Bringing to mind the critical scene from Flash Gordon when the leading lady explains how the New York Jets' quarterback is Earth's last hope, Germany's FinMin Schaeuble has some 'econcouraging' words for all of us:
*SCHAEUBLE SAYS ONLY EUROPE, U.S. CAN STOP WORLD FALLING APART
So, in other words, just the US then? (and hopefully we have more than 14 hours...)
One of the main reasons that investors so often get caught up in major market meltdowns is due to the short-sighted, near term, focus of market analysts and economists. The data has to be analyzed with relation to the longer term trends and a clear understanding that all things, despite ongoing central bank interventions, do eventually end. The problem with the current environment is that the artificial inflations have detached the market from the underlying economic fundamentals which has historically led to larger than expected reversions and outright crashes.
Seasonal-Affected-Disorder is not just for investment bankers who never see the light of day. As is clear from the chart below, the August/September seasonal variation is quite dramatic for US equities. With only a 44% chance of advance in September (compared to ~60% average for the other months) and an average drop of -0.62% for thelast 60 years, the current slide in the S&P back to the June FOMC cliff-edge and a rising expectation for a Sept-Taper, it seems history may well repeat.
Deutsche: "Either The Central Banks Lose Credibility Soon Or The Markets Have Overstretched Themselves"Submitted by Tyler Durden on 08/19/2013 09:46 -0400
Some unpleasant observations from Deutsche Bank below for fans of either central planning and/or risk assets, as having one's cake and eating it too is no longer an option, and one or the other is finally set to snap. To wit: "Yield curves are very steep suggesting a challenge to central bank guidance credibility is at a tipping point. Either the data really are strong and the central banks lose credibility soon or the markets have overstretched themselves, allowing for a partial recovery in lower rates." A "tweeted out" Bill Gross is praying to the Newport gods it's the latter.
While Abe and Kuroda-san would be jubilant, the powers that be in India are none too happy at the 44% devaluation in their currency in the last 2 years (and 17% collapse in the last 3 months) as capital floods out of the once potential growth-engine of the world economy. Accelerating in the last few days amid capital controls and gold importation bans, Taper-based carry unwinds appear to have exaggerated initial flows and driven the USD to over 63 Rupee (and all-time record low). India's Sensex stock market is down 11% in the last 3 weeks to 11 month-lows (as fast money exits in a hurry) and the beleaguered bond market has imploded from a 7.1% yield in May for the 10Y to 9.25% now (its highest since 2001). Food prices rose at 9.5% YoY (vegetable +47% YoY) and fuel at 11.3% YoY sparking grave concerns across the nation of social unrest and bringing back memories of the 1990s - when the government was forced to ask the IMF for a loan to rebuild foreign reserves. Current efforts at stemming the tide have done little to stall the liquidity withdrawal and look to squeeze growth to a lowly 4.8% YoY.
While jobs in the US are hardly a success (employment not the movie), it appears that despite the faith that China is still growing at 7.5%, the slowing-growth nation is facing its own job creation nightmare. As China.org reports, this is being called the hardest job-hunting season ever for Chinese graduates - as nearly 7 million of them swarmed into the job market this summer. In a sad reflection of the US, it is becoming increasingly difficult for college graduates to secure a job in recent years (let alone a degree-required job) as the number of unemployed graduates has nearly doubled in the last 4 years (from 9% of graduates in 2008 to 17.5% now).
The man whom the Muslim Brotherhood deposed with the assistance of the CIA following the first Egyptian coup in 2011 - former Egyptian president Hosni Mubarak - is about to be return to the public scene, and perhaps to power (as we predicted in March 2011 in a tried and true Thermidorian Reaction fashion) now that the Muslim Brotherhood itself has been overthrown in the recent countercoup. And with his return, US foreign policy sinks even more than previously thought possible. Reuters reports: "More than a year on, the only legal grounds for Mubarak's continued detention rest on another corruption case which his lawyer, Fareed el-Deeb, said would be settled swiftly. "All we have left is a simple administrative procedure that should take no more than 48 hours. He should be freed by the end of the week," Deeb told Reuters." In other news, John Kerry is preparing to stick foot even further in mouth any minute now.
Believing official reassurances based on Fantasyland projections of ever-rising payroll taxes and employment does not magically make the Social Security system viable. Questioning the financial viability of the Social Security system is often taken as an attack on the program itself. Nothing could be further from reality. Anyone who truly wants Social Security to continue as is should take an active interest in structural trends rather than focusing all their energy on attacking those who question the official reassurances that the the system is sound until 2033.
The week ahead will be relatively quiet with few major data releases. The main focus will be on the Flash PMIs in the Eurozone and China as well as the FOMC minutes and Jackson Hole. In the US the relatively new Preliminary PMI has been found useful by our US team in forecasting the ISM. Existing and new home sales are additional data points of interest in the US. The key focus this week will be on central bank action. Minutes from the FOMC and the RBA will be followed by rate decisions in Thailand and Turkey. Finally, on Thursday starts the annual Jackson Hole conference with lots of Fed speakers, including Yellen next weekend. Chairman Bernanke, whose term ends in January, will not attend.
