As we reported previously, the stock of the oldest bank in the world, Italy's venerable Banca Monte Dei Paschi of Siena, was halted in early trade after plunging on news that the bank had engaged in not only the previously reported secret derivative transaction with Deustche Bank to hide losses before a prior government bailout, but yet another derivative transaction, this time with Nomura, signed three years ago and whose intention, ironically, was to reduce 2012 earnings by some €220 million.What the ultimate purpose of these deals was is still unclear and will likely become apparent eventually, however it will likely require the former Chairman of the bank, Giuseppe Mussari, who served as Chair from 2006 until April 2012, and who officially quit his post as Italy's top banking lobbyist after today's revelations, to testify. One person whom he may testify against is none other than current ECB head Mario Draghi, who just happened to be the head of the Bank of Italy from 2006 to 2011, or the entire period when Monte Paschi was engaging in what increasingly appears to have been fraudulent activity.But don't worry: just like in the US, nobody of signfiicance is about to go down for this "glitch" which is about to be blamed on some poor mid-level shmuck, and which nobody in the senior level management had any idea about, and certainly not the person who ultimately would have had to give the green light: the current head of the ECB.
From the highs this morning as European markets closed, S&P 500 futures have plunged 11.5 points. Doesn't sound like much - but this is in fact the largest intraday swing of 2013...Keep calm and BTFD.
With eight months left until million of Americans are supposed to begin shopping at online markets created by the Obamacare 'tax' law, the insurance industry is concerned at the government's lack of readiness. Bloomberg reports that Jim Donelon, the head of the National Association of Insurance Commissioners, suggested that President Obama may need to delay the implementation of the health-care overhaul or "risk chaos" when the subsidized plans go on sale later this year. While it is clear that the administration has shown no sign of seeking a delay, Donelon notes that "...to rush into implementation before it's ready would not be in the President's best interest."
One of the most dangerous mistakes possible to make in trying to understand the shape of the economic future is to think of the fundamental concepts of economics as simple and uncontroversial. They aren’t. In economics, as in all other fields, the fundamentals are where disguised ideologies and unexamined presuppositions are most likely to hide out, precisely because nobody questions them. In this note we will explore a number of things that seem, at first glance, very obvious and basic. There are lessons of crucial and deeply practical importance to anyone facing the challenging years ahead. This is, above all, true of the first thing we want to talk about: the tangled relationship between wealth and money. Chris Martenson, likes to remind us all that money is not wealth, but a claim on wealth. He’s quite right, and it’s important to understand why.
A funny thing happened as US equity indices pushed to new highs - levered this time by Bond and FX markets - and following the new normal US-Open-to-EU-Close pattern. VIX, that much talked-about contemporaneous indicator of concern (or complacency) took a divergent dive. Different this time? Maybe... Or are all those downside call-writers covering their levered losses and forced buy-ins in AAPL? Seems like that initial burst of recovery is fading fast now as AAPL drops back below its VWAP.
The global economy is ill, and everyone who is not mired in denial or a paid shill knows it. Saying it's healthy doesn't make it so. Is is possible to usefully generalize the illness and outline a cure in a few points? Maybe not, but let's try anyway.
We are now four-for-four (five-for-five if we include the drastic downward revisions in the Chicago PMI) for regional Fed business outlooks taking a serious (and consistent) turn for the worse. Kansas Fed manufacturing just missed expectations turning negative once again. Amid the sub-indices (which were broadly weak) was a plunge in employment as it fell to August 2009 levels. This weakness in Kansas follows Richmond's quadruple dip, Empire State's weakness, and Philly's major miss and in aggregate suggests a very weak ISM to come. Of course, all of this flies in the face of today's US PMI which beat expectations and pushed to recent highs.
While the seasonally adjusted, BLS-estimated version of the China-Japan conflict says that things are normalizing, following the arrival of a Japanese envoy visiting Beijing to "soothe relations" which have been frayed since September and have led to a collapse in Japanese exports to China, the unadjusted reality is once again different, and the latest update comes from Reuters which informs that Japanese authorities have detained a Chinese boat for fishing in Japanese waters, China's Xinhua news agency said on Thursday, "even as the two countries moved to defuse tensions that flared last year over disputed islands." It is now China's turn to "de-escalate" by returning the favor in kind.
Back in 2011, when day after day the true ugly nature of the Greek economy was being exposed for all to see well just after the second and before the third bailouts of the country were a fact, and as the decade-long obfuscation campaign to present the economy far stronger than it was in reality was crashing and burning, Greece decided to do something unique: it would put all the blame on the president of its newly created, independent Greek statistics service ELSTAT, accusing him of making the country look worse than it was (as if that was at all possible). Just like in the US, the blame would never reach those who were truly responsible, and instead would find a scapegoat in a person who was new to the scene, had no political ties and connections, and could not defend himself. Today, he has defended himself... but to no avail: he will be thrown under the bus, as the economic data lies and manipulation have resumed, only this time with someone to take the blame if only for a while. Then, in a few months when the lies are uncovered to have resumed, the charade can repeat itself all over again.
