With 15 days until the Olympics, we introduce the first in a five-part series of market-and-economy related discussions centered on that glorious event. As global equities exhibit their own 'Citius, Altius, Fortius', Goldman looks at the impact of the Olympics on stock markets. They note that, aside from the benefit of raising the international profile of the host country as both a tourism and investment destination, the announcement of a winning Olympic bid means major investment in infrastructure, including stadiums, accommodation and transport to prepare for the Games. Interestingly, all recent Olympic hosts have outperformed the MSCI World index in the 12 months following the Olympics. This is true of recent hosts regardless of the size of the economy or state of development, suggesting either the local market is boosted by the international profile of the Games, or is perhaps relieved to have the Games behind them. Given the below-average performance in the UK since the Olympic announcement, UK investors may hope for a continuation of this trend, looking forward to a positive year in equities following the London 2012 Games.
US Attorneys General Jump On The Lieborgate Bandwagon; 900,000+ Lawsuits To Follow, And What Happens Next?Submitted by Tyler Durden on 07/11/2012 - 21:00
The second Barclays announced its $450 million Libor settlement, it was all over - the lawyers smelled not only blood, but what may be the biggest plaintiff feeding frenzy of all time. Which is why it was only a matter of time: "State attorneys general are jumping into the widening scandal over whether banks tried to manipulate benchmark international lending rates, a move that could open a new front against the top global banks. A handful of state attorneys general said they are looking into whether they have jurisdiction over the banks, and are starting preliminary discussions to determine what kind of impact the conduct involving the Libor rate may have had in their states."
"If we continue forward in the direction we are headed, what lies ahead is an almost certain major economic calamity" is the subtle introduction from the Bay-Area baddest bull-crusher. Charles Biderman, CEO of TrimTabs, is angry - and you wouldn't like him when he's angry - as he believes "it no longer matter who wins elections, because the special interest groups control, and in some cases own, the representatives" and the US needs a new constitutional convention. He has touched on this before but his ire is very clear here as he sees the "special interest groups as parasites" and believes that due to the rapid changes in social media technologies that a new way of governing ourselves is possible (though we still doubt it). "The road ahead to a new constitutional convention will not be easy," he concludes, given the big bucks will try and convince us they are necessary, but it appears Lewis Black's avuncular alter ego is ready to take 'em on.
The debt-to-GDP ratio is gradually falling, yet it is still at a far higher level than the historical average, and it is still proportionately higher than industrial output. And at the same time, consumers are re-leveraging, and government debt is soaring. And industrial production is barely above where it it was a decade ago, and far below its pre-2000 trend line. We have barely started, and already this has been a slow and grinding deleveraging; rather than the quick and brutal liquidation like that seen in 1907 where the banking system was effectively forced into bailing itself out, the stimulationist policies of low rates, quantitative easing and fiscal stimulus have kept in business zombie companies and institutions carrying absurd debt loads. Like Japan who experienced a similar debt-driven bubble in the late ’80s and early ’90s, we in the West appear to have embarked on a low-growth, high-unemployment period of deleveraging; and like Japan, we appear to be simply transferring the bulk of the debt load from the private sector to the public, without making any real impact in the total debt level, or any serious reduction in the debt-to-GDP ratio.
For many months, if not years, we have been beating the drum on what we believe is the most hushed, but significant story in the metamorphosis of the US labor pool under the New Normal, one which has nothing to with quantity considerations, which can easily be fudged using seasonal and birth death adjustments, and other statistical "smoothing" but with quality of jobs: namely America's transformation to a part-time worker society. Today, one of the very few economists we respect, David Rosenberg, pick up on this theme when he says in his daily letter that "the use of temps is outpacing outright new hirings by a 10-to-1 ratio." And unlike in the old normal, or even as recently as 2011, temp hires are no longer a full-time gateway position: "Moreover, according to a Manpower survey, 30% of temporary staffing this year has led to permanent jobs, down from 45% in 2011.... In today's world, the reliance on temp agencies is akin to "just in time" employment strategies." Everyone's skillset is now a la carte in the form of self-employed mini S-Corps, for reason that Charles Hugh Smith explained perfectly well in "Dear Person Seeking a Job: Why I Can't Hire You." Sadly, that statistic summarizes about everything there is to know about the three years of "recovery" since the recession "ended" some time in 2009.
With AAPL and several other strange-attracting hedge fund hotels dominating the holdings of the 2-and-20'ers, we thought it timely that Bloomberg TV would point out today that their aggregate hedge fund index is now significantly underperforming the S&P 500 (from both the top in 2007 and the lows in 2009 - in order to be fair). While the assumption is that 'sophisticated' investors are paying for alpha - and as always the focus is absolute return on the way up no matter what the mandate - it seems the extreme correlations both across asset-class and within-and-across individual equities (as we have discussed in depth - most recently here) have indeed eaten into any 'value' that has empirically been added. As The Economist notes, in June "funds suffered the largest withdrawals in assets since October 2009." Furthermore, as Citi's recent study on risk drivers shows, the high-beta momentum trade has become by far the most crowded trade around - so even sales of DB9s and NYC apartments are now entirely dependent on NEW QE coming before year-end.
