Wall Street Journal

Despite the aura of control, Fed officials (and casual observers) may sense things spinning out of control. Of course, hyper-fragility is exactly the effect that all the Fed’s own actions would predictably lead to. When you divorce truth from reality, strange things are bound to happen. There is one thing that we know for sure in this strange period when bankers have tried to manage reality in the absence of truth: that advanced industrial-technological economies designed to run on $20-a-barrel oil can’t run on $100-a-barrel oil, and that is why the US economy was subject to financialization in the first place - to offset declining productive activity by an attempt to get something for nothing. The world is about to find out that you really can’t get something for nothing. It will be a harsh lesson.

The Fed knows this and is now trying to prepare the market for withdrawal. But the market is on total life support from the Fed. Take away the Fed punchbowl and the party stops.

Driving the sentiment was the report that U.S. jobless benefits decreased to their lowest rate since 2007. Philadelphia Fed President Charles Plosser forecasted that day unemployment will drop to 7% by December 2013 and he favours reducing the Fed’s $85 billion monthly bond purchases next month. Plosser however has no vote on Fed policy this year.

While hedge funds are seeing outflows of $20.8 billion from gold funds this year, BlackRock Inc. the world’ biggest money manager is still bullish, reported Bloomberg.

• Hilsenrath: A Top Contender at the Fed Faces Test Over Easy Money (WSJ)
• Yen drops further as G7 avoids criticizing Japan (Reuters)
• Markets missed Flaherty’s clues on next Bank of Canada chief (G&M)
• Republicans turn screws over Tea Party tax probes (FT)
• Dual-track Libor replacement lined up (FT)
• Risks to China recovery seen as factory output underwhelms (Reuters)
• Barack Obama’s goal of universal healthcare could be set back significantly by Texas Governor Rick Perry (FT)
• Gold Bears Pull $20.8 Billion as BlackRock Says Buy (BBG)
• Mexico sets shelters as volcano shakes, spews ash (AP)
• Europe Eases Corporate Tax Dodge as Worker Burdens Rise (BBG)
• IPOs Set to Raise Most Cash Since Crisis (WSJ)
• Melting Ice Opens Fight Over Sea Routes for Arctic Debate (BBG)
• Top hedge funds bet on Greek banks (FT)
• Icahn Asks Investors to Make Big Bet on a Debt-Laden Dell (BBG)

In a weekend dominated by discussion of the "Taper Tantrum", i.e., interpretations of what Hilsenrath "said" after the close on Friday, what the Fed wanted him to say, what the market's response to what he said or did not say would be, and what the next steps may be, we present this convenient annotation of Hilsenrath's complete recital courtesy of Mike O'Rourke from Jones Trading.

The words "Shit Heel" come to mind.

• PBOC Says China Shouldn’t Be ’Blindly Optimistic’ on Inflation (BBG)
• Foreigners Buying Half of London New Homes Prop Up Building (BBG) - first they come for the foreign deposits, then for the real assets...
• Investors Rediscovering Margin Debt (WSJ) - well, yes: it is at record highs
• China issues new rules targeting wealth management fund pools (RTRS)
• Navy $37 Billion Ships Seen Unsuitable Have 2-Year Window (BBG)
• New York may have to drop claims against BofA over Merrill (RTRS)
• FBI Rejects Boston Police Stance in Spat Over Terror Data (BBG)
• In eastern Syria oil smugglers benefit from chaos (RTRS)

Following up on the earlier report that Israel had warned the US that Russia was preparing to sell "advanced" military equipment to Syria (in False Flag Broken Telephone fashion), it was only a matter of time before the new US Secretary of State voiced his indignation over a development whereby someone else was providing arms to a conflict country's government, instead of the US providing its own weapons to said country's Al Qaeda-assisted rebel forces. Sure enough, he did: "I think we have made it crystal clear that we would prefer that Russia is not supplying assistance," Mr. Kerry said at a news conference after meeting the new Italian Foreign Minister Emma Bonino." While there was no immediate quote substantiating it, there is a rumor that Russian foreign minister Sergei Lavrov's response was a less than politically correct phrasing along the lines that he "would prefer that the US not supply assistance to Syrian rebels."

Jewellers across the world are seeing a surge in jewellery purchases because consumers are taking advantage of the price drop and purchasing investment pieces that will grow in value over time.

In the USA with Mother’s Day approaching this weekend, consumers like Whitney Court who would normally buy flowers instead wants to purchase something that won’t wilt: a silver necklace. 

