Archive - Jan 20, 2015 - Story

The only thing we did not get from tonight's State of The Union speech was a "Mission Accomplished" flag... oddly some of the 6,493 words (the lowest word-count of his Presidency) were not entirely 'factual'...

Despite tactical, rhetorical opposition to further expansion of the entitlement state by many voices in Washington, and firm resistance by an honorable and principled few, collusive bipartisan support for an ever-larger welfare state is the central fact of politics in our nation’s capital today, as it has been for decades. Until and unless America undergoes some sort of awakening that turns the public against its blandishments, or some sort of forcing financial crisis that suddenly restricts the resources available to it, continued growth of the entitlement state looks very likely in the years immediately ahead. And in at least that respect, America today does not look exceptional at all.

Major central banks claim to be independent, but they are totally under the control of politicians. Many developed countries have tried to anchor an independent central bank to offset pressure from politicians and that’s all well and good in principle until the economy spins out of control – at zero-bound growth and rates central banks and politicians becomes one in a survival mode where rules are broken and bent to fit an agenda of buying more time. What comes now is a new reality...

UPDATE: Full SOTU Speech released - "THE SHADOW OF CRISIS HAS PASSED"

By now it is well known that The State of The Union tonight will be about President Obama's Robin-Hood Agenda. Furthermore, it is entirely clear that his proposals have no chance of becoming law. As WaPo's Marc Thiessen notes, Obama is not delusional, his move is completely and transparently political... And just as Eric Cantor suggests will merely serve to inflame the GOP. From taxes to cyber security and from community college to housing... in 50-65 minutes, all will be clear...

"make-or-break" again...

In Zero Hedge tradition we provide the thinking man's (unfortunately The State of the Union has just got dumber and dumber over the years) and drinking man's (for those who need libation to persevere through the populism) guide to tonight's imperial leader's prognostications of wealth redistribution. Last year's SOTU saw the most uses of the word "folks" and we are betting (figuratively of course) that tonight's speech will top that for "Peak Folks". Obama has used "love" more than Clinton and "Energy" more than Bush...

Expectations for global economic growth in 2015 have been falling for almost 2 years... and so the ever hockey-stickian IMF has finally started to catch down to that consensus trend - don't worry though, we are sure 2016 (or 2116) will be a great year...

When President Obama ascends to the podium this evening to deliver his State of the Union address, he’ll undoubtedly shine a spotlight on the many strengths of America. The real issue, however, isn’t where the United States is today. The problem is where it’s going. And quickly...

Global markets face three risks, according to Edwards: bearishness in the U.S. government bond market, a flawed confidence that the U.S. is in a self-sustaining recovery and undue faith in the relationship between quantitative easing (QE) and the equity markets. “It doesn’t matter how much QE is spewing out of the US,” he said. “The markets will lose confidence that the policymakers are in control of events, just as they did in 90's Japan. They lost faith that the policymakers were in control. This is the biggest risk out there.”

Following another frustrating year in the previous metals markets, 2015 is showing signs that change is afoot. As Santiago Capital's Brent Johnson notes in this brief presentation, while being 'wrong' for the last 2 years on gold has been painful, is it any less crazy to believe that it will turnaround that to believe the hype that The Fed will raise rates once again (just like it promised in 2010, 2011, 2012, 2013, 2014, and now 2015...) - who is really losing their credibility? With the world's fiat currencies waging war and dislocations mounting, gold is no longer the 'David' underdog fighting against the 'Goliath' central banks... but is - as Alan Greenspan opined - "the premier currency. No fiat currency, including the dollar, can match it."

When news broke of the death, by gunshot wound to the head, of Alberto Nisman - the prosecutor who was due within hours to deliver testimony implicating the Argentine President in covering up the investigation into a bombing in 1994 - it seemed oddly quick for police to rule it suicide within hours (especially after his earlier concerns that "I could end up dead because of this.") Today's news from The Buenos Aires Herald that the "unexpected result" of forensic analysis of Nisman’s body confirmed that there were no traces of gunpowder on his hands suggests (despite experts still proclaiming it does not rule out suicide) has prompted many questions over just how he died. Even the US has offered help... and protests are growing larger.

The fix for low oil prices is... low oil prices. Past some point high-priced producers will naturally stop producing, the excess inventory will get burned up, and the price will recover. Not only will it recover, but it will probably spike, because a country littered with the corpses of bankrupt oil companies is not one that is likely to jump right back into producing lots of oil while, on the other hand, beyond a few uses of fossil fuels that are discretionary, demand is quite inelastic. And an oil price spike will cause another round of demand destruction, because the consumers, devastated by the bankruptcies and the job losses from the collapse of the oil patch, will soon be bankrupted by the higher price. And that will cause the price of oil to collapse again. And so on until the last industrialist dies...

Unfortunately for IBM, it better resume its financial engineering fast because this is where the bang (not the whimper) comes into play: in Q4, IBM's revenue was a modest $24.11 billion, far below the Wall Street estimate of $24.8 billion, and a whopping 12% less than what IBM generated a year ago. In fact, as the following chart shows, the annual plunge in IBM Q4 revenue was the worst since Lehman.

One of the macroeconomic observations that has gotten absolutely no mention in recent months is the curious fact that while global economic growth has not imploded in recent quarters, it is because GDP has been represented, as is customary, in local currency terms. Of course, this comes as a time when local currencies (at least those which are not the USD) have been plunging against the greenback on the back of the expectations that the Fed will hike rates some time in the summer or later in 2015. Which also means that in "dollar economy" terms, i.e., converted in USD, things are not nearly as good.  In fact, as the chart below shows, the global dollar economy is not only shrinking fast, but it is doing so at the fastest pace since the Lehman collapse, having lost a whopping $4 trillion, or a whopping 5% drop,  in just the last 6 months! 

All algos that were short NFLX into earnings were just brutalized and stampeded into an epic short-covering squeeze when the company announced Q4 EPS of $1.35, nearly double the $0.72 expected. However, as usual, there is more here than meets the eye, epsecially when considering that NFLX Q4 revenue actually missed expectations of $1.49Bn, printing $1.48Bn. So how did NFLX smash EPS? Because as anyone who actually read the release before trading the stock would find, NFLX "Q4'14 Net Income/EPS includes a $39m / $0.63 benefit from a tax accrual release related to resolution of tax audit." Subtract that from the reported EPS and one gets $0.72. Right on top of expectations.