Is the New Normal of ever-higher stock valuations sustainable, or will low volatility lead to higher volatility, and intervention to instability? Though we're constantly reassured by financial pundits and the Federal Reserve that the stock market is not a bubble and that valuations are fair, there is substantial evidence that suggests the contrary.
The post-weather rebound is over. Factory Orders, which were expected to fall modestly, dropped 0.5% - the biggest drop and biggest miss since January. Notably defense-spending dropped 30% as it seems we didn't need 10 new submarines in May (and this is with Ex-Im bank still funding growth). On the flip side, if you were wondering where the recent data (survey) exuberance has come from, wonder no more - inventories in May rose 0.8% - the biggest rise since Oct 2011. More malinvestment-driven exuberance - if only wages were up? Surely subprime credit is soaring so that will take care of it.
Surge In Government Job Creation, Most Since August 2008, Offset By Private Jobs Decline Adds To ADP ConfusionSubmitted by Tyler Durden on 07/02/2014 09:46 -0400
Moments after the outlier ADP private payrolls jobs number, the highest since November 2012, was released Gallup offered its own poll-based take on the US jobs market with the release of its monthly US Jobs Creation Index. To some this useful datapoint may explain the ADP-reported surge in hiring, although a more nuanced read simply add to the confusion.
It stands to reason that when the Fed eventually lifts interest rates, we’ll see the usual effects. After a sustained rise in rates, you can safely bet on: Fixed investment and business earnings dropping sharply; GDP growth following investment and earnings lower; Many people losing their jobs; and Risky assets performing poorly. These consequences follow not only from the arithmetic of debt service and present value calculations, but also from the mood swinging psychology of entrepreneurs, lenders and investors. Yet, policy economists claim that interest rates can be “normalized” at no cost. Our conclusion is to reject forecasts calling for the economy to power right through interest rate hikes without stumbling. A more likely scenario is that policy “normalization” leads us directly into the next bust.
A single entity successfully scooped up the entire ~30,000 haul of Bitcoins that the US government seized from Silk Road. The successful bidder at the government's auction was V.C. Tim Draper (in partnership with Vaurum) who is infamous as the ideator of viral marketing, a marketing method for spreading a software application from customer to customer (making one wonder if the $19 million bid was more publicity stunt that investment). However, Vaurum has launched trading platforms in emerging markets, and we will be partnering with Tim to leverage the pool of ~30,000+ bitcoins as a liquidity source. The price of Bitcoin continues to rise, now at $650 - up from around $570 when the auction began.
An odd thing has been happening in the last few months. Since the Chinese government began to crackdown on 'junkets' and 'corruption', Macau - the hub for Chinese billionaires to smuggle their money out of China - has seen revenues disappointing. So much in fact that, as Reuters reports, gambling revenue in Macau fell 3.7% in June on an annual basis, the first decline in more than four years. It could be coincidence, however, that as Macau has seen growth collapse, Las Vegas has seen Baccarat (the preferred game of China's rich) surge. In May, as Macau growth slumped, Las Vegas Baccarat surged over 85%. While slots (the staple indicator of the 99% in America) continues to decline (-4.4% in May), it seems rich foreigners are finding creative new ways to wash their money out of China.
Today's epic catch-up in ADP jobs data (nicely extrapolated off the back of last month's NFP) is the biggest beat since Dec 2012 and biggest gain in jobs since Nov 2012, printing at 281K, up from 179K, and smashing expectations of 205K - in fact the number came above the highest estimate of 250K. While ISMs and PMIs are missing expectations - and notably small businesses in those surveys saying they are not seeing benefits - ADP claims that small businesses gained the most jobs. Of course, we assume the seasonal adjustments had nothing to do with that: from biggest miss in 4 months to biggest beat in 21 months, which is supposedly, normal.
