Renaissance

Now that the CapEx drought has become a mainstream topic, it bears reminding that this phenomenon will continue indefinitely, and certainly as long as CapEx hurdle rates are far greater than issuing a low-yielding bond and using the proceeds to reward shareholders: indeed, this shareholders friendly topic has been perhaps the dominant theme of 2013 when activist investors stormed to the forefront once again, most prominently in the face of Carl Icahn, and have managed to force even lower revenue growth prospects by levering companies with debt loads that are now greater than during the prior credit bubble peak. Naturally, one after another bank has come out once again, as they did, and is predicting that the great deferred CapEx renaissance is upon us... any day now. Unfortunately, it isn't. And just to confirm this, here is Archer Daniels Midland summarizing the company's plans for its 2014 free cash flows. In short: they don't involve any US growth CapEx spending at all.

It will be a long night in Kiev, where as warned previously, once things start rolling downhill, they will deteriorate rapidly. Via Bloomberg:

RIOT POLICE ARMED WITH CHAINSAWS APPROACH KIEV BARRICADES
UKRAINIAN POLICE MASS NEAR BARRICADES AT KIEV SQUARE
POLICE STORM PROTEST CAMP IN CENTER OF KIEV, AP REPORTS
UKRAINIAN POLICE INSIDE KIEV PROTEST CAMP

Ongoing anti-regime demonstrations in Ukraine are weighing on investor's risk perceptions as CDS spike to near three-year highs today (up over 100bps). At a minimum developments lower president Yanukovich's chances of remaining in power beyond the spring 2015 elections and possibly undermine his hold on power earlier, further decreasing the likelihood of sizeable financial support from Russia. With Moody's earlier comments on the nation's "precarious external liquidity" position; as Goldman warns, with even higher political uncertainty ahead, an acceleration of capital outflows might also follow and while they think the authorities will eventually turn to the IMF to avoid a disorderly sell-off of the currency, recent events arguably raise the risks to that view. However, the capital outflows are already having an impact as Reuters notes, Russian banks are considerably exposed as Ukrainian banks should deposit runs escalate.

While most of the world's elites are bathing in a sea of liquidity and propagandizing the status quo to keep the dream alive, Richemont Chairman Johann Rupert has unleashed a torrent of uncomfortable truthiness this morning:

• *REMGRO CHAIRMAN RUPERT 'VERY CONCERNED' ABOUT GLOBAL ECONOMY
• *GLOBAL ECONOMY 'VERY, VERY PRECARIOUS,' RUPERT SAYS
• *WORLD HEADING FOR 'BIG INFLATION' OR `BIG DEPRESSION': RUPERT
• *GLOBAL ECONOMY HEADED FOR 'TEARS': REMGRO, RICHEMONT CHAIRMAN
• *RUPERT SAYS HIS BIGGEST CONCERN IS JOBLESS GROWTH

And while things are good now, the owner of the Cartier brand warned if the global economy doesn’t do well, Richemont is not well positioned.

Despite the stock's renaissance (eerily reminiscent of Eastman Kodak), recent images of the crammed and disorganized racks at various JCPenney stores do little to conjure confidence that staff or management either know what they are doing - or give a shit... except for this clarifying quote...

"What one may misconstrue as clutter is merely a strategic effort to meet high customer demand," said Penney spokeswoman Daphne Avila.

Is that like saying, "one man's trash...?" It seems, for JCPenney that marketing and product placement come a weak second to a pit full of tangled clothes...

... According to the BLS, US jewerly imports in the month of October inexplicably just posted their biggest annual drop. On record.

For all purists still stuck in a world in which humans are the most efficient allocators of capital, and where, under Ben Bernanke's centrally-planned New Normal, shorting stocks has become blasphemy, the following table showing the monthly return of quant giant RenTec's chief equity fund open to the outside world, the Renaissance Institutional Equities Fund (RIEF B), whose AUM has ballooned to $8.7 billion in the past few years, will come as a shock. Because the quant strategy-driven fund, which does not look at fundamentals but purely at technical relationships and quant arbs, just posted its best month in history in October returning 8.65% nearly doubling the 4.60% return of the broader market. But the truly stunning aspect of RenTec's October performance is that it was not driven by a highly levered beta position (2x leverage on the S&P would do it easily) which is how virtually everyone else does it (a strategy that works great as long as the market is going higher), but instead thanks to that nearly forgotten aspect of a "hedge" fund's exposure - shorts.

