The miss in the Kansas City Fed data makes it four out of four today for weaker-than-expected macro prints and of course, equity markets are pushing to new highs. Under the surface of each of these reports the data is even more compellingly ugly - and we have seen this pattern of mass delusion before. As the chart below shows (confirming many of our macro-reality to market-unreality divergences) the crash in Kansas City Fed employment data relative to the S&P 500 is as divergent as ever. The last time this happened, things didn't work out so well.
Pinning the blame for the collapse of the Cypriot banking system (and the country itself) on the shoulders of one man may seem harsh but Laiki Bank's chief risk officer Dimitris Spanodimos represents the tip of the spear of mass delusion that encompasses most (if not all) of Europe. Cypriot banks had been swamped with deposits courtesy of their cozy relationship with Russia and this left them with, in Spanodimos' words, "comfortable liquidity and capital position to deepen selectively some highly profitable and highly promising client relationships." In short, they had so much excess that they had to invest it somewhere and given the regulators light tough (which gave the banks a clean bill of health through 2011), they bought Greek government debt and extending huge amounts of mortgage loans (in Greece and Cyprus). So, as the WSJ reports, while everyone else was purging, Spanadimos had swallowed the red pill and decided his banks' gorging on extremely risky investments was tolerable - until of course the EU pulled the plug with the haircuts from the Greek bailout. These losses, and the need for new capital, is why Cyprus needed a bailout - so who is to blame...
The decision to crush Cypriot depositors (first all of them, then just the uninsured ones) came in March, without any prior hints of the carnage that was about to be unleashed upon Cypriot bank unsecured liabilities. Or so the media narrative goes, because the last thing needed is to give skeptics any indication the "ad hoc" Troika plan was not so ad hoc after all, and some individuals - notably the whale depositors - were warned in advance, sparing them the indignity of pulling a few billion at €300 per day. Alas, as just released central bank data shows, there may be cracks in the narrative because in February, at a time when the Eurozone was supposedly getting better every day and the Dow Jones was on the verge of its all time high, Cypriot depositors pulled the largest amount of cash in over three years.
Those who were transfixed by whether Cypriots would rumble and unleash their anger at the €300/day dispensing ATMs formerly known as bank branches this morning, may have missed what probably was the most important monthly chart coming out of Europe - that showing aggregate money (M3) growth and, far more importantly, loan creation. Those who did pay attention will know that in February M3 grew quite obediently in a Eurozone flush with cash, this time by a respectable €15 billion, or 3.1% y/y, after €37 billion in January (of which, however a whopping €47 billion was M1 so the balance actually declined). Of course, this was the easy part: creating money via various central bank conduits has never been the issue: the concern has always been getting that money into private consumer hands through loan creation. And it is here that things just keep on getting worse by the day. Because in a continent in which there is no confidence whatsoever: no confidence in the banks, no confidence in the financial system, no confidence in end demand, no confidence in any reported data, no confidence that one's deposits won't be confiscated tomorrow, and last but not least no confidence that a sovereign nation won't just hand over its sovereignty to the Troika tomorrow, nobody is willing to take on additional loans and obligations. This can be seen in the dramatic divergence between European money creation (blue line), and the bank lending to the private sector (brown), which is at or near an all time record year over year low. So much for restoring confidence in Europe.
In what may be a stunning development, today the market may actually respond to an adverse piece of economic news by going lower. The news, in this case was the February Chicago PMI which tumbled from 56.8 to 52.4, the lowest since December and far below expectations of a 56.5 print - the biggest miss in 11 months. This was driven by a plunge in New Orders which tumbled from 60.2 to 53.0, the most since May 2011, although virtually every other components was ugly: Production posted the weakest print since September 2009, Order backlogs had its ninth month of contraction in the last year, Inventories had their 4th contraction in the last six months, Supplier Deliveries were the longest in 15 months, and so on. Ironically, only Employment was relatively normal dropping a small 0.6 from 55.7 to 55.1. And for those claiming there is a housing recovery, we present this excerpt from one of the respondents: "a company we buy steel from, they also pre-cut steel for new home construction, back in 2007 they shipped 110 rig packages per week, today they ship 2 rig packages per week, and for carpenters, for one employed there are 15 unemployed." Housing recovery, sure. How about unleashing the millions and millions in shadow units either entering or exiting the jammed foreclosure pipeline, where millions live mortgage free just to avoid an avalanche of selling? Let's see what recovery you have then.
It's funny how things are done in Europe. Nothing is as it seems. Then everything is orchestrated to try to get you to believe what they want you to believe. The Cyprus fiasco is one good example. The Dutch FinMin broke ranks and spoke the truth; there is now a template in Europe for financial bail-outs which include losses for bond holders and depositors. The ECB had almost all of its members deny that there was any template. Then Spain denied, Portugal was on the tape so many times yesterday denying that you thought it was the newest Cadillac commercial and then virtually every other country in Europe had somebody in the Press with their own denials. "One-off" was the word of the day and the giant European propaganda machine worked well into the night. The problem is the way these things work. The reporters, from any news agency, are handed out stuff from the government. They have to publish it. There is no choice. But why are the Russians not quite so upset as they were at the beginning of the crisis. The answer to this question is Uniastrum bank...
Moments ago Cyprus banks reopened, under heavy guard, without signs of a stampede. However, since as was made clear yesterday, all bank branches will serve merely as glorified ATMs, allowing for a maximum €300 cash withdrawal and practically no outbound cash transactions allowed, there has been no stampede, and no lines as the bulk of services provided legally are merely what one can find at an automated teller machine. The question is whether the five shipping container full of ECB cash delivered last night into the country will be enough to cover the cash-strapped public's demands, and for how long.
