Today's Sesame Street market moment is brought to you by the word "hope" and by the number '-0.025%'. For the last five months, Goldman notes that the US equity markets have rerated their economic growth view as hope remains for a future full of unicorns and faerie-fart-powered autos. However, the reality is that, as Goldman's macro-economic Swirlogram shows, that the data is no longer indicating expansion and in fact in December shifted into a 'slowdown' mode. Once again we are left, as we head into earnings season where headline numbers have been slashed to make the bar low for beats (but stocks have not re-rated yet), with a divergence between macro (and micro) reality and the nominal equity index implied reality that so many managers hope is true.
We were wondering how long until the latest lunatic idea out of the "serious economist" mainstream would get the proper comedic treatment it so rightfully deserves. That time finally came last night when Stephen Colbert gave it the 3 minutes of attention it almost deserves. Oh well, now that it has made the comic circuit it is time to officially forget about this idiotic idea... At least until the next debt ceiling crisis in a year or so when like a bad sequel to Weekend at Bennie's Bernie's, it is resurrected once more.
Sometimes you just have to laugh - or you will cry. In what could well have been Tuesday Humor if it wasn't so real, the AIG board (fulfilling its shareholder fiduciary duty) is considering joining Hank Greenberg's suit against the government over the cruel-and-unusual bailout that saved the company. The $25bn lawsuit, as NY Times reports, based not on the basis that help was needed but that the onerous nature "taking what became a 92% stake in the company with high interest rates and funneling billions to the insurer's Wall Street clients" deprived shareholders of tens of billions of dollars and violated the Fifth Amendment (prohibiting the taking of private property for "public use, without just compensation"). The 'audacious display of ingratitude' comes weeks after the firm has repaid the $182 billion bailout funneled to it and its clients by an overly generous Treasury. The firm has asked for 16 million pages of government documentation, this "slap in the face of the government" portends a question of whether the government will sue The Fed for enabling the recovery that strengthened Greenberg's case that the bailout was so harsh. Happy retirement Tim Geithner.
Reuters report that Asia's physical market has picked up so far this year, with buyers tempted by last week's big drop in prices -- when prices retreated to as low as 1,626 per ounce -- and on demand ahead of the Lunar New Year, traders said. The trading volume on the Shanghai Gold Exchange's 99.99 gold physical contract shot through the roof on Monday, hitting a record of 19,504.8 kilograms, after double-counting transactions in both directions. "Physical demand is very strong," said a Beijing-based trader. "It's a combination of the attraction of lower prices as well as pre-holiday demand." But such appetite could waver if prices recover towards $1,700, he added.
Equity markets recovered from a lower open following press reports overnight by eKathimerini that the country’s main banks are considering requesting additional funds for their recapitalization and edged higher throughout the session after sources at Hellenic Financial Stability Fund said that there no indications that Greek banks need more recap funds. In addition to that, Xinhua reported that chance of China RRR cut is increasing for January, citing industry insiders for RRR cut forecast. This follows on from the reports in ChinaDaily last week, which suggested that a small interest rate cut at the right time could substantially decrease financing costs and improve expectations for profitability, citing researchers from the China Development Bank, the State Information Center and the Shanghai Securities News who have worked together to forecast key economic indicators and policies in 2013. The risk sentiment was also supported by well subscribed debt auctions from the Netherlands, Austria, Greece and Belgium. As a result, peripheral bond yield spreads are tighter by around 5bps in 10s. Going forward, market participants will get to digest the latest NFIB, IBD/TIPP and Consumer Credit reports. The Fed is due to conduct Treasury op targeting Oct'18-Dec'19 (USD 3.00-3.75bln) and the US Treasury is also set to auction USD 32bln in 3y notes.
You read that right: SocGen, the second largest French bank, not only has labor unions, but they have just announced a one-day national strike to protect their jobs. Which is odd, because it was our impression that in socialist France nobody is allowed to lose their job ever again. Perhaps that excludes bankers: the confusion surrounding the Fairness Doctrine, which may or may not tax millionaires at a 75% tax rate continues to grow.
- London Quantitative Hedge Funds Report Second Year of Losses (BBG)
- Berlusconi Forms Alliance in Comeback Bid (WSJ)
- Japan to Buy ESM Bonds Using FX Reserves to Help Weaken Yen (BBG)
- Japan Mulling BOJ Accord Linked to Employment, Mainichi Says (BBG)
- Samsung Expects Record Operating Profit (WSJ)
- Boeing 787 Dreamliner Fire Probed, Blaze Adds to Setbacks (BBG)
- BOJ's Shirai: Open to Firmer Inflation Target (WSJ)
- HSBC N.J. Client Admits Conspiracy in Offshore Tax Case (BBG)
- Lampert to Assume CEO Role at Sears (WSJ)
- Abe prepares fresh stimulus measures (FT)
- U.S. Set for Biggest State-Local Jobs Boost Since 2007 (BBG)
- Pakistan Seen Needing IMF Bailout as Rupee Drops Before Vote (BBG)
The biggest highlight of the day is the launch of Q4 earnings season with Alcoa after the close. The question is by how much will the ES/SPY correlation have dragged individual stock prices higher from far lower cash flow implied valuations - we will get a glimpse this week, as well as get a sense of how Q1 is shaping up, this week but mostly next week as earnings reports start coming in earnest. There was the usual non-event newsflow out of Europe, which has no impact on risk levels, now driven solely by every twitch of Mario Draghi's face, and best summarized by this from SocGen: "In the wake of September's 3 point VAT increase in Spain, which saw a significant bringing forward of consumption to beat the tax hike, euro area activity in Q4 has been genuinely awful."
