If you’ve been watching any commercial television lately, you are well aware that the financial services industry is very busy running expensive ads imploring us to worry about our retirement futures. Open a new account today, they say. They are not wrong that we should be doing something: America is facing a retirement crisis. One in three Americans has no retirement savings at all. One in two reports that they can’t save enough. On top of that, we are living longer, and health care costs, as we all know, are increasing. But, as Martin Smith found when investigating the retirement planning and mutual funds industries in Frontline documentary 'The Retirement Gamble', those advertisements are imploring us to start saving for one simple reason. Retirement is big business - and very profitable.
Those who think back to November 2011 will recall that it wasn't Jon Corzine's wrong way bet on Italian bonds that ultimately led to the bankruptcy of MF Global, well it did in part, but the real Chapter 11 cause was the sudden liquidity shortage due to the way the trades were structured as a Repo To Maturity, where the bank had hoped to collect the carry from the bond coupons, thereby offsetting the nominal repo cost of funding. The kind of deal which is the very definition of collecting pennies in front of a steamroller, as while the funding cost may be tiny and the capital allocated negligible (due to the nearly infinite implied leverage involved when using repo), when the underlying instrument crashes, and the originating counterparty has to fund a massive variation margin shortfall, that is when the shadow transformation cascade triggers an immediate liquidity crisis, which can result in liquidation cascade in a few brief hours. It happened with MF Global, it happened with Lehman too. And, we now learn, it also happened with Italy's most troubled and oldest bank, Monte Paschi (BMPS), whose endless bailouts, political intrigue, depoit runs, and cooked books have all been covered extensively here previously.
The political class set in motion the eventual obliteration of our economic system with the creation of the Federal Reserve in 1913. Placing the fate of the American people in the hands of a powerful cabal of unaccountable greedy wealthy elitist bankers was destined to lead to poverty for the many, riches for the connected crony capitalists, debasement of the currency, endless war, and ultimately the decline and fall of an empire. The 100 year downward spiral began gradually but has picked up steam in the last sixteen years, as the exponential growth model, built upon ever increasing levels of debt and an ever increasing supply of cheap oil, has proven to be unsustainable and unstable. Those in power are frantically using every tool at their disposal to convince Boobus Americanus they have everything under control and the system is operating normally. Nothing could be further from the truth.
Things in the US have gotten so bad, not only are most online dealers backlogged weeks and months in advance for most PMs (as the CEO of Texas Precious Metals explained in detail), but respected bullion vaults are also now on the verge of running out of inventory. As Reuters described, "Michael Kramer, president of Manfra, Tordella & Brookes (MTB), a major U.S. coin dealer in New York, has been inundated by orders from existing and new wholesale and retail customers. "It's panic. This is one of the busiest times in quite a while. People think gold's at the lows and they want to take advantage." It was only a matter of time before the last bastion of paper money, London, also succumbed to the soaring demand for physical, and sure enough moments ago Bloomberg reported that the "Britain’s Royal Mint, established in the 13th century, sold more than three times more gold coins this month than a year earlier as prices declined." Sales are more than 150 percent higher than last month, according to Shane Bissett, director of bullion and commemorative coin at the Royal Mint.
First it was a tripling of gold sales at the UK Royal mint, and now with just 23 days in the month of April gone, it is the US Mint's turn to reports that more gold has been sold month to date than any month since December 2009 when a record 231,500 ounces were sold. In one day, the mint sold yet another 13,000 ounces of gold, bringing the total to 196,500, or more than triple the 62,000 ounces sold in the previous month.
It is becoming increasingly evident that Japan is attempting to use monetary policy to paper over the cracks of imploding foreign policy decisions. The 'storm in a teacup' that has brought China and Japan into fierce rhetorical battles over the Senkaku (or Diaoyu) Islands is having far more deep-seated impacts on the people of the two nations - and implicitly their buying habits. Unfortunately for the embattled Japanese - they are the ones in need far more than vice versa. As Bloomberg reports, discrimination against Japanese is increasingly common in China, as the head of China's Honda plant notes, he’s "never worked in a more hostile place." The dispute over the islands is raising resentment with bars and restaurants showings signs at the door saying, 'Japanese are barred from entering.' "Wherever I go, like department stores or in taxis, people ask me whether I am Japanese," and the reaction can be frosty. Simply put, no matter how cheap the Japanese make their cars by explicitly devaluing their currency, the largest auto market in the world (that of the Chinese) will not be buying; summed up rather bleakly, "I don’t really care about [car] brands,... but there are cars I won’t buy -- the Japanese ones. The reason is simple: Diaoyu."
After touching multi-year highs amid the exuberance of liquidity sloshing around the world, Oil became too glaring a concern and two weeks of suppression took the only Central-Bank-'Governor' to much more comfortable levels. But, the last week has seen the biggest 5-day jump in WTI in 8 months and today the biggest jump in 5 months. It seems the 'Brent Vigilantes' are back. Equities traded in a very narrow range after yesterday's #HashCrash and eMini volumes were among the lowest of the year. An early afternoon ramp, aided by EURUSD, failed at overnight highs and collapsed back to VWAP as the machines were in charge once again. Treasuries rallied from early morning high yields ending the day lower in yield (TSY yields down 1-2bps on the week against a 30 point rally in the S&P!!) Durable goods dismal data just reinforced Europe's donut and stirred the bad-is-good mantra as Trannies outperformed, but interestingly once again the Dow was unable to break above pre-Boston levels. FX markets were relatively calm for once as gold, silver, and copper all gained. VIX ended up for the day by 0.25vols at 13.75%.
