A funny thing happens when there is only one driver of economic market growth, any chance of intelligent fact-based, logic-induced, fundamental-biased investing becomes reduced to the rubble of momentum-chasing leveraged beta. No matter how much your 2-and-20 taking manager explains his 'process', the charts below show that the thundering herd of 'dumb' money that used to be so useful in identifying the extremes of market hubris and dysphoria appear to have overwhelmed the world of 'smart' money. Hedge funds have never been more net long US equities; hedge fund returns have never been more correlated to the market; hedge funds have never produced so little alpha; and hedge funds are as leveraged to this beta as they were at the top in 2007. This will not end well...
For a long time we have been seeking a chart that captures the pure essence of America's transition into its "new normal" mutant clone, in which record high stock markets coexist with record high foodstamp usage; in which record public debt amounts coexist with record low interest rates; in which the Fed is responsible for 20% of the US GDP but which is forgiven if it means the second coming of a housing bubble giving people the false hope of another "flip that house" get rich scheme. We believe we have found it. On the chart below we show the number of US manufacturing workers over the past decade (currently at levels first seen in 1941) on one axis; and the number of bar and restaurant employees - currently at an all time high - on the other. For those asking, in the past year the US has added 366,700 "food service and drinking places" employees and a whopping... 41,000 manufacturing workers.
"People say you should do what you love," but in the new normal reality, it appears - based on the flagging applications at Harvard's humanities division - that oft-used phrase has been appended with, "but, I don't want to be doing what I love and be homeless." As The WSJ reports, among recent college graduates who majored in English, the unemployment rate was 9.8%; for philosophy and religious-studies majors, it was 9.5%; and for history majors, it was also 9.5%. By comparison, recent chemistry graduates were unemployed at a rate of just 5.8%; and elementary-education graduates were at 5%. Students have taken note. At Harvard, humanities majors have fallen to 20% in 2012 from 36% in 1954. School presidents and administrators at liberal-arts colleges have already started to take a more job-oriented approach to a liberal-arts education, but face an uphill battle in the wake of stepped-up global economic competition, a job market that is disproportionately rewarding graduates in the hard sciences, rising tuition and sky-high student-debt levels.
After Carney's 36-minute tardiness for his Presser, and the uncomfortable 'realness' of the press' questions, we wonder just what will (and will not be) allowed as Obama faces the music press. Under the guise of a personnel announcement, we suspect the listener-in-chief will promptly conclude this press conference (due to start at 1410ET) - though on the off-chance that he allows a question from the press (which of course he already knows), we have the popcorn ready...
Following last night's 'surprising' upward GDP revisions, Japan's trade balance plunged to near-record deficit levels (but that didn't matter) and while China's trade data is questionable at best (and now proven 'false'), Japan is facing a much more considerable worry at home. Abenomics' goal to reduce the value of the JPY to improve competitiveness and spur a renaissance has had a rather nasty side-effect for all the Japanese people who eat, drive, or in any way use energy. The cost of Japan's crude basket has risen 35% in the last six months and is now at its highest for the domestic energy user since 2008 (which sparked the last collapse into deflation). As Bloomberg notes in this brief clip, this surge is not related to demand or the price of oil, but to the devaluation of the Japanese currency and leaves both the refiner crushed on margins and the consumer more cash-strapped.
Those who believe the economy is recovering are ignorant of the facts. Other than the Great Depression no US recovery (and I don’t believe we are in a recovery) taken longer. Eventually it may take more than a decade like the 1930s. Or perhaps it will be like Japan which is in its third decade of “recovery.” The truth is that our economy is spent, exhausted and filled with misallocations and distortions made much worse by government interventions. There is no recovery, nor will there be one until a massive purge (usually referred to as a depression) occurs. This event will result in bankruptcies that release scarce, misallocated physical capital from unproductive and unwanted areas to places where it is needed and can be utilized efficiently. Rather than allow this pre-condition to an economic recovery and a growing, efficient economy, politicians want to prevent it. They use smoke, mirrors and propaganda (lies) to hide the reality of our sick economy. Their obfuscations continue, but the effective life is limited.
It may not be the main man (that show starts at 210ET) but as Press Secretary Jay Carney takes the stand in front of a room of hopefully inquisitive reporters for his usual press conference, we are sure the phrase "can I plead da fif?" will be on the tip of his tongue.
