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."
Earlier today, Bill Frezza of the Competitive Enterprise Institute and CNBC's Steve Liesman got into a heated exchange over a recent Frezza article, based on some of the key points we made in a prior post "A Record $2 Trillion In Deposits Over Loans - The Fed's Indirect Market Propping Pathway Exposed" in which, as the title implies, we showed how it was that the Fed was indirectly intervening in the stock market by way of banks using excess deposits to chase risky returns and generally push the market higher. We urge readers to spend the few minutes of this clip to familiarize themselves with Frezza's point which is essentially what Zero Hedge suggested, and Liesman's objection that "this is something the banks don't do and can't do." Liesman's naive view, as is to be expected for anyone who does not understand money creation under a fractional reserve system, was simple: the Fed does not create reserves to boost bank profits, and thus shareholder returns, and certainly is not using the fungible cash, which at the end of the day is what reserves amount to once dispersed among the US banks, to gun risk assets higher.
Alas, Steve is very much wrong.
The main events of this week, monetary policy meetings at the BoE and the ECB on Thursday, are not expected to bring any meaningful changes. In both cases, banks are expected to keep rates on hold and to hold off on further unconventional policy measures. While significant economic slack still exists in the Euro area, and although the inflation picture has remained relatively benign, targeted non-standard policy measures are more likely than an interest rate cut. As financial conditions are already quite easy in the core countries, where the monetary transmission mechanism remains effective, the ECB’s first objective is to reverse the segmentation of the Euro area’s financial markets to ensure the pass-through of lower rates to the countries with the most need for further stimulus.
D-day - the real D-Day: the day after which the US government will have to start shutting down - is now 52 days away, but with the Pyrrhic victory on the Fiscal Cliff, which once more, did nothing to resolve the Fiscal Cliff issue but merely hiked payroll taxes for some, general income taxes for others, even as drunken sailor spending has persisted, it is virtually a guarantee that nothing will happen in D.C. for at least 3-4 more weeks until the posturing and jawboning soars in earnest. Only this time the can kicking won't be nearly as easy. In other news, for the first time in maybe 2 months, the algos are neither gripped by headlines about Washington, or macro events, but micro, as the fourth quarter earnings season kicks off, with Alcoa reporting on Tuesday, Wells on Friday and a true launch of Q4 earnings season next week. And since revenues are set to continue deteriorating despite estimates of a Y/Y increase in top lines following a disastrous Q3, and let's not even mention cash flow, operating earnings and capital reinvestment, once again it will all be about EPS rejiggering and accounting games.
In part one of this two part series – Hey You – we examined how an invisible government of wealthy, power hungry men have utilized the propaganda techniques of Edward Bernays and lured the American people into a narcissistic, techno-gadget, debt based servitude. Over the last one hundred years they have created a totalitarian state built upon egotism, material goods, and fulfilling our desires through Wall Street peddled debt and mass consumerism. It has been an incredibly effective form of control that has convinced the masses to love their servitude. The lyrics to Pink Floyd's 'Mother' had both a literal and figurative meaning for Roger Waters. Having seen his Wall Tour performance this past summer at Citizens Bank Park with a diverse crowd of 40,000, ranging in age from senior citizens to teenagers, it seems this song has gained new meaning. He sang a duet with himself from 1980 projected on the Wall and when he sang the lyric, “Mother, should I trust the government?” the entire stadium responded in unison – NO!!! This revealed a truth that is not permitted to be discussed by the corporate mainstream media acting as a mouthpiece for the ruling class. A growing legion of citizens in this country does not trust the government. This is very perceptive on their part.
In what must be one of the scariest data points for equity bulls, Industrial Production just printed above all economist's estimates with its largest rise since Dec 2010. This 2.5 sigma beat of expectations is the biggest beat since December 2010 and, given that it was data that Ben Bernanke did not have at his previous FOMC meeting, we suggest, ever so humbly, that surely this will play into his qualitative assessment of the economic thersholds and reduce the likelhood of him accelerating his bond-purchases scheme. The driver of such exuberant Industrial Production... Motor Vehicle manufacturing; which as we already know produced the largest channel-stuffing debacle in history. Sustainable? We don't think so... As previous downward revisions appear to have provided a much bigger than expected rebound from Sandy-scuppered prior levels.
Of course, it makes perfect sense - the largest market cap company in the world drops further and experiences a death cross and sure enough - the evergreen Dow Jones Industrial Average ended near the highs of the day - well north of the critical 'retirement-on' 13,000. In general risk-assets were quietly correlated with stocks today (amid relatively quiet volume on the major averages) but we note that the capital structure ETFs in general were less exuberant - though they did get a little bounce after the consumer credit data. All-in-all, the Dow stood alone in its non-AAPL exuberance as the rest of the market was mired in the sentment shift that is occurring (note the Dow saw ts 50DMA cross below its 100DMA and its closed perfectly intersecting with those averages). Must be the 'great' jobs number, right? Treasury yields end near their lows of the week, USD near its highs, Gold down on the week though at 3-day highs (supporting stocks), and high-yield credit weak today. Paging Skynet...
A month after consumer credit rose by $12 billion (revised) driven by car and student loans, even as revolving credit declined, total consumer credit in October once again rose in both revolving and non-revolving categories, up by $14.2 billion, consisting of $3.4 billion in revolving and $10.8 billion in non-revolving. This number will probably get revised lower next week. The number which will not be revised lower is the composition of sources of consumer credit, where the Government sourced 70% of all new loans (on a NSA) basis: $7 bilion of a total of $10.3 billion. For some perspective, the US government has funded $114 billion of the total $156 billion in total consumer debt in the past year. Between the Fed and Uncle Sam, who needs banks?
