Archive - 2014 - Story

As 11.3 million Americans spend more than half their income on rent, a record increase of 28% in four years, increasingly more are faced with the core "New normal recovery" choice: “We either eat, or we pay rent.”  Welcome to the Blackstone recovery...

For most of the major US equity indices today's plunge was the worst day since August 27th. All indices are now negative year-to-date once again as the outperforming Dow Transports were smacked over 1.8% from its intraday highs. NASDAQ once again touched green year-to-date early on in the day, then tumbled aggressively. Some of the best post-Taper performing sectors were slammed hard today with builders, financials, and discretionary spanked.  USDJPY 103 was defended heavily but stocks had already lost any connection as correlations broke rather notably. As we noted earlier, short-term bills were in heavy demand (and yields turned negative); Treasury notes and bonds rallied 3-4bps. Early weakness in gold and silver were rapidly dismissed with as PMs surged to fresh one-month highs ($1255 gold) and 2-month highs ($20.47 silver). VIX, after dropping below 12% early on smashed higher to close at 13.6% (following Friday's extreme steep close).

The Taxpayer Advocate Service, which is an independent office within the IRS, has just released a two-volume report describing the tactics that are being employed by the tax collectors in the Land of the Free. It’s not exactly Emperor Caracalla pointing to his sword... but IRS’s policies and tactics are not so far off from a police agency. They disregard the law and the advice of their own counsel. They disproportionately burden honest individuals. They flout due process. And they push people to abandon their citizenship. These are mafia tactics, plain and simple.

With today's biggest drop in stocks in over 4 months, we are reminded of three recent charts that raise considerable questions as to the path forward. From Mclellan's 1928 analog to Hussman's bubble trajectory and the extremes of bullish sentiment, this week marks a 'line in the sand' for bulls to take this to the Hendry moon or for it not to be different this time...

After a banner year for the former KGB spy, who first neutralized Prince Bandar and John Kerry (not to mention the president of the US), and subsequently reannexed the Ukraine into the Russian sphere of influence now that the second coming of the former USSR is in the works, it should come as no surprise that Russia's Vladimir Putin has been named the third most admired person in the world. Then again when one considers who is ahead of Putin in the Time poll, perhaps this distinction is nothing to write to the NSA about - third spot is located behind Microsoft founder Bill Gates and US President Barack Obama. Indicatively, this also means that Barack Obama is inexplicably still the second most respected person in the world.

As stocks have vascillated in a worryingly not-straight-up manner for the last few days with today's weakness taking the Dow and S&P 500 pre-holiday lows (with th ebiggest drop in a month), it would appear more than a few 'investors' are greatly unrotating into the very shortest-term Treasuries as a safe-haven from the turbulence. The last few days have seen Treasury-Bill yields swing negative in the less-than-1-month maturity indicating anythng but risk appetite as a scramble for safety is strong enough to warrant paying (albeit marginally) for it. As we noted previously, the driver of Bill Gross' 'bet' on the short-end will not be based on always wrong expectations of what Fed monetary policy does to prices, but the exodus of speculative money from equities into safe havens, call it the Great Unrotation.

Most are aware of Alan Greenspan’s 1966 essay - written when he was an acolyte of Ayn Rand - in which he sang the praises of the gold standard. Obviously, that early work would later prove awkward for Greenspan, as he held the reins of the fiat money engine known as the Federal Reserve. However, a reporter for Barron's unearthed a copy of Greenspan’s NYU doctoral dissertation, which he took great pains to bury, showing that when his professional ambition wasn’t involved, Greenspan could understand perfectly well  (a) the virtues of a commodity money and (b) the dangers of a housing bubble. If the Austrians are right in laying the blame for the housing bubble on Greenspan’s loose monetary policy following the dot-com crash, then Greenspan can’t plead ignorance: He knew what he was doing.

With the wild world of central bankers full of double-speak, counter-factuals and well-chosen anecdotes, statements of questionable sanity are not difficult to find. However, Dennis Lockhart, who has already done his optimistic economic damage to stocks this morning just outdid himself. Speaking in his home town, the Atlanta Fed President stated confidently in the Q&A after his speech:

“One of the stupidest things a central banker could do is comment on the stock market."

