Unemployment

Up until today, the narrative was one trying to explain how a soaring dollar was bullish for stocks. Until moments ago, when Bill Dudley spoke and managed to send not only the dollar lower, but the Dow Jones to a new high of 15,400 with the following soundbites.

• DUDLEY: FED MAY NEED TO RETHINK BALANCE SHEET PATH, COMPOSITION
• DUDLEY SAYS FISCAL DRAG TO U.S. ECONOMY IS `SIGNIFICANT'
• DUDLEY: FED MAY AVOID SELLING MBS IN EARLY STAGE OF EXIT
• DUDLEY: IMPORTANT TO SEE HOW WELL ECONOMY WEATHERS FISCAL DRAG
• DUDLEY SAYS HE CAN'T BE SURE IF NEXT QE MOVE WILL BE UP OR DOWN

And the punchline:

• DUDLEY SEES RISK INVESTORS COULD OVER-REACT TO 'NORMALIZATION'

Translated: the Fed will never do anything that could send stocks lower - like end QE - ever again, but for those confused here is a simpler translation: Moar.

Concentrated power and wealth are intrinsically sociopathological by their very nature. We have long spoken of the dangers inherent to centralization of power and the extreme concentrations of wealth centralization inevitably creates. There is another danger of centralization: sociopaths/psychopaths excel in organizations that centralize power, and their ability to flatter, browbeat and manipulate others greases their climb to the top. In effect, centralization is tailor-made for sociopaths gaining power. Nothing infuriates a sociopath or a sociopathological organization more than the exposure of their sociopathology, and so those in power will stop at nothing to silence, discredit, criminalize or eliminate the heroic whistleblower.

Preview of tomorrow's Bernanke testimony and FOMC minutes.

Has China been hiding the real state of its economic data?

In August of 2011, Argentina’s government slowly began to implement a series of actions destined to curtail the right of citizens to access US dollars (foreign exchange in general). The goal was and is to force savings into pesos, as pesos are after the taxable asset in a country that cannot access capital markets and fully monetizes its deficits. From that moment onward  physical US dollars started to trade at a premium. First-hand experience on the ground in Patagonia confirm the irreversible damage caused by interventionist policies: Widespread poverty, abandoned infrastructure, scarcity of consumer goods, unseen unemployment and criminality, and the madness of hedging against inflation with the purchase of new cars. The streets of any forgotten small town in Patagonia are filled with brand new 4×4 vehicles that would be the envy of many in North America. We can now see that the sustainability of the manipulation in a segmented/broken foreign exchange market causes a negative carry, which would create a quasi-fiscal deficit in Argentina (i.e. the deficit of the Banco Central), fully opening the gates to hyperinflation.

It will come as no surprise to ZH readers that the topic of youth unemployment is critical in Europe but as Der Speigel reports, while the German government's efforts remain largely symbolic, Southern European leaders pander to older voters by defending the status quo and are failing in their fight against the potential for social unrest. One graduate noted, "None of my friends believes that we have a future or will be able to live a normal life," as a lost generation is taking shape in Europe. And European governments seem clueless; instead of launching effective education and training programs to prepare Southern European youth for a professional life after the crisis, the Continent's political elites preferred to wage old ideological battles. In this way, Europe wasted valuable time, at least until governments were shaken early this month by news of a very worrisome record: Unemployment among 15- to 24-year-olds has climbed above 60 percent in Greece. Suddenly Europe is scrambling to address the problem making it an 'obseesion'. There are strong words coming out of Europe's capitals today, but they have not been followed by any action to date.

Fed chairman Ben Bernanke’s testimony to Congress will be important in setting the tone for the markets (particularly the dollar, equities and US treasuries), as traders hunt for clues on when the Fed is likely to ease its rate of asset purchases.

In the absence of major data releases, the focal point of the week for markets becomes the release of the minutes of the May FOMC meeting. The most notable change in the statement was the inclusion of the new language: “the Committee is prepared to increase or reduce the pace of its purchases to maintain appropriate policy accommodation as the outlook for the labor market or inflation changes.” In the May meeting minutes, the market will be looking for any clarification of the motivation behind this change as well as any evidence that the committee members may be becoming less comfortable with the unemployment rate threshold or more specific about tapering timelines and dates.

A quiet day unfolding with just Chicago Fed permadove on the wires today at 1pm, following some early pre-Japan market fireworks in the USDJPY and the silver complex, where a cascade of USDJPY margin calls, sent silver to its lowest in years as someone got carted out feet first following a forced liquidation. This however did not stop the Friday ramp higher in the USDJPY from sending the Nikkei225, in a delayed response, to a level surpassing the Dow Jones Industrial Average for the first time in years. Quiet, however, may be just how the traders at 72 Cummings Point Road like it just in case they can hear the paddy wagons approach, following news that things between the government and SAC Capital are turning from bad to worse and that Stevie Cohen, responsible for up to 10-15% of daily NYSE volume, may be testifying before a grand jury soon. The news itself sent S&P futures briefly lower when it hit last night, showing just how influential the CT hedge fund is for overall market liquidity in a world in which the bulk of market "volume" is algos collecting liquidity rebates and churning liquid stocks back and forth to one another.

