if you have a question for Mark Carney's money printing and housing bubble-forming institution, do no hesitate to tweet it: just remember to add the #AskBoE hash tag.

• Ukraine Rebels Outfox Army to Dent Poroshenko Troop Goal (BBG)
• Russia Withdraws Most of Forces From Ukraine Border: U.S. (BBG)
• Super-Size Me! China’s ’Mini’ Stimulus Starts Expanding (BBG)
• Option B: The blueprint for Thailand's coup (Reuters)
• Big investors replace banks in $4.2tn repo market (FT)
• Draghi Shields Catalan Independence Bid From Market (BBG)
• U.S. companies seek cyber experts for top jobs, board seats (Reuters)
• Parsley CEO Emerges as One of Youngest U.S. Billionaires (BBG)

Last night's docket of atrocious Japanese economic data inexplicably managed to push the Nikkei lower, not because the data was ugly but because the scorching inflation - the highest since 1991 - mostly driven by import costs, food and energy as a result of a weak yen, and certainly not in wages, has pushed back most banks' estimates of additional QE to late 2014 if not 2015 which is as we predicted would happen over a year ago. As a result the market, addicted to central bank liquidity, has had to make a modest reassessment of just how much disconnected from reality it is willing to push equities relative to expectations of central bank balance sheet growth. However, now that the night crew trading the USDJPY is replaced with the US session algo shift which does a great job of re-levitating the pair, and with it bringing the S&P 500 higher, we expect this brief flicker of red futures currently observable on trading terminals to be promptly replaced with the friendly, well-known and "confidence-boosting" green. The same goes for Treasurys which lately have been tracking every directional move in stocks not in yield but in price.

While the "use of armed [unmanned aircraft systems] is not authorized," The Washington Times uncovering of a 2010 Pentagon directive on military support to civilian authorities details what critics say is a troubling policy that envisions the Obama administration’s potential use of military force against Americans. As one defense official proclaimed, "this appears to be the latest step in the administration’s decision to use force within the United States against its citizens." Meet Directive 3025.18 and all its "quelling civil disturbances" totalitarianism...

When the weather channel of USA today discusses economics it may be time to officially replace Joe LaVorgna with groundhog Phil...

Following last night's record plunge in Japanese retail sales, tonight was another slew of crushingly bad data for Abe and his motley crew of money printers to reflect on. First Household Spending cratered 4.6% YoY - its biggest drop since the Tsunami (and markedly worse than expectations which were bad enough due to the tax hike repurcussions). Then, Industrial Production tumbled 2.5% MoM - its biggest drop since the Tsunami (considerably worse than the 2.0% drop expected and the slowest YoY growth in 8 months). While this would typically be the kind of bad news that is great news for QQE-hopers, it was disastrously capped by a surge in Japanese CPI (well above BoJ target 2% levels) crushing moar-easing hopes as Barclays see no further easing in 2014 (and even Goldman pushes any hope off til October at the earliest).

Having gone from the sublime (zero-money-down mortgages for Chinese homes) to the ridiculous (when China's largst property developer says "the period in which everybody makes money out of property is gone,") the latest desperate act of a dying Chinese property bubble is stunning. As WSJ reports, Season Joy City (a remote suburb of Beijing) offers not only a party bag of bonuses to lure potential buyers; but the development's big selling point is "buy one floor, get one free." The government's reluctance to bail the nation out may soon be tested as Barclays notes "this downturn is more serious than in 2008."

With leverage rapidly rising while credit spreads approach record lows, high-yield bond markets have long since lost any sense of sanity with regard to forward-discounting... but that hasn't stopped the world's biggest bond managers (and now Japan's pension fund GPIF because as they say "now they have a chance to chase higher returns without taking on much risk") from diving in while the water is warm. With the smell of risk essentially removed from any and every market, why not pile into the riskiest credits, gain some extra yield (for free) - what could go wrong?

First it was Italy which, as we reported last week, had decided to "boost" its GDP by adding the estimated impact of cocaine and hookers. And now, riding on the coattails of this economics gimmick designed solely to make the economy appear more solvent, it is Britain's turn, whose Office for National Statistics will also add add up the "contribution" made by prostitutes and drug dealers. According to the Guardian "for the first time official statisticians are measuring the value to the UK economy of sex work and drug dealing – and they have discovered these unsavoury hidden-economy trades make roughly the same contribution as farming – and only slightly less than book and newspaper publishers added together."

Wondering why the extreme left (we are not happy and need moar bailouts) and extreme right (this European 'union' thing is not working out so well for us) have become so euro-skeptic? Perhaps the following chart from Bloomberg Brief's Niraj Shah will clear up any questions. The ratio of people at risk of poverty or social exclusion in the EU increased by 0.5 percentage points in 2012 to 24.8% or 124.2 million people, according to figures updated this week. The risk increased most in bailed-out nations Greece and Cyprus, where the rate rose by 3.6 and 2.5 percentage points, respectively. The Netherlands had the lowest risk at 15%.

Treasuries continue to do nothing wrong.  Bullish views on bonds over the past several months have been met with stern opposition; however, several are now beginning to question their defiance.  With such in mind, it is worth reviewing once again some possible explanations behind the bid.  There are many reasons to expect their strong performance to continue (particularly over the next week).

Former MSFT CEO, Steve Ballmer, who earlier was said to have put in a $1.8 billion bid for the LA Clippers, is reported to have won the bidding war for the troubled sports team, and will shelve out a massive $2 billion: a record price for any NBA team, and four times the $550 million that was paid earlier this month for the Milwaukee Bucks. It is also the second highest price ever paid for any US sports team, only behind the $2.1 billion paid for the Dodgers in 2012.