Then added:

The stock market is not "a bubble in any way"

"Stupid" indeed, Mr Lockhart...

The Nikkei 225 is at its 'cheapest' relative to the Dow Industrials in the last two months as the behcmark Japanese stock index has now lost all of its gains post the US Taper decision in mid-December. With USDJPY breaking back below 103 and the correlation between it and stocks as high as it has ever been, if BAML is right with its sub-100 target for the FX pair, then the Nikkei could be looking at 14,500 (or an 11% tumble from the highs).

It's just sad now: with every passing day bringing new (and previously unseen) cases of high frequency trading algo-generated market halts or crashes, that none of the regulators are willing to take a stand against this market scourge that we have written about for nearly 5 years now, is a clear indication that the HFT lobby is firmly in control of what were once "capital markets" and that the retail investor is once again, the sacrificial lamb. But while it was one thing for the high freak thugs to control marginal price action through momentum ignition, quote stuffing, hide not slide, flash trades, and all the other well-known manipulative techniques which seemingly are too complicated for the SEC to figure out, in equities where things get really bad is when HFTs start crashing, or at least halting, the bond market at key market inflection points such as during the most important monthly data release, the payrolls release. This is precisely what happened on Friday, when as Nanex clearly shows, a momentum ignition algo sent the ZF (5 Year T-Note future) soaring and resulting in a 5 second - an eternity in today's nanosecond age - trading halt during the actual release of the BLS report.

It would appear that there is even a limit for the Supreme Court as to what they will allow President Obama to get away with:

*OBAMA'S RECESS APPOINTMENTS QUESTIONED BY U.S. SUPREME COURT

As Bloomberg reports, justices across the ideological spectrum questioned whether President Barack Obama complied with the Constitution when he appointed three members of the National Labor Relations Board during a Senate break.

It was all looking so good. NASDAQ was green for the year (so were Trannies), stocks in general were rising and everyone on TV could proclaim how well the 'market' was handling the taper. Then Dennis Lockhart spoke...

*LOCKHART SEES `GROWING CONFIDENCE' IN 2014 OUTLOOK, U.S. ECONOMY ON `MORE SOLID' FOOTING
*LOCKHART BACKS $10 BLN TAPER AS CONFIDENCE IN 2014 GROWS

That's great news right? Wrong? Stocks didn't like it... and NASDAQ rapidly gave up its gains... Fun-durr-mentals remain in control eh? It shouldn't be a big surprise given what Goldman Sachs warned about over the weekend!

USDJPY's medium-term trend has turned from bullish to bearish. BofAML's Macneil Curry warns that the break of the old May highs suggest weakness should extend further with the 200-day moving avarege at 99.71 as a minimum downside target. Given the JPY's weighting in the USD Index basket, this does not have specific bearish USD implications but does have significant effect on equities as the JPY carry trade comes under pressure.

Just when everyone thought the infamous polar vortex is gone (if not quite forgotten, having dipped the temperatures in some part of the US to sub-Martian levels), it's baaaack. Sky News reports that America is set to be hit by another blast from the polar vortex although this time Niagara falls may not freeze, as temperatures are likely to be higher than last week's extreme conditions. "The polar plunge is expected to move south from Canada, bringing colder air and sub-zero temperatures to the US this week. Forecasters say it will sweep over the lower Mississippi Valley and Midwest on Tuesday and Wednesday, and then hit the East on Thursday. The main thrust of the cold air will follow up a couple of days later."

We noted Friday that the much-heralded Baltic Dry Index has seen the worst start to the year in over 30 years. Today it got worse. At 1,395, the the Baltic Dry index, which reflects the daily charter rate for vessels carrying cargoes such as iron ore, coal and grain, is now down 18% in the last 2 days alone (biggest drop in 6 years), back at 4-month lows. The shipping index has utterly collapsed over 40% in the last 2 weeks. We are sure this is just a storm in a teacup and that all the hopes and prayers of a global manufacturing renaissance will come true. Cue, "this is not a demand issue, it's an over-capacity issue" excuses in 3...2...1... now where would the container ships get their idea to increase capacity? (hint: central planner-based mal-investment)