30Y rates are up 4bps and 10Y rates up 5bps as a combination of MBS convexity hedging, Taper chatter, and growth hopiness flutter across the bond market. This has backed 10Y and 30Y rates up to their highest since April 2012 - getting close to some significant support/resistance from the last few years. Mortgage spreads have stabilized up here at their highest since July (around 83bps) but just as a delicate reminder, the last time bond yields spiked to this degree, equities began to wonder just what was going on? With so much of the investing public having bought bond-like-stocks at the behest of every talking head and asset-gatherer under-the-sun, we wonder at what point do the arguments about a great rotation from bonds to stocks (since gosh, 10Y bond prices are down 3% in the last month) turn to a rotation from bond-like-stocks to bond-like-bonds...
What most undermines the claims of the Administration and its defenders about this surveillance program is the process itself. First the government listens in on all of our telephone calls without a warrant and then if it finds something it goes to a FISA court and get an illegal approval for what it has already done! This turns the rule of law and due process on its head. The government does not need to know more about what we are doing. We need to know more about what the government is doing. We need to turn the cameras on the police and on the government, not the other way around... We should be thankful for writers like Glenn Greenwald, who broke last week’s story, for taking risks to let us know what the government is doing. There are calls for the persecution of Greenwald and the other whistle-blowers and reporters. They should be defended, as their work defends our freedom.
There's never enough information to be absolutely safe. I know you're going to help us protect America, because I already know you so well. Thank you for your cooperation.
"It all began with Greece," and as Mark Grant notes today, "somebody, somewhere is going to take a hit." It appears the 'news' is piling up thick and fast in the 'islands' nation. As Reuters reports, Greece did not receive any binding bids for natural gas producer DEPA. This was part of the asset-sale program demanded by the TROIKA, with Hellenic Petroleum's sale later in the year now potentially on hold. The sad truth is that the country cannot pay their bills, cannot pay their pension obligations, cannot fund social services and is just about out of money to even run their government. The reality is; they are bankrupt again and there is no way out without some form of debt forgiveness and more money. Debt forgiveness, alone, will not cut the mustard now by itself and some kind of end game may well be near. That is increasingly reflected in 2012's no-brainer trade as GGBs are now back below 60 and down over 10% from their highs and the Athens Stock Index just entered bear market territory, down 20% from its highs.
By now it should come as no surprise to anyone that in a Keynesian world in which the aggregate increase in credit levels is the only necessary and sufficient driver for "growth", as admitted repeatedly by Europe which has blamed its longest ever recession on "(f)austerity" and the inability to issue debt like a drunken-sailor, that the only thing that matters is how much credit money (i.e., liabilities) are created in the banking sector, either organically by creating loans, or through the Fed's low-power "reserve" money creation. If there is any confusion, we present Exhibit A: the chart that strips away all the conventional GDP = C+I+G+(X-M) abracadabra and cuts to the chase - US GDP has tracked the change in traditional bank liabilities for the past 50 years on an almost dollar for dollar basis.
After 19 months in the red, yields on the 10Y TIPS have just shifted into positive territory. We saw a similar surge in TIPS yields in Q4 2010 / Q1 2011 which did not end well for stocks. This comes along with the simultaneous drop in the Fed's inflation gauge - five-year forward breakevens - which is now at its lowest in 9 months. This kind of drop has previously led to further QE action by the Fed, and right on cue...*BULLARD SAYS INFLATION IN U.S. HAS `SURPRISED TO THE DOWNSIDE' and *FED'S BULLARD SAYS LOW INFLATION MAY WARRANT PROLONGING QE
While the focus of most of the dreadful employment data in Europe is on the surging youth joblessness, there is another growing shift. The jobless crisis is affecting men more than women, according to the EU labor force survey. As Bloomberg's Niraj Shah notes, the employment rate for men fell 0.3 percentage point to 69.8 percent in 2012, while rising 0.1 percentage point for women to 58.6 percent. What is perhaps even more concerning is the growing divergence between employment rates across the union (remembering all these nations are driven by the same monetary policy) from Holland's 75.1% employment rate to only 51.3% of employable citizens working in Greece. It is perhaps no wonder that Germany is having second thoughts over aiding the 'fourth world' nation.