New York Stock Exchange
Is the U.S. consumer tapped out? If so, how in the world will the U.S. economy possibly improve in 2014? Most Americans know that the U.S. economy is heavily dependent on consumer spending. If average Americans are not out there spending money, the economy tends not to do very well. Unfortunately, retail sales during the holiday season appear to be quite disappointing and the middle class continues to deeply struggle. And for a whole bunch of reasons things are likely going to be even tougher in 2014. Families are going to have less money in their pockets to spend thanks to much higher health insurance premiums under Obamacare, a wide variety of tax increases, higher interest rates on debt, and cuts in government welfare programs. The short-lived bubble of false prosperity that we have been enjoying for the last couple of years is rapidly coming to an end, and 2014 certainly promises to be a very "interesting year".
We are not exactly sure why the ballerinas of the Nutcracker can be found on the floor of the TV studio formerly known as the New York Stock Exchange (currently owned by the Atlanta-based ICE), but we are sure there is a good reason.
It is time to crank up the Looney Tunes theme song because Wall Street has officially entered crazytown territory. Stocks just keep going higher and higher, and at this point what is happening in the stock market does not bear any resemblance to what is going on in the overall economy whatsoever. So how long can this irrational state of affairs possibly continue? Stocks seem to go up no matter what happens. If there is good news, stocks go up. If there is bad news, stocks go up. If there is no news, stocks go up. On Thursday, the day after Christmas, the Dow was up another 122 points to another new all-time record high. In fact, the Dow has had an astonishing 50 record high closes this year. This reminds me of the kind of euphoria that we witnessed during the peak of the housing bubble. At the time, housing prices just kept going higher and higher and everyone rushed to buy before they were "priced out of the market". But we all know how that ended, and this stock market bubble is headed for a similar ending.
As students vie for 2014 internships, Bloomberg finds a fraternity-based network whose Wall Street alumni guide resumes to the tops of stacks, reveal interview questions with recommended answers, offer applicants secret mottoes and support chapters facing crackdowns. Despite apparent crackdowns on cronyism, nepotism, and fraternism; it seems nothing has changed as "secret handshakes" and the fraternity pipeline helps undergraduates beat odds three times steeper than Princeton University’s record-low acceptance rate... "People like people who are like themselves," notes one recruiter, seemingly proven by the fact that JPMorgan employs 140 Sigma Phi Epsilon members with BofA and Wells Fargo even more.
Although the U.S. stock market continues to hit new nominal highs on a nearly daily basis, the U.S. economy bumps along at a lackluster pace. This disconnect has been achieved by a massive Fed experiment in monetary stimulation. Through the combination of seemingly endless maintenance of zero interest rates and the injection of some $1trillion a year of synthetic money into fixed-income markets, the Fed is hoping that the boom it is creating on Wall Street will lead to a boom on Main Street. In reality, this a very dangerous economic gamble of enormously high stakes. As we have seen in the recent past, financial bubbles can leave catastrophe in their wake.
They say those who forget the lessons of history are doomed to repeat them. We’ve seen that maxim made true time and again. The cycle swings fear back to greed. The overcautious become the overzealous. And at the top, the story is always the same: Too much credit, too much speculation, the suspension of disbelief, and the spread of the idea that this time is different. The weaknesses of the human heart and mind means the swings will always exist. Our rudimentary understanding of the forces of economics, which in turn, reflect ultimately reflect the fallacies of people making investing, purchasing, and saving decisions, means policymakers will never defeat the vagaries of the business cycle. So no, this time isn’t different. The specifics may have changed, but the themes remain the same.
The correlation between stock prices and margin debt continues to rise (to new records of exuberant "Fed's got our backs" hope) as NYSE member margin balances surge to new record highs. Relative to the NYSE Composite, this is the most "leveraged' investors have been since the absolute peak in Feb 2000. What is more worrisome, or perhaps not, is the ongoing collapse in investor net worth - defined as total free credit in margin accounts less total margin debt - which has hit what appears to be all-time lows (i.e. there's less left than ever before) which as we noted previously raised a "red flag" with Deutsche Bank. Relative to the 'economy' margin debt has only been higher at the very peak in 2000 and 2007 and was never sustained at this level for more than 2 months. Sounds like a perfect time to BTFATH...
