Archive - Mar 2015 - Story

Despite a collapse in US macro data in February, Markit somehow managed to conjure a better than expected 55.1 print for US Manufacturing PMI. Under the covers employment creation was the slowest since July and inflationary pressures loom as selling prices rose notably. ISM Manufacturing printed 52.9 - a small miss vs 53.0 expectations - down for the 4th month in a row to 13-month lows, with employment at its weakest since June 2013. Construction spending's modest rebound in (seemingly un-weather-affected) December (after dropping in November) has been destroyed with a 1.1% drop in January (against expectations of 0.3% rise) for the biggest drop in 8 months.

The ink is not even dry on the much fought extension of the Greek bailout, so hated in Greece because it perpetuates the "austerity" memorandum conditions and already Spain is stoking the anti-austerity fire in Athens even more when moments ago Spain's Guindos revealed that not only is a third Greek bailout imminent, and will cost Europe's taxpayers between €30 and €50 billion, but that Spain, whose banks were completely insolvent as recently as 2 years ago and were only "saved" thanks to the ECB's direct and indirect (repo) bond monetization pathways will provide between 13% and 14% of the funding!

• "THIRD GREEK RESCUE' TO BE EU30B-EU50B: SPAIN'S DE GUINDOS
• SPAIN TO PROVIDE 13-14% OF EU30B-EU5O 3RD GREEK RESCUE: GUINDOS

What makes the announcement doubly ironic (the broke bailount out the insolvent, or is the bankrupt saving the liquidating?), is that just hours earlier Spain’s deputy minister for the European Union Inigo Mendez de Vigo said that "Greece should do less talking, do more reforms." But why if Spain will be so kind as to provide the funding needed for the next Greek bailout, and the bailout after that, and the one after

Crude oil prices are once again following the path of least deja vu resistance this morning. Having spiked into NYMEX close on Friday (exactly as they did following the rig count data the previous week), WTI is back to a $48 handle this morning following news that Saudi Arabia has increased production to its higest level since 2013. Iraq (another OPEC nation) stirred the pot further by forecasting increased supplies in the next month. This comes as US production hits record highs and vital Oklahoma storage tanks will fill up even sooner than expected, driving the "JK" spread above $2.50 (April delivery drastically cheaper than May). As on analysts noted, as "Cushing continues to fill massively, we could see a '3' handle on WTI."

Following December's worse than expected drop in personal spending (and slowing groweth in incomes), analysts wewre expected the usual hockey-stick bounce... it did not happen. Despite all the exuberance over low gas prices, US personal spending dropped 0.2% in January - twice as bad as the 0.1% drop expected and the 3rd miss in a row. The spending drop was driven in large part by a slide in non-durables. Personal income also missed excpectations, rising just 0.3% (against a +0.4% expectation) hovering at its lowest growth since September. The savings rates surged to 5.5% - its highest since Dec 2012.

The best performing asset overall in 2015? Well, just tell Putin "spasibo"...

• Hilsenrath: Fed Ushering in New Era of Uncertainty on Rates (WSJ)
• Is Supreme Court's chief justice ready to take down ObamaCare? (The Hill)
• Netanyahu arrives in U.S., signs of easing of tensions over Iran speech (Reuters)
• Nemtsov Murder Fuels Suspicion, Fails to Spur Russia Selloff (BBG)
• ECB uncomfortable with leading role in Greek funding drama (Reuters)
• Video shows Los Angeles police shooting homeless man dead (Reuters)
• Iraq Military Begins Campaign to Reclaim Tikrit (WSJ)
• How Billionaires in London Use Secret Luxury Homes to Hide Assets (BBG)

Over the past few weeks, a new piece of equipment has been spotted hanging off the NYSE primary microwave tower. Here it is...

With key economic data either behind us (with the downward revised GDP), or ahead of us (the February payrolls on deck), and the Greek situation currently shelved if only for a few days/weeks until the IMF payment comes due and the farce begins anew, stocks are focuing on the widely telegraphed 25 bps Chinese rate cut over the weekend, which however has so far failed to inspire a broad based rally either in Asia (where the SHCOMP closed up 0.8% after first dipping in the red) or across developed markets. In fact, as of this moment futures are hugging the unchanged line as the USDJPY attempted another breakout of 120.000 but with numerous option barrier expiration stop at that level, it has since retracted all the overnight gains and is back to the Sundey lows, even as the EURUSD has seen a powerful breakout from overnight lows and is currently at the highest level since the US GDP print, following the release of the final European February PMI data, as a result of USD weakness since the European open.

While the citizenry of America remains transfixed by the ever-changing color of some Scottish wedding dress; this weekend saw an even more massively viral social media phenomenon as tens of millions of Chinese watched, gripped and outraged, a 104-minute video entitled "Under The Dome" exposing the ugly truth about Chinese air pollution...

"The Fed is out of control," exclaims David Stockman - perhaps best known for architecting Reagan's economic turnaround known as 'Morning in America' - adding that "people don't want to hear the reality and the truth that we're facing." Policymakers are "taking our economy in a direction that is dangerous, that is not sustainable, and is likely to fully undermine everything that's been built up and created by the American people over decades and decades." The Fed, Stockman concludes, "is a rogue institution," and their actions have led us to "one of the scariest moments in our history... it's a festering time-bomb and we're not sure when it will explode."

"...a small proposal for the emendation of such tatters of the Constitution as can be found: For voting in federal elections, we should employ a literacy test to disenfranchise the majority of the population, to the infinite betterment of the country. This wise move should be accompanied by an increase in the voting age to twenty-five. The necessity cannot be denied..."

Despite a 7% rise in actual tourist arrivals to Macau from China during this Lunar New Year's holiday, 'The Year of The Goat' is off to an extremely inauspicious start. As Bloomberg reports, even with expectations of a 40% drop, Macau casino revenues is now projected to crash a stunning 53.5% from last year. While a decline in VIP gambling was expected (due to, among other things, Xi's extreme crackdown on corruption - and the Macau money laundering schemes), JPMorgan notes, this was still "shockingly bad," as "even premium mass demand remained very muted," and marks the ninth straight month of decline, the longest losing streak since monthly records started in 2005.

"By lowering the cost of borrowing, QE has lowered the risk of default. This has led to overcapacity (see highly leveraged shale companies). Overcapacity leads to deflation. With QE, are central banks manufacturing what they are trying to defeat?"

Paul Krugman may (or may not) know a lot of economic theory and is a very clever writer, but you should never ever trust him to recount tales of battles between Keynesians and other schools of thought. His misrememberings in this realm are so astounding that they would impress Brian Williams.