Gold traded near a two-month high after holdings in the largest ETP posted the first weekly expansion this year and markets digested the very robust global physical demand data reported last week . Demand from China and India is projected to to soar to 1,000 tonnes each in 2013 and mixed U.S. data has boosted gold’s safe haven appeal. Gold forward offered rates (GOFO), remain negative and are becoming more negative. This shows that physical demand is leading to supply issues in the highly leveraged LBMA gold market. GOFO rates are those which contributors may use to lend gold on a swap for dollars, according to the London Bullion Market Association and the negative gold interest rates show a preference to own gold over dollars by bullion banks. Negative 1, 2 and 3 month GOFO rates mean that bullion banks lent their customers, including other bullion banks, gold to obtain a positive return, thereby increasing the "paper" gold supply. Some may now may be struggling to get their gold back which may explain the significant decline in COMEX gold holdings of certain bullion banks (see commentary). This is creating significant supply demand issues in the physical gold market which should lead to higher gold prices.
- Egypt, U.S. on Collision Course (WSJ), Gunmen kill 24 Egyptian police in Sinai ambush (Reuters)
- India’s efforts fail to prevent new rupee low (FT)
- More bad news for AAPL: Steve Jobs Biopic Crashes on Opening Weekend (WSJ)
- "Sustainable" - U.S. Stocks Beat BRICs by Most Ever Amid Market Flight (BBG)
- Merkel cancels election rally after hostage taking (Reuters)
- Some day, Abenomics might work... Not today though: Japan Exports Rise Most Since ’10 as Deficit Swells (BBG)
- China July Home Prices Rise as Nation Seeks Long-Term Policy (BBG)
- Spanish Bank’s Bad Loan Ratio Rises to Record in June (Reuters)
- Recovery... for some - Ferrari NART Spyder Sets $27.5 Million Auction Record (BBG)
- Bund yields hit 17-month high, rupee slumps (Reuters)
- Regulatory Headaches Worsen for J.P. Morgan (WSJ)
It's all about rates this largely newsless morning, which have continued their march wider all night, and moments ago rose to 2.873% - a fresh 2 year wide and meaning that neither Gross, nor the bond market, is nowhere near tweeted out. As DB confirms, US treasuries are front and center of mind at the moment.... the 10yr UST yield is up another 4bp at a fresh two year high of 2.87% in Tokyo trading, adding to last week’s 20bp selloff. As it currently stands, 10yr yields are up by more than 120bp from the YTD lows in early May and more than 80bp higher since Bernanke’s now infamous JEC testimony. We should also note that the recent US rates selloff has been accompanied by a rapid steepening in the rate curve. Indeed, the 2s/10s curve is at a 2 year high of 250bp and the 2s/30s and 2s/5s are also at close to their highest level in two years.
UPDATE: Everbright Securities (the Chinese fat-finger stock brokerage) just announced they SNAFU'd again - this time by 'mistakenly' selling 10Y government bonds at 4.2%
AsiaPac and EM markets are awash with red this evening. While Japanese stocks are very modestly higher on the bad-news-is-good-news that Abe's economy saw the third largest trade deficit on record (dramatically worse at over JPY1tn than expectations of JPY773), most of the rest of the overnight markets (including US Treasuries) are in the red. From plunging Aussie vehicle sales data (-3.5% from +4.0% in the prior month, to a -0.3% QoQ print for Thailand's GDP (confirming recession as opposed to expectations of a +0.2% gain); and from Indonesian current account deficit (and currency depreciation) concerns smashing stocks -4.0% (most since Oct 2011) to the ongoing collapse in India currency, bond, and now equity markets, all is not well ahead of the European open. Chinese stocks are also down for the fourth day in a row as Friday's fat-finger concerns drive brokers down hard and spike 7-day repo rates.
There was a time when the shadier online "element" was mostly interested in procuring credit card numbers, usually from Eastern European sources, in order to turn a quick buck. However, over time, interest in credit card fraud declined and according to RSA the going rate for 1000 credit card numbers has now dropped to as little as $6. What has taken the place of monetary online fraud, is artificial "likability" and "popularity." Reuters reports that with the rise of social networking, instead of obtaining credit card numbers, hackers have used their computer skills to create and sell false endorsements - such as "likes" and "followers" - that purport to come from users of Facebook, its photo-sharing app Instagram, Twitter, Google's YouTube, LinkedIn and other popular websites. This can be seen in the costs charged by "service" providers: 1,000 Instagram "followers" can be bought for $15, while 1,000 Instagram "likes" cost $30. It is likely that the going rates for fake popularity on other online social networks, FaceBook and Twitter is comparable.