New Normal

With Lumber prices plunging to 5 month lows, we have just one question for those buying homebuilder stocks as they push new highs - what are they building houses in this new normal?

Whoever said the New Normal would be boring, apparently never lived in a world in which one central bank crushing its key rate to a record low, would lead to the appreciation of its currency, and send the main competing currency, the USD, lower. And since we live in just such a world, we expect that when the ECB has to cut its deposit rate to negative next, people will line up around the block to pay the bank money so it can hold their deposits for them. In the meantime, the EURUSD squeeze continues, and the irony is that the move which is supposed to help Europe's export economies and push the currency lower is already resulting in further deterioration in Germany's growth dynamo industries.

Stanley Fischer, who cost his central bank a lot of money with his ill-timed bet to invest billions of the Bank of Israel's foreign  currency reserves on names such as Apple last year, has demonstrated that Einstein's definition of insanity is alive and well when it comes to central-planners, has just decided to double down on stocks. Alas, this is not a joke. Bloomberg reports that "The Bank of Israel plans to almost double equity holdings by the end of the year after falling bond yields prompted the central bank to invest in European shares for the first time. The bank will increase its stock holdings to as much as 6 percent of foreign-exchange reserves, or about $4.5 billion, from 3 percent at the end of 2012, according to Yossi Saadon, a Bank of Israel spokesman. Investments in shares rose to about 4.5 percent of assets in the first four months of 2013 as the institution made a “small allocation” to European equities in addition to its U.S. funds, he said." Well, if the BOI's investment in AAPL was the beginning of the end for that company, one can start shorting Europe - an academic Keynesian just called the top.

One of the New Normal responses to allegations, first started here in 2009 and subsequently everywhere, that all HFT does is to frontrun traditional market players (among many other evils) now that its conventional and flawed defense that it "provides liquidity" lies dead and buried, is that "everyone does it" so you must acquit because how can you possibly prosecute a technology that accounts for over 60% of all market volume and where if you throw one person in jail you would throw everyone in jail. Today we learn that this indeed may be the case, and not only at the traditional locus of HFT frontrunning such as conventional exchanges for stocks such as the NYSE or even dark pools, but at the heart of the biggest futures exchange in the US, the CME where as the WSJ's Scott Patterson explains frontrunning by HFT algos is not only a way of life, but is perfectly accepted and even smiled upon.

Yesterday we showed the good side of college by presenting those majors that result in the best starting salaries fresh out of college. Now the bad side.

Total collapse. That is the only way to explain what just happened with the Chicago PMI which imploded from 52.4, and printed at a contractionary 49: the first sub-50 headline print since September 2009. But that's not all: Deliveries, Prices Paid and Production all hit their lowest since 2009; Backlogs posted their tenth month of contraction in the past 12 months. And what's worst for the Department of Making Shit Up, Employment plunged from 551. to 48.7, its third month over month decline. Actually another way to phrase it: complete disaster. Obviously this number explains why S&P should have no problems crossing 1,600 today. Because for that other Department: of Propaganda and Creating money out of thin air, this means only one thing: the Fed is preparing to print ONE KROOGOL MORE!

"With earnings reports in from more than half the companies in the Standard & Poor's 500-stock index, first-quarter revenue for the group is expected to shrink 0.3% from a year earlier, according to Thomson Reuters. That would cut short the sales improvement reported at the end of last year and mark the third quarter out of the past four in which revenues have failed to grow by 1% or more. The sales figures are a troubling sign that business and consumer demand remain weak nearly four years after the recession. They are also evidence that a soft patch is developing in the U.S. economy, as optimism earlier in the year gives way to more sobering data on growth in gross domestic product, retail sales and manufacturing. In response, many companies are cutting jobs and curbing investments in an effort to prop up profits, moves that could make it harder for demand to recover."

The man who is the chief advisor to the US Treasury on its debt funding and issuance strategy was just promoted to the rank of second most important person at the biggest commercial bank in the US by assets (of which it was $2.5 trillion), and second biggest commercial bank in the world. And soon, Jamie willing, Matt is set for his final promotion, whereby he will run two very different enterprises: JPMorgan Chase and, by indirect implication, United States, Inc.

