Challenging a Sacred Cow of Banking Dogma
This system is on the way out. It will reset. Like feudalism before, our system will go the way of the historical dust bin. And future historians will look back (just as we view feudalism) and say “why did they put up with that nonsense…? This reset is nothing to fear. Human beings are incredible creatures who have a long-term track record of growth. We rise. We progress. As Jobs notes, human beings were fundamentally tool creators. We take our situation, however grim or rudimentary, and we make it better.
If one needed a flurry of "worse than expected" macro data to "explain" why European bourses and US futures are up, one got them: first with UK Q1 GDP printing at 0.8%, below the expected 0.9%, then German consumer prices falling 0.1% in April, and finally with Spanish unemployment actually rising from a revised 25.73% to 25.93%, above the 25.85% expected. All of this was "good enough" to allow Italy to price its latest batch of 10 Year paper at a yield of 3.22%, the lowest yield on record! Either way, something else had to catalyze what is shaping up as another 0.5% move higher in US stocks and that something is the old standby, the USDJPY, which ramped higher just before the European open and then ramped some more when European stocks opened for trading. Look for at least one or two more USDJPY momentum ignition moments at specific intervals before US stocks open for trading. But all of that is moot. Remember - the biggest catalyst of what promises to be the latest buying panic rampathon is simple: it's Tuesday (oh, and the $2-$2.5 billion POMO won't hurt).
The coming week will be busy in terms of data releases in the US; highlights include an improvement in consumer confidence, anemic 1Q GDP growth, and solid non-farm payrolls (consensus expects 215K). Wednesday brings advanced 1Q GDP - consensus expected a pathetic 1.1% qoq, on the back of what Goldman scapegoats as "weather distortions and an inventory investment drag", personal consumption (consensus 1.9%), and FOMC (the meeting is not associated with economic projections or a press conference). Thursday brings PCE Core (consensus 0.20%). Friday brings non-farm payrolls (consensus of 215K) and unemployment (6.6%). Other indicators for the week include pending home sales, S&P/Case Shiller home price index, Chicago PMI, ADP employment, personal income/spending, and hourly earnings.
A dispassionate look at next week's events and data.
Furious Russia, Downgraded To Just Above Junk By S&P, Proposes "Scorched Earth" Retaliation Against NATO CountriesSubmitted by Tyler Durden on 04/25/2014 16:05 -0400
- Russia should withdraw all assets, accounts in dollars, euros from NATO countries to neutral ones
- Russia should start selling NATO member sovereign bonds before Russia’s foreign-currency accounts are frozen
- Central bank should reduce dollar assets, sell sovereign bonds of countries that support sanctions
- Russia should limit commercial banks’ FX assets to prevent speculation on ruble, capital outflows
- Central bank should increase money supply so that state cos., banks may refinance foreign loans
- Russia should use national currencies in trade with customs Union members, other non-dollar, non-euro partners
This doesn't happen very often. Marketwatch reports that Jim Bianco points out in a recent market comment that the 67 economists taking part in a regular Bloomberg survey have a unanimous forecast regarding treasury bond yields: they will be higher 6 months from now... and a separate poll of economists recently showed that exactly zero expect the economy to contract. This is an astonishing degree of consensus thinking, but it perfectly mirrors the complacency we see in stock market sentiment and positioning data. The probability that such a unanimous view will turn out to be correct is traditionally extremely low. The economy is likely resting on a much weaker foundation than is generally believed. This is not least the result of massive monetary pumping and deficit spending, both of which tend to severely weaken the economy on a structural level, even though they can create a temporary illusion of 'growth'.
“Why does Obama suck?” If you’re not sure, ask Google. It seems that millions of Americans already have asked this question, along with: “Why does the government want to kill us?”, and “Can the government take your gold?” These are among the jewels of Google autocomplete - instantly displaying results from the most popular searches. The institution of government is now viewed as the problem, not the solution. And this represents a complete breakdown in the social contract. We suspect that if Google had been around in the mid-1780s, autocomplete would probably tell us things like “Why does the King Louis” suck? And, “Will France” collapse?