• Einhorn's advice to investors: don't take my advice (Reuters)
• Next: floating dead vegetables: Chinese inflation rises on soaring vegetable prices (FT)
• The scramble for the bottom dollar is on: McDonald's, Wendy's Battle for Value-Centric Customers (WSJ)
• Cheaper iPhone coming after all: Apple supplier Pegatron boosts China workforce by 40 percent in second quarter (Reuters)
• House set to pass tactical Republican debt bill (Reuters)
• Underwriting bonanza: Goldman Said to Earn $500 Million Arranging Malaysia Bond (BBG)
• G7 finance chiefs to discuss bank reform push (Reuters)
• Big Banks Push Back Against Tighter Rules (WSJ)
• University endowments trim holdings in US Treasuries (FT)
• Ex-Pakistan PM's son abducted as Taliban threaten poll (Reuters)
• China Dowry Filled With Gold Signals Gains for Jewelers (BBG)
• As discussed here over a year ago: China inflation data shows central bank policy dilemma (Reuters)

The U.S. stock market rally has recently passed its fourth anniversary after the terrifying lows of March 2009. During that time, massive and unconventional reflationary policy from the Federal Reserve has managed to lift the S&P 500 to new all-time highs. But perhaps even more improbably, it has finally (for now?) built a floor under U.S. residential real estate prices. This 'Less Bad' Recovery continues in other ways as well. Jobs have been created. Not good jobs. Not high paying jobs. Not full time jobs. But some rudimentary sets of tasks and responsibilities that could be called jobs. There has also been deleveraging. But here, too, the scale of debt reduction is nothing close to the unadjusted figures often touted in the media. Americans, and more generally, OECD citizens, remain highly burdened by debt. When combined with poor wage growth, this explains the continued suppressed demand so pervasive in developed nations. And of course, oil prices – as expressed through prices at the pump – remain stubbornly elevated and are likely to persist at their new elevated level. Combined, these factors have kept a lid on consumer confidence and make for a precarious disparity between the stock market and the real economy. Welcome to the Great Constraint - a growing failure to thrive.

When you donate hundreds of thousands of dollars to re-election campaigns and push more hundreds of thousands of dollars through lobbying, you expect a little more back than the measly $95.6 million that SolarCity received in stimulus grants. The company, chaired by none other than Elon Musk, had applied for $325 million in federal aid in the same program that 'helped' Solyndra (and Tesla) and is now, according to the Wall Street Journal, suing the government for underpayment of green-energy subsidies. It seems SolarCity are using the M.A.D. defense, claiming that "they could lose millions more," if the government fails to provide the subsidies they asked for. As National Review details, SolarCity is one of the solar companies that is being investigated by the IRS after Treasury found that it "repeatedly overstated the value of its investments." So far the Treasury has paid out over $17 billion in green-energy stimulus grants and this case is not without precedent as a number of other renewable-energy firms are set to file suit.

• Pentagon Plans for the Worst in Syria (WSJ)
• Russia and US agree to Syria conference after Moscow talks (FT)
• Hedge Funds Rush Into Debt Trading With $108 Billion (BBG)
• Detroit is the new "deep value" - Hedge funds in search of distress take a look at Detroit (Reuters)
• Commodities hedge funds suffer weak first quarter (FT)
• But... but... Abenomics - Toshiba posts 62% decline in Q1 net profit (WSJ)
• Americans Are Borrowing Again but Still Less Than Before Freeze (WSJ)
• Man Utd announce Alex Ferguson to retire (FT)
• Asmussen Says ECB Discussed ABS Purchases to Spur SME Lending (BBG)
• Benghazi Attack Set for New Review (WSJ)
• Belgium Says 31 People Arrested Over $50 Million Diamond Theft (BBG)
• Brazilian diplomat Roberto Azevêdo wins WTO leadership battle (FT)
• Bangladesh Garment Factory Building Collapse Toll Reaches 782 (BBG)

What REALLY Happened?

• Microsoft prepares U-turn on Windows 8 (FT), Microsoft admits failure on Windows 8 (MW), After Bumpy Start, Microsoft Rethinks Windows 8 (NYT)
• China reports four more bird flu deaths, toll rises to 31 (Reuters)
• Republicans shift stance on US budget (FT)
• NYC Tallest Condo Corridor Gets New Entrant With Steinway (BBG)
• U.S. Says China's Government, Military Used Cyberespionage (WSJ)
• China rejects Pentagon charges of military espionage (Reuters)
• Bank of China Cuts Off North Korean Bank (WSJ)
• Libya defense minister quits over siege of ministries by gunmen (Reuters)
• London Recruiter Says City Job Vacancies Rose 19% (BBG)
• Colleges Cut Prices by Providing More Financial Aid (WSJ)  or, said otherwise, loans
• Jeweler agrees to plead guilty in KPMG insider-trading case (LA Times)