By order of their various 'independent' masters, the world's central banks have "got to work" over the past few years. Running the printing presses under the guise of various multi-syllabic programs designed to optically lower interest rates and feed fungible resources to its banks - that will inevitably (surely) flow to the real economy and make everything right with the world. Well, perhaps the following chart will explain just good a "job" they are doing with that real-world real-economy recovery...
It is neither pessimism nor optimism but a squaring up with the facts and, when done, it is the inescapable conclusion that we have backed ourselves into a corner of our own making and that to escape this dark and dangerous place will be a painful experience. The scheme rests upon various feet; Central Banks acting in collusion to lower yields and provide capital as an off-set to the government in America and the governments on the Continent who cannot bear, for political reasons, to do what should be done and that is to cut expenditures. The entire world’s financial system encased in a bubble and nowhere to go, nowhere to hide and nowhere to be safe. The worry then is how does it all end, what do you do in the meantime and how and what do you do when the bubble is pricked.
A month ago we mocked the Philly Fed number which printed at an outlier level of 8.1, slamming expectations of a negative print, and sending algos into overbuydrive. A week ago we were validated when the annual revision brought that number down from 8.1 to 4.6. Today we get confirmation that the December print was a total farce, with a January Philly Fed print which is once again solidly in negative territory, or -5.8, which just happens to be the biggest miss to expectations of 5.6 in seven months. Yet while a month ago the huge beat was a reason for the robots to ramp stocks, today's miss is a reason to... ramp stocks even more. Why? Because moments before the disappointing announcement the Fed decided to inject even more liquidity in addition to the now daily unsterilized POMO, following the resumption of repos, which injected some $210 million in reserves into dealers. This is in addition to the $3 or so billion that today's POMO will add as stock purchasing dry powder for banks.
Whether the repatriation of only some 20% of Germany's gold reserves from the Federal Reserve Bank of New York and the Banque of Paris back to Frankfurt manages to allay German concerns remains in question. Especially given that the transfer from the Federal Reserve is set to take place slowly over a seven year period and will only be completed in 2020. The German Precious Metals Association and Germany's ‘Repatriate Our Gold’ campaign said that the move by the Bundesbank did not negate the need for a full audit of Germany's gold. They want this to take place in order to protect against impairment of the gold reserves through leases and swaps. Indeed, they have called for independent, full, neutral and physical audits of the gold reserves of the world's central banks and the repatriation of all central bank gold - the physical transport of gold reserves back into the respective sovereign ownership countries. It seems likely that we may only have seen another important milestone in the debate about German and global gold reserves.
The last few months have seen US equity markets swinging from confidence to grave concerns (briefly) and back to exuberance even as the looming 'debt ceiling' and sequester remains dead ahead. The pattern is eerily similar in price (and volatility) terms to the movements ahead of the Summer 2011 'debt ceiling' debacle. What is just as concerning is, as Bloomberg's Chart of the Day shows, is the mass psychology aspect, as mentions of the words 'debt ceiling' are once again gathering pace, just as they did in 2011. Markets may not repeat, but they do echo; and as UBS' Art Cashin noted, this month marks the 40-year anniversary of a significant top in the market as stocks broke to all-time highs and "all appeared right with the world." Perhaps, it is our inexorably optimistic belief that the politicians will fix it all (or kick the can) at the last minute - so there is nothing to fear but fear itself; or perhaps this time, there is a line in the sand that both sides need to defend.
No commentary necessary.
Initial jobless claims saw their biggest beat in almost 4 years to the lowest absolute (seasonally adjusted level) in almost 5 years. The market's initial reaction was a shrug (is good bad now that the Fed is pinned to jobs or is the market getting wise in the ways of seasonal-adjustment shenanigans?) but now it appears to be buying the new 'old' normal (+6 points). In the unadjusted data, things look very different - with a lag, New York (37,189), Georgia (15,354), and North Carolina (13,606) saw major rises in initial claims with only Michigan (-12,536) seeing a decent drop in claims - as we note that non-seasonally-adjusted claims rose notably less than in the prior 4 years, and assuming seasonal-adjustments are triggered from those, this will reflect very rosily on today's seasonal adjustment. With Claims back to 'normal', what will the Fed do?
The Algeria hostage situation reported yesterday, where alleged Al Qaeda operatives took numerous hostages at a local BP, Statoil and Sonatrach JV gas plant in retaliation for the French incursion into Mali, has rapidly gone from bad to worse as some 34 hostages (out of the 41 originally reported) have been killed.
