Over the past few years, Citi's Matt King notes that the future never seems to become quite bright enough to offset the underlying economic and political realities. When we have been in this situation before, something has happened to make the markets nervous again, and then the outlook has darkened. Typically it’s been because of back-pedalling by policymakers on reforms, or doubts about central banks’ willingness to continue injecting liquidity at tighter spread levels. Recent headlines about limiting the scope for bank recapitalization by the ESM, sequestration probabilities, and about central banks’ growing nervousness that markets are running ahead of economic reality make us doubt that this time is any different.
We may have this centrally-planned, currency-debasement driven economic stimulus thing backwards, but unless we are very wrong, in January, Japan was not supposed to post a record unadjusted trade deficit, amounting to some ¥1,628.4 billion, or nearly ¥300 billion more than the expected ¥1,379 billion deficit. And while exports did rise more than the 5.6 expected, at 6.4%, it was imports which printed at 7.3%, that destroyed expectations of a modest 2.1% rise, and which were likely all energy related. Which means that Japan is happily importing the rest of the world's inflation and getting precisely nothing to show for it. Then again, the central planners are smart folks. They have PhD's. They are certainly on top of this.
Good news, bad news, no news, dips, no dips, who cares. As Goldman sales/trading desk says, never look a gift-Bernanke in the mouth (especially if he ends up in a frozen lasagna at a store near you).
A solid rally today and new cycle highs for US equities – but that’s where the story stops. No obvious catalyst. No bullish data. European stocks traded well, with most people pointing to a better German ZEW print, but it’s not clear why that would translate into such a strong US trading session. Maybe it’s best though not to look a gift-horse in the mouth.
One can't help but laugh at this "market."
The oil and gas game can be a tricky one for junior companies, but if played right the pay-off can be massive. At a time when juniors are risking a lot in volatile venues in the Middle East and Africa, Canada’s Aroway Energy (ARW) is planting its feet firmly in homeland soil and in conventional plays. Why? Because for the smaller juniors this is not a long-term game and blowing all your capital to drill a single unconventional well in a risky frontier won’t pay off. Canada still has plenty to offer for juniors, even though you have to kiss plenty of frogs to find the prince. The end game, after all, is merger and acquisition. In an exclusive interview Aroway CEO Chris Cooper discusses: How to make or break a junior oil and gas company; Why rail is becoming more attractive than pipeline transit; Why most juniors won’t make it big in risky frontiers; Why Keystone XL will get the green light; Why oil and gas prices will increase; Why the smaller juniors will stick to the conventional plays; How the asset market is heating up … and what is ideal; Why having control of infrastructure is key to success; Where Canada’s oil and gas industry will be in a decade; What every junior’s goal should be.
It's no shock that the Spanish housing market is horrible but hope has been, following the government's nationalization of various banks and creation of the 'bad bank' to soak up all the toxic crap those banks had on their books, that a recovery could blossom. It appears not - not at all. Not only are bad loans rising at record rates with house prices remaining down over 40% but now Reyal Urbis has filed for insolvency making it the nation's second largest bankruptcy as dozens of smaller firms have failed. What makes this so important is the fact that the banks were unwilling to refinance the debt - seemingly comfortable with liquidation - summed up perfectly: "Many loans were refinanced one or two years ago, in the hope that things would get better, but it has not been the case and there is now more realism about the situation. Why would you extend a new loan today?" A good question, one that Tepper's Appaloosa will be pondering as its EUR450mm loan looks in trouble.