We have noted the odd cyclicality in macro data (and its leading effect on the market) and it seems Goldman Sachs has also noticed that something is different this time. For 15 years, the seasonal patterns in Goldman's macro index have been mild to totally negligible; but since 2009, something changed. As the chart below indicates, it really is different this time as the macro cycle has become extremely short and consistent (drop in H1, rise in H2) - and is evident not just top-down but bottom-up in payrolls and ISM for instance. Goldman expounds pages of statistical jiggery-pokery to show what we suspected - that this is not weather or seasonality effects, and is not just US (UK and Europe see same pattern of six month cycles); but appears driven by central-bank policy actions (which have been more concentrated in Q4/Q1). 2013 is playing out exactly as the last three years has - with a downdraft that is set to continue for the next few months - though they note that stability in oil prices this time (and recent expansion of easing efforts - Fed and BoJ) may shift the pattern. For now, it appears the macro cycle is becoming shorter and warrants concern as they are unable to find anything but 'reality' as a driver of this odd cyclical pattern as the real economy fades rapidly after each and every infusion of promises from the Central Banks.
... is not the economy, which as we pointed out earlier just crossed into "worst recovery ever" territory, or even actual layoff events. The reason is, as always when there is a massive "beat" in any US economic data, the same tried and true estimation magic out of the BLS appearing so conveniently at appropriate times, which estimated the claims numbers of 3 states, among which those of the most populous: California.
If there was one day needing some truly epic distraction from the bloodbath of the world's most widely held stock (held by some 231 hedge funds as of September 30, and countless mutual and other plain vanilla funds), it was today. And sure enough, it came courtesy of the S&P, which "restored" confidence that 'all is well' after it just crossed 1500 for the first time since 2007. The only thing missing were balloons falling from the sky saying "all is well, keep calm, the NY Fed-Citadel fat trading pipe is working perfectly and will keep buying stuff as long as needed." It would appear the Long-AAPL, short S&P trade is in full unwind mode - and we note that trade size is large up here.
With the world and his mum applauding day-after-day as the nominal price of the major equity indices push to either i) all-time highs, or ii) post-crisis highs; and any and every measure of 'fear' (e.g. volatility and credit spreads) is repressed to limit-zero; there is an annoying glitch in the new market-based reality that has become our barometer of how we feel. Since the 2009 lows, every new market high has been confirmed by the Nasdaq - until now that is - as the divergence between the tech-dominated 'new normal' index and the rampacious Dow Transports or Industrials (dominated by one or two names each and every day) has grown significantly. The worrying chart below, perhaps suggests that the broad Nasdaq index is about to begin the down leg of a major head-and-shoulders pattern - helped by none other than 'most-held' Apple. Are non-Nasdaq indices being driven by the hedge unwinds against this mega-holding?
The present is a time when things are in great confusion. We are creating money from nothing and yet enjoying the fruits of their labors. The economies in Europe and in Japan and America are worsening and yet yields for their sovereign debt are barely off all-time lows. The stock markets of the world, following the 2008/2009 financial crisis, are back at new highs. All of this has taken place because the world’s central banks, acting in concert, have pumped enough small pieces of paper into the fire to keep it burning long into the night and so all of the markets on the planet have been stoked with fuel. When the fundamentals of the markets are out of line with their performance then history teaches us that at some point rational behavior will cause a correction. It was just five years ago when the world learned a rather harsh lesson. It was a lesson that cost Americans 36% of their wealth.
While it is unclear how many states' data the BLS had to estimate today, the weekly initial claims print was impressive, sliding even lower than last week, when it came at 335K, and refuting expectations of a rise to 355K, instead reversing and printing the lowest weekly number since January 2008: 330K. What is impressive is that the NSA number dropped by a whopping 120K in the past week, making one wonder how much of the ongoing moves are simply a seasonal adjustments mismatch (a question even Goldman asked last night). Perhaps just as curious is that a whopping 365,641 people dropped off Extended Claims in the first week of January, unclear if this had anything to do with the Fiscal Cliff can kicking: certainly a third of a million Americans suddenly stopped receiving weekly jobless claims benefits from Uncle Sam. The biggest news from this is that with so many people dropping out of the labor force, the January unemployment rate will truly plunge, which is precisely the red flag observed by traders, and is the reason why the market is not taking this news in stride. Remember - all it takes for the end of endless QE is a stable improvement in the labor pool. Could this be it? Of course not, but doubts are starting to emerge.