The JGB market was completely unfazed by the news that the prime minister’s office was reconsidering the planned consumption tax hike. While the tax hike is unlikely to be changed; in BNP's view, the market’s lack of response to tail risk looks like proof that its function has been impaired by the BoJ’s massive buying. Even if the Abe regime is opting for financial repression to reduce the public debt, however, BNP warns that some degree of fiscal reform is needed to control the long-term interest rate. If the unfazed market is deemed to mean that fiscal reforms can be shelved without fear of a bond-yield spike as long as massive BoJ buying continues, serious problems could ensue.
Secure and free web-based email service provider Lavabit shut down today. What makes Lavabit different from countless other email providers who have shuttered over the years is that according to BoingBoing, Lavabit is the email service supposedly used by Edward Snowden. Which would explain the nebulous tone in the farewell letter posted on the company's front page by owner Ladar Levison. It also explains why Lavabit was shut down by the US government, although that was mostly inferred from the letter which due to legal limitations does not expound on the official reasons for the shut down - one can imagine. It certainly explains the following punchline in Levison's letter: "This experience has taught me one very important lesson: without congressional action or a strong judicial precedent, I would _strongly_ recommend against anyone trusting their private data to a company with physical ties to the United States."
We wholeheartedly agree.
That the U.S. trade deficit shrank to $34 billion in June is being presented as good news all around (no surprise there, as all news is presented as good news). The petroleum boom in the U.S. has pushed oil imports down by over $2 billion a month to $10 billion/month, and non-petroleum trade generated a deficit of $37 billion/month, down $5 billion. Slowing imports and modestly higher exports are being presented as reasons for stronger GDP growth going forward. Nice, except nobody is talking about the negative consequences of a shrinking trade deficit on U.S. corporate profits. The financial media doesn't talk about this because it doesn't understand the connection, which is based on Triffin's Paradox... All those counting on a weaker dollar and rising U.S. corporate profits will be doubly surprised.
While remaining unapologetically bullish US equities long-term, Guggenheim's Scott Minerd warns that historically, markets that have rallied as aggressively as U.S. equities since November 2012 (an increase of 25 percent), pause or correct to digest their advances. Also, earnings among U.S. companies have flattened and could turn negative within two to three quarters, meaning further upside can only come from multiple expansion. Of the 19 percent rise in stocks year-to-date, 16 percent has already come from multiple expansion. Finally, it appears GDP growth could be entering a soft patch as we work through a number of short-term issues such as the headwinds in housing, reduced growth in China, the full impact of the sequester, and the budget and debt ceiling debates that will take place in Washington in the third quarter – all of which will put downward pressure on stock prices. The near-term outlook for equities makes now a good time to consider the old Wall Street adage, "Nobody ever lost money by taking a profit."
Equity markets gapped up at the cash open and the S&P regained 1,700 briefly, then dumped along with JPY strength on decent volume only to be rescued almost as fast after the European close (on JPY weakness) dragging the S&P back up to test 1,700 once again. Once 1,700 was regained, volume departed and until the last few minutes, stocks did nothing (ignoring JPY post-30Y Auction) with a drop at the close in the futures (but a green close to break the worst streak of 2013) The 3rd Hindenburg Omen in 4 days shows the level of anxiety in this volumeless levitation as highs/lows/advancers/decliners signal all is not well amid the major JPY-carry-unwind. Treasuries managed small gains on the day (and week) and while credit markets rallied modestly they remain notably underperforming in this afternoon's equity spike. As JPY weakened and dragged stocks higher, VIX also collapsed but going into the close, it was clear hedgers were active. Gold, Silver, and Copper all surged on the day, WTI dropped (helped by RINs dump to only 67c).
A massive 1,131 individuals renounced their US citizenship last quarter, according to data that has yet to be officially released (though we were able to procure an advanced copy). This is a huge jump. Compared to the same quarter last year in which 188 people renounced their US citizenship, this year’s number is over six times higher. Not to mention, it's 66.5% higher than last quarter's 679 renunciations. This brings the total number of renunciations so far this year to 1,810. While still embryonic, it’s difficult to ignore this trend– more and more people are starting to renounce their US citizenship.
When federal spending grows faster than American's paychecks, the burden of government on taxpayers becomes greater. Over the past four decades, Americans' earnings have risen only 24%; while spending by the government has risen 288%, which begs the question - where did it all go?
