Archive - May 2014 - Story

For the longest time we thought it was impossible to flip a tank simply by driving it. Then this Ukrainian operator nearly proved us wrong...

By now everyone knows that a $17 trillion economy has no greater nemesis than snow... in the winter... which in the first quarter of 2014 managed to lob off some $50 billion in growth from the world's largest economy, and instead of allowing the US to expand at its priced to ultraperfection 3.0% rate, resulted in a screeching halt in growth. But did you know that the one thing that the economy of the centrally-planned world can't stand more than cold is... heat. That is what Italians found out today when they read daily publication Ansa which "explained" that March industrial production declined by 0.5% because of, drum roll, "earlier than expected warm weather."

How much longer can the balloon be held under water?

By far the scariest harbinger revealed by today's JOLTS data is seen when one looks at the openings only for manufacturing jobs, which have now declined for 4 consecutive months: the longest negative stretch in the so-called recovery. The chart clearly shows that the last time we had an identical lack of improvement in manufacturing jobs, the US economy entered a recession, or as we like to call it, a depression, just that month!

It is only one word, but it has been repeated so many times by FOMC members in the past year or so it has taken on the imprimatur of officialdom vernacular. Whenever speaking of bubbles, these policymakers inevitably include the word, “obvious.” Long is the list of internal literature that purports to place bubbles in the same category with the Supreme Court’s definition of pornography – we know it only when we see it. In that respect, “obvious” is the perfect qualifier that situates even the brightest of the PhD’s in the same herd as the little guy investor. It would be hard to blame them in disaster if that were actually the case since “everyone” else missed it too. The “good” news is that we will know for sure, including Yellen and her FOMC conspirators, at some point once it all becomes perfectly clear in hindsight. What a way to craft scarily intrusive policy!

The long-bond yield is now up 10bps on the week (and 5Y -4bps) leaving the yield curve steepening by its most in 20 months. Thanks to a handy - we don't need no stinking protection - VIX slam, US equity markets have recovered to highs of the day as the buying panic of yesterday is replayed once again.

In perhaps the most ironic telepromptering ever, President Obama is visiting a WalMart in the heart of the West Coast money bubble today - after attending a number of multi-thousand-dollar-per-plate fund-raisers in the last 24 hours - and intends to discuss minimum wage in Mountain View today (among the Maseratis and Lambos). As Walmart Pres & CEO Bill Simon notes, its the first time a sitting US President has visited a Walmart.

While - for now - Sunday's referendum for Donetsk remains un-postponed despite Putin's diplomatic call for a delay, the Europeans and Ukrainians are extremely displeased with his visit to Crimea today:

EU SAYS REGRETS PUTIN ATTENDED CRIMEA PARADE;
EU SAYS HE SHOULD NOT HAVE USED VICTORY DAY TO SHOWCASE ANNEXATION OF CRIMEA; and
Ukraine considers this step to be a blatant disrespect by the Russian side

The atmosphere in the nation is growing dark - as one source in Mariupol noted, "Electricity out in parts, barricades being pulled up. Feels like a country on the brink of civil war."

It is not coincidental that the middle class and small business are both in decline. Entrepreneurial enterprise and small business have long been stepping stones to middle class incomes and generational wealth, i.e. wealth that is passed down to future generations rather than consumed. As the headwinds to entrepreneurial enterprise and small business rise, the pathway to middle class prosperity narrows.

When it comes to people-vs-tank videos, Tienanmen Square reigns supreme; but as tensions escalate hyperbolically in Eastern Ukraine, the following clip of a Mariupol soldier taking things into his own hands - and firing an RPG into the face of two oncoming tanks - confirms this nation's divide is growing wider by the day....

THREE DEAD, 25 WOUNDED IN MARIUPOL CLASHES, LOCAL GOVT SAYS

As RT reports, the Victory Day 'celebrations' spilled over into deadly clashes between police and pro-Russian separatists after Kiev’s forces are using heavy weaponry and tanks in the eastern city of Mariupol. Sadly, we suspect, Mariupol may become the next Odessa this weekend.

Hours ahead of Donetsk' planned referendum this weekend, Russia's President Vladimir Putin - speaking from a recently reclaimed Sevastopol (and denounced for being their by Ukraine's acting government) - has made anything but the market's much-needed diplomatic comments...

• *PUTIN SAYS OTHER COUNTRIES MUST RESPECT RUSSIA: INTERFAX
• *PUTIN SAYS OTHERS MUST RESPECT RIGHT TO HISTORICAL JUSTICE: IFX
• *PUTIN SAYS NATIONS MUST RESPECT SELF-DETERMINATION RIGHT: IFX

In other words, while he publicly asked for the referendum to be postponed; the people are demanding it and he will live by their will... and if they choose independence, he will enforce it. On a day when 20 have already died in clashes, is it any wonder event risk concerns this weekend are surging.

Revenues are up modestly for the US Postal Service as First-class Mail volumes continue to tumble "extremely" but package volumes are rising; however, USPS records a $1.9 billion loss in the last quarter, despite efforts to streamline efficiency and cut costs. The rise in package volumes appears related to a "Sunday delivery" deal with Amazon.com who "found a great fit with USPS' capability and desire." However, USPS says it needs $10 billion for deferred investments (i.e. Capex) and warns if it does not get its bailout:

• *USPS SEES UNABLE TO MAKE $5.7B RETIREE PAYMENT W/OUT REFORM

Given USPS says no new employees have been hired and flexible scheduling used for Sunday delivery, we wondered who exactly is benefiting from the taxpayer funded desperation of the USPS to do anything for even loss-making revenues?

In what should be the biggest joke of the day, Bank of America has just released its GDP forecast not for the next several quarter, but making a mockery of the IMF's 2022 Greek GDP forecast, it predicts US growth for the next decade! The punchline: after expecting a surge in growth to 3.4% in 2016, the bailed out bank tapers off its forecast which evens off at 2.2%... some time in 2025. And throughout this period its crack economist team headed by Ethan Harris anticipates precisely.... zero recessions. Indeed, in what will be a first time in history, the US is expected to grow for 16 consecutive years since its last official, NBER-defined recession (which "ended" in the summer of 2009) without entering a recession.

Wall Street has a problem. In all their excitement about how terrible Q1 was - and ths how awesome Q2 and beyond will be - it forget to check in with the firms that were busily stacking inventories in their snow-covered factories around the nation. Wholesale inventories rose 1.1% in March (which is still in Q1 remember) - smshing expectations for the 3rd month in a row (all in Q1 remember) and the 2nd biggest spike in 2 years. Each time we have seen such a spike, the following months saw a notable decrease. Desk chatter is already of a 0.3% boost to Q1 GDP and a 0.2% cut to Q2 GDP - just as hope was getting going once again.