Going to Cuba is like going back in time. The country lacks basic products and services, many of which we consider staples in modern life. All of this stems from a system of central planning in which government essentially owns and controls… everything. Businesses. Property. Medical services. Anything larger than a bicycle. Teams of bureaucrats lord over the Cuban economy trying to manipulate and control every possible variable. They dole out housing allowances. They set manufacturing quotas. They control prices of goods and services. Nevermind that any high school economics student understands why price controls don’t work… and typically lead to shortages. That’s precisely what’s happening right now. Condoms are now at critically low levels in Cuba. And the government’s solution is to sell expired condoms from two years ago. It’s genius.
Meanwhile, we are still puzzling over the miracle produced by the Fed. Uri Geller could bend spoons. The Fed bends the entire economy. Hardly a single price is unaffected. Hardly a single business plan or investment strategy goes forward without an eye on the central bank. Jesus turned water into wine and multiplied loaves and fishes. But the Fed make Him seem like a two-bit shell game hustler. The loaves and the fishes couldn’t have had a market value of more than a few thousand shekels! Every year, more resources must be drawn from the future and enjoyed in the present. Every year, the claims on future earnings increase… and every year the debt becomes even more unsupportable. Somehow. Someday. Those claims on the future will be marked down.
Most of our readers probably know what we think of minimum wages, but let us briefly recapitulate: there is neither a sensible economic, nor a sensible ethical argument supporting the idea. So when we saw that the Swiss will vote in a national referendum May 18 on whether to create a minimum wage of 22 francs ($25) per hour, or 4,000 francs a month, we were stunned... If Swiss voters agree to introducing a new minimum wage law, they would end up doing incalculable damage to Switzerland's entrepreneurial culture. At the moment, Switzerland is still one of the freest economies in the world. It has been extremely successful so far and its achievements would clearly be put at risk. Hopefully Switzerland's voters won't be swayed by union's arguments.
Tax time, but not pay-up time.
The fears over ongoing commodity-financing restrictions and slowing money supply growth are contagiously spilling over into other collateral. Copper prices are in free fall this morning, crashing through critical levels (especially Dennis Gartman's "long punt") and back below the Maginot Line of $3.00. These are near 3-week low levels and the biggest drop since the cash-for-commodity financing deals came under real pressure.
One can see that while the traditional 6:00 AM USDJPY buy program is just duying to resume aggressive upward momentum ignition, futures are still leery and confused by the recent post-open high beta selloffs. Then again, things like yesterday's ridiculous no news 3:30pm ramp happen and confused them even more just as momentum is about to take a downward direction. Stocks in Asia (ex-China) advanced amid a reversal in sentiment after Citigroup (+4.15%) inspired positive close on Wall Street, however Shanghai Comp (-1.4%) underperformed as concerns over GDP data on Wednesday following weak money supply data weighed on sentiment. Stocks remained on the back foot (Eurostoxx50 -0.42%), with Bunds supported by the release of lower than expected German ZEW survey and also ongoing concerns surrounding the stand-off between Ukraine/Russia. Short-Sterling bear steepened after UK CPI fell to its lowest level since October 2009, but house prices across Britain posted its biggest rise since June 2010, reviving concerns over an overheating market.
Today's 'bounce' in US equity markets is not translating into Asian equity market strength as China, India, Indonesia, and Thai stocks are fading. Copper is crumbling and just stopped out Dennis Gartman's long. In China, the PBOC withdrew 172bn Yuan (highest since Feb 2013) and pushed the currency back towards its weakest since Feb (which is the weakest since the PBOC began its erstwhile carry-killing-policy). Lots of odd moving-parts in Chinese data tonight with M2 YoY growth tumbling to 12.1% (missing expectations) - its slowest since Jan 2001 but Total Social Financing smashed expectations at 2.07tn Yuan (vs 1.86tn expected). It seems, try as the PBOC might to control it, credit creation continues to balloon in China.