The extrapolators had expected an initial jobless claims print below 340k as the recent trend of noisy drift lower was expected to continue but alas it was not to be. The stretched rubber band of Arima-X revisions and adjustments had to correct sooner or later and sure enough, with a jump of 16,000 this week, initial claims missed expectations by the most since the second week of November (following Hurricane Sandy). The chaotic idiocy continues in Emergency Unemployment Compensation (which jumped 125k in the latest week) as the footprint of statistical manipulation is oh so evident in the V-Fib-like chart below.
A quick glance at the Larnaca runways, also known as the Russian (and perhaps even other, but that would impair the media narrative that "only Russian tax-evading oligarchs are evil") private jet parking lot, shows that things are as heated as ever, although maybe just a tad less heated. Channel 4's Faisal Islam observes that while there are 12 private jets on the tarmac, this is one less then ten days ago. When this number drop to zero, the Cypriot depression has officially begun.
Moments ago, as we prepare to put Q1 2013 to a close with a bout of window dressing that will send the S&P to all time highs, we got the final Q4 2012 GDP revision: a number largely meaningless, although it does put closure to the economy in 2012. And as with all economic numbers in the past year, it was not pretty, coming in at 0.37%, below estimates of a 0.5% print, although modestly better than the second Q4 revision when it was 0.14%. The full breakdown by various components is shown below, with the most notable, Personal Consumption Expenditures, showing a gradual and consistent decline over the past three months as it was revised relentlessly lower, dropping from 1.52% in the first revision, to 1.47% in the second, to 1.28% in the final. Offsetting this was a jump in Fixed Investment which rose to 1.69%, the highest since Q3 2011. Supposedly this implies that capital spending is soaring, when in reality companies continue to curb CapEx plans, instead focusing on short term shareholder gains such as buybacks and dividends, which is to be expected in the absence of any actual end-demand.
- Lines Form as Cyprus Banks Reopen (WSJ)
- Greek Bets Sank Top Cyprus Lenders - Banks at Heart of Cyprus Mess Were Bullish on Athens as Other Investors Fled (WSJ)
- Hollande Economic Woes Masked by Cyprus Fig Leaf (BBG)
- M&A Stumbles Amid March Deal Drought (BBG) ... but any minute now
- Train hauling Canadian oil derails in Minnesota (Reuters) - must be an evil pipeline riding first class
- Slovenian Austerity After Cyprus Fails to Stem Yield Gain (BBG)
- Banks Seek to Overturn Judge’s Ruling in Critical Mortgage Case (NYT)
- Ships Costing U.S. $37 Billion Lack Firepower, Navy Told (BBG)
- OECD still gloomy on eurozone recovery (FT)
- BOJ's Kuroda says asset purchase limit already broken (Reuters)
- Kuroda warns Japan debt ‘not sustainable’ (FT)
- BOJ’s Kuroda Vows to Continue Easing Until 2% Target Achieved (BBG)
- South Korea cuts economic forecast (FT)
The BTFD mantra is alive and well in a market, where futures overnight briefly dipped to a low of -0.5% only to be set to open at record high, following the biggest one day drubbing in China in months, where the Shanghai Composite closed -2.82% after new rules were issued by the Chinese banking regulator to limit the expansion and improve the transparency of so-called “wealth management products”. The products, which are marketed as higher yielding alternatives to bank deposits, are often used to fund risky projects including property developments, short-term corporate lines of credit or for speculative purchases of commodities and have been identified as contributing to the rise of shadow-banking in China’s financial system. As Deutsche reports, Fitch estimates the total amount of outstanding wealth-management products was around 13 trillion yuan at the end of last year—equal to about 15% of total banking-system deposits. Japanese equities were also weaker overnight (Nikkei –1.3%) and the yen is 0.3% firmer against the dollar after BoJ Governor Kuroda told parliament that he has no intention of buying foreign bonds because doing so could be seen as currency intervention. Finally, South Korea informally entered the currency wars after it slashed its GDP forecast from 3% to mid-2%, announcing it would use "interest rates" to boost growth, which naturally means use of monetary means and directly challenging the BOJ.
"The Order finds that the Respondents’ customers thus never owned, possessed, or received title to the physical commodities that they believed they purchased."
We cautioned readers in 2011 that in a broke world in which the ridiculously named "muddle-through" has miserably failed, a global wealth tax seeking to expropriate some 30% of all financial assets is coming. Few took it seriously, and why should they - after all the market has been blissfully rising before and ever since then, which implies everything was ok, right? Wrong, as those who are lining up right now in the Cyprus late of night not to buy a shiny new iTrinket, but to access a measly €300 of their own money would promptly admit. Naturally, if more of our Cypriot readers had paid attention, they would have far more of their own money at their disposal right now, instead of having to beg Merkel's emissaries for a €300 handout tomorrow. Now, a year and a half later, the realization that the global wealth tax is not only coming but is inevitable in practically every developed country, is finally sinking in, as this interview with Marc Faber confirms: "Until now, the bailouts in Europe and the U.S. were at the expense of the taxpayer. And from now onwards, in my view, the bailouts will also be at the expense of the asset holders, the well-to-do people. So if you have money I am sure the governments will one day take away 20-30% of my wealth."
He is correct, but probably optimstic.