Volume was nothing to cheer about after a long weekend, but it seemed the forced buy-ins and stop-runs remain as stocks pushed on to new highs even as the USD ended unchanged from Friday's close and Treasury yields up 2-3bps. A 1.2% rally in S&P futures from Friday's lows as Copper and Silver were slammed lower (former on China 'tightening' and latter on equity short-covering margin unwinds we suspect). In general risk-assets were not playing along with stocks' exuberance but as the after noon played on and stocks saw at most a 1 pt reversal, so bonds pushed higher in yields - recoupling risk and stocks towards the close. VIX led the way - testing Friday's decoupled lows around 12.08%. Credit markets remain underperformers but tracked stocks higher on the day. Oil prices - seemingly the only thing that could potentially foil the current rally - pushed around 1% higher from Friday's close, as Gold fell back modestly to $1605. AAPL ended the day unch - with a huge volume spike at the close, as homebuilders suffered post-NAHB. VIX closed at its lowest since April 2007; S&P 500 futures had their biggest open-to-close rise of the year.
With sequesters and loopholes the only two words that seem to matter in Washington (the latter more than the former as far as action), we suspect the popularity of the so-called 'Bermuda Triangle' tax dodge may raise more than a few eyebrows. Put simply, hedge fund managers create a Bermuda-based re-insurance entity, their clients (high-net-worth individuals) funnel their hard-earned gains through this offshore entity and back to the US hedge funds - dramatically reducing their personal income taxes. The re-insurers do a minimum of business to create the appearance of legitimacy but are enabling hedge fund investors to avoid paying high-rate income tax on any gains from the funds and growing tax-free while in the fund. Of course this is defended as "good tax management." Funds such as Paulson's, Third Point, Greenlight, and SAC all use this vehicle according to Bloomberg as a handy way to funnel a US hedge fund investment through a tax haven. It truly is good to be king...
It has been four years since Rick Santelli's epic "are you listening Mr. President?" speech and the bad behavior has merely been more and more rewarded. Assisted by the enablers of the world - Central Bankers - and their liquidity pump of awesomeness, Santelli exclaims that all we are doing is "promoting bad behavior," as the elites "build sand castle economies." His frustration is contagious as he outlines just what has not happened in the last four years - from no-budget to blow-out deficits, and from grand deals to grand bargains to no deals, and Europe's imploding economies - he sums it up perfectly - "we're gonna need a lot of luck."
As the Brits await anxiously for tomorrow's employment data - with their currency plunging courtesy of reality and Carney's vocal intervention - it appears the job market in blighty is truly dismal. We know it is tough to get into Harvard (5.9% acceptance rate); we recently discussed the difficulty of attaining a flight attendant position at Delta (1.4% acceptance rate - 300 positions for 22,000 applicants); but that's nothing compared to the difficulty in attaining a role at the UK's Costa Coffee. 1700 people applied for 8 positions (0.47% acceptance rate) at a high street coffee house in Mapperley, Nottingham. Just three of the jobs were full-time - and paid between $8 and $15 per hour. Just as in the US, The Daily Mail notes unemployment is actually falling according to official figures, but the demand for relatively low paying jobs tells a different story, as unsuccessful candidates include senior managers with over 15 years experience in retail. The jobs were only listed on the firm's website and on a local building - and attracted this kind of attention leaving the company "amazed at the level of interest."
Governments have refused to accept the necessity of a period of economic re-adjustment following the credit-bubble. The bubble burst about five years ago and economic progress has been effectively suspended ever since. Reduced to its bare bones, the choice has been either to accept that unviable businesses and over-extended banks must go bust, or to ignore the problem and hope it goes away. This is a decision for markets, not governments, which brings us back to the necessity for economic re-adjustment. Governments have simply not faced up to the reality that we are in a post-credit-bubble mess: they still hope the problem will be resolved by time. We are long past the point of no return. Governments are now reduced to screwing their electorates for their own survival, which is their last refuge from reality.