While Citi's stock is getting hammered in the pre-market for missing both top- and bottom-lines, three things stand out to us at first glance. First, legal costs were well above expectations; second, they reduced their exposure to GIIPS during Q4 - just when the rip-roaring rally in Europe really took off; and third, and more importantly, Citi did not take a huge loan loss reserve drawdown like every other bank.
- *CITIGROUP 4Q REV. $18.66B, EST. $18.92B :C US
- *CITIGROUP 4Q ADJ. EPS 69C WITH/WITHOUT ITEMS MISSES EST. 96C
- *CITI 4Q GIIPS NET CURRENT FUNDED EXPOSURE $8.9B VS 3Q $9.5B
- *CITIGROUP 4Q LOAN LOSS RESERVE RELEASE $86M VS $1.5B PRIOR YR
The question is, why would Citi not take advantage of the investing public's ignorance like every other bank and release more from loan-loss-reserves - have they maxed out their previous releases? or are they less exuberant at the housing un-recovery? (we note that 90-179-Day Delinquencies rose)
- Obama's Gun Curbs Face a Slog in Congress (BBG)
- Euro Area Seen Stalling as Draghi’s Pessimism Shared (BBG)
- China Begins to Lose Edge as World's Factory Floor (WSJ)
- EU Car Sales Slump (WSJ)
- Fed Concerned About Overheated Markets Amid Record Bond-Buying (BBG)
- Australia Posts Worst Back-to-Back Job Growth Since ’97 (BBG)
- Abe Currency Policy Stokes Gaffe Risk as Amari Roils Yen (BBG)
- Japan Opposition Party Won’t Back BOJ Officials for Governor (BBG)
- Fed Reports Point to Subdued Economic Growth (WSJ)
- China Set to Exit Slowdown by Boosting Infrastructure (BBG)
- Greece not out of woods, must stick to reforms: finance minister (Reuters)
- Russian Rate Debate Flares Up as Cabinet Seeks Growth (BBG)
Bank Of America Earnings Plagued By Legacy Countrywide Woes Offset By $900 Million In Loan Loss Reserve ReleasesSubmitted by Tyler Durden on 01/17/2013 08:54 -0400
Bank of America just reported yet another quarter marked by a bevy of "one-time" charges, which have now become normal course of business, even as NIM declined Y/Y, and sales and trading revenues declined sequentially. Loan loss reserve releases of $900 million more than offset the declining Noninterest income, and contributed to a positive pre-tax net income number. The biggest threat continue to be private Rep and Warrant outstanding claims which increased by almost 42 billion in the quarter to a total of $12.3 billion.
Tthe biggest news of the day comes from the official Buba announcement that, in its official capacity as a prudent central bank, it - as first of many - is looking to repatriate some 300 tons of gold from the New York Fed. That, however, is not today's news - that was Monday's news. What is news is that courtesy of the supplied calendar of events in the Buba statement, it will take the Fed some seven years to procure Germany's 300 tons of gold. This is the same Fed that, in its own words, holds some "216 million troy ounces of gold" or some 6720 tons, in its vault 80 feet below ground level. Putting the above in perspective, the amount of gold that Germany will have to wait 7 years for is shown in red. The amount of gold the Fed supposedly holds, is shown in yellow with a shade of tungsten. Why it will take the Fed 7 years to part with an amount of gold that is less than 5% of its total holdings is anyone's guess.
Same overnight pattern, different day. After a late day ramp in the US market, followed by a selloff in the futures after hours, taking the ES to trading session lows, we get the European trading crew which day after day sends the EURUSD soaring as Europe opens, pushing futures to unchanged or even green and easily negating the key news event of the day, in this case the full grounding of the entire global Boeing fleet which will once again weigh on the stock and DJIA. In the meantime, the big rotation behind the scenes in FX land continues, with the ongoing and very sudden pounding of the Swiss Franc taking the EURCHF to 1.2450, or the highest, since 2011. Same with the USDJPY which after another attempt to fall, rallies on more of the same regurgitated rumors. Not to mention the EURUSD of course, which as mentioned above has surged some 100 pips since the European open. In other words the overnight beating of the USD is enough to push the US stock market high enough in nominal terms, avoiding that there is no incremental cash flow. Then again, who needs cash flow when you have "multiple expansion."
Some have argued that the market is dead. They may be right, as the following sequence of S&P 500 closes from the past 5 days: 1472, 1472, 1471, 1472, 1473 ...suggests that V-Fib has set in among the equity indices. Perhaps, as the movie Flatliners noted "Some Lines [like SPX 1470] Shouldn't Be Crossed." Meanwhile the 10Y Treasury yield has slipped from 1.90% to 1.82% over the same period.