And that, ladies and gentlemen, is how you take over the world.

It appears Chuck has finally met his match, and his name is Jamie...

In just about an hour, the first (of three) Q1 GDP numbers will be released. It is expected to rebound to 3% from 0.4% in Q4. As Goldman explains, the bounce is expected to reflect "a mix of temporary factors -- namely a large inventory boost contributing about 1pp to growth -- and a genuine upside surprise from the strength of consumer spending despite the 2013 tax hikes." However, as we have since seen, the consumer "spending" was largely a seasonal revision of unadjusted data, which hardly was as euphoric, and which has sharply rolled over in Q2, meaning that what consumers add to Q1 GDP will be promptly removed from the second quarter. Furthermore, since there are two more GDP revisions, and since the Fed will likely seek to moderate QE "tapering" expectations, it wouldn't be surprising for GDP to come substantially weaker than expected, only to be revised higher (or lower) subsequently. In either case, for those who still believe macroeconomic fundamental data is relevant (in the New Normal it isn't), here is a quick run through what to expect from GS.

In the financial world at present the markets are fueled by the liquidity of the central banks. Not only is nothing else of importance but good news becomes the joyful noise of some divinity, bad news is elevated to good news and horrible news brings ecstasy as it will enlarge the contributions of Mr. Bernanke and Mr. Draghi. We live in a world where everything is ignored but the time will come when this ignorance will be shattered. We will pay the price for our stupidity because there is always a price to be paid. Mr. Bernanke and Mr. Draghi have been the Saviors but the church has been built on thin air and the weight of the building is increasing and increasing at an alarming rate. This kind of normal is unsustainable. The lessons of the past are being ignored once again but I caution you to not forget what you have learned.

For the last few years, the US equity market has soared through Q4 and into Q1 and macro-economic indications have trended with them in a virtuous circle 'confirming' that this time it's different and recovery is 'on'. Then just as investors get all bulled up, convinced by the market's all-knowing-efficiency that the old normal is back and growth is returning, macro-economic data starts to disappoint expectations. This is initially shrugged off - "it's a transitory dip", "the market sees through this temporary weakness", "where else are you going to put your money?" - and the stock buying continues through the Winter. But there comes a time, when the divergence from economic reality grows too wide and the 'faith' that the market knows best starts to fade; and sure enough, each time, the market drops back rapidly to reality. What is the common denominator for this winter surge?

"While I think this policy is fundamentally right, I think [austerity] has reached its limits," was EU President Barroso's firestarter comment yesterday. As the WSJ reports, the IMF also said last week that  the bloc should ease back on austerity, while a number of governments outside the EU have made the same call, arguing that its belt-tightening is holding back the global economic recovery and could end up being self-defeating. Of course, the beggars are once again trying to be choosers as Spain's de Guindos pushes his agenda along this 'growth vs austerity' path, "What we are going to do now is strike a better balance between deficit reduction and economic growth," but it is the bagholders (or money-men) of Europe that has the last word. As we noted yesterday, Merkel's expectations are no more money without ceding sovereignty, this morning it is German MPs who are up in arms as Nobert Barthle condemns Barroso's statements on austerity and Hans Michelbach flatly rejects this path of no resistance as it "undermines fiscal consolidation efforts." Perhaps the most clear message was from Volker Wissing who added, "demanding more money or time would send a 'fatal' signal to financial markets on reforms." With German PMIs so bad this morning, we are reminded of Bill Blain's comment, that ultimately growth is about confidence - and right now, Europe is a very unhappy place.

First CNN, then AP, now Reuters: the entire media is increasingly starting to look like amateur hour. Unless, of course, Soros is like Osama, and had several "reincarnated" body doubles, with the original specimen long gone. Here is our suggestion for another prepared article: "Today after XX centuries of monetizing debt, the Emperor of the Galactic Central Bank, Gaius Maximus Printius Bernankius the DCLXVI^th, ended QE in the year of the alien invasion, XXXXX. Bread costs XXXXXXXXXXX."

According to today's data from the US Mint, a record 63,500 ounces, or a whopping 2 tons, of gold were reported sold on April 17th alone, bringing the total sales for the month to a whopping 147,000 ounces or more than the previous two months combined with just half of the month gone.