Archive - Jul 2014 - Story

The president is increasingly finding that telling the Mr. Chairmanwoman to rig the market to all time highs does not translate to a comparable popularity rating. In fact, just the opposite. While Obama's slide in the polls is nothing new, the latest data from the Quinnipiac University Poll is about as bad as it gets for the president: in fact, perhaps the only thing more shocking than Obama "surpassing" George W. Bush as the worst president since World War II is the onset of revisionism, with some 45% saying the US would have been better with Romney as president, compared to just 38% who say Obama remains the better choice. Which incidentally confirms what we reported yesterday: while the Republican view of Obama has certainly never been lower, what is worse is that even the core democrat faithful are now giving up on the hope and change bringer, confirmed by the latest Gallup poll which saw democrat confidence in the economy tumbling to the lowest level for 2014.

The last 2 days have seen something 'odd' happen in gold markets. As the China commodity finance deals are unwound and massive futures positions squeezed, Gold ETFs have seen the biggest inflows since September 2012 (and are their highest in 2 months). Whether this is the start of trend is unclear (as perhaps the conspiracy 'fact' proof of manipulation and rigging in the gold markets stalled the hollowing out of the gold complex). Ironic that this considerable rise should occur shortly after rumors of Germany's end to repatriation calls. Gold (and silver) has broken out once again this morning after the early dump on ADP 'good' news is well bid to 3-month highs.

• BELKA `REJECTS' NOTION TAPED COMMENTS SHOW HIM CUTTING ANY DEAL
• BELKA SAYS POLISH CENTRAL BANK ISN'T COZY WITH GOVT
• BELKA REITERATES HE DOESN'T PLAN TO RESIGN
• BELKA: RESIGNATION FROM C.BANK WOULD CREATE DANGEROUS PRECEDENT

The battle for favoritism among the 'apparent' leaders in Iraq continues. Russia just delivered the second batch of Sukhoi fighter jets (which will be flown by Iraqi pilots and "are ready to provide air support to the armed forces"), and the US unloaded 4,000 additional Hellfire missiles to support Iraq's fight against the Islamist insurgents. While this morning the intelligentsia of mainstream media proclaimed "the situation in Iraq is calming down" predicated on the fact that oil prices were lower and stocks at record highs, we suspect the additional war material  to Iraq will do nothing but increase the determination of the "Islamic State" to increase its Caliphate.

If you want to gather honey, don’t kick over the beehive. This was how Dale Carnegie titled the first chapter of his 1936 personal development masterpiece—How to Win Friends and Influence People. But based on the way the US is acting, you’d think they were test-driving an entirely different manuscript - How to Lose Friends and Alienate People. Between FATCA and the BNP debacle, it appears politicians fail to realize how important the US banking system is to holding together the US economy. With all of its debt and all of its money printing, the US banking system was one of America’s last economic competitive advantages; but now we are going to see more and more foreigners curtailing their use of the US banking system... and by extension... the dollar. Without that mass of people to export dollars to, inflation will really kick in back home.

Goldman Sachs listened (and read) Janet Yellen's remarks at The IMF and see them "generally in line." Despite waffling on for minutes about risk management and monitoring, no one at The Fed has mentioned the total carnage in the repo market, spike in fails-to-deliver, and record reverse repo window-dressing that just occurred. The use of the term "reach for yield" twice and "bubble" 5 times, and admission that the Fed should never have popped the housing bubble, leaves us less sanguine than Goldman and wondering if this was Janet's subtle and nervous 'irrational exuberance" moment.

The Ukraine ceasefire is off, which means all those pro-Russian "separatist, terrorist" troops and/or civilians living in the breakaway East Ukraine, aka Novorossiya, region are again fair game. The video below, published Wednesday, and first reported by RT, shows a moment from the shelling that happened a day before. The shell hits right next to a one-story residential building, sending a blast-wave and a cloud of smoke and dust in all directions. 

With GoPro up over 100% since its IPO (which the mainstream media decides indicates massive demand for the 'future' infrastructure monetization of camera-on-a-stick clips), it appears there is another much clearer reason for the surge. As WSJ reports, the utilization level - the percentage of shares available to loan that are actually being borrowed - is near 100%. As Astec Anaytics notes, it's rare for a stock to have such a high utilization level as the cost of borrowing GoPro shares, a proxy for short-selling activity, has “immediately become one of the highest in our system." It appears the squeeze has come and gone and today 9% tumble may just be the start...

Alongside that other canard of global monetary machinations, Christine Lagarde (who oddly declared earlier that "the global economy will not return to 'pre-crisis' world" and asked if central banks need a 'financial stability goal' -mandating a market "put" of sorts); Fed head Janet Yellen will be addressing her peers at The IMF this morning. We expect a lot of "noise" comments, "lower for longer", "weather" excuses, and escape velocity is coming any minute as she desperately tries to keep the "don't worry, you will be ok without all our money printing" meme alive.

To the Fed's Janet Yellen, runaway inflation - at least that which can not be "hedonised" away by the BLS like iPad and LCD TV prices - may be simply "noise", which probably explains why she doesn't rent. But for the record number of Americans who are forced to rent as house prices are too high for the vast majority of the population while mortgage origination has tumbled to record lows (as banks can generate far higher returns on reserve by buying stocks than lending out said money), inflation is going from bad to worse. Case in point: as the WSJ shows, since 1990 asking rents - in real terms i.e., adjusted for inflation - have increased a whopping 15%. The change in median income over the same period? 0%.

Is the New Normal of ever-higher stock valuations sustainable, or will low volatility lead to higher volatility, and intervention to instability? Though we're constantly reassured by financial pundits and the Federal Reserve that the stock market is not a bubble and that valuations are fair, there is substantial evidence that suggests the contrary.

The post-weather rebound is over. Factory Orders, which were expected to fall modestly, dropped 0.5% - the biggest drop and biggest miss since January. Notably defense-spending dropped 30% as it seems we didn't need 10 new submarines in May (and this is with Ex-Im bank still funding growth). On the flip side, if you were wondering where the recent data (survey) exuberance has come from, wonder no more - inventories in May rose 0.8% - the biggest rise since Oct 2011. More malinvestment-driven exuberance - if only wages were up? Surely subprime credit is soaring so that will take care of it.

Moments after the outlier ADP private payrolls jobs number, the highest since November 2012, was released Gallup offered its own poll-based take on the US jobs market with the release of its monthly US Jobs Creation Index. To some this useful datapoint may explain the ADP-reported surge in hiring, although a more nuanced read simply add to the confusion.

It stands to reason that when the Fed eventually lifts interest rates, we’ll see the usual effects. After a sustained rise in rates, you can safely bet on: Fixed investment and business earnings dropping sharply; GDP growth following investment and earnings lower; Many people losing their jobs; and Risky assets performing poorly. These consequences follow not only from the arithmetic of debt service and present value calculations, but also from the mood swinging psychology of entrepreneurs, lenders and investors. Yet, policy economists claim that interest rates can be “normalized” at no cost. Our conclusion is to reject forecasts calling for the economy to power right through interest rate hikes without stumbling. A more likely scenario is that policy “normalization” leads us directly into the next bust.