Today, far too many people put all their faith in deceitful politicians and bankers to tell them the truth and consequently are dreadfully misinformed.
There probably isn’t a more over-used phrase thrown across the media landscape than, “It’s different this time.” One can’t look at the financial markets, the political stage, and more without shaking ones head. Nothing seems to make sense. Yet if one wants to lazily answer, “It’s different this time.” Things become crystal clear. Water now seems to run uphill. The definition of words no longer mean what they once did. (we’re still marveling on what is – is) Free society means the loss of only a few freedoms per year, as opposed to everything at once. Work is a bad thing however, if someone else goes to work and pay for your things – then that’s good. You can keep your plan if you like your plan – but if we don’t like it – well – you can’t. The Federal Reserve would never monetize the debt – however if you’re a preferred dealer in the QE (quantitative easing) program – they’ll do it for you. These precarious times leave many scratching their heads. Expressed another way, When everyone is on the band wagon – except the band. You had better take notice.
With 40% of the portfolio in cash and having returned $4 billion to clients at year-end, Seth Klarman's Baupost Group has "drawn the line in the sand" as they reflect on the diminished opportunities in the so-called "Truman Show" market we see today. In the face of mixed economic data and at a critical inflection point in Federal Reserve policy, Klarman notes, the stock market, heading into 2014, resembles a Rorschach test - "what investors see in the inkblots says considerably more about them than it does about the market." From "born bulls" to "worry genes" and from Bitcoin to flash-mob-speculation, "there is a growing gap between the financial markets and the real economy...and the overall picture is one of growing risk and inadequate potential return almost everywhere one looks... as every 'Truman' under Bernanke’s dome knows the environment is phony."
Everyone agrees that the winter just now winding down (hopefully) has been brutal for most Americans. And while it's easy to conclude that the Polar Vortex has been responsible for an excess of school shutdowns and ice related traffic snarls, it's much harder to conclude that it's responsible for the economic vortex that appears to have swallowed the American economy over the past three months. But this hasn't stopped economists, Fed officials, and media analysts from making this unequivocal assertion. In reality the weather is not what's ailing us. It's just the latest straw being grasped at by those who believe that the phony recovery engineered by the Fed is real and lasting. The April thaw is not far off. Unfortunately the economy is likely to stay frozen for some time to come.
Despite stocks being at record highs, sell-side strategists proclaiming today's jobs report as great, and the Fed comfortable tapering in the face of transitory weather-related macro weakness, the following chart suggests all is not well... Echoing Irving Fisher, it appears we have reached a permanently high plateau in the duration of unemployment in America...
Greek President Karolos Papoulias raised the issue of World War II reparations to his German counterpart Joachim Gauck currently on a 3-day official visit to Athens. But as expected, Gauck repeated the official legal position of Berlin. Karolos Papoulias told Gauck that Greece has not dropped its compensation claim over the Nazi atrocities and the enforced loan by the Nazi occupiers during the World War II. “I want to point out that Greece has never given up its claim of German reparations, ” Papoulias reportedly told Gauch at a private meeting in Presidential Manson adding “it is necessary to solve the problem with the earliest possible start of negotiations.”
Having heard the great and good declare this morning's "beat" on the headline NFP data as indicative of 1) the recovery is awesome; 2) the reason why stocks have been rallying; and 3) the recovery is awesome... it appears between a rising unemployment rate, tumbling average hourly earnings, and Gazprom's threat in Europe, stocks are taking this "good news" as "bad news." Confirmed by Hilsenrath that the taper is on - which is what bonds, gold, and the dollar appeared to be saying - the S&P 500 having spiked 10 points is now 13 points off its highs and in the red for the day...
The knee-jerk reaction to a better-than-expected (and entirely noise-driven) payroll number (with a rise in the unemployment rate) is a rip higher in stocks and collapse in bonds and precious metals. The USD is surging as USDJPY instantly hit 103.50 (breaking through its 50DMA) providing all the juice stocks need to test that critical Goldman 1,900 year-end target for the S&P 500. It seems, just as we warned earlier, "whatever the number, the algos will send stocks higher - that much is given in a blow off top bubble market in which any news is an excuse to buy more."
