- Even Obama's fans has turning on him: "The Decline and Fall of 'Hope and Change'"
- European Stocks Drop, Head for Worst January Since 2009 (BBG)
- Euro-Area Inflation at 0.7% Builds Rate Pressure on ECB (BBG)
- Japan’s Inflation Accelerates as Abe Seeks Wage Gains (BBG)
- Unpossible - this is the USSA: Detroit Debt Proposal Favors Pension Funds (WSJ)
- Keystone Report Said Likely to Disappoint Pipeline Foes (BBG)
- YHOO still pretending someone cares about it: Yahoo says detected hacking attempt on email accounts (Reuters)
- How Google's Costly Motorola Maneuver May Pay Off (WSJ)
- Mexico Surpassing Japan as No. 2 Auto Exporter to U.S. (BBG)
While everyone focuses on the turmoiling in Emerging Markets, a good, old standby is back - the periodic "debt ceiling" IMAX tragicomedy. Recall that the debt limit, which has been suspended since October 17, is scheduled to be reinstated on February 8. At that time, the nation will be operating right at the debt limit, and the Treasury Department will use extraordinary measures to temporarily issue additional public debt to meet federal financial obligations as it always does during episodes of political posturing that without fail take place until the 11th hour, 59th minute, and 59th second. However, unlike last year when there was a 5 month interval between hitting the debt ceiling, and the day the Treasury's funds fully ran out - the infamous X Date - this time the emergency measures will only last a limited time. What this means when looking at a calendar, is that the Treasury may not have sufficient cash-on-hand to cover all obligations due as soon as February 28.
Confidence is soaring (or sliding) depending on what survey you choose to believe. The UMich confidence's collapse (the biggest miss in 8 years) has been matched by more 'baffle 'em with bullshit' as the Conference Board beats expectations by the most in 5 months and pushes back towards 2013 highs (near the highest in over 5 years). Both the Present situation and Expectations rose notably - despite 1.4 million people losing their benefits, a lackluster holiday season for retailers, and stagnant incomes - but the Present Situation index rose to the highest since April 2008.
For a brief moment this morning - following Jim Cramer's exclamation that anyone who is still bearish following the China Trust bailout is "stupid" - there was hope that the drama had stopped unfolding. However, it has not. JPY carry continues to be battered and that is dragging every levered-long trade lower from European bonds to US small caps. The invincible Trannies have collapsed and are now -3.25% in 2014; having risen more than 6.5% from the Taper decision day, Trannies have tumbled to a mere 0.8% gain. But the S&P 500 and Russell are catching down to the Dow's underperformance and have given up their post-taper gains. Rather stunningly, Discretionary and Homebuilders are now the worst performing S&P sectors from the taper. VIX has surged to touch 19% - its highest since October 9th. Treasuries are modestly bid (1-2bps at best) and the USD is flat (despite major swings in AUD, CAD, and JPY). Credit is trading back to 3-month wides and stocks are catching down.
With all eyes focused on China (shadow bank liquidity fears), Emerging Market currencies, and US equities; something very concerning has been going on in short-dated Treasury Bills. The ultra-short-term remain bid (near zero yield) as the saftey crush demand bids for them but move out one month - across the dreaded late-February debt-ceiling debacle maginot line - and suddenly yields are exploding! The March 16th yields have screamed from 1bps to 12.75bps in the last 2 days - now above the October debt ceiling levels..
Overview of forces impacting stocks, bonds and currencies.
Have you been paying attention to what has been happening in Argentina, Venezuela, Brazil, Ukraine, Turkey and China? If you are like most Americans, you have not been. Most Americans don't seem to really care too much about what is happening in the rest of the world, but they should. In major cities all over the globe right now, there is looting, violence, shortages of basic supplies, and runs on the banks. We are not at a "global crisis" stage yet, but things are getting worse with each passing day. Many have felt that 2014 could turn out to be a major "turning point" for the global economy, and so far that is exactly what it is turning out to be. The following are 20 early warning signs that we are rapidly approaching a global economic meltdown...
