Friday, February 15, 2013

Bob Shiller Hits Reality Reset Button On Housing

Bob Shiller sees the possibility of real estate sliding downhill once again. 
"I still worry about further price declines. There’s no really concrete reason for an upturn now...  I think home prices may still go down..." "I also think that price increases that were likely caused by the decline in foreclosures may have been mistakenly taken by the public as a note of optimism." 

Hard Assets Are Picking Up Steam Again

In other words, commodity prices are rising, and inflation is raising its ugly head again. With crude oil prices at historically high levels for this season of the year, and the summer driving season only about 60 days away, an economy-crushing price onslaught may soon be staring us in the face.
The elections must be over, because last year was the first year in my trading career that the price of crude oil was suppressed during the summer, when oil demand is at its peak, and is now rising steadily, knocking on the door of $100 once again. Is the anti-crude President, who screeches about "global warming" in his SOTU addresses and threatens to circumvent both Congress and the Constitution if they don't pander to his dictatorial wishes, still in office? Apparently so, because now that he has been "reselected", the fires of inflation are raging to fervent heat levels once again! Crude bottomed on December 12th, and has been rising steadily ever since!

from Zero Hedge:
Hard assets are gaining momentum once again as market participants digest the potential impact of central bank printing initiatives. After last year's record level of central bank intervention, 2013 is gearing up to be an even more prolific year on the money-printing front. Japanese Prime Minister Shinzo Abe recently unveiled Japan's tenth Quantitative Easing program to follow the country's current $224 billion stimulus announced on January 11th. The US Federal Reserve is steadily printing US$85 billion a month under its QE3 & QE4 programs, and reports indicate that the European Central Bank is close to launching its much-awaited Open Market Transaction (OMT) program to purchase European sovereign debt. It's a money-printing party and everyone's invited. Even the new Bank of England head, Mark Carney, has hinted of plans to launch more monetary stimulus. Professional investors have noticed and are expressing concern over the consequences of concerted currency devaluation and the continuation of zero-percent interest rates. Despite being long-time precious metals enthusiasts and active investors in gold and silver, we did not focus on "the other precious metals", platinum or palladium, until very recently.

Wash, Rinse, Repeat

There is no longer any perception of risk acknowledgment in this market any longer. We have become so accustomed to buying every dip, including even minor ones, that no one even sees the need to pay attention to news, data, analysis, or reality. We are living in a surreality instead. This is the very definition of a bubble mentality!
The bubble mentality ignores the warning signs and is ambivalent to risk. It routinely dismisses those risks without proper regard or due diligence. This is precisely the mindset that inflates the bubble far beyond appropriate price levels because all the warning signs are discounted, even scorned. Anyone who questions the price levels of the target asset in the bubble are ridiculed and belittled.
We are once again in what Alan Greenspan once referred to as a stock market price level that reflected "irrational exuberance", but Ben Bernanke not only pooh-poohs that thought, he even worships the idea, calling it, instead, a "wealth effect". Really? By creating "irrational", artificial price levels for assets that are far beyond their merit, we are thereby creating "wealth" (very loosely defined and considered). What a twisted and callous way of thinking about the damage done when those "wealth effect" bubbles pop, millions of small businesses are destroyed, and even more jobs are wiped out, never to return. Perhaps Mr. Bernanke's cronies consider those bubbles to be creators of wealth, but I'm sure the victims of central bank guinea pig solutions don't appreciate being sent to the economic garbage dump in response to Mr. Bernanke's eternal experimentation with their lives.

That said, we are once again buying the dip because everyone knows that that's what we do, despite that large "sequestered" budget cuts on just two weeks away. I suppose that the market is expecting, based upon past history, that the Republicans in the House will, as usual, roll over and give Obama everything he demands (while mendaciously calling it bipartisanship), so, since the GOP no longer has any credibility, and is now the Rubber Stamp Party, it ignores (even the most remote possibility) that they may suddenly find a spine again.

And because of this, it will once again take something cataclysmic, to bring us back from surreality, to the brink of disaster and coerced recognition of reality, once again! And the cadre of collectivist czars will once again deem that their wisdom is tantamount, and must therefore be imposed, until the leave in their wake of calamities something that no amount of government tinkering will be able to fix. They, in their hubris, will once again devastate, while denying the same destruction they caused. And we will once again wash, rinse, and repeat, at least until we end up at the bottom of a cliff as economic road kill. The day of reckoning will come with ever increasing likelihood of a mortal economic wound!

Here is what the bubble looks like this morning:

Thursday, February 14, 2013

Futures Daily for Feb 14, 2013

Look at natural gas today! I don't think I've ever seen any commodity move nearly 4.5% in a single day before! Wheat, sugar, hogs, and silver are also big movers today! There is plenty of volatility!

M&A Activity Buoys Stocks

Stocks have now recovered entirely from overnight losses, having been boosted back to the flat-line from overnight losses due to collapsing global GDP. Sen. and now Secretary of State John Kerry is no doubt thrilled! So is Warren Buffett!

Blizzard Blame

New jobless claims are lower this week, and the weather is apparently a factor:

"Jobless claims for Connecticut and Illinois were estimated by the Labor Department, a spokesman said as the figures were being released."

Sagging GDP Slams Euro

The Euro is down nearly 1% this morning, which is a large move for the currency markets.

