New Normal

When Obama repeatedly chanted "costs" should the Kremlin continue to ignore him, it appears he was referring to western corporations, because overnight we got the first batch of companies scapegoating no longer snow in the winter but - what else - the Ukraine. Leading this morning's scapegoat parade is SocGen, which following in Barclays' footsteps reported a 13% tumble in its Q1 profit, plunging to €315 million from €364 million. The reason for this huge hit to profits apparently was a €525 million ($731.26 million) write-down at its Russian bank - the same bank which, as recently as April 11, saw SocGen "increase its stake in Russian subsidiary Rosbank which it said was part of a long-term commitment to Russia. The deal comes as Russia's economy is under pressure partly as a result of sanctions imposed by the United States and Europe to protest against Moscow's annexation of Crimea." So SocGen was dumping money into a Russian subsidiary well after the Ukraine conflict  had begun, knowing quite well it would be "forced" to take a Rosbank charge mere weeks later! Why yes, of course.

Perhaps the most important "news" of the day is that it is non-Tuesday. Yes, there was actual news news, like German factory orders dropping -2.8% on expectations of a 0.3% increase, French industrial production down -0.7% on expectations of a 0.3% increase (both misses driven by a soaring Euro which is now spitting distance away from the 1.40 ECB "redline"), the Nikkei tumbling 2.9% to just above 14000, the Shanghai Composite down 0.9%, SocGen Q1 profit plunging 13% and conveniently blaming it on Russia, speaking of Russia things continue to deteriorate even though Interfax reported that the country has received the first part, some $3.2 billion, of the promised IMF bailout - money which will be used to promptly pay Gazprom... and buy gold, a sudden conflict between China and Vietnam escalating over the placement of an offshore oil rig and so forth, but in the new normal, none of this matters.

Judging by the narrative promoted after last Friday's idiotically connived jobs report, any job is a good job... however, as The Guardian reports, that does not include a job working for Amazon.com. Quarter after quarter, we highlight the growth in Amazon employees (and death-cross-like plunge in annual sales growth). While Amazon makes no secret of the fact that it relies on seasonal work force, what went unsaid and unnoticed during President Obama's visit last year, was that the Amazon 'employees' would not have jobs or prospects after the holidays. Many of the people in those Amazon warehouses were among the long-term unemployed – shuffling from one temporary job to another to another; and due to this unstable employment, a growing number of them have found themselves living in shelters... 'employed' but homeless (or "the working poor" in America).

While we recently roasted IBM for engaging in an unsustainable debt-funded buyback program, in which IBM has used every dollar of debt issued since 2012 to buyback its stock, moments ago another company showed why management teams would much rather buyback their stock than invest in CapEx in a market that only reward instant gratification in the form of shareholder friendly activity and furiously punishes any attempts to grow for the future.

As Fiat unveils its grand five-year plan, it is clear where the car maker sees the real growth in the world...

• *MASERATI TARGETS 75,000 SALES IN 2018 FROM 15,400 IN 2013
• *MASERATI TARGETS EU6B REVENUE IN 2018 FROM EU1.7B IN 2013

Now that is growth!! Welcome to the new normal (or more likely the most massive mis-signaled mal-investment boom ever created) Extrapolating recent growth in Maserati sales would make even Birinyi proud.

So much for the post-cold-weather, pent-up demand stoked spending spree as human beings emerge from hibernation and buy-buy-buy all the food/iPads/clothes/cars they did not buy during the stormy first quarter... First, Goldman confirms that retail sales actually fell 2%, and then, more broadly, Gallup confirms that Americans' reports of daily spending in April averaged $88, virtually the same as in March ($87) and February ($87). Keep praying to the god of hockey-sticks that the now grossly revised down GDP for Q1 is merely setting the US up for the mother of all v-shaped recoveries (or not)...

So much for the Lehman effect: five years after Barclays acquired Lehman's only valuable asset - its North American brokerage personnel - in a liquidation firesale, the benefits have all but disappeared (confirmed further by the most recent departure of such prominent ex-Lehmanites as Paul Parker, Larry Wiesenck and of course, Skip McGee). Case in point: today's announced earnings, in which we found that Lehman's pre-tax profits slid 5% to £1.69 billion. However, looking at the bottom line, which reflected benefits from cost cuts and loan loss reserve releases, not to mention an "accounting gain on Barclays debt" would surely miss the big picture, which was that the bank's Investment Banking revenue was down 28% £2.49 billion. However the punchline was that core driver of New Normal bank revenues: FICC, which was slaughtered by an unprecedented 41% to to £1.23 billion, coming far worse than even the most dire analyst estimates.