Forget the papered over cracks of manufactured EPS 'beats', or the talking-head anecdotes of one or two companies chosen to represent the 'earnings season' visibility. This chart from S&P shows the simple reality that operating earnings per share has been growing at an ever-decreasing pace since QE began. Of course, just as they were saying in June 2011, the next few quarters will see this growth re-accelerate...
How much changes in six months. Last September, everyone, including the hotdog vendor, the shoeshine boy and the kitchen sink, was screaming that AAPL $1000 is just around the corner, and cartoon analysts named for state capitals were coming up with idiotic price targets (hint: $1111) that only intellectually-stunted dyslexics could love. Six months later, the former growth company (and now levered-divdend value play) can barely break above $300. So, just to set the record straight, here, courtesy of marketsqueeze.com, is a small sample of the penguins who could barely outscream each other on the way to a "certain" $1 trillion market cap. Ooops.
It appears, once again, that the government's inept approach to spending 'other people's money' has blown up in their face. As HotAir.com reports, newly obtained documents show the Obama administration was warned as early as 2010 that electric car maker Fisker Automotive Inc. was not meeting milestones set up for a half-billion dollar government loan, nearly a year before U.S. officials froze the loan. Just as with Solyndra, Congress seemed convinced to spend billions of taxpayer money 'investing' in green-tech startups - only to lose everything. Simply put, in our humble opinion, the pattern is explained by the 'monopoly money' perspective we suspect these funds are viewed as in light of Bernanke's inexorable funding of the government's largesse. None other than the great Joe Biden reveled in the news in 2009 that Fisker would re-open a closed GM plant creating jobs, jobs, jobs; it never completed the task and never created one job. When the money isn't yours, 'investing' public funds is oh so easy and it appears, with zero consequence for the decision makers - again. But this story is not over yet, as Fisker heads to Congress looking for the right "financial and stretgic resources" once again.
While broad US macro-economic data has been sliding rapidly of late - now at equivalently bad levels as we saw in August of last year's 'swoon', we have often seen 'survey-based' data provide some fillip to the hard-data deterioration. Hope and faith that recovery is just around the corner provides just enough to hang new all-time high stock prices on. But... in the last two weeks, the surprises from US business cycle and survey-based indicators have plunged. In fact they have dropped at a pace only matched by 2011's Q2 slump that required global coordinated central bank intervention to save it. Perhaps even more interesting from the chart below, is the lower highs being made in these indicators of the business cycle - which confirm the fading reality of any spillover-effect from QE.
When Spanish bonds traded at yields above 7% last Summer, the world's central banks went into a whirlwind to proclaim that these levels did not represent reality (in spite of the depression-era style economic data the nation was spewing). Fast forward nine months, the data is worse and getting worserer but yields - through the guiding hand of Draghi, the self-referential buying of domestic banks, and the BoJ's risk-is-no-object reach for anything non-JPY denominated - have crushed to 4.3% pre-crisis levels. Meanwhile, a few thousand miles south, the nation of Rwanda is issuing its first international debt today at a 7% yield (to the Japanese we are sure) as over 90% of the world's sovereign bond markets are at or near all-time low yields. But, the smart money is leaving, as PIMCO notes, "this central bank-inspired rally has made the markets expensive... relative to fundamentals"
Since reams of Powerpoint presentations, or pages of PDFs seem to pass most 'investors' by these days, PIMCO's Bill Gross' new chosen media appears to be Twitter's 140 characters. He is on a roll of soundbite superbness. Today's headline suggests just four little words we should all be aware of: "Bubbles are getting Bubbly."
— PIMCO (@PIMCO) April 24, 2013
Yesterday's #Hash-Crash has brought the tough reality of just how entirely mechanized the so-called equity 'markets' have become in the US to every mom-and-pop who watch nightly news. Mainstream media is even discussing the correlations between JPY carry trades and equity indices now as CNBC's Rick Santelli notes "the high-speed casinos our markets have become". All things we have discussed for years. But there is one potentially fascinating insight from the ongoing robotization of the TBTF banking sector - Wall Street jobs are now at an all-time record low. Once again, it would appear, that cost-cutting demands (and a government backstop and huge subsidy no matter how bad the things are that you do) trumps any job creation. As Joe Saluzzi explains to CNBC's Rick Santelli in this excellent clip, the "liquidity is fickle" - the fake-tweet was a mere catalyst, he added, "we see these flash-crashes every day." The benefits for the major exchanges far exceed the conflicts of interest of these so-called "market-makers" who front-run their clients millisecond by millisecond.
Another day, another set of horrible European data that merely stokes the idiocy of bad is good front-running of an ECB rate cut next week. We remain somewhat skeptical that a rate-cut will actually do anything here for this 'fragmented' continent when simple old 'free-money' is not fixing anything. But anyway... European stocks surged ahead again - even after yesterday's best day in 9 months. The difference today... European sovereign bonds deteriorated quite notably with Italian spreads wider by 10bps (despite its equity market's strength reasoned on the possibility of a new PM). Spain and Italy are up 6% and 5% respectively this week, and their bond spreads -32bps and 21bps respectively. We are sure this will end well. No pressure, Mr. Draghi...