Curious where all that dramatic stock footage of one (or the other) side in the ongoing Egyptian (non-)coup comes from? Apparently quite a bit of it is from repeated takes of the best staged (counter) revolution that Straight-To-YouTube money can buy. The following clip released by LiveLeak shows a Muslim Brotherhood "demonstration" in Egypt that was specifically staged to get the most dramatic poses, as the actors freeze their poses for the photographers. Injuries and even bloodstains are faked. Which is not to say only the MB is responsible for such drama: what is shown below is a prevalent tactic used across various ideologies and factions around the world to generate sympathy with the naive, gullible and easily influenced "western" audiences who are always willing to accept "reality" at face value. The take home, if there is one? Never trust anything you are told or shown, especially when national interests or intelligence agencies are involved and/or providing the funding. And always verify independently: after all the video below may well be a counterprovocation to discredit the MB, or not. Nobody knows for sure.
A month ago we reported that cocaine production out of Latin America had dropped to a new 21st century low. Whether that move was supply or demand-driven was unclear, just as it is unclear if it was due to the "scarcity" of cocaine and other more expensive drugs that forced drug-addicts to shift to other narcotics, but what is clear is that WSJ reports, "Heroin use in the U.S. is soaring, especially in rural areas, amid ample supply and a shift away from costlier prescription narcotics that are becoming tougher to acquire. The number of people who say they have used heroin in the past year jumped 53.5% to 620,000 between 2002 to 2011, according to the Substance Abuse and Mental Health Services Administration. There were 3,094 overdose deaths in 2010, a 55% increase from 2000, according to the federal Centers for Disease Control and Prevention."
The most financially savvy country and western crooner in America, Merle Hazard, returns with the must-watch release of a new economics chart-topper: "The Great Unwind." As Warren Buffett previously noted, "all over the world, everybody that manages money is waiting to catch the signal that the Fed will reverse course," and this two-minutes of country-music magnificence should concentrate the mind as "we've never had the degree of disgorgement that might be called for down the line, and who knows how it'll play out."
In May 22 testimony to the Joint Economic Committee of Congress, Fed Chairman Ben Bernanke issued another of many similar positive interpretations of central bank policy. Yet again, he continued to argue that quantitative easing has decreased long-term interest rates and produced other benefits. The Fed's polices have not produced the much-promised re-acceleration in economic growth. The standard of living - defined as median household income - has fallen back to the level of 1995. The best approach would be for the Fed to recognize the failure of QE and end the program immediately, thereby allowing price distortions in the markets to correct themselves. By ending the illusion that the Fed can take constructive actions, this might even serve to force federal government leaders to deal with the growing fiscal policy imbalances. Otherwise, debt levels will continue to build and serve to further limit the potential for economic growth.
On the surface today's last of the week sale of $16 billion in 30 Year paper was not very different from last month's: at a high yield of 3.652%, it was virtually unchanged from July's 3.66% pricing yield. However, when one looks at the When Issued which was trading notably inside at 3.645%, it becomes clear that this was the first 30Y auction to tail in a while. The real dirt, however, is revealed when looking at the Bid To Cover. Confirming the trend we discussed during yesterday's 10 Year auction of plunging BTCs, today was no difference, and there was just 2.11 dollars in bids for every dollar offered. This was well below the 2.26 BTC from July, far below the 2.56 TTM average, and would have been the lowest going back all the way to February 2009 except for the 2.05 BTC seen during the August 11, 2011 30 Year auction when as a result of the debt ceiling fiasco and the S&P downgrade of the US, there was sheer chaos when it came to bonds which ironically saw a paradoxical collapse in yields even as end demand also plunged. Overall this was a very weak auction, but that's precisely what the Fed wants: after all, soon the US may will fund itself by selling equity directly into the biggest Fed bubble ever created, and no longer bother with something as trivial as debt.
Impatient Ackman Sacks Interim JCP CEO Ullman, Approaches Ex-CEO Questrom As Chairman, Demands New CEO StatSubmitted by Tyler Durden on 08/08/2013 12:12 -0400
CNBC reports that Ackman, apparently disgusted with the performance of JCP stock, has just sacked the interim CEO, Mike Ullman, he appointed in April and has sent a letter to JCP that a new CEO should be in place in 30-45 days, and also that former CEO Questerom has agreed been approached to return as Chairman. That's all great but we have two questions:
- Shouldn't the next CEO of JCP be really the Chief Restructuring Officer, and as such be appointed by the ad hoc or official, committee of unsecured creditors (aka the post-petition equity)? After all everyone knows how this story ends. And in that regard, we are confident Alix Partners has quite a few retail Chief Restructuring Officers in its rolodex.
- Has Ackman sued Ullman? Considering the petulant hedge fund manager's recent M.O., this would be the logical move.
- Finally, if Ackman is so confident in the retailer, instead of diluting others perhaps he should just invest his entire net worth and prefund the company's cash burn for one more year. After all, what's the risk, right?
That said, providing shorts with a higher point from which to reshort JCP is always a welcome development.