July 11th, 2013
Now that Bernanke has thrown in the towel and reverted back to the old bad news is good news regime (or did he - GETCO's vacuum tubes at least sure seem to think so), there was hardly anything more the market could ask for than a horrible Initial Claims print. It got just that with today's initial unemployment claims which soared from last week's upward revised 344K (only +1k revision this time) to 360K, well above the consensus (and Joe LaVorgna) forecast of 340K. Sure enough, the BLS said the July claims were difficult to seasonally adjust, so let's look at the NSA claims which jumped by 49,778 in the week ended July 6 to 384,829 making one wonder if the BLS' instruction in the holiday shortened week was to actually represent a worse economic reality unlike during the Obama pre-reelection months. The only other notable item in the report was the ongoing drop in Extended claims, with EUCs down by 23K to just 1.6 million, 1 million less than a year ago as claims exhaustion means ever more people drop out of the official labor pool. Permanently.
Despite being told last week of the successful solution that the politicians of Portugal had procured - and thusly seeing Portuguese bonds and stocks surge in a renewed bluster of hope and faith that all is well again; it seems that, shocker, nothing is fixed. As Reuters reports, Portugal's political crisis re-deepened today after the President rejected a plan to heal a government rift and critics accused him of igniting a "time-bomb' by calling for early elections. Anibal Cavaco Silva rejected a cabinet re-shuffle, and proposed a coalition to guarantee support for the Troika-imposed austerity measures (which theoretically means Portugal will exit its bailout next year) to be followed by elections - implicitly showing little faith that any party can rule effectively through the middle of next year. "The announcement... comes as a surprise, ... adding anothe problem to the one that already existed," noted one analyst.
It wouldn't be the new normal if the collapse in Q2 US GDP to sub-1% wasn't met by a new record high in the Dow Jones. And it certainly wouldn't be the new abnormal if a day of resplendent green in European bourses didn't have some "matching" economic news out of that perpetual reminder that Keynesianism in the end always fails: Greece. Luckily, validating that all is unwell and stocks can proceed to soar to record highs unbothered, on one hand the Greek Statistics Office reported that Greek unemployment in April just rose to a new all time high of 26.9%, up from 26.8% in March, and up from 23.1% a year ago, while Kathimerini reports that Non-performing loans: those perpetual thorns of insolvency in bank balance sheets, just surged to €66 billion, amounting to a whopping 29% at the end of March from a "manageable" 24.2% at end-December. That's a ridiculous 20% increase in total NPLs in three months that was only exposed due to the Troika's stress testing! Just how atrocious is the reality on European bank books anyway?
In a surreal and deja vu-ish turn of events, three days ago we reported that in parallel with the ongoing collapse in CNBC viewership, the ratings of some of its shows namely Jim Cramer's Mad Money and Larry Kudlow's Report had just hit all time lows. This was met with an immediate response by Larry Kudlow himself who, alongside Groundhog Phil-fodder Joe LaVorgna, decided to take Zero Hedge to task for reporting that part-time jobs are not really full-time jobs and invited us over to their show to explain how dare we point out the weakness in the manipulated BLS datadump. We were kind enough to remind Mr. Kudlow that the last time someone from CNBC "invited" us over, i.e., Dennis "Digital Dickweed" Kneale, their show was promptly cancelled. To wit: "While we appreciate the offer, the last thing we intend to do is suffer Mr. Kudlow the same fate as that experienced by his predecessor Dennis Kneale who also invited Zero Hedge on his laughable excuse for a show in 2009, only to be sacked a few months later." Make it two for two as irony strikes again. The NY Post reports that Kudlow's show is over.
- Risk on assets supported by yesterday's speech by Bernanke, who said that highly accommodative policy needed for the foreseeable future and that current unemployment of 7.6%, if anything, overstates health of US labour market.
- ECB's Weidmann said that the ECB has not tied itself to the mast with forward guidance, which does not rule out rate hikes when inflationary pressures emerge.
- The BoJ kept their monetary policy unchanged and retained plan for JPY 60-70trl annual rise in monetary base.
