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  1. Phil

    Good morning!

    Futures up a bit as Asia makes a very sharp turn back up.  

    Nikkei blasting back to 12,450 (up 200) and Hang Seng flat but that's 300 points up from the open as US Retail Sales makes everyone a little happier.  

    Even copper (HG) is finally moving back up ($3.543), silver $28.90, gold $1,587, oil $92.85 (also just shot up .50), nat gas flying at $3.696 ahead of their inventories (10:30) and gasoline $3.144.   

    I've been thinking about gold and a lot of the decline in gold over the past 6 months can likely be attributed to the 20% decline in the VIX.  Not the VIX, per se, but the concept of fear coming out of the markets and gold has several purposes, one of which is a fear trade – more like fear of war, fear of crisis than fear of a market dropping but the concepts are, obviously, tied together.  Once the fear premium is wrung out of gold, you have what gold usually is, a pure inflation play with a fear kicker – I still think that makes it a good long-term hold looking at all this Global inflation fighting that, ultimately, doesn't seem to work.

    People forget how drastically Volcker (Aug '79 to Aug '87) had to act to reign in inflation once it started and it took years to get things under control.  

    It took about 3 years of DRASTIC Fed action to get inflation down from 15% to 3% and, since then, 3% has been about "normal" for inflation.  I remember Ford came into office (never elected, of course – in fact, only about 300,000 people in Michigan ever voted for him at all) with those WIN buttons ("Whip Inflation Now") and that was late 1974, with the worst of inflation still 5 years down the road.  

    That was back when I started working and if you didn't get a 10% raise after a year working somewhere, you would quit that crappy job and go get another one.  I remember when we used to actually compare raises and (and this will blow your minds kids) bonuses – as it used to be a given that you would get both in almost any kind of job.  

    When Ford took office, the Vietnam war was winding down and the S&P was at 68, Carter took over in Jan 77 at 98, Reagan Jan 81 at 136, Bush the 1st Jan 89 at 294, Clinton Jan 93 at 451 and then all hell broke loose and he turner the S&P over to Bush the 2nd at 1,160 and Bush gave the market to Obama in Jan 2009 at 825.  Reagan's 2nd term through Bush the 1st was our last real round of inflation and, of course, no President ever had more jobs created than Bill Clinton but there was no inflation caused by record US employment – it's war spending and debt spending that causes inflation but we have wages flat or deflating recently (10 years) and that HAS BEEN artificially keeping inflation down.  

    Obviously, the debt spending is not ending any time soon but the wage deflation is already ending and that means inflation is right around the corner.  Inflation is more money chasing the same amount of goods and services.   The money is already in the banks and on Corporate balance sheets.  Once the banks start lending the money to home-buyers again, then they drop a $300,000 block of cash into the economy (in exchange for a 30-year note) and let's say they do that 1M times more than they did the year before.  That's $300Bn pushed into circulation in one year.  If companies hire 250,000 people a month for $40,000 jobs, that's 3M a year and another $120Bn pushed into circulation.  

    Then companies need to put those 3M employees into desks and buy them computers and pay for their internet connections, etc – and figure that's going to be 2x labor cost (labor is usually 30% of spending) so another $240Bn there and if Government Spending stops being a negative drag on things – that's another $100Bn easily so just those very conservative numbers drop $760Bn into the economy in a single year and that's 5% of our GDP folks!  

    So 5% more money chasing the same goods and services (it takes time for all those factories to be built and for those new hires to get productive) and that makes inflation mathematically inevitable.  

    Also, it's unemployment day and the usual 350,000 people will lose jobs (what matters is how many people GET jobs) and that number remains higher than it would be as more and more people are switching jobs now (trading up) so they WANT to leave their old job.  I came across this chart this morning and think about the significance of us crossing back over that zero line over the next 12 months:

    Oil back at $93 again while I was writing that as the Dollar calms back down to 83.15 and under 83.25 is OK now as we've gotten used to over 83 this week (moving Dollar only has short-term effect on Markets).  Oil not likely to be a great short until after Nat Gas report (hope springs eternal at the NYMEX) but, if you are aggressive, the $93 line is always good with tight stops on /CL.  

    Thursday's economic calendar:

    8:30 Producer Price Index

    8:30 Initial Jobless Claims

    8:30 Current Account

    9:45 Bloomberg Consumer Comfort Index

    10:30 EIA Natural Gas Inventory

    1:00 PM Results of $13B, 30-Year Note Auction

    4:30 PM Money Supply

    4:30 PM Fed Balance Sheet

    Speaking of jobs:  A big jobs number out of Australia sends the aussie (FXA) to its highest level in 6 weeks, +0.8% to $1.0378. The country added 71.5K jobs in February, far greater than the 10K expected. The unemployment rate held steady at 5.4% vs. forecasts for 5.5%. The dashing of rate cut expectations is hitting shares (EWA), the ASX 200-0.8%.

    China's National People's Congress formally elects Xi Jinping as the country's new President after he was appointed Communist Party chief in November. The Congress also chose Li Yuanchao, who's seen as somewhat of reformer, as VP. The rubber-stamping is due to continue tomorrow, when Vice Premier Li Keqiang is set to be officially named as Premier Wen Jiabao's successor.

