Europe keeps banking on these two pillars holding the system up. But the pillars are cracking... it's only a matter of time before the whole thing comes crashing down.
- G20 struggles over forex, at odds over debts (Reuters)
- Alwaleed Sells Airbus A380 to Invest in Middle East Firms (BBG)
- GOP Stalls Vote on Pick for Pentagon (WSJ)
- ECB officials rebuff currency targeting as G20 meets (Reuters)
- Not good for the reflation effort: Muto leads as Japan PM close to choosing nominee for Bank of Japan chief (Reuters)
- M&A Surges as Confidence Spurs Deals in Computers to Consumer (BBG)
- JPMorgan’s head of equity prop trading Gulati to launch own fund (FT)
- Tiffany & Co. sues Costco over engagement rings labeled ‘Tiffany' (WaPo)
- JPMorgan Said to Fire Traders, Realign Pay Amid Slump (BBG)
- Broker draws Tullett into Libor scandal (FT)
- Airbus drops Lithium-Ion batteries for A350 (Reuters)
The great trade, capital flow and debt imbalances that were built up over the preceding two decades must reverse themselves. Michael Pettis notes, however, that these imbalances can continue for many years, but at some point they become unsustainable and the world must adjust by reversing those imbalances. One way or the other, in other words, the world will rebalance. But there are worse ways and better ways it can do so. Pettis adds that, any policy that does not clearly result in a reversal of the deep debt, trade and capital imbalances of the past decade is a policy that cannot be sustained. It is likely to be political considerations that determine how quickly the rebalancing processes take place and whether they do so in ways that set the stages for future growth or future stagnation. Pettis' guess is that we have ended the first stage of the global crisis, and most of the deepest problems have been identified. In 2013 we will begin to see how policymakers respond and what the future outlook is likely to be. The following 10 themes are what he will be watching this year in order to figure out where we are likely to end up.
As always happens when central planning is involved, when one tries to stop a leak here, two new leaks appear elsewhere. Because while the Homeowners Bill of Rights managed to grind foreclosure activity to a halt in California, what is happening elsewhere is the dreaded Boomerang Foreclosure phenomenon, or, said simply, redefaults. In other words, those homeowners who tried to take advantage of the most recent housing bubble mania created over the past year by the unholy trinity of the Fed (open-ended liquidity, REO-to-Rent programs, and $40 billion in monthly purchases of MBS), foreign buyers (who launder illicit money courtesy of the NAR's anti-money laundering exemption and park it in ultra luxury US real estate, usually sight-unseen) and of course, the banks, who with the aid of the robosigning fiasco and the Homeowner Bill of Rights, have over the past year subsidized the housing market by keeping non-cash flow generating mortgages on their books in exchange for a wholesale subsidizied rise in housing prices, ran out of cash before they could flip the "hot potato" that is the house they just bought, to a greater fool, and since they had no actual cash to pay the mortgage with, and with no fear of retribution, handed it right back to the bank. As the chart below shows, while California foreclosure activity is collapsing, things in other places are starting to indicate that the second housing bubble blown by Bernanke in 5 years, is finally starting to crack:
- John Kerry just got happier: Berkshire Hathaway, 3G Buying Heinz for $72.50 a Share, or $28 Billion - ~20% premium to last price (CNBC)
- US Airways, AMR to Merge (WSJ) - can thousands of workers spell "synergies"?
- Draghi, Carney show ascent of "whatever it takes" central bankers (BBG) ... to preserve the Goldman way of life
- Euro zone economy falls deeper than expected into recession (Reuters)
- Soros has made $1 billion betting against the Japanese Yen (WSJ)
- Ex-Analyst at SAC Felt Pressured for Tips (WSJ)
- Desalination Seen Booming at 15% a Year as World Water Dries Up (BBG)
- China's 'Wall' Hits Business (WSJ)
- Israel publishes some details as Australian spy mystery deepens (Reuters)
- Tata Motors Profit Falls 52% (WSJ)
- AB InBev Will Sell Corona Unit to Salvage Modelo Takeover (BBG)
- "Blade Runner" Pistorius charged with murdering girlfriend (Reuters)
- In Ohio and beyond, Obama sees model for manufacturing revival (Reuters)
Reports indicating that Americans have invested more in equity funds here in 2013 than they did all last year have given rise to talk of the "Great Rotation". The idea is that Americans are selling fixed income investments bought during the financial crisis and now buying shares. We are less sanguine. There is a third asset class that needs to be integrated into the analysis: cash. After surveying the data and various reports, it looks to us that the flows into equities is not coming out of fixed income but rather money market funds and deposits.
Following yesterday's G-7 announcement which sent the USDJPY soaring, and its embarrassing "misinterpretation" clarification which undid the entire spike, by an anonymous source in the US who said the statement was in fact meant to state that the Yen was dropping too fast and was to discourage "currency wars", it was only a matter of time before another G-7 country stepped into the fray to provide a mis-misinterpretation of the original G-7 announcement. That someone was the BoE's outgoing head Mervyn King who at 5:30 am eastern delivered his inflation reporting which he said that "it’s very important to allow exchange rates to move," adding that "when countries take measures to use monetary stimulus to support growth in their economy, then there will be exchange rate consequences, and they should be allowed to flow through." Finally, King added that the BOE will look through CPI and relentless UK inflation to support the recovery, implicitly even if it means incurring more inflation.