China's HSBC Flash PMI missed expectations rather notably (50.4 vs 50.8 exp) and dropped its most MoM since May as the hope-mongering of a China-led renaissance in global growth is dashed on the shores of liquidity reality. It was a mixed bag - providing just enough for everyone under the covers. New exports orders dropped to 3-month lows and employment flipped into the deteriorating camp but manufacturing output rose to its highest in 8 months (sure, why not - the "if we build it then we'll vendor finance it" model worked before, right?) Market reactions are generally bad-news-is-bad-news with US equity futures down and the Hang Seng extending losses.

Today, with the traditional one year delay (we assume they had to give it the benefit of the doubt), the mainstream media once again catches up to what Zero Hedge readers knew over a year ago, and blasts the outright failure that is Abenomics, but not only in the US (with the domestic honor falling to the WSJ), but also domestically, in a truly damning op-ed in the Japan Times. We will let readers peruse the WSJ's "Japan's Banks Find It Hard to Lend Easy Money: Dearth of Borrowers Illustrates Difficulty in Japan's Program to Increase Money Supply" on their own. It summarizes one aspect of what we have been warning about - namely the blocked monetary pipeline, something the US has been fighting with for the past five years, and will continue fighting as long as QE continues simply because the "solution" to the problem, i.e., even more QE, just makes the problem worse. We will however, show the one chart summary which captures all the major failures of the BOJ quite succinctly.

Think of Jobs Outsourcing or Offshoring as a vast wealth transfer from the richer nations to the poorer nations mainly on the backs of the ‘middle of the bell curve’ in terms of jobs. 

One increasingly reads of capital stewards complaining that things seem more difficult today. We think it’s because they are. We are also increasingly mindful of conversations with friends, family and colleagues that reveal a widespread perception that  something is very wrong, though people can’t quite put their finger on what it is. As we have just argued, we think the answer is that the inflation of credit has driven an inflation of asset prices, which has driven an inflation of future expectations, which has driven an inflation of time preference… and that while the consequences of these various inflations are profound, the new language of ininflation which it has spawned is shallow.

Following the disappointing delayed durable goods print from last week, it was expected that today's Factory orders number would disappoint as well, and sure enough, it did not disappoint... in that expectation. With consensus looking for a 1.8% increase in September for the headline number, the delayed September number came out at 1.7% for the headline, the 6th miss in the past 9 months, while the ex-transport factory goods print dropped -0.2% following the August ex transports falling -0.4%. In other words, it was all transports once again, reflecting the rebound in orders for civilian aircraft as China's excess capacity bubble now seems to include all Boeing aircraft from 737 to 787.

Not only would SocGen be shocked if the Fed made any significant policy shift this week, they appear to be finding "belief" in a growth renaissance hard to sustain in light of the dismal reality that keeps getting in the way of 'faith'. Undertaking any policy shifts at this meeting would be akin to driving at night with no headlights, they note, taking the opportunity to slash Q3 and Q4 GDP expectations - pushing off hope for any Taper announcement until late Q1 at its earliest. Of course, they remain "fundamentally bullish" on US growth (or every assumption about the world would implode) but the mid-year inflection point they hoped for appears to be further into the future than they hoped.

Back on May 14, when the S&P was at 1651 or 50 points lower, and when David Tepper made his first book-talking, semi-annual CNBC appearance in which he "blessed the market and awaited the manufacturing renaissance", he made two points about the taper: it's bullish no matter what, namely its removal would mean the economy is improving (we now know it isn't thanks to the Fed and Q4 GDP estimates which are rapidly sliding to 2% or lower), while a taper staying put would mean the Fed would continue pumping stocks higher artificially indefinitely. Today, he did a repeat appearance, in which in addition to the usual market pumping rhetoric, everyone was most interested in how he would spin the recent stunner by the Fed which effectively made the taper a 2014 event. His take: "The Fed won't taper for a long time... So that's definitely sort of going to be a push-up to markets." Couldn't have said it better: but to paraphrase - Taper is bullish no matter what; No Taper is bullish-er.

Things that can’t go on, the prophet Herb Stein once observed, go on until they can’t. Criticality eventually bushwhacks credulity. The aggregation of rackets that American life has become is rolling over like a great groaning wounded leviathan and the rest of the world is starting to freak out at the spectacle. Instead of a revolution, we’re having a suicide party. But don’t worry, a revolution would not be far behind.