Precisely a month ago, when we last looked at the ongoing French campaign in Mali, whose diplomatic justification before the people of the "democratic" world was the eradication of "insurgents", and various other "Al Qaeda rebels", we asked readers, rhetorically, to look at a map of Mali and tell us what they see. We even provided an answer: "Nothing. Mali is one of the most irrelevant countries in West Africa from a resource standpoint, and what happens inside of it is certainly irrelevant from a greater geopolitical standpoint. What is more important is what this map doesn't show, specifically the name of the country located a few hundred miles to the south: Nigeria. Now Nigeria is important: very important. Or rather, Nigerian light sweet, one of the highest quality crudes in the world, is. And thanks to the "bungled" French peacemaking attempt, the US now has a critical foothold in what is the most strategically placed stretch of desert in Western Africa, a place where US "military trainers" will now be deployed at will. Be on the lookout for curious escalations in violence around the capital Abuja, and key port city Lagos, in the coming months once the current Mali fracas is long forgotten." It appears that Nigeria will be drawn into the fray far sooner than even we expected following today's news that Islamist militants from neighboring Nigeria abducted a French family of seven, including four children, in northern Cameroon on Tuesday, French President Francois Hollande said. Next up: Al Qaeda is mysteriously discovered to be aiding and abetting "evil" insurgent Malians out of Nigeria, and the French campaign, with the generous and stealthy support of the US, shifts slowly but surely southward to its ultimate destination: liberating all that Nigerian light sweet oil.
Just under a month ago, the mainstream media and blogging coat-tail-riders all hailed the miracle that was a huge windfall rise in California's tax receipts as a sign; a glimpse of what was to come from our centrally planned utopian recovery. Surpluses, taxes up, life is good. Unfortunately, as is always the case in reality, if its too good to be true, then it is! The LA Times reports that the historic $5bn revenue bump appears to have been an accounting anomaly! Just as state accountants were starting to allocate the magical inflow of tax receipts, Governor Brown's administration says the extra money was "likely the result of major tax law changes at the federal and state level having a significant impact in the timing of revenue receipts." Taxpayers were paying a share of their bill early, getting income off their books in the hope of limiting exposure to the tax hikes that recently kicked in. The administration was expecting that money to arrive in April. Now, officials are saying it won't, and that just as January's receipts soared, they'll be offset by a spring plunge. We need another miracle, stat!
As silver suffers its biggest one-day drop of the year, following a February of strange 'spikey' behavior, we thought it might be useful to show just what has been going on for the last few weeks. It appears that from the open of US equity trading pre-market to the close of Europe's equity markets (~0730ET to ~1130ET), Silver has been offered non-stop. Out of that four-hour window, on average, Silver has not moved in the month of February. With the dramatic nature of physical demand at the Mint, this serial slam-down of Silver just seems a little too premeditated and predictable.
And now for a quick blast from the past: on November 26, moments after Mark Carney was announced as the Bank of England's next "shocking" head (confirming our prediction that just this would happen), we made a very simple prediction, one which ran contrary to the conventional wisdom of the day, that Carney would pursue a sensible policy of preserving the strength of the British pound, namely the following:
It took Goldman's Mario Draghi about 3 hours to launch an epic EUR destruction campaign. Anyone going long the GBP here needs therapy
— zerohedge (@zerohedge) November 26, 2012
Sure enough, after rising very modestly in the days after Carney's coronation, cable has since imploded and moment ago touched on a new seven month low. Those who have been long the GBPUSD throughout the ensuing 700 pip plunge, can invoice Goldman Sachs with their therapy bills.
While Italian bank and sovereign bond markets have showed a little weakness in recent weeks, they remain largely in limbo - supported on one side by an inexorable promise by ECB's Draghi outweighing the crushing reality of economic fundamentals. The transmission mechanism, claimed to 'fixed' by Draghi, is simply not. In fact, as the ABI notes, loans to families and companies dropped by record amounts in January. As ANSA reports, the continuing recession is not only weighing on loan demand but banks are unwilling to lend their ECB-funded reserves as delinquent loans continue to surge year after year (at record highs up over 16% YoY). Deposits rose - theoretically a positive - and yet as we have noted this is a preference for liquidity not a signal of confidence in Italian banks. However, all this terrible news, weakening economic climate, and plunging credit creation is described by the Banking Association as "no cause for alarm." Phew...