Category: zerohedge

We had the good news (ADP beat sends stocks down) and now the bad news (ISM Services) which spikes stocks instantly up 1%. It seems increasingly clear from the last hour of trading that, as we proved here, the bulls are hoping for moar and moar bad news to keep the retirement dream alive… Notably nothing else is reacting in this manner to provide cover for stocks.

 

 

Carry is not supporting this…

 

and nor are Treasuries…

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With the government shutdown which apparently had zero impact on the economy, moments ago the Census Bureau released not one but two New Home Sales reports together due to the delay in data reporting. The data showed that while in September new home sales declined from 379K to 354K annualized, or the lowest since early 2012, the subsequent rebound sent New Home Sales to 444K, or a 90K increase, +25.4%, in one month was the biggest month over month jump since May 1980! What caused this surge? Possibly it was pent up demand, because as the first chart below shows, an unbroken trendline suggest a modest decline in sales data. However, what was most likely the reason for the increase is that the Median new home sales price tumbled to $245,800, down from $257,400 and well below the recent highs of $279,300. In fact, this was the lost median new price in one year. Supply – meet demand, and equilibrium price.

New Home Sales:

The Sequential change: biggest jump in over 30 years!

And the other variable: Median home prices…. which keeps on sliding.

Finally, it is unclear why stocks soared as a result of this report. It was hardly bad, and all the evidence points to the big Service ISM miss as being the culprit for the stock ramp.

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Being the major part of the US ‘economy’ the disappointing performance of the ISM Services (soft data) – printing at 53.9 missing expectations of 55.0 – should be a concern. Under the covers, the data is a little more worrying than the stil-in-expansion mode headline data miss. New orders, business activity, and perhaps most worrisome, the employment sub-index all slid with the latter at its lowest since May. Combined with the manufacturing PMI, the composite ISM index fell from 55.1 to 54.3 in November. Despite the data, respondents remain optimistic…though tempered by its slow pace. This is the lowest November print for ISM Services since 2006.

 

 

Quite a difference between ISM Services And Manufacturing as the latter seems driven (we suspect) by the epic channel-stuffing from the Auto-industry and the former more reflective of reality…

 

WHAT RESPONDENTS ARE SAYING …
“Optimistic fourth quarter in sight.” (Information)
“Slight slowdown in occupancy.” (Accommodation & Food Services)
“Things are improving very slowly.” (Finance & Insurance)
“Business is steady at this time, with little fluctuation from last month.” (Health Care & Social Assistance)
“Regulatory uncertainty is having an effect on consumers who are spending, but not aggressively.” (Retail Trade)
“Business remains steady, with gains in new orders and projections into 2014.” (Professional, Scientific & Technical Services)
“We are clearly seeing a pickup in activity, which began in August.” (Wholesale Trade)

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After the initial post-Taper-talk rate-rise-driven marginal-buyer-crushing collapse in mortgage applications in the US, the un-Taper provided a brief period of hope for the NAR and market apologists that all-cash buyers are all we need and mortgage applications dead-cat-bounced on the rate drop. However, all that hope ended in early November and as of this morning’s print, mortgage applications have plunged back to the almost record lows of October 2008 (levels not seen since December 2000). As Bob Shiller recently explained, “we can’t trust momentum anymore,” in housing and the speculators are leaving the buildings.

 

 

Chart: Bloomberg

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Today’s AM fix was USD 1,213.00, EUR 892.57 and GBP 741.13 per ounce.
Yesterday’s AM fix was USD 1,219.00, EUR 898.50 and GBP 743.07 per ounce.

Gold rose $3.70 or 0.3% yesterday, closing at $1,222.70/oz. Silver slipped $0.03 or 0.16% closing at $19.12/oz. Platinum climbed $14.50, or 1.1%, to $1,352.25/oz and palladium rose $3, or 0.4%, to $711.97/oz.

Gold in euros fell to 892.16 euros/oz, the lowest since August 3, 2010. Gold in euros has fallen 30% this year, against 28% for gold in dollar terms. Gold fell to 740.64 pounds/oz, the lowest since August 3, 2010. Gold has fallen 28% in sterling terms this year.

Gold is higher in Aussie dollars this morning, due to weak Q3 GDP growth and concerns about the Australian economy.

Gold fell to the lowest in almost five months in London this morning as very tentative signs of improving U.S. economic growth added to continuing speculation that the Federal Reserve may reduce its massive $85 billion per month bond buying programme.

U.S. manufacturing accelerated at the fastest pace in more than two years in November, data showed on December 2. Less positive data showing consumer sales on Black Friday were worse than expected was ignored.

Gold is set for the first annual drop in 13 years as trend following traders and more speculative investors lose faith in the metal as a trade. Store of value and financial insurance bullion buyers remain steadfast and continue to buy physical on the dip – especially in Asia and of course China.