So much for the weather. As we warned earlier today, when we said that with everyone expecting a miserable print the only possible result would be a large "beat", sure enough that's precisely what happened. Breaking it down:
February payrolls: +175K, Exp. 149K, Last revised from 113K to 129K).
Unemployment rate: 6.7%, Exp. 6.6%, Last 6.6%.
Labor participation rate: 63.0%, Last 63.0%
Today's nonfarm payroll number is set to be a virtual non-event: with consensus expecting an abysmal print, it is almost assured that the real seasonally adjusted number (and keep in mind that the average February seasonal adjustment to the actual number is 1.5 million "jobs" higher) will be a major beat to expectations, which will crash the "harsh weather" narrative but who cares. Alternatively, if the number is truly horrendous, no problem there either: just blame it on the cold February... because after all what are seasonal adjustments for? Either way, whatever the number, the algos will send stocks higher - that much is given in a blow off top bubble market in which any news is an excuse to buy more. So while everyone is focused on the NFP placeholder, the real key event that nobody is paying attention to took place in China, where overnight China’s Shanghai Chaori Solar defaulted on bond interest payments, failing to repay CNY 89.9mln (USD 14.7mln), as had been reported here extensively previously. This marked the first domestic corporate bond default in the country's history - indicating a further shift toward responsibility and focus on moral hazard in China.
Promises, promises. A lack of easing, aside from a promise of "lower for longer", has driven EURUSD back above 1.38 as the market is once again disappointed by Draghi's lack of exuberance.
- *DRAGHI SAYS UNEMPLOYMENT STABILIZING, REMAINS HIGH (umm, continues to rise every month?)
- *DRAGHI SAYS UPSIDE, DOWNSIDE INFLATION RISKS REMAIN LIMITED (umm, continues to plunge every month?)
- *DRAGHI SAYS RISKS TO ECONOMIC OUTLOOK ARE ON DOWNSIDE (umm, stocks are at record highs?)
- *DRAGHI SAYS REAL INCOME SUPPORTED BY LOWER ENERGY PRICES (umm, so no sanctions on Russia then?)
But apart from that, Draghi is "nailing it"...
Following yesterday's abysmal employment and service data which led to an unchanged close it quite clear that the market has returned to a mode where it ignores all newsflow - at least the bad, which is due to the weather, the good news is due to the recovery - and instead is simply driven by such "fundamental drivers" as the momentum and position of the Yen carry trade. And overnight the USDJPY positively exploded following news that the Japan advisory committee has decided the nation's pension fund, the GPIF, does' t need a domestic bond focus. Implicitly this means that the GPIF will soon be able to purchase stocks like Facebook and Tesla, which is a guaranteed way of generated short-term gains and longer-term total losses for the Japanese pensioners. Of course, when the latter happens, nobody will have been able to foresee it and some scapegoat somewhere will be summarily fired. As for what this means for futures, the drift higher has made SPOOs rise once more and at last check was just below if not at new all time highs on an ongoing barrage of increasingly negative macro news.
Premier Li Keqiang delivered his first government work report at the opening of the National People’s Congress (NPC) meeting last night. The new government promises to speed up reform, manage debt risks, fight pollution, and yet maintain 7.5% economic growth all at the same time but as SocGen'sWei Yao warns, this is going to be nothing if not challenging. Maybe mindful of a potential miss, Yao points out that policymakers seem to give themselves a small degree of flexibility by using new phrases like “a reasonable range for the growth rate” and “the growth target is
flexible”. Mission intractible or mission impossible?
With even Warren Buffett saying it's a bad idea, we can't wait to hear how President Obama will explain how his move to raise the minimum wage will create jobs and save the middle class....