After trending gently higher for the first half of the week, the euro has been sold to new three week lows in response to the disappointing Q4 GDP figures. The GDP figures are of course backward looking and more recent data, such as the PMI figures and German factory orders suggest the regional economy is stabilizing here in early Q1.
There is a middle step to go from the GDP figures to the euro and that is the interest rate channel.  There has been some speculation that the passive tightening of the euro area financial conditions (including the shrinking of the ECB's balance sheet) and the strength of the euro would prompt the ECB to cut the refi rate later in Q1.  The poor GDP readings bolster such expectations and this can be seen in short-term interest rates.  The March Euribor futures contract is now implying 0.24% rate, having matched the lowest rate since Jan 23, or before the early repayment of LTRO I was announced.

Another way to see this is in the US-German 2-year interest rate differential, which continues to track the euro-dollar exchange rate.    Recall the sequence of events.  In early Dec 12, the US was offering about 32 bp more than Germany on 2-year obligations. By late January, the US was at a  2 bp discount.  However, this month it has been trending back toward the US and today, at 8 bp, the US premium is the largest since mid-Jan.  
The euro's drop today indicates the downside correction to the euro began earlier this month is not complete.  A break of $1.3310 signals a potentially quick move toward $1.3270.    Sterling's slide has been extended and it briefly dipped below $1.55 for the first time since August.  The unwinding of long euro-sterling positions is helping sterling steady against the greenback.
The day of disappointment actually began in Asia, where Japan reported a 0.1% contraction in Q4 GDP.  The consensus had called for a small increase.  It is the third consecutive quarterly contraction.  Exports, which fell for seven months through Dec was an obvious drag and business investment was also a drag.  The BOJ concluded its two day meeting, leaving policy unchanged.  It assessment was tweaked higher as it recognized that the "economy appears to have stopped weakening".   The yen is largely sidelined today as the dollar continues to consoldiate within Monday's range.
Fro the first time in more than a week, a Japanese official cited specific dollar-yen rates.  Iwata, who is thought to be vying for the BOJ governor position, suggested the JPY95 area was appropriate.  He opined that a correction of the yen's strength is vital to achieving the 2% inflation target and was sympathetic to changing the BOJ charter.  He has also been an advocate of foreign bond purchases.  While his comments may play well in Japan, they probably are not helpful in securing international standing, which was also a criteria cited by senior government officials. 
Some press reports are playing up comments by the Riksbank governor yesterday that seemed to accept the krona's strength and suggesting Sweden entering the "currency war" on the other side.  This seems to be an exaggeration. First, this is essentially what Weidmann and Draghi have said about the euro.  It is near long-term averages.  That means that the current rate is acceptable.  Second, about 7 months ago when the euro was at $1.20, the US did not complain about the dollar's strength. 
In fact, outside of one Fed official expressing some misgivings about what Japanese officials were saying about the yen, and Treasury Secretary designate Lew endorses of a strong dollar policy, the US has been as usual quiet about the exchange rate.   Easing monetary policy when one's inflation is low and the output gap is large is not a shot in currency war.
The euro zone area GDP contacted by 0.6% in Q4.  The market expected a 0.4% contraction.   Most countries, including Germany, France and Italy's contractions were more than expected.  Canada looks to be fastest growing in the G7 at the end of last year.  A combination of construction spending, retail sales, trade figures and the latest inventory data suggest that the contraction in Q4 US GDP may be revised to show a small uptick.  The revision is due Feb 28.

Global GDP Slumps

Wednesday, February 13, 2013

Futures Daily Feb 13, 2013

Big movers: cotton, coffee, cocoa, feeder cattle, natural gas

Stocks Retrace Earlier Gains

S&P Higher Despite More Euro Worries

Tuesday, February 12, 2013

Futures Daily for Feb 12, 2013

Big movers today: Sugar, Coffee

Obama, the Food Stamp President

from Zero Hedge:
While hardly presented by the mainstream media with the same panache dedicated to the monthly ARIMA-X-12 seasonally-adjusted, climate-affected, goal-seek devised non-farm payroll data, the three month delayed Foodstamp number is according to many a far greater attestation to the "effectiveness" of the Obama administration to turn the economy around. And far greater it is: since his inauguration, the US has generated just 841,000 jobs through November 2012, a number is more than dwarfed by the 17.3 million new foodstamps and disability recipients added to the rolls in the past 4 years. And since the start of the depression in December 2007, America has seen those on foodstamps and disability increase by 21.8 million, while losing 3.6 million jobs. End result: total number of foodstamp recipients as of November: 47.7 million, an increase of 141,000 from the prior month, and reversing the brief downturn in October, while total US households on foodstamps just hit an all time record of 23,017,768, an increase of 73,952 from the prior month. The cost to the government to keep these 23 million households content and not rising up? $281.21 per month per household.
Total Americans on foodstamps:

Total households on foodstamps and average benefit per household:

Monthly change in Foodstamp and Disability recipients vs jobs since December 2007:

Cumulative change in jobs vs Foodstamps and Disability Recipients:

Source: SNAP

Monday, February 11, 2013

Futures Daily 2-11-2013

Big movers today:
Wheat, soybeans, gold, sugar, cocoa, silver.

Malaise Today

Stocks relatively quiet today, with little volatility.

Sunday, February 10, 2013

Not So Fast!

Despite hyperbullishness, companies are beginning to show signs that the market is overbought! Key phrase: "But the companies warn that the current quarter will be more challenging..."