We have seen numerous articles as of late discussing how the average American family has finally delevered their household balance sheet at last. The problem is that apart from mortgage debt, whose decline has been facilitated by massive central bank and governmental intervention, other debt is still being piled on. These other debts are at substantially higher rates than mortgages and negatively impacts the consumer's ability to save. This is why savings rates continue to fall. As full-time employment remains elusive, the average American continues to resort to debt, and governmental support, to fill the gap between waning real incomes and their expected standard of living. This is a game that has a finite end. The diversion of income from savings to support debt service requirements will continue to impede economic growth until such time as either debt returns to levels that are conducive for higher levels of personal savings or incomes rise. This leaves consumers trapped between the need to payoff of debts in order to free up cash flow but needing increased levels of debt to sustain their standard of living. In the end the consumer will delever, either by choice or by force, the only difference between the two outcomes is the length of time that the current economic malaise lasts.
November sales of U.S. American Eagle gold coins are on track to be the best in 14 years as uncertainty surrounding the U.S. fiscal cliff and the election of President Obama led to safe haven buying. Buyers timing the market also increased coin sales by buying during sharp price movements that occurred in the beginning and end of November, coin dealers noted. Bullion dealers in the U.S. report an influx of high net worth individuals that are buying gold coins in volume and taking physical possession of their bullion. Month to date 131,000 ounces of American Eagles sold, that tripled last year's November sales and is the strongest November since 1998, data from the U.S. Mint's website shows. In October, the U.S. Mint sold 59,000 vs 50,000 ounces the previous year, while November marked its 2nd successive monthly rise. Coin banks have come in to buy the stock as the mint usually ends 2012 coin production in early December so it can begin minting the 2013 coins.
Today's "trading", in a repeat of what has become a daily routine, can be summarized as follows: flashing red headline about Fiscal Cliff hope/optimism/constructiveness out of a member of Congress who bought SPY calls in advance of statement: market soars; flashing red headlines about the inverse of Fiscal Cliff hope/optimism/constructiveness out a member of Congress who bought SPY puts in advance of statement: market plunges. Everything else is noise, as is said hope/expectations/constructiveness too since it is increasingly likely nothing will happen until the debt ceiling hike deadline in March, but stop hunts must take place in a market which nobody even pretends is driven by fundamental newsflow. Such as the bevy of PMIs released last night, the key of which was the China HSBC PMI as reported previously, which beat expectations by the smallest of possible increments, at 50.5, but rising to expansion territory and the highest in 13 months, which sent the EURUSD spiking and has kept it in the 1.3030 range for the duration of the overnight session. Sadly, those on the ground in China hardly felt the number was a bullish as EURUSD trading algos around the world, sending the Shanghai Composite to a fresh post-2008 low, closing down over 1% at 1,960. But let's just ignore this inconvenient datapoint shall we?
The Scariest Chart Of The Quarter: Student Debt Bubble Officially Pops As 90+ Day Delinquency Rate Goes ParabolicSubmitted by Tyler Durden on 11/27/2012 16:10 -0500
We have already discussed the student loan bubble, and its popping previously, most extensively in this article. Today, we get the Q3 consumer credit breakdown update courtesy of the NY Fed's quarterly credit breakdown. And it is quite ghastly. As of September 30, Federal (not total, just Federal) rose to a gargantuan $956 billion, an increase of $42 billion in the quarter - the biggest quarterly update since 2006. But this is no surprise to anyone who read our latest piece on the topic. What also shouldn't be a surprise, at least to our readers who read about it here first, but what will stun the general public are the two charts below, the first of which shows the amount of 90+ day student loan delinquencies, and the second shows the amount of newly delinquent 30+ day student loan balances. The charts speak for themselves.
Following one of the highest monthly jumps in consumer credit in August, the September data showed that following the drop in household savings to a multi-year low, consumers naturally retrenched, and had no choice but to pay down debt. As the just released G.19 confirmed, in September, households once again reduced their credit card debt, which declined by $2.9 billion to $852 billion. This was the fourth such decline in six months, confirming that at the discretionary level where banks have supervision over borrowings, the consumer is still nowhere near willing to relever. Where, there was leverage, a lot of it, was once again in the government sector, which funded $13.8 billion of the total $14.6 billion rise in NSA credit, and where non-revolving credit: read loans for Government Motors, at least those that have not been record channel stuffed (as reported previously) and Federal Student Loans, which are now over $1 trillion, rose by $14.3 billion in one month. Of course, the difference between revolving and non-revolving credit is that while banks expect the former to be paid off eventually, Uncle Sam has no such illusions on any low APR debt it hands out to anyone who asks for it (and if the proceeds from student loans are used to purchase iPads, so be it).
Investors should prepare for rising prices and more expansionary monetary policy now that President Barack Obama has won re-election, investor Jim Rogers told CNBC on news of the election. The co-founder with George Soros of the Quantum Fund said he expected Obama’s policies to drive up commodities and drive down the U.S. dollar. As the Federal Reserve moves to ‘stimulate’ a stalled economy through debt purchases, Rogers says markets should expect the status quo to remain the same. “If Obama wins, it’s going to be more inflation, more money printing, more debt, more spending.” Rogers told CNBC, saying he expected to sell U.S. government debt and buy precious metals, such as silver and gold. “It’s not going to be good for you me or anybody else.”