- Bernanke Supports Continuing Stimulus Amid Debate Over QE (BBG)
- Portugal president wants 'salvation' deal, including opposition (Reuters)
- Egypt has less than two months imported wheat left - ex-minister (Reuters)
- A rise in long-term interest rates is creating challenges and opportunities for the largest U.S. banks. (WSJ)
- BoJ says Japanese economy is ‘recovering’ (FT)
- More Chinese cities likely to curb auto sales (Reuters)
- PC Shipments Fall for 5th Quarter (BBG)
- Property Crushes Hedge Funds in Alternative Markets (BBG)
- New aid gives Greece summer respite before showdown (Reuters)
- Rajoy Punishes Exporters Sustaining Spain’s Economy (BBG)
The only story this morning remains Bernanke's after hours speech, which solidly trumped the FOMC minutes in market impact, and which, in addition to ramping US equity futures to just about new all time highs, sent the EURUSD soaring by almost the same amount (+300 pips) as the actual QE1 announcement on March 18, 2009. Such is the power of verbal currency warfare, when Bernanke hasn't acutally done anything and merely hinted the Fed is as confused as ever about what to do. Of course, as Commerzbank notes this morning, the U.S. economy would have to lose a lot of momentum for the Fed to cancel tapering, and the central bank would only expand the purchase program if the economy collapses, but none of that matters to the "wealth effect" for the 1% where economic destruction simply means more wealth.
The DRC has comparisons with Mongolia but offers far better risk/reward potential for investors.
It has all gone belly up if we look at the EU and we are honest. Yes, they might be trying to paper of the cracks and yes they might be shoving some super strong glue in their to stop everyone pulling in different directions, but if they are really truthful about it, the EU28 (now that Croatia has become a member since July 1st 2013)
Traders who bought shares of gold mining companies as a way to play rising metals prices made a huge miscalculation.
Each time the S&P 500 has traded more than 12% above its 200-day moving-average, the following correction has not ended until the average itself was breached by price action. Fundamentally, one can tie 'events' to each of these exuberance spikes - in this case, liquidity-turns-into-a-taper - but sometimes historical prices can be a better guide to the human biases for extrapolating trends and building fragility. Given current levels that would mean a 10% drop from current levels to 1516.
With the Snowden saga, it seems suddenly, the idea that there should be a limit to governments has resuscitated; wherever the governments and whatever the limits are. But there is indeed a limit and the global collective mind is trying to figure it out...
The Downward cycle is in the on deck circle warming up, and will be coming to bat soon in the Oil Market Speculation Game!
"Following a weekend of horrific violence in Chicago in which at least 70 people were shot and 12 killed, this was the wrong move for public safety in Illinois," Democratic Governor Jim Quinn noted as lawmakers overturned his veto to allow Illinois to become the last state in the US to allow residents to carry concealed handguns. As the BBC reports, the governor warned that the new law will allow people to carry guns in pubs and bars (and carry virtual arsenals on their persons), we suspect, if Chi-raq (the slang for the anarchic gang-ridden areas of Chicago) is any example, that this is already occurring en masse in a wide population of the state. Gun rights proponents, meanwhile, celebrated, "this is a historic, significant day for law-abiding gun owners, they finally get to exercise their Second Amendment rights."
According to a recent report in the FT, the former treasurer of Spain's ruling Popular Party, Luis Bárcenas, has claimed in an interview that the party has been in breach of Spain's campaign finance laws for a minimum of 20 years. Presumably he was moved to talk because he was the one who got caught and is expected to fall on his sword. Now that he is facing a lengthy prison sentence, he no longer has a reason to clam up. Incidentally, no-one in Spain was surprised to learn what he had to say. What we are seeing here is actually a strong parallel to Greece. The EU has been complaining about the Greek government's inability to collect taxes, without considering that Greek tax payers may have very good reason to pay as little as possible to the corrupt apparatus installed by the ruling class. As a Greek shipowner told a journalist when asked why he thought it was fine that rich shipowners are tax-exempt in Greece: “Would you want to pay money to Al Capone?” Pause. “Me neither.” Finally, as the bankruptcy of the Western welfare/warfare states becomes more glaringly evident, even stronger growth of the informal economy seems likely to ensue.