    As expected, Japan's lower house has authorized the appointment of Haruhiko Kuroda as the new Governor of the Bank of Japan, and Kikuo Iwata and Hiroshi Nakaso as Kuroda's deputies. A biggish test is set to come tomorrow in a vote in the upper house, where the government will need help from the opposition to gain approval for the three men. They should receive it, although it's not 100% certain Iwata will be authorized.

    Japan cuts its January industrial production reading to +0.3% M/M from a prior estimate of +1% and vs +2.4% in December. Analysts had expected zero growth in January. On year, production -5.8%. (PR)

    India's wholesale price index, the country's main gauge of inflation, rose 6.84% on year in February vs +6.62% in January and vs consensus of +6.6% as fuel prices spiked 10.5%. CPI +10.9%. The increasing inflation makes it less likely that the Reserve Bank of India will cut interest rates when it meets on Tuesday next week.

    Fast buying up every single-family home it can get its hands on, Blackstone (BX) is reportedly prepping the first ever securitization of REO-to-rental properties. The news follows Deutsche Bank upping to $2.1B from $600M a loan to Blackstone allowing it to buy even more homes.

    Just in time to boost oil prices into the rollover!  A barge and a Chevron (CVX) pipeline are on fire and an oil slick is visible in the waters of a bayou south of New Orleans after a tug pushing the barge crashed into the pipeline last night. CVX says it has shut in the pipeline, products are being rerouted, and it has mobilized emergency crews to help with the response.

    Exxon Mobil (XOM) envisions North America as an energy exporter by ~2025, as oil and natural gas output rises 45% by 2040 while U.S. energy consumption drops ~5% thanks to transportation efficiency gains. Increased reliance on natural gas and renewables such as wind will lead to a 25% reduction in carbon emissions by 2040 to the lowest levels since the 1970s.

    The oil industry is increasing spending on research it hopes will make it cheaper and easier to coax more crude and natural gas from shale formations and deep-sea oil fields. [HAL]], SLB and BHIraised their R&D budgets 24% from 2010 to a combined $2.1B in 2012. Small improvements in drilling tools and fracking techniques could boost profits for oilfield firms and provide more energy for global markets.

    Without much fanfare, IBM (IBM +0.6%) is making fresh all-time highs. Big Blue, which raised its analytics/big data sales forecast two weeks ago, currently trades at 12.6x 2013E EPS.

    MEMC's (WFR -13.4%soft guidance and a report the Wuxi, China government will take control of Suntech (STP -23.6%) ignited a solar selloff (TAN -5%). LDK (LDK -12.7%), whose financial positionis arguably only a little better than Suntech's, was especially hard-hit, but ReneSola (SOL -5.3%), Yingli (YGE -3.4%), Trina (TSL -3.5%), SunPower (SPWR -2.7%), and First Solar (FSLR -2%) also saw losses.

    Some Facebook (FB) news: 1) Facebook's Timeline has been updated to place a greater emphasis on third-party apps. The update comes a week after a news feed revamp that will allow apps to stand out more, and 3 days after Reuters took a look at how the popularity of Facebook's apps can quickly rise and fall thanks to policy and algorithm changes. 2) News feed product manager states Facebook plans to keep it simple when it comes to mobile ad formats – no push notification, QR code, or GPS-based ads for now.

    China Mobile (CHL): Q4 net profit +6.1% to 36B yuan ($5.79B) vs consensus of 32.3B yuan. Revenue +5.3% to 151.8B yuan vs 150.4B yuan. Wireless data revenue +54% in 2012, and becomes "a major driver of operating revenue growth." App store users and downloads "dramatically" increase. To boost capex 49% to 190.2B yuan in 2013 as it builds its 4G network. (PR)

    BlackBerry (BBRY+2.4% AH, adding to the 8.2% gain it saw in regular trading on news of a 1M-unit BB10 phone order(perhaps from AT&T or Verizon?). Wells Fargo says it's now more comfortable with its forecast for 2.5M May quarter BB10 shipments. FQ4 (Feb. quarter) results arrive on March 28.

    Samsung (SSNLF.PK) is due to unveil the Galaxy 4S in New York today following a marketing blitz that analysts fear may have over-hyped the device and set it up to disappoint. Still, sales of 10M units are expected in the first month alone. The company is thought to have worked hard to avoid the supply the problems that cost it 2M units of lost sales in just one month last year after it launched the S III in May. 

    In a rare move for an Apple (AAPL) exec, marketing chief Phil Schiller is trashing Android (GOOG) ahead of tomorrow's Samsung Galaxy S IV event. Schiller takes aim at Android's fragmentation, noting only 16% of users (per Google's data) are on Android 4.1 (Jelly Bean), and claims (citing Apple's internal data) 4x as many smartphone users switched from Android to the iPhone in Q4 than vice versa. Is Schiller just being candid, or does Apple now think Android's rise demands a more aggressive marketing stance?

    "I am an entrepreneur at heart and now is the right time for me to start a new chapter within Google (GOOG)," writes Andy Rubin in a memo about his departure from the Android team. Rubin adds he remains "passionate about the power of a simple idea and a shared goal — an open source platform freely available to everyone — to transform computing for people everywhere." Any chance he's put in charge of Google Glass?

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