You read that right: SocGen, the second largest French bank, not only has labor unions, but they have just announced a one-day national strike to protect their jobs. Which is odd, because it was our impression that in socialist France nobody is allowed to lose their job ever again. Perhaps that excludes bankers: the confusion surrounding the Fairness Doctrine, which may or may not tax millionaires at a 75% tax rate continues to grow.
- London Quantitative Hedge Funds Report Second Year of Losses (BBG)
- Berlusconi Forms Alliance in Comeback Bid (WSJ)
- Japan to Buy ESM Bonds Using FX Reserves to Help Weaken Yen (BBG)
- Japan Mulling BOJ Accord Linked to Employment, Mainichi Says (BBG)
- Samsung Expects Record Operating Profit (WSJ)
- Boeing 787 Dreamliner Fire Probed, Blaze Adds to Setbacks (BBG)
- BOJ's Shirai: Open to Firmer Inflation Target (WSJ)
- HSBC N.J. Client Admits Conspiracy in Offshore Tax Case (BBG)
- Lampert to Assume CEO Role at Sears (WSJ)
- Abe prepares fresh stimulus measures (FT)
- U.S. Set for Biggest State-Local Jobs Boost Since 2007 (BBG)
- Pakistan Seen Needing IMF Bailout as Rupee Drops Before Vote (BBG)
Earlier today, Bill Frezza of the Competitive Enterprise Institute and CNBC's Steve Liesman got into a heated exchange over a recent Frezza article, based on some of the key points we made in a prior post "A Record $2 Trillion In Deposits Over Loans - The Fed's Indirect Market Propping Pathway Exposed" in which, as the title implies, we showed how it was that the Fed was indirectly intervening in the stock market by way of banks using excess deposits to chase risky returns and generally push the market higher. We urge readers to spend the few minutes of this clip to familiarize themselves with Frezza's point which is essentially what Zero Hedge suggested, and Liesman's objection that "this is something the banks don't do and can't do." Liesman's naive view, as is to be expected for anyone who does not understand money creation under a fractional reserve system, was simple: the Fed does not create reserves to boost bank profits, and thus shareholder returns, and certainly is not using the fungible cash, which at the end of the day is what reserves amount to once dispersed among the US banks, to gun risk assets higher.
Alas, Steve is very much wrong.
The biggest highlight of the day is the launch of Q4 earnings season with Alcoa after the close. The question is by how much will the ES/SPY correlation have dragged individual stock prices higher from far lower cash flow implied valuations - we will get a glimpse this week, as well as get a sense of how Q1 is shaping up, this week but mostly next week as earnings reports start coming in earnest. There was the usual non-event newsflow out of Europe, which has no impact on risk levels, now driven solely by every twitch of Mario Draghi's face, and best summarized by this from SocGen: "In the wake of September's 3 point VAT increase in Spain, which saw a significant bringing forward of consumption to beat the tax hike, euro area activity in Q4 has been genuinely awful."
With the Notre Dame vs Alabama game a complete one-sided demolition, the night was in desperate need of some entertainment... until Piers Morgan and Alex Jones stepped in. While the headline topic was "guns", it was 13 minutes of unbridled spitting, stuttering, and screaming, which achieves nothing in converting anyone on the fence on either side of the "gun control" argument, but certainly helps with CNN's sagging Nielsen ratings, which after having become disinformation central following the Obamacare "rejection" and the NYSE floor "flooding", is now slowly but surely converting itself into the Jerry Springer show for Gen Y. If nothing else, this is far more fun than watching the all too controlled Notre Dame implosion.
Just when we thought America would be alone in crossing into the montary twilight zone where so many Keynesian lunatics have gone before, and where trillion dollar platinum coins fall from the sky right onto the heads of all those who have not even the faintest understanding of money creation, here comes Japan:
ASO: JAPAN TO BUY ESM BONDS
ASO SAYS JAPAN TO BUY ESM BONDS USING FOREIGN EXCHANGE RESERVES
ASO: ESM PURCHASES WILL HELP TO STABILIZE YEN
For those who have forgotten, the E in ESM stands for European (the S for Stability), not Japanese (Stability). Otherwise it would be, er... well, JSM. Keynesian at that. But yes - Japan will now proceed to "stabilize" itself by monetizing European debt. Because its own JPY 1 quadrillion in debt was not enough.
Beginning with Malthus' warning to the world and the Great Irish famine, David McWilliams (of Punk Economics) provides his typically succinct, profoundly fascinating, and graphically pleasing insights on the state of the global food economy. "What happens when hungry people panic?" is the question McWilliams poses; "they move to other parts of the world," he rhetorically answers, adding that this could well be the story of the next 50 years on Earth as the rock of the insatiable demand of seven billion (soon-to-be-ten-billion) people smashes into the hard place of the planet's limited resources to produce that one thing that keeps us all alive - food. The food dilemma is more complex though as it is really an energy dilemma - one that is not going away (on the downside). On the bright side, Malthus' nightmare has yet to occur thanks to the ingenuity of humans. However, if all the world's seven billion people consumer as much as the average American, it would require the resources of over five planet Earths to sustainably support all of us. So either the rest-of-the-world eats less to allow Americans to eat more or we are stuck! McWilliams takes us on a path from changing global diets to water and energy demands, through central banks' "frothy response" to the global financial crisis and on to the impacts such as class divisions, rising healthcare costs, and social unrest - all in 11 minutes... Truly must watch!