Cross Currency Table – (Bloomberg)

It is interesting to note that the hedge fund Tiberius, who have been highly vocal as bearish on gold for years have changed their long term position. They remain bearish in the short term but believe that weak hands have been washed out of the market. They believe that strong hands will propel prices higher again – possibly later in 2014.

Gold in Pounds, 5 Year – (Bloomberg)

Minutes of the Fed’s October meeting released November 20 showed that policy makers expected an improving economy to warrant trimming debt purchases in coming months. The Fed next gathers on December 17-18.

Reducing the huge bond buying programme has been suggested for some years now. As ever, ignore the jawboning – watch what they do, rather than what they say.

Gold in Euros, 5 Years – (Bloomberg)

Era Of Bond Holder Bailouts Ending – That Of Depositor Bail-In Cometh (Part 1)

The era of bondholder bailouts is ending and that of depositor bail-in is coming.

The changing financial landscape post crisis poses challenges to savers and investors globally. It is important we consider how savings and investments can be protected.

Bail-ins are a risk in the coming years and yet there is a lack of appreciation of this risk as there was a lack of appreciation of the risks posed by property bubbles and the global debt crisis.

This research note is therefore timely and welcome as there is a lack of research regarding a bailin  and bail-ins and the ramifications thereof.

It will take a number of years for the final configuration of the new financial order to become clear. This means that there are difficulties inherent in selecting appropriate investments when the ultimate outcome is unclear. Apart from that, what we do know at present is that there are straws in the wind that should concern savers.

The approach taken with failing banks in Europe, to in one form or another socialise the debts across taxpayers created a so called doom loop. As the banks got weaker more and more of their debts were passed to already strained sovereign treasuries, weakening them and making it more difficult for them to intervene early in stressed banks. The realisation that, with banks which were multiples in size of the sovereign regulating them, this could not go on was slow to emerge but it has now done so.

In an as yet to be determined but medium term future, banks which face losses will have to act in an avowedly capitalistic manner. First reserves and equity, then senior, then junior debt will be used as the risk capital in order to fill these debt holes. What is new is that if losses continue, after burning through this capital, rather than the state, it is depositors who will be in play.

Beyond that we see other threats to the stability and profitability of the banking system. The EU has launched a consultative process on the sustainability of the present financial system and has concluded in early work that a much more hybrid system, merging the bank based continental system and the Anglo Saxon market scheme, is needed.

Combined with the inevitability of inflation (even the desirability of same in so far as it entails in its early stages a recovered economy), these suggest that savers will face a complex and perhaps lower return environment in the medium term.

In that context a move to increased allocation of savings to alternative investments, including a prudent allocation of some 5% to 10% to precious metals, is a sensible policy.

This research note is very useful in pulling together some of these strands and others and should be required reading for savers internationally and for medium and long term investors.

*Dr Brian Lucey is Professor of Finance at the School of Business  at Trinity College Dublin. He studied at graduate level in Canada, Ireland and  Scotland, and holds a PhD from the University  of Stirling. His research interests include  international asset market integration and  contagion; financial market efficiency, particularly  as measured by calendar anomalies and the  psychology of economics.

His research on gold has established that gold is important as a long term diversification due to gold’s “unique properties as simultaneously a hedge instrument and a safe haven.”

Download our Bail-In Guide: Protecting your Savings In The Coming Bail-In Era(11 pages) 

Download our Bail-In Research: From Bail-Outs to Bail-Ins: Risks and Ramifications (51 pages)  

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The chart below from the WSJ, summarizes perfectly the hell that US retailers find themselves in. In brief: sales down and inventories soaring, means liquidation sales have to surge, while profits and cash flows crater.

From WSJ:

 Simeon Siegel, an analyst with Nomura Equity Research, looked at the inventory carried by those and other specialty-apparel retailers at the end of the third quarter and compared it with his projections for the chains’ fourth quarter sales. He found that in most cases inventory growth far outpaced sales growth. Normally, the two should be growing about the same. “The ratios are the worst we have seen in quite a while,” Mr. Siegel said.

…

 

“The worry now is about demand falling, not going through the roof,” Mr. Johnson said.

 

Abercrombie ended the third quarter with inventory up 22% from a year earlier. Yet Mr. Siegel of Nomura predicts the retailer’s sales will fall 14% in the fourth quarter.

…

 

Marshal Cohen, the chief industry analyst for the NPD Group, said he spotted signs throughout the weekend that stores were overstocked, including goods

stacked high up on shelves and ample merchandise in storerooms.

 

“When the most common sizes of popular items don’t sell out, that’s a problem,” Mr. Cohen said.

Yes, it is – it means the consumer is fully tapped out courtesy of Bernanke’s 5 year (and ongoing) wealth transfer experiment from the middle class to the 0.1%.

