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Consumer Credit Decelerates Most Since Feb 2011

With expectations of a $12.0bn rise in Consumer Credit, yet another market 'economic' indicator flashes orange as the Seasonally Adjusted number comes in at $8.735bn - the largest miss from expectations in 6 months. Furthermore, using the Non-Seasonally Adjusted data, this is the largest sequential drop in 12 months (since the Feb 2011 plunge). While non-revolving debt managed to increase (though at a considerably lower pace) for the second month in a row the deleveraging that ended in Q4 has resumed following the end of the retail shopping season (as revolving credit contracted). Perhaps the same 'glitch' that destroyed Groupon, namely accounting for product returns, is about to sweep the entire retail industry?



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Guest Post: The Face of Authoritarian Environmentalism

An Oregon University professor has controversially compared skepticism of global warming to racism. Sociology and environmental studies professor Kari Norgaard wrote a paper criticising non-believers, suggesting that doubters have a ‘sickness’. The professor, who holds a B.S. in biology and a master’s and PhD in sociology, argued that ‘cultural resistance’ to accepting humans as being responsible for climate change ‘must be recognised and treated’ as an aberrant sociological behaviour.



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What Is Capitalism?

On a day when the sad reality of our (AAPL-free) centrally-planned economy came a little unhinged, it is perhaps useful to reflect on just how different our 'capitalism' in the US now is from other 'capitalist' societies and the one we had in the 1900s. Robert Murphy (of The Politically Incorrect Guide To Capitalism book fame) explains how everyone has an agenda - yet everyone agrees that they despise capitalism. Capitalism is the system in which people are 'free to choose' and this is compared to socialist economies (where prices are set by the Fed state and assets can be confiscated for the benefit of the people). The fear of capitalism's citizenry running riot with unregulated actions leaves critics focused on a belief that regulators and bureaucrats know better than private citizens how to make their own decisions. This brief discussion ends with a sprinkling of Ayn Rand, Obama, Geithner, Barney Frank, and Harry Reid and their efforts to evade Capitalism's features, misrepresent its nature, and destroy its last remnants.



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51 Months After The Start Of The Recession, Here Is The Report Card

Recovery? What Recovery? 4 years after central banks have progressively injected over $7 trillion in liquidity into the global markets (and thus, by Fed logic, the economy), and who knows how many trillion in fiscal aid has been misallocated, to halt the Second Great Depression which officially started in December 2007, the US "recovery" is the weakest in modern US history! How many more trillions will have to be printed (and monetized) before the central planners realize that fighting mean reversion by using debt to defeat recore debt, just doesnt't work? Our guess - lots.



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The Hunt For Red Pyongyang: South Korea On Alert For Naval Attack After "Losing" 4 North Korean Subs

Just because the imminent launch of a North Korean rocket along a trajectory which will likely force Japan to strike it down, something which Pyongyang said would be equivalent to an act of war, was not enough, it now appears that South Korea has commenced the hunt for Red Pyongyang or four, as it is now "searching for four North Korean submarines that disappeared after leaving their bases on the tense peninsula." ABC News reports that "A military source quoted in a South Korean newspaper says up to four North Korean submarines slipped out of port in recent days and have so far avoided detection. The source was also quoted as saying that Pyongyang has stepped up submarine infiltration drills as the weather has warmed." As a result, "Seoul is now on alert for a possible strike against a South Korean naval ship." This won't be the first time a North Korean sub is implicated in potential wrongdoing: "The South accuses the North of using a midget submarine to sink the corvette the Cheonan two years ago, which left 46 South Korean sailors dead."



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The Easter Egg: Italy's Latest Parabolic Curve

With the world focusing on the latest disinformation from the BLS, one would be forgiven to miss the Bank of Italy's monthly balance sheet aggregates data. A quick perusal thereof reveals that in March, Italian banks saw their ECB support surge from €195 billion to €270 billion, the highest ever, 39% more than in February, and 776% more than greater than a year earlier, and now merely the latest parabolic curve to love and hold dear. Indicatively, on the chart below we have also added Spanish bank borrowings from the ECB (still pending a March update), which in February were also at an all time high of €152 billion. So aside from this last recourse lifeline from the ECB which is now openly keeping Europe's banks afloat, "the crisis is nearly over" to quote Mario Monti.



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Stephen King's Perspectives On The Greek Tiger

While the idea of a futuristic tale of the resurgence of Greece and how Germany shot itself in the foot could well be the work of the horror-writer, HSBC's Chief Economist Stephen King opines on what could well be with a moral for those who want Athens out of the Euro. "The idea that Greece can leave and that the rest of the eurozone will then live happily ever after – a view that is quickly becoming the conventional wisdom – is surely wrong. Departure might eventually be an answer to Greece's difficulties but it only asks questions of everybody else." And the fantastic journey King lays out is rooted in a sad reality that he sums up thusly: "Germany's gamble had failed. In the attempt to punish Greece, it had ended up with an impossible choice: creating a fiscal union or huge currency upheaval. Berlin had taken aim at Greece but shot itself in the foot."