As 2012 was coming to an end, Americans became concerned with what was referred to as the “fiscal cliff”... while the unrecognized problem all along had been what might be more appropriately called the “fiscal eclipse.” Once again, political and popular aversion to face economic reality won the day, and the illusory fiscal cliff was replaced by other financial peaks that soon must be climbed, each of them offering at the very top not a view of economic prosperity but yet another precipice inviting Americans to jump. We are gifting our children a host of financial problems that our inept, self-serving leaders – Democrats and Republicans similarly if not equally at fault – won't confront or lie to us about... knowing how gullible Americans are to the idea of that mythic American exceptionalism they have been fed since that 19th century Manifest Destiny. It all started just a quarter of a century ago with Perestroika and Glasnot, and our inability to recognize we were entering a new global financial era where America would no longer rule the seas.
Bloomberg is out after hours with news that was expected by many, but which was yet to be formalized, until now: namely that following today's flurry of contntious nomination by Obama, the latest and greatest is about to be unveiled - Jack Lew, Obama's current chief of staff, is likely days away from being announced as Tim Geithner's replacement as the new Treasury Secretary of the United States. In other words, Jack will be the point person whom the people who truly run the Treasury, the Treasury Borrowing Advisory Committee, chaired by JPM's Matt Zames (who just happens to also now run the notorious JPM Chief Investment Office which uses excess deposits to gamble - yes, you really can't make this up) and Goldman's Ashok Varadhan, global head of dollar-rate products and FX trading for North America (recently buying a $16 million pad at 15 CPW) will demand action from.
As loathed as we are to say "we told you so," but we did and sure enough eKathimerini is reporting this evening that: thanks to the 'voluntary' haircuts the Greek banks were force-fed via the latest buyback scheme and the political uncertainty causing non-performing loans (NPLs) to rise (in a magically unknowable way), they will need significantly more 'capital' to plug their increasingly leaky boats. The original Blackrock report from a year did not foresee a rise in NPLs (which Ernst & Young now estimates stands at 24% of all loans) and the buyback dramatically reduces the expected profitability of the banks as it removes critical interest payments that would have been due. Whocouldanode? Well, plenty of people who did not just buy-in blindly to the promise of future hockey-stick returns to growth. Expectations are now for the Greek bank recap to be over EUR30bn.
A total of 22 companies, 4% of the S&P 500 market cap, have reported 4Q12 results. Of these, 64% have topped revenue estimates and 68% topped earnings estimates (considerably lower than average). Aggregate earnings results have exceeded estimates by 1%, revenues have missed by 0.5%, and blended margins are down 12bps y/y. As Barclays' Barry Knapp notes, the last several quarters, earnings seasons have generally been characterized by revenue misses, earnings beats (but by a shrinking amount), and negative guidance; as a result, there has been a negative skew to stock prices. In other words, in the immediate aftermath of the report, earnings beats are marginally outperforming the market, while misses get hammered, primarily due to weak forward guidance. The sustainability of earnings growth remains key given the weak top-line environment and these three self-explanatory charts should hopefully put some fundamental color around the perspective that earnings season will be a negative for the market overall.
As is clear by this chart, inflation was virtually unheard of until the Creature from Jekyll Island (the Federal Reserve) took over. However, more importantly, things didn’t really start to get bad until the 1970?s right after Nixon took the nation off the gold standard in 1971. Since that time, America has seen a period of non-existent real wage growth and a huge gap grow between the rich and the poor ever since. Nothing like livin’ the debt slave dream!
The following was received via email. Supposedly it appeared in the Waco Tribune. We don’t know the author, but we assume those interested could look her up. Since the Constitution no longer matters, we assume we can make her President, even though she doesn’t meet the (formerly valid) age restriction. This was written by a 21 yr old female who gets it. It’s her future she’s worried about and this is how she feels about the social welfare big government state that she’s being forced to live in! These solutions are just common sense in her opinion. "Put Me In Charge... If we are expected to pay for other people’s mistakes we should at least attempt to make them learn from their bad choices. The current system rewards them for continuing to make bad choices."
S&P 500 futures (ES) ended practically unchanged (though cash was down ~5pts) on relatively weak volume but decent average trade size - thanks in large part to the entirely ubiquitous rampathon into the close. A less-than-8pt range in ES saw the standard larger block sizes come through into the close as we ramped. Stocks were supported by USD weakness (-0.35%) but commodities ignored it (as did Treasuries). The front-end of the VIX term structure was the ramping-weapon choice today once again collapsing to red as S&P 500 futures were driven up to unchanged (and Friday's VWAP). The VIX term-structure has is its steepest in over three months and has steepened its most in 20 months over the past 5 days. HYG (also levered for a ramp) surged once again (to last week's key VWAP) squeezed this afternoon as its short-interest reaches record high levels (as it seems every HY manager is hedging via the ETF since the underlying has become increasingly illiquid) with some big blocks going through. Rates overall oscillated in a narrow +/-2bps range today (not exactly the big rotation) as we suspect, given the chatter of IG issuance this week, that last week's weakness was more rate-locks and hedging (as we have seen time after time) than asset rotations. Overall, today was an equity catch-down day to risk-assets overall.