With the Notre Dame vs Alabama game a complete one-sided demolition, the night was in desperate need of some entertainment... until Piers Morgan and Alex Jones stepped in. While the headline topic was "guns", it was 13 minutes of unbridled spitting, stuttering, and screaming, which achieves nothing in converting anyone on the fence on either side of the "gun control" argument, but certainly helps with CNN's sagging Nielsen ratings, which after having become disinformation central following the Obamacare "rejection" and the NYSE floor "flooding", is now slowly but surely converting itself into the Jerry Springer show for Gen Y. If nothing else, this is far more fun than watching the all too controlled Notre Dame implosion.
Just when we thought America would be alone in crossing into the montary twilight zone where so many Keynesian lunatics have gone before, and where trillion dollar platinum coins fall from the sky right onto the heads of all those who have not even the faintest understanding of money creation, here comes Japan:
ASO: JAPAN TO BUY ESM BONDS
ASO SAYS JAPAN TO BUY ESM BONDS USING FOREIGN EXCHANGE RESERVES
ASO: ESM PURCHASES WILL HELP TO STABILIZE YEN
For those who have forgotten, the E in ESM stands for European (the S for Stability), not Japanese (Stability). Otherwise it would be, er... well, JSM. Keynesian at that. But yes - Japan will now proceed to "stabilize" itself by monetizing European debt. Because its own JPY 1 quadrillion in debt was not enough.
Beginning with Malthus' warning to the world and the Great Irish famine, David McWilliams (of Punk Economics) provides his typically succinct, profoundly fascinating, and graphically pleasing insights on the state of the global food economy. "What happens when hungry people panic?" is the question McWilliams poses; "they move to other parts of the world," he rhetorically answers, adding that this could well be the story of the next 50 years on Earth as the rock of the insatiable demand of seven billion (soon-to-be-ten-billion) people smashes into the hard place of the planet's limited resources to produce that one thing that keeps us all alive - food. The food dilemma is more complex though as it is really an energy dilemma - one that is not going away (on the downside). On the bright side, Malthus' nightmare has yet to occur thanks to the ingenuity of humans. However, if all the world's seven billion people consumer as much as the average American, it would require the resources of over five planet Earths to sustainably support all of us. So either the rest-of-the-world eats less to allow Americans to eat more or we are stuck! McWilliams takes us on a path from changing global diets to water and energy demands, through central banks' "frothy response" to the global financial crisis and on to the impacts such as class divisions, rising healthcare costs, and social unrest - all in 11 minutes... Truly must watch!
As 2012 was coming to an end, Americans became concerned with what was referred to as the “fiscal cliff”... while the unrecognized problem all along had been what might be more appropriately called the “fiscal eclipse.” Once again, political and popular aversion to face economic reality won the day, and the illusory fiscal cliff was replaced by other financial peaks that soon must be climbed, each of them offering at the very top not a view of economic prosperity but yet another precipice inviting Americans to jump. We are gifting our children a host of financial problems that our inept, self-serving leaders – Democrats and Republicans similarly if not equally at fault – won't confront or lie to us about... knowing how gullible Americans are to the idea of that mythic American exceptionalism they have been fed since that 19th century Manifest Destiny. It all started just a quarter of a century ago with Perestroika and Glasnot, and our inability to recognize we were entering a new global financial era where America would no longer rule the seas.
Bloomberg is out after hours with news that was expected by many, but which was yet to be formalized, until now: namely that following today's flurry of contntious nomination by Obama, the latest and greatest is about to be unveiled - Jack Lew, Obama's current chief of staff, is likely days away from being announced as Tim Geithner's replacement as the new Treasury Secretary of the United States. In other words, Jack will be the point person whom the people who truly run the Treasury, the Treasury Borrowing Advisory Committee, chaired by JPM's Matt Zames (who just happens to also now run the notorious JPM Chief Investment Office which uses excess deposits to gamble - yes, you really can't make this up) and Goldman's Ashok Varadhan, global head of dollar-rate products and FX trading for North America (recently buying a $16 million pad at 15 CPW) will demand action from.
As loathed as we are to say "we told you so," but we did and sure enough eKathimerini is reporting this evening that: thanks to the 'voluntary' haircuts the Greek banks were force-fed via the latest buyback scheme and the political uncertainty causing non-performing loans (NPLs) to rise (in a magically unknowable way), they will need significantly more 'capital' to plug their increasingly leaky boats. The original Blackrock report from a year did not foresee a rise in NPLs (which Ernst & Young now estimates stands at 24% of all loans) and the buyback dramatically reduces the expected profitability of the banks as it removes critical interest payments that would have been due. Whocouldanode? Well, plenty of people who did not just buy-in blindly to the promise of future hockey-stick returns to growth. Expectations are now for the Greek bank recap to be over EUR30bn.