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US Needs To Generate 262K Jobs Each Month To Get Back To Breakeven

This is the latest tally: since the start of the Second Great Depression, the US has lost a total of 5.2 million nonfarm payroll jobs, beginning with 138 million jobs in December 2007, and printing at 132.8 million as of 90 minutes ago. So far so good. The problem, however is that the denominator in the equation is not fixed, and as everyone knows the US labor force, despite the ridiculous BLS data fudging, is growing in line with population, albeit at a slower pace. According to all non-partisan budget forecasters, each month the labor force should be adding 90,000 people. Which in turn means that since December 2007, the labor force has really grown by 4.6 million. Adding these two together leads to a 10 million job deficit. So what has to happen for these 10 million to get promptly put back into jobs, and for America to get back to the ~5% unemployment rate it boasted just as the credit bubble peaked? Nothing too crazy: the country just has to create 262,000 jobs every month for the remainder of Obama's first, and now, by the looks of it, second term too. We are quite confident he can handle it.



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Treasury Yields Drop Most In 5 Months As Market Reacts, Equity Futures Slide

UPDATE: Treasuries still bid with 10Y -12bps ay 2.06%, 7Y -12bps at 1.44% and 5Y comfortably back under 1% -9bps.

Risk-Off. Treasury yields dropped around 12bps across the curve from pre-NFP as the 10Y yield drops the most in 5 months. Equity futures are down the most in a month (20pts off pre-NFP levels) and testing lows as they catch up to credit weakness. IG credit is testing 100bps for the first time in over 2 months and HY credit is back over 600bps - its widest in 3 months. Gold has popped $10 or so to over $1640 and it appears we have a new FX regime with USD weakness implying market weakness as JPY strength (on repatriation and carry unwinds back to one-month highs) is the most impressive (and AUD weakness for same reason). EURUSD is leaking higher as is swissy, as the EUR-USD swap spread model converges on EURUSD's fair-value. Of course markets are thin, but ES (the S&P 500 e-mini futures) is trading relatively actively and testing lows once again as they close - not pretty at all as ES ends the week with the heaviest 3-day loss in four months (perhaps notably ending at 2011's May high print level).



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NFP Big Miss: 120K, Expectations 205K, Unemployment 8.2%, "Not In Labor Force" At New All Time High

March NFP big miss at just 120K. Unemployment rate declines from 8.3% to 8.2%. Futures slide, for at least a few minutes before the NEW QE TM rumor starts spreading. The household survey actually posted a decline in March from 142,065 to 142,034. Considering Birth Death added 90K to the NSA number, the actual number was almost unchanged. The unemployment rate drops to 8.2% for one simple reason: the number of people not in the labor force is back to all time highs: 87,897,000. And as always, as we predicted when Goldman hiked its NFP forecast yesterday from 175K to 200K saying "if Goldman's recent predictive track record is any indication, tomorrow's NFP will be a disaster", Goldie once again skewers everyone. Finally, Joe LaVorgna's +250,000 forecast was just 100% off... as usual.

 



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The Average March "Seasonal Adjustment" Factor: +824,600

While still gripped in the bearhug of the warmest winter/spring period seemingly in history, and with virtually everyone now having woken up to the realization (two months delayed) that winter seasonal adjustments when April falls in February may not be the most appropriate way to adjust Non-seasonally adjusted data, we would like to demonstrate the seasonal adjustment factor by month over the past decade. The first chart below shows the annual difference between the NSA and SA number from 2002 to 2012. The second one: just the average. The bottom line is that in the January-March period, there are, on average, 4,413,000 jobs "added" purely due to seasonal adjustments. And while these seasonal adjustments may be appropriate when winter is indeed winter, they are far more difficult to justify when summer falls in the middle of winter. Furthermore, it also means that if indeed we get the +200,000 NFP number that many expect today, this would mean 2012 YTD has added a total of 711,000 jobs. Putting this number in perspective, this is 16.1% of just the seasonal addition over the same period. In other words: jobs added solely in the confines of some opaque excel spreadsheet based on historical patterns, pre 75 degrees in February. Finally, the March BLS number of +200,000, if indeed it comes there, will be 24% of just the shotgun average March seasonal adjustment which has averaged to 824,600 jobs over the past decade. Yet things finally change in April, when seasonal adjustments hardly have an impact on the NSA number, and then in May things get from bad to worse, when the Seasonal Adjustment will for the first time every year, subtract 670,100 jobs from the NSA number. Appropriately enough, this will come just before the June FOMC meeting. Finally, should the NFP number be a major beat, it merely makes US-based QE that much more unlikely until and unless we get a major disappointment in payrolls.