With unemployment rates running at all-time record highs across the peripheral European nations and the rise of nationalist (some might say extremist) parties, it remains somewhat surprising that there has not been greater social unrest (yet). The people of Europe are caught in a hinterland of knowing what is best in the long-run but fearing the short-term band-aid ripping pain of exiting the political farce known as the European Union. But some have found a way... There is another way to 'exit' on personal terms from the austerity and pain induced by a centrally planned overlord. Immigration to Germany from Italy, Spain, Greece, and Portugal has 'never' been higher... leaving us wondering - at what point does the free and open exchange of everything in the union gets its share of 'protectionism' from an over-stuffed Germany freezing the import of labor? So it seems that not only is the money (deposits) finding a new home but the people too are moving to where the money is..

Is a $400,000 house with NINJA loan normal? How about a $200,000 REO with missing appliances, a dead yard, a long list of maintenance and no financing? Maybe normal is a $300,000 flip after the flipper fixed everything and colored up the yard, and did some upgrades to the interior. Some may suggest that normal is more like a $300,000 sale with a 5.5% fixed rate and 20% down. Then again, it may be more normal if this $300,000 sale is financed with a 3.5% down FHA loan at 4%. Of course, all of the above is actually referring to the same house. So what is normal? At the moment, we know prices are going up in certain markets, and so are sales. Mortgage rates are higher now than when QE3 started in September 2012. Investors are gobbling up everything in sight in their favored target markets. As an example, they are buying 30% of the houses in Southern California, 38% in Phoenix and 53% in Vegas. First time buyers do not stand a chance. The percentage of home ownership is declining. Are policy makers happy with these results? Are these intended or unintended consequences of public policies?

We feel that now there is a Bermuda Triangle of economics - a space where everything tends to disappear without radar contact, a black hole in which rationality and science is replaced by hope, superstition and nonsense pundits pretending to understand the real drivers of the economy. The Bermuda Triangle in real life runs from Bermuda to Puerto Rico to Miami. The Economic Bermuda Triangle (EBT) one runs from high stock market valuations to high unemployment to low growth/productivity. There is a myth that the sunken Atlantis could be in the middle of this triangle. It has been renamed Modern Monetary Theory (MMT) to make it suit the black hole's main premise of ensuring there is a fancy name for what is essentially the same economic recipe: print and spend money, then wait and pray for better weather. The EBT is getting harder and harder to justify - if for nothing else because the constant reminders of crisis keep us all defensive and non-committed to investing beyond the next quarter. We all naively think we can exit the "risk-on" trade before anyone else. We are due for a new crisis. We have governments and central banks proactively pursuing bubbles. A long time ago, policymakers entered a one-way street where reversing is, if not illegal, then impossible.

70% of graduates had at least some debt according to the latest poll from Fidelity Investments but as the Wall Street Journal reports the average student-loan debt for a borrower who received a bachelor's degree in 2013 is $30,000 - an all-time record. With $986 billion of outstanding student loan debt (up 50% from Q1 2009) and unemployment rates running at or near all-time highs for the 16-24 year old cohort in this nation, it is little surprise that delinquencies are surging. The unemployment rate among graduates is 7.1% (which is considerably worse than it looks given that many are stuck in low-paid jobs) but it is those who don't complete college that face the greatest burden - the median annual income of a non-completer was $25,000 (compared to $33,900 for a degree holder), less than the average student loan debt. As the WSJ notes though, the 2013 class is unlikely to hold the 'most indebted class ever' title for long as 2014 enrollments and tuition costs look set to continue the 20 year trend...

It was less than a month ago that the new Italian government of the pseudotechnocrat Letta, of Bilderberg 2012 and Aspen Institute fame, was voted in by a majority of the PD and the PDL parties (the latter agreeing so Berlusconi would get an extension of his much needed political immunity from assorted prison sentences). It may not last too long. As Reuters reports, it took just 20 days for Letta's approval rating to plunge by 25%, dropping from 43% at the start of the month to 34%, according to an SWG institute poll. It would appear the Italian people (unlike their Japanese peers who at least according to government-controlled media data could not be happier with PM Abe, supposedly because of the bubblelicious 50% rise in the Nikkei225 year to date, even though under 20% are actually invested in the stock market making one wonder just how credible polling, and all other data in Japan actually is) don't have Mrs. Watanabe's childish fascination wth soaring stock bubbles, sexy bonds, mini skirts and 2% inflation bras, and instead demand real economic results. Which also means the protests are back.

There is a reason why in Europe, no matter how much some want to deny it, the Cyprus deposit confiscation "resolution" has become the norm. Quite simply, as BofA summarizes, "Europe's economy struggles with too many banks, too much debt and too little growth. A long history of empire, trade, war and commerce means a long history of banking. The world’s first state-guaranteed bank was the Bank of Venice, founded in 1157, and the world’s oldest bank today is also Italian, Monte Paschi di Siena (founded 1472). In many European countries, bank assets dwarf the size of the local economy and are far in excess of other regions in the world. This is similarly reflected in the local stock exchanges: even now financials account for 42% of the Spanish stock market and 31% of the Italian stock market versus  ust 16% in the US."