Markets are deteriorating around the world but what could cause a real correction in the markets?
While last night's almost unprecedented reverse repo liquidty injection into the Chinese banking system stopped the bleeding of short-dated money-market rates briefly, the likelihood remains that a shadow-banking system default will occur: As CASS's Zhang noted:
*CHINA TRUSTS AND SHADOW BANKING TO SEE DEFAULTS IN 2014; DEFAULTS WOULD BE GOOD THING
Perhaps that explains why China's CDS spread remains at its highest since the summer credit crunch, barely budging on last night's cash drop. At double the default risk of Japan, China appears far from out of the contagion fire.
Market tops occur when investor psychology changes. But it’s not a clean shift. Investors, like any category of people, are comprised of numerous groups or sub-sects: some get it sooner than others.
Following December's biggest-surge-in-4-years for UMich consumer confidence (though a miss), UMich data has fallen back to 80.4 - missing expectations by the biggest margin in 8 years. This is the 4th miss in the last 5 months as hope for moar multiple expansion begins to fade. Both current conditions and the outlook indices fell (for the first time sicne October). As UPS would says, confidence dropped because there was too much confidence...
Despite Lagarde's call for more manipulation and money-printing from the world's central banks yesterday, US Treasury Secretary Jack Lew is not amused with his Japanese 'colleagues'. Speaking in Washington, Lew had plenty to say on Europe (not out of the woods), China (need to open markets more), and the IMF (US commitment remains solid - oh, apart from the funding part); but it was his entirely ironic comments aimed at Abe and Kuroda that were risible:
*LEW SAYS JAPAN NEEDS TO `GET THEIR DOMESTIC ECONOMY GROWING'
*LEW SAYS JAPAN CAN'T RELY ON FX RATE FOR ECONOMIC ADVANTAGE
Pot calling kettle black? Or a person who lives in a currency-war "glass-house" throwing stones? Pick your tortured analogy but the US hypocrisy continues.
What could be worse than a falling cost for things that the increasingly cash-strapped consumer desires? We are not entirely sure but Christine Lagarde is deathly afraid of it...
- *LAGARDE SAYS RISING RISK OF DEFLATION MUST BE FOUGHT DECISIVELY
- *LAGARDE URGES OFFICIALS TO `FORTIFY THE FEEBLE GLOBAL RECOVERY' *LAGARDE SAYS U.S. MUST AVOID EARLY WITHDRAWAL OF FED SUPPORT
- *LAGARDE: JAPAN'S INITIAL BOOST FROM `ABENOMICS' WEAKENING A BIT
- *LAGARDE SAYS EURO-AREA MONETARY POLICY `COULD STILL DO MORE'
In other words, 5 years of debt monetization on an unprecedented scale were not enough! Get back to work Mr Draghi, Mrs Yellen, and Mr Kuroda.
If party politics are weak, muddled, and contradictory, the divisions between Americans are starkly clear: wealth in America has never been so unevenly distributed — the fabled one percent versus everyone else. Despite the election of a mixed-race president, and the wish-fulfillment fantasies of Hollywood, race relations in the USA remain tense. Divisions between men and women are tragically compounded by the dangerous dynamics of work in America that leave many men (especially men) in a vacuum of purpose, meaning, and potency. It is almost impossible these days for low-skilled men to support a family. The indignity of this thunders through broken communities and the penitentiary cellblocks. The ongoing national culture war pits the “traditional values” faction against the sexual libertarians; the red states against the blue states; urban against the conflated suburban and rural; the Christian fundamentalists against an array of other positions and belief groups; the entitlement “socialists” against the “free market” conservatives. Perhaps most divisive of all will be the schism between the young and the old over the table scraps of the dying industrial economy.
Just when funds thought it was safe to buy short-term Treasuries and rehypothecate them to immeasurable leverage, yields on Bills due after the February 7th debt-ceiling suspension ends are lifting significantly in recent days. Since the year-end liquidity squeeze, yields on the March bills have developed a hump indicating concerns beginning. Of course, levels remain very low for now but the 'kink' is notable.