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Frontrunning: April 6

  • More on JPM's uber-prop trader Bruno Iskil - 'London Whale' Rattles Debt Market (WSJ):
  • Traders Eye 45-Minute Window After Good Friday Report (Bloomberg)
  • Sky News admits hacking of emails (FT)
  • Britain’s Economy Barely Grew in First Quarter, Niesr Estimates (Bloomberg)
  • Olbermann sues Current TV for $50M, cites glitches (USAToday), full lawsuit here
  • Morgan Stanley broadens clawback rules (FT)
  • Swiss Franc Showdown Looms as Jordan Defends SNB Ceiling (Bloomberg)
  • Key Democratic donors cool to pro-Obama Super PAC (Reuters)
  • Investors' Prying Eyes Blinded by New Law (WSJ)
  • U.S. not backing off as Iran sanctions bite (Reuters)


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Previewing Today's NFP Report

Yesterday, out of left field, Goldman hiked its March NFP forecast from +175,000 to match consensus at +200,000. This is rather odd, considering Goldman's recent bearish spin on economic data. As it turns out the justification for this is not only to align with the trendline in ADP and claims data, but because now, suddenly, Goldman thinks that the 100,000 jobs boost due to warm weather, will not be unwound until April. In retrospect this makes sense: Goldman also recently gave up on the Fed announcing the NEW QE in April, as a result the next such opportunity will be June, which in turn means that a rapid deterioration in the economy will have to take place just before the FOMC meeting, rather than a gentle slowing down. Which is why today's NFP has now become a crapshoot, especially since it is still all in the seasonal adjustments. One thing is certain: the quality of jobs, as first demonstrated here, will continue to go down: because in an election year, one dilutes everything, up to and including jobs.



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Net Worthless: People As Corporations

US Households haven't shaken their 'junk bond' credit rating, given their poor income statement and balance sheet. Reversing Mitt Romney's famous quote "corporations are people", Bank Of America remains skeptical of this self-sustaining recovery - expecting second half growth to slow significantly as businesses and households react to the risk of a major fiscal shock (and in the short-term, momentum looks unsustainable). From an income statement perspective, 'a paycheck just ain't what it used to be' with food and energy prices rising and payroll growth (typically a good proxy for income growth) is disappointingly timid leaving real disposable income diverging weakly from a supposed job recovery. The balance sheet perspective has been helped by the rise of the equity market but the recovery in net worth in the last three years has barely outstripped income growth, leaving the ratio deeply depressed. The upshot is that the recent pick-up in consumption is not being fueled by income or wealth gains, but mainly by drawing down savings. Many households remain deeply distressed and react to higher costs of living by drawing down savings further. In sum, a true virtuous cycle still seems a long way off. As weather effects fade and gas pain builds the data should soften. BofA expects businesses to recognize the risks of the fiscal cliff first and pull back on hiring. Then with weaker job growth and with the growing awareness of the cliff, consumers will likely start delaying some discretionary spending.



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JPMorgan Trader Accused Of "Breaking" CDS Index Market With Massive Prop Position

Earlier today we listened with bemused fascination as Blythe Masters explained to CNBC how JPMorgan's trading business is "about assisting clients in executing, managing, their risks and ensuring access to capital so they can make the kind of large long-term investments that are needed in the long run to expand the supply of commodities." You know - provide liquidity. Like the High Freaks. We were even ready to believe it, especially when Blythe conveniently added that JPM has a "matched book" meaning no net prop exposure, since the opposite would indicate breach of the Volcker Rule. ...And then we read this: "A JPMorgan Chase & Co. trader of derivatives linked to the financial health of corporations has amassed positions so large that he’s driving price moves in the multi-trillion dollar market, according to traders outside the firm." Say what? A JPMorgan trader has a prop (not flow, not client, not non-discretionary) position so big it is moving the entire market? And we are talking hundreds of billions of CDS notional. But... that would mean everything Blythe said is one big lie... It would also mean that JPMorgan is blatantly and without any regard for legislation, ignoring the Volcker rule, which arrived in the aftermath of Merrill Lynch doing precisely this with various CDO and credit indexes, and "moving the market" only to blow itself up and cost taxpayers billions when the bets all LTCMed. But wait, it gets better: "In some cases, [the trader] is believed to have “broken” the index -- Wall Street lingo for the market dysfunction that occurs when a price gap opens up between the index and its underlying constituents." So JPMorgan is now privately accused of "breaking" the CDS Index market, courtesy of its second to none economy of scale and fear no reprisal for any and all actions, and in the process causing untold losses to, you guessed it, its clients, but when it comes to allegations of massive manipulation in the precious metals market, why Blythe will tell you it is all about "assisting clients in executing, managing, their risks." Which client would that be - Lehman, or MFGlobal? Perhaps it is time for a follow up interview, Ms Masters to clarify some of these outstanding points?



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