Farewell Mareeaah. The Money Honey who epitomized CNBC in its high flying (pardon the pun) years when it was actually a source of useful information, has just marked the nadir of the TV station which in the past five years rebranded itself stock market propaganda central, and whose viewership plunged appropriately to a 20 year low as we recently reported. As Drudge reports, Bartiromo whose contact is up, is moving to Fox Business. From Drudge: "DRUDGE has learned that Maria Bartiromo is jumping to FOX BUSINESS NETWORK with an announcement expected sometime soon. Sources close to the situation say there have been ongoing conversations throughout the Fall. The new deal calls for Bartiromo to anchor a daily market hours program on FOX BUSINESS. Insiders say there will be a role on FOXNEWS as well."
We have seen a confluence of events that suggests we may be reaching the terminal point of the financial markets merry-go-round – that point just before the ride stops suddenly and unexpectedly and the passengers are thrown from their seats. Having waited with increasing concern to see what might transpire from the gridlocked US political system, the market was rewarded with a few more months’ grace before the next agonising debate about raising the US debt ceiling. There was widespread relief, if not outright jubilation. Stock markets rose, in some cases to all-time highs. But let there be no misunderstanding on this point: the US administration is hopelessly bankrupt. (As are those of the UK, most of western Europe, and Japan.) The market preferred to sit tight on the ride, for the time being.
- Fed Anxiety Rises as QE Raises Risk of Loss With Political Cost (BBG)
- Iran Nuclear Deal Expected as Early as Friday (WSJ)
- Israel rejects mooted interim Iran nuclear deal, Kerry heads to talks (Reuters)
- JPMorgan Banker Backed $200 Million Madoff Loan in 2008 (BBG)
- Unleashing the food nazis - FDA Says Trans Fats Aren't Safe in Food (WSJ)
- Draghi Aggression Shows Pledges Backed by Rate Surprise (BBG)
- S&P Cuts France's Credit Rating by One Notch to Double-A (WSJ)
- S&P criticises France’s high tax rates for stifling growth (FT)
- Payroll Gains in U.S. Probably Cooled Amid Government Shutdown (BBG)
- Christie Sets Himself Up for Run in 2016 (WSJ)
- De Blasio Elected Next New York City Mayor in Landslide (WSJ)
- Hilsenrath: Fed Study: Rate Peg Off Mark (WSJ)
- MF Global Customers Will Recover All They Lost (NYT) - amazing what happens when you look under the rug
- Virginia, Alabama Voter Choices Show Tea Party Declining (BBG)
- Explosions kill 1, injure 8 in north China city (Reuters)
- Toyota boosts full-year guidance as weak yen drives revenues (FT)
- Starbucks wants to recruit 10,000 vets, spouses to its ranks (Reuters)
- U.S. Economy Slack Justifies Stimulus, Top Fed Staff Papers Show (BBG)
- Israel set to become major gas exporter (FT)
No wonder investors don't take economists seriously. Or if they do, they shouldn't. Since Richard Nixon interrupted Hoss and Little Joe on a Sunday night in August 1971, it's been one boom and bust after another. But don't tell that to the latest Nobel Prize co-winner, Eugene Fama, the founder of the efficient-market hypothesis. No matter the facts, Fama has his story and he's sticking to it. "I think most bubbles are 20/20 hindsight," Fama told Cassidy. The rest of us, who lived through the tech and real estate booms while Fama was locked in his ivory tower, know that in a boom people go crazy. There's a reason the other term for bubble is mania.
This is probably the most painful bug report I’ve ever read, describing in glorious technicolor the steps leading to Knight Capital’s $460m trading loss due to a software bug that struck late last year, effectively bankrupting the company. The tale has all the hallmarks of technical debt in a huge, unmaintained, bit-rotten codebase (the bug itself due to code that hadn’t been used for almost 9 years), and a really poor, undisciplined dev-ops story.
- Despite budget win, Obama has weak hand with Congress (Reuters)
- Carney Brings In McKinsey for Bank of England Strategy Rethink (BBG)
- Bill Gates Buys Stake in Spanish Construction Company FCC (WSJ)
- Jerusalem Mayor Barkat Seeks New Term in Race Arabs Sitting Out (BBG)
- J.P. Morgan Aimed to Limit Damage (WSJ)
- EU Lawmakers Reject Draghi Call for Bank Bondholder Clemency (BBG)
- Wall Street Profits May Halve in Second Half (WSJ)
- Petrobras-led group wins Brazil oil auction with minimum bid (Reuters)
- Apple to Refresh IPads Amid Challenges for Tablet Share (BBG)
- Italy plans to offer guarantees on govt bond derivatives (Reuters)
- Berkshire Beats Apple as Favorite Stock of Tiger 21 Group (BBG)