Money – we all want it, but few of us are willing to sacrifice to get it. Those that have it generally don't understand it, and those that don't have it come up with excuses why they can't get it. If this sounds confusing – it is. For all that we have accomplished in the United States in the last 200+ years we have failed miserably at teaching our children the basics of money management. We are not talking about stock and bond portfolios but rather the basics of spending less than you make, understanding of credit, and how to balance a check a book. We are inundated daily with credit card commercials that show how great life can be – just charge it. We are enticed to buy things that we don't really need though the use of zero percent financing – but only while it lasts. We are motivated to consume anything and everything in pursuit of the American dream but no one ever talks about the consequences of our actions. The secret, of course, is the true road to wealth and happiness. It is irrefutable, undeniable and absolutely achievable - spend less than you make.
We have long held the machinations of The National Association of Realtors (NAR) up to some ridicule. As many will note, we ignore every NAR data release due to the fact that it is certified guesswork (at best) as per the massive periodic revisions that just so happen wipe out all prior year gains. We also suspect a darker side, as the NAR, courtesy of its anti money-laundering exemption, is simply a middleman allowed to close its eyes as dirty money is ferried into the US and specifically its real estate market. But former Fannie Mae chief credit officer Ed Pinto digs a little deeper into the real driver behind the NAR. For 90 years the NAR (and its predecessor organization) has supported expanding the government’s role in housing finance. Today, the government guarantees upwards of 90 percent of all new mortgages. It is easy to reconcile the NAR’s interest in home ownership and its support for the expansion of the government’s role in housing finance. In Ed's research he has not come across a single instance where the NAR has stated that lending standards should be tightened. To the contrary the NAR has almost always called for loosened lending standards and continued or increased government involvement, no matter the market conditions.
- The Man Who Killed Osama bin Laden... Is Screwed (Esquire)
- G7 fires currency warning shot, Japan sanguine (Reuters)
- North Korea Confirms It Conducted 3rd Nuclear Test (NYT)
- Italian Police Arrest Finmeccanica CEO (WSJ)
- Legacy, political calendar frame Obama's State of the Union address (Reuters)
- China joins U.S., Japan, EU in condemning North Korea nuclear test (Reuters)
- Wall Street Fading as Emerging-Market Banks Gain Share (BBG)
- Berlin Conference 2.0: Drugmakers eye Africa's middle classes as next growth market (Reuters)
- Barclays to Cut 3,700 Jobs After Full-Year Loss (BBG)
- US Treasury comment triggers fall in yen (FT)
- ECB Ready to Offset Banks’ Accelerated LTRO Payback (BBG)
- Fed's Yellen Supports Stimulus to Spur Jobs (WSJ)
- Libor Scrutiny Turns to Middlemen (WSJ)
- Samsung Girds for Life After Apple in Disruption Devotion (BBG)
Just in case the Friday night insider dump bomb by Google executive chairman Eric Schmidt, in which he announced the sale of 42% of his GOOG holdings the day the stock hit its all time high, did not send a clear enough message to the market as to what side of the under-over valued spectrum corporate insiders believe we currently find ourselves in, here come six other companies with announcement of equity follow ons and secondary offerings - mostly by "selling shareholders" who happen to be some of the smartest LBO shops around - after the close on Monday alone. The scramble to sell equity while the selling is good is on.
From the management of a global currency war to the 1998 Committee to Save The World, QBAMCO provides an all encompassing escape into the reality our current - and future - monetary (and inflationary) world. While Brodsky and Quaintance do not expect a breakdown in global monetary oversight, they do expect fiat currency debasement to continue to mask the driver of real economic malaise and contraction - global bank deleveraging; and they do expect this process to lead to a popular loss of confidence in today’s major currencies as savings instruments – perhaps beginning in the global capital markets in 2013. What will eventually (or soon) occur will be the rare occasion when return-on-savings trounces return-on-investment, implying precious metals will outperform the great majority of financial assets (except for shares in precious metals miners and natural resource producers).
Six years ago today, with the S&P 500 around 1460 - having risen 20% without a correction for seven months - a handful of Wall Street's best and brightest joined CNBC's Larry Kudlow and Bob Pisani to discuss the Goldilocks economy, why the bears are wrong, and where the market is going next. Sometimes, we just need a reminder to snap us out of that recency bias... for example, Bob Pisani: "We have got a global rally going on... and the important thing is... there's a floor to the market - every time, for the last seven months, they sell the market down for 2 days, it comes right back... When you are in a global expansion like this, to sell...is foolish."
Jeremy Grantham: "I like the analogy of the Fed beating a donkey (the 1% growing economy) for not being a horse (his 3% growing economy). I assume he keeps beating it until it either turns into a horse or drops dead from too much beating!"
- Bersani's lead over Berlusconi continues to erode, now just 3.6 Pts, or inside error margin, in Tecne Poll
- Spain gears up for U.S. debt investor meetings (Reuters)
- PBOC Set for Record Weekly Liquidity Injection (WSJ)
- RBS Trader Helped UBS’s Hayes With Libor Bribes, Regulators Say (BBG)
- ECB, Ireland reach bank debt deal (Reuters)
- AMR-US Airways Near Merger Agreement (WSJ)
- Monte Paschi says no more derivatives losses (Reuters) ... remember this
- Harvard’s Gopinath Helps France Beat Euro Straitjacket (BBG) - by sliding into recession?
- Obama Relents on Secret Drone Memo (WSJ)
- Brennan to face questions on interrogations, drones and leaks (Reuters)
- Wall Street Success With Germans Boomerangs (BBG)
- Khamenei rebuffs U.S. offer of direct talks (Reuters)
- Boeing Preps Redesign to Get 787 Flying (WSJ)