The ideological brand of so-called progress that we call “collectivism” relies heavily on the notion that the values of the past are inadequate to the requirements of the future. We are taught by the peddlers of collectivist propaganda that our beliefs and our principles must evolve along with the perceived growth of our species as a whole. They see themselves as visionaries and prophets foretelling a grand reinvention of the world that we laymen are unequipped to imagine or understand. We cling to the old ways because we are “afraid of change”, or too ignorant to fathom the beauty of their Utopian beyond… Pretentious bile? Absolutely. However, within the rhetoric and strategies of the collectivist agenda there are treasures to behold; reoccurring themes and indicators that can be found in nearly every modern tyranny and most ancient tyrannies that have ever existed. Words and actions that warn us of the true intent of the elite. The fact is, collectivists drive so hard to admonish respect for the past because every lie they tell us now has been told before a thousand times, to build a thousand gruesome empires.
On occasion of the publication of his new gold report (read here), Ronald Stoeferle talked with financial journalist Lars Schall about fundamental gold topics such as: "financial repression"; market interventions; the oil-gold ratio; the renaissance of gold in finance; "Exeter’s Pyramid"; and what the true "value" of gold could actually look like. Via Matterhorn Asset Management.
Normal. 7bps instaswings in 10Y Treasury yields and 10 point S&P 500 e-mini futures (ES) dips and rips makes perfect sense. In a desperate bid to get back to VWAP and to hold off a fifth day of red closes in the cash S&P 500 (most in two months), equities were ramped up into the green in the last few minutes of the day only to be sold into hard (on heavier volume and larger average trade size) ending the day down 0.02 points at 1341.45. Quite a day as the 10Y auction and FOMC minutes made for a tempest in a teapot close to close (but cardiac arrests for many intraday). HYG (the high-yield bond ETF) was outperforming most of the day and provided the 'target' for the ramp at the end of the day as VXX dumped (thanks to a more-than 1 vol snap lower in VIX - sell that short-dated vol!!!) and TLT was stable. Oil's surge (inventories) accelerated as the USD leaked lower after its post-FOMC spike and Gold/Silver/Copper all pushed higher also. We can only assume that the post-FOMC drop of around 10pts in the S&P 500 was what many investors believe is enough to prompt swift action by the Fed to NEW QE - though between Oil's move and Treasury yields rising post the the auction (and more post FOMC), broad risk assets actually signal a slightly higher ES - though we suspect the utter collapse in cross-asset-class correlations is the signal that coordinated QE hopes are indeed fading and that the algos late-day reaction (rip) to Treasuries will be recalibrated to new reality soon enough. Cash S&P 500 ended up bouncing off its 50DMA and while ES ended the day +1.25pts, VIX dropped a much higher beta 0.75vols to close just below 18% - wth Treasury yields up 1-2bps by the close.
Presenting, with little comment, the ultimate arbiter of the truth - First Trust's Brian Wesbury - discussing his "Mark-to-Market accounting is to blame for it all; the economy is fine and is not reliant on Fed QE; 80,000 jobs creating; Facebook wealth-building" view of the non-zombie economy. So we presume: Forget China, ignore Europe, the fiscal-cliff is a molehill, and once the government stops spending/growing (which is his angle) then all will be well with this thoroughbred economy - as opposed to his non-zombie plough-horse (that unfortunately just leads us down a path of low/slow growth, labor force participation-lagging, deficit spending, social welfare dependent dysphoria).
The Borg collective formerly known as the US middle class may have no money left (and its credit cards have long since been maxed out), but at least it has every internet-connected gizmo known to man and Klingon. Not surprisingly, this development has not been lost on the very same retailers who are competing dollar for dollar with the vendors who sell these same faddy gizmos to the same Borg collective. For now retailers are losing. But, like stock traders and the administration they are full of hope. And spam. And will make it known. As SM reports, spam emails from retailers "jumped 20% in the first half of the year over the same period in 2011, according to a survey released this week by Responsys, a California-based marketing software company. In June alone, these stores sent an average of 18 emails per subscriber, up 21% on last year." Expect this number to only go up until virtually every email coming into one's inbox is a groupon ad, a penis enlargement device, a PFG "try us for 30 days for free" offer, or a 90%-off "one time only" for the latest value investing congress. Because the only cost associated with spamming people is printing extra email lists. The Fed Chairman can vouch for the sunk cost associated with hitting CTRL+P. So how long until iPhone spam filter makers are more profitable than Belgian caterers?
Americans work harder longer than any European nation aside from Spain. France, on the other hand, does not - with a retirement age five years earlier than the US (and only bested by the island of Malta). Over the long-term, Italy appears to be the worst case at 69 years (but in Italy-work-years this is only 51 years since they vacation three months per year). As the Washington Post points out most of the European nations (including Germany) are set to see their retirement ages raised in "a dramatic rewrite of the continent’s postwar social compact" highlighting that "measures that keep people working longer could prove one of the most significant social legacies of the debt crisis." But even then they only catch up to the American worker. Of course, the sad reality is that as workers get older, that retirement age will extend further and further away.
EURUSD has tumbled hard following the FOMC minutes as the much-hoped for 'we promise to print USD to infinity at the next meeting no matter what we see' phrase was missing. Two months ago, when the EURUSD was at 1.30, we asked if a 1000 pip move lower, based on relative central bank balance sheets, is in the cards. Today, we are 80% of the way there, with the Euro having tumbled 800 pips against the dollar as NEW QE gets priced further and further out - now implying a 20% likelihood of getting a new USD printing from the Fed within the next 3 months.