Gap and L Brands have had strong years, with their shares up more than 30%. But apparel sales have been suffering as shoppers direct their attention elsewhere. Many consumers, when they are spending at all, are plowing money into their homes and buying new cars.

They don’t call it “fun-da-mentals” for nothing. And with Uncle Sam providing all the car loans one could ever need, why buy clothes when you can live naked (or simply rent clothes as they do in Europe) in their NINJA loan purchased (thanks to the government’s generosity) Government Motors.

Finally, don’t worry about any of the above: surely there is a weather excuse for all of it.

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Treasury yields are surging on the ADP’s Good news this morning with 10Y topping 2.84% – its highest yield in almost 3 months. The USD is surging, stocks are fading; but despite an initial dip… gold is rallying.

 

 

Chart: Bloomberg

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Treasury yields are surging on the ADP’s Good news this morning with 10Y topping 2.84% – its highest yield in almost 3 months. The USD is surging, stocks are fading; but despite an initial dip… gold is rallying.

 

 

Chart: Bloomberg

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Moments ago, the Census Bureau announced that in October the US trade gap narrowed to $40.6 billion (which still missed expectations of “only” a $40 billion deficit) from an upward revised September deficit of $43 billion, as oil sales boosted exports to record level. Total exports rose to a record $192.7 billion up $3.4 billion from last month’s $189.3 billion, while imports rose just $1 billion to  $233.3 billion resulting in a $40.6 billion gap. Among the report highlights: October exports of goods and services ($192.7 billion), exports of goods ($135.3 billion), and exports of services ($57.4 billion) were the highest on record; October imports of goods and services ($233.3 billion) were the highest since March 2012 ($234.3 billion); and perhaps the best news for shale fans: October petroleum exports ($12.5 billion) were the highest on record.

Looking at the key goods category, The September to October increase in exports of goods reflected increases in industrial supplies and materials ($1.5 billion); consumer goods ($1.0 billion); foods, feeds, and beverages ($0.6 billion); capital goods ($0.3 billion); and other goods ($0.2 billion). A decrease occurred in  automotive vehicles, parts, and engines ($0.2 billion). The September to October increase in imports of goods reflected increases in industrial supplies and materials ($0.8 billion); consumer goods ($0.5 billion); other goods ($0.4 billion); and foods, feeds, and beverages ($0.3 billion). Decreases occurred in automotive vehicles, parts, and engines ($1.0 billion) and capital goods ($0.3 billion)

Broken down by country, The October figures show surpluses, in billions of dollars, with Hong Kong $2.8 ($3.2 for September), Brazil $1.7 ($1.0), Australia $1.4 ($1.5), and Singapore $1.2 ($1.3). Deficits were recorded, in billions of dollars, with China $28.9 ($30.5), European Union $14.3 ($8.0), Germany $6.9 ($6.1), Japan $6.4 ($5.5), OPEC $5.6 ($5.9), Mexico $4.1 ($5.3), Ireland $3.2 ($1.8), Saudi Arabia $3.1 ($3.2), Canada $3.0 ($3.2), India $2.0 ($1.7), Venezuela $1.9 ($1.3), and Korea $1.7 ($2.1).

Finally, the US reported record exports with Canada and Mexico, while both exports and imports with China hit a new all time high.

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Judging by massive revision in the October print, from 130K to 184K, or nearly a 50% error, one would think that instead of actually tabulating specific private jobs as it by definition does, using the data entering the ADP private payrolls system, the ADP makes its estimate of jobs based on high inaccurate surveys just like the BLS. Either that, or it was desperate to catch up on the upside to the BLS’ own propaganda numbers, which are just as “realistic.” That said, the November ADP print soared from 130K to an upward revised 184K in October blowing through expectations of 170K and printing at a whopping 215K. And so the Taper dance is back on as everyone will now expected Friday’s NFP to come in scorching hot, and force the Fed to cut its monthly flow by a whopping $10 billion to $75 billion.

The punchline from the report:

Mark Zandi, chief economist of Moody’s Analytics, said, “The job market remained surprisingly resilient to the government shutdown and brinkmanship over the treasury debt limit. Employers across all industries and company sizes looked through the political battle in Washington. If anything, job growth appears to be picking up.”

But… but… all the fearmongering.

This is what the current and revised data looked like:

 

The main driver for today’s major revision and beat: the ADP’s desire to mimic the NFP numbers. Which makes one wonder: what’s the point of having an ADP number if it has an error range of +/- 50%?

 

Total Nonfarm Private Employment by Company Size (in thousands):

Change in Total Nonfarm Private Employment by Selected Industry

A more detailed breakdown:

 

Of course, since ADP is a joke, the greatest utility from this irrelevant service is that it is now social-media friendly and provides a ready to go infographic:

 

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