In this brave New Normal world, a Chinese contraction is somehow expected to be offset by a rebound in Europe's worst economies, because following China's latest PMI miss, overnight we were told of beats in the Service PMI in Spain (56.5, vs Exp. 54.0, a 7 year high sending the Spanish 10 Year to fresh sub 3% lows), Italy at 51.1, vs Exp. 50.5, also pushing Italian yields to record lows, and France 50.4 (Exp. 50.3). We would speculate that macro events such as these, as fabricated as they may be, are relevant or even market-moving, but they aren't - all that matters is what the JPY and VIX traders at the NY Fed do in a low volume tape, usually in the last 30 minutes of the trading day. And since the trading day today happens to be a Tuesday, and nothing ever goes down on a Tuesday, the outcome is pretty much clear, and not even the absolutely abysmal Barclays earnings report has any chance of denting the latest rigged and manufactured low-volume levitation.

Curious why after inexplicably turning red earlier today (because as everyone knows in the New Normal selling is largely forbidden and the Caracas stock market is the model to imitation), the DJIA is about to turn green again and press on new all time record highs? Simple. Following the earlier disastrous construction spending report which feeds directly into the GDP calculation, banks promptly revised their Q1 GDP estimates. To negative.

Following last month's biggest miss in a year, Chicago PMI resurged to its highest level (and biggest beat) since October 2013. Optimism is rife in the report as the rise in new orders and production is now instantly extrapolated into escape velocity growth (as opposed to catch-up demand). Prices Paid dropped... which is odd if there's so much awesome demand? Employment improved, but did not offset March's decline. Of course, the 5 standard deviation beat of expectations is now considered the new normal...

Last month it was a tribute to his cat. This month, the manager of the world's largest bond fund discusses sneezing: "A sneeze is, to be candid, sort of half erotic, a release of pressure that feels oh so good either before or just after the Achoo! The air, along with 100,000 germs, comes shooting out of your nose faster than a race car at the Indy 500. It feels sooooo good that people used to sneeze on purpose." He also discusses the aftermath: "The old saying goes that when the U.S. economy sneezes, the world catches cold. That still seems to be true enough, although Chinese influenza is gaining in importance. If both sneezed at the same time then instead of “God bless you” perhaps someone would cry out “God have mercy.” We’re not there yet, although in this period of high leverage it’s important to realize that the price of money and the servicing cost of that leverage are critical for a healthy economy. " He also talks about some other things, mostly revolving around long-term rates of return assumptions and what those mean for investors.

The US non-recovery summarized in a nutshell: nobody can afford to buy anymore, so everyone is forced to rent. The result: homeownership rate plunging to 19 year lows, while median asking rents just soared to a new all time high. Thank you Ben Bernanke for the "New Normal American Dream."

Moments ago, Russia casually hinted that Ukraine should use part of the IMF aid (which has been promised in virtually all increments between $1 billion up to $18 billion, but at last check not one penny has been wired) to repay Gazprom's debt, which is anywhere between the $2.2 billion Gazprom has said Ukraine is delinquent on for 2014 gas supplies, and an additional $11.4 billion which is what Gazprom said Ukraine's state-owned energy firm Naftogaz owes for unused take-or-pay arrangements in 2013. This happened just hours after Ukraine reportedly used the 'nuclear option' and halted the bulk of water supply to Russia's newest territory: Crimea.  Tit for tat?

A ‘Perfect Storm’ of demography and debt will economically and financially doom almost every country on earth. It will be TEOTWAWKI – ‘The End Of The World As We Know It’. No, it’s not the end of life or even the end of civilization. However, when it’s all over, nothing will ever be the same and that includes the disappearance of much of the middle class.  The good news - The storm won’t last forever. The bad news is there will be much more pain before it ends unless you make an effort to understand what’s happening and why.

Moments ago CAT stock touched 52 week highs, or a level not seen since April 2012. Why? The chart below which shows Caterpillar dealer retail sales by region surely has something to do with it. With global sales sliding again now that the third consecutive dead cat bounce is over, and dumping the most since February of 2013 or 12% from a year ago, when sales had in turned dropped 11% from 2012, driven by a collapse in Asian-Pacific, Latin American and EMEA sales, all of which crashed by more than 20%, we can only assume the company is well on its way to an epic collapse in its top and bottom lines as well.