Day after day we are blessed with media prognostications on the employment data. We are incessantly fed 'facts' and data that shows how great this recovery is but more still needs to be done (so please don't taper quite yet). We have been vociferous in the exposure of facts about the 'quality' versus 'quantity' of jobs in the 'recovery' but there is another sentiment-sapping angle to the employment environment in the US. As Bloomberg's Rich Yamarone notes, the number of people with a job that were not at work in June or July because they were on vacation fell to 11.2 million this year from 11.59 million a year ago, a far cry from the 13.5 million vacationers in 2008 just prior to the Great Recession. Workers may be too uneasy with their situations to take off and enjoy the summer. Perhaps the need for a living real disposable personal income has kept them at their desks longer this year.
The marginal economic strength that was described in the most recent GDP release from Washington has caused many to double down on their belief that the Federal Reserve will begin tapering Quantitative Easing sometime later this year. While some believe that is a fantasy given our economy's extreme dependence on QE, market observers should have learned long ago that the Bureau of Economic Analysis (BEA) initial GDP estimates can't be trusted. A perusal of their subsequent GDP revisions in the last five years reveals a clear trend: They are almost twice as likely to revise initial estimates down rather than up, and the downward adjustments have been much larger on average. As a result of this phenomenon, an overall optimism has pervaded the economic discussion that has consistently been unfulfilled by actual performance. The government is continuously over promising and under delivering. Unfortunately, no one seems to care.
For the 4th day this week new highs, new lows, advancers and decliners flashed an angst-prone market and triggered a Hindenburg Omen. A glimpse at Treasuries close-to-close from Friday and one might think it was a quiet week (though 30Y rallied 5bps the rest of the curve ended only modestly lower in yield) but in every other asset-class, the 'Taper' talk sent levered momo running for the exits... with JPY's 2nd strongest week in 4 years the main carry-unwind driver.
At 4.4 years old, the post-March 2009 rally is already older than both the post-World War II and post-1900 bull market averages of 4.2 years and 3.5 years, respectively. In addition, the Dow's 136% rally off of the March 2009 low close now exceeds the post-World War II average of +128%, and falls just shy of the post-1900 average of +141%. As is clear from the chart below, the US equity market's post-March 2009 rally is close to being on the verge of becoming an outlier... so BTFATH?
In what some would call a victory for free speech, Lukas Novy, a follower of the Church of the Flying Spaghetti Monster, has been granted permission to wear a sieve on his head in his official ID card. As Prague Daily reports, Novy explains that the plastic kitchenware is a crucial part of his "Pastafarianism" faith. Officials, who initially denied his request, were swayed by his commitment to "His Noodliness," agreeing that this fits in with laws that allows Czech citizens to wear headgear for religious or medical reasons. Think that is 'humorous', look at a chart of TSLA... or listen to any recent 'Abe' speech...
President Obama is due to answer some supposedly unprepared questions from a press-corps not 'specifically' benefiting from his questions at 1500ET. From 'pissed-off about Putin' to flogging the American Dream once again and the wide-spread closure of US embassies... we are sure there'll be some interesting off-teleprompter comments for all...
Do you see what happens Larry when you float a strategic trial balloon or two? Your odds literally surge, at least according to Irish bookmaker Paddy Power, which in the absence of InTrade has become the only market polling venue where pundits put money where their mouth is (as opposed to countless clueless Op-Eds written by every self-proclaimed Fed expert in existence). Where two weeks ago, on July 24, Larry "the hawk" Summers was a long 20% odds challenger to Janet Yellen, who was a solid 75% favorite to become the next Fed chair, since then Yellen's odds have crumbled to just 33% currently, while Summers has exploded higher and after peaking at 60% two days ago has climbed even higher, and is a 66.6% (appropriately enough) favorite currently. Time for the perma-Doves to panic yet?
When it comes to the programmed, centrally-planned Chinese economy, the academics who pre-determine the daily lives of over one billion citizens and report randomly generated gibberish when they have to validate to the world the success of their macro experiment, go straight and by the textbook. The same theoretical textbook taught in every Keynesian class which says "if you build it, they will come." Alas, as even the WSJ has discovered, when it comes to China, if you build it, they are no longer coming... and are in fact leaving.
"The rich are feeling better about their prospects and starting to rediscover real estate as a place to park money," notes one analyst who was seemingly not alive 7 years ago, adding, "the stock market has created a tremendous amount of wealth, and that's being put into homes." It seems we are destined to 'never' learn that too much of a good thing might just not be... a good thing. Following President Obama's homeownership is patriotic roadshow this week and his almost too ironic to be real comments that the U.S. has "got to turn the page on this kind of bubble-and-bust mentality that helped to create this mess in the first place," it appears we have gone perfectly 360 as once again home prices for the wealthiest are soaring. Homes priced at more than $1 million lost about 46% of their value during the housing crash; since then, based on Bloomberg's survey of Zillow data, their value has more than doubled.
There are real-world consequences to over-issuing credit and currency. Eventually this leads to a bidding war for trust: Whose credit/cash will be trusted to retain its purchasing power? There is a grand irony here, of course; as issuers of credit/cash attempt to debase their currency to boost their exports, their debased currency buys fewer real-world resources.
Since mid-July, the S&P 500 is practically unchanged having ebbed and flowed on lower and lower volumes. But one thing that is very clear in the last few weeks, investors seem to have been conditioned to sell early and BTFD late... The question we have is (given the S&P is approaching its worst week of the year), when everyone 'knows' this is the strategy, when does it become self-defeating?
It hasn’t been a great year for Chesapeake Energy, just coming down from a management meltdown and now giving up on its leases in New York over the state’s ban on high-volume fracking. It’s a battle that’s been on for two years over thousands of acres of natural gas leases in New York, where fracking has been banned for five years. The problem was that the landowners leased the acreage to Chesapeake before the advent of hydraulic fracturing, and now they don’t want these leases extended under the original terms, according to a report by Reuters. The report says that Chesapeake has now notified the landowners that it is giving up the fight, and that the decision should be finalized next week. But there’s more to this than a simple court case...