- France's Sarkozy faces corruption probe in blow to comeback hopes (Reuters)
- Ukraine Says Military Offensive Against Rebels Yielding Results (WSJ)
- JPMorgan Investors Show Support for Dimon in Cancer Fight (BBG)
- World’s ATM Moves to Frankfurt as Yellen’s Fed Slows Cash (BBG)
- Argentina Seen Backtracking on Fernandez Vows as Legacy at Risk (BBG)
- Palestinian teen killed in possible revenge attack (Reuters)
- The Bill and Hillary Clinton Money Machine Taps Corporate Cash (WSJ)
- London House Prices Surge the Most Since 1987, Nationwide Says (BBG)
- Last Jew in Afghanistan faces ruin as kebabs fail to sell (Reuters)
We could focus on whatever events took place in the overnight session or the seasonally-adjusted economic data avalanche that will dominate US newsflow over the next two days (ADP, ISM New York, Factory Orders, Services ISM, Yellen Speaking, and of course Nonfarm payrolls tomorrow), or we could ignore all of that as it is absolutely meaningless and all very much bullish, and use a phrase from Standard Chartered which said that "the dollars Yellen is removing could be compensated for by cheap euros from the ECB; result may be enough cash sloshing around to underpin this year’s run-up in risk assets even if the Fed begins mulling higher interest rates too." In other words, the bubble will go on, as the Fed passes the baton to the ECB, if not so much the BOJ which is drowning in its own imported inflation. Case in point: two of the three HY deals priced yesterday were PIK, and the $1 billion in proceeds was quickly used to pay back equity sponsors. The credit bubble has never been bigger.
ISIS, or rather IS as it is now know, now has a country, er caliphate, so now it needs religious fanatics and workers. Which is why the leader of the self-proclaimed al-Qaeda spin off nation, Abu Bakr al-Baghdadi, in addition to a broad religious call to arms, so to speak, also beckoned workers with a specific skillset to present themselves for duty: namely those with military, medical and managerial skills were urged to flock to the newly-declared state in an audio recording released Tuesday.As Al Arabiya reports, the newly named “caliph” said the appeal especially applied to “judges and those who have military and managerial and service skills, and doctors and engineers in all fields." But where it gets interesting is that Al-Qaeda can hardly ignore what is essentially a declaration of war from an upstart that has scored a string of successes, said Magnus Ranstorp, an expert on radical Islamic movements at the Swedish National Defence College.
VIX was monkey-hammered lower once again today, lifting stocks vertically to Russell 2000 record highs and The Dow within a point of 17,000. The question is who (or what) is doing it. Nanex seems to have found out who... It appears the un-visible hand of VIX manipulation (that we have shown previously) has been forced into the open public markets as Barclays goes dark. Simply put, massive bursts of 1-lot TVIX orders flood and delay the markets enabling HFTs to manipulate the tail that inevitably wags the market (via VXX, SPX options hedges and leverage) and now that the dark pools are disappearing, we see it all in real-time.
We live in a world that is becoming increasingly unstable, and people need to understand that the period of relative stability that we are enjoying right now is extremely vulnerable and will not last long. The following are 18 signs that the global economic crisis is accelerating as we enter the last half of 2014...
In American society, 'debt' and 'income' have become increasingly synonymous over the past 3 decades; but as Rick Santelli blasts (commonsensically), "they certainly shouldn't be." It appears the average joe has been led to this conclusion by the Central Banks. Rhetorically asking "where's the horsepower in the economy coming from?" Rick reflects on the auto-loan fears we discussed earlier, santelli notes that 55% of used cars (and 30% of new cars) are financed by subprime lenders... and rages, "if we continue as a country to fuel our consumerism with debt, there is no way the bond market's going to be wrong."
You have probably heard about the extremely controversial Facebook “emotional contagion” study in which the company intentionally altered its news feed algorithm to see if it could manipulate its users’ emotions; but here is where it starts to get really strange. Initially, the press release from Cornell highlighting the study said at the bottom: “The study was funded in part by the James S. McDonnell Foundation and the Army Research Office.” Once people started asking questions about this, Cornell claimed it had made a mistake, and that there was no outside funding. Jay Rosen, Journalism Professor at NYU, seems to find this highly questionable.. and it gets even more interesting from there.
Goldman's June Final GLI came in at 3.1% year-over-year, down from the revised 3.3% year-over-year reading in May. Momentum came in at 0.15% month-over-month - flat from last month’s revised reading. Ever optimistic, Goldman views this results, as continuing to locate the global industrial cycle close to the ‘Expansion’ phase but has yet to signal positive acceleration... oh so close... The 3 big drivers of the deterioration were Japan's Inventory/Sales ratio worsened, US Initial Jobless Claims were marginally higher, and as we have been vociferously noting, The Baltic Dry Index continued to come in softer as well.