Five years later, while some are congratulating themselves on avoiding another depression, no one in Europe or the United States can claim that prosperity has returned. The financial system may be more stable than it was five years ago, but that is a low bar – back then, it was teetering on the edge of a precipice. Those in government and the financial sector who congratulate themselves on banks’ return to profitability and mild – though hard-won – regulatory improvements should focus on what still needs to be done. Some are pleased that the economy may have bottomed out. But, in any meaningful sense, an economy in which most people’s incomes are below their pre-2008 levels is still in recession. An The glass is, at most, only one-quarter full; for most people, it is three-quarters empty.
Until its humiliating elimination from the Dow Jones Non-Industrial Average, Alcoa was the traditionally first company to usher in earnings season and the first company to set the mood for the DJIA. That is no longer the case. Still, on the surface, Alcoa's numbers were modestly good: after all it beats (heavily lowered) revenue estimates printing $5.77 billion in revenue on expectations of $5.63 billion, even if this was lower than both the $5.85 billion in Q2 and $5.83 billion from Q3 2012. The (heavily lowered) EPS likewise "beat", printing at $0.11 on expectations of $0.05. However the punchline is that for the second consecutive quarter AA took out massive restructuring charges from EPS, this time amounting to $151 million for Income Statement purposes, or about $108 million for Non-GAAP EPS purposes. Which means that of the $0.11 beat in Q3, a whopping 9 cents is due entirely to ongoing "non-recurring" restructuring addbacks. Very much the same way AA "beat" last quarter, when it reported $0.07 cents, of which however $0.18 cents was due to the addition of restructuring charges.
Having been given so many 'openings' to carry on the negotiation during Obama's standing oration, Speaker Boehner has decided it's his turn to explain who is to blame...
*BOEHNER SAYS HE'S DISAPPOINTED OBAMA WILL NOT NEGOTIATE
*BOEHNER SAYS NEGOTIATIONS ALWAYS ACCOMPANY SPENDING BILLS
*BOEHNER SAYS OBAMA'S POSITION ON NEGOTIATIONS `NOT SUSTAINABLE'
*BOEHNER SAYS DEBT LIMIT BILLS ALWAYS CARRY `POLICY CHANGES'
*BOEHNER SAYS `THERE'S GOING TO BE A NEGOTIATION HERE'
The 4.3% drop from recent highs in the S&P 13 days ago is the largest drop over that period since mid November 2012. The S&P broke its 11-month uptrend and closed below its 100DMA having fallen 11 of the last 14 days post Un-Taper. VIX broke back above 21% briefly (almost its highest level of 2013). Homebuilders were ugly as were the rest of the high-beta momo stocks. Equity markets tracked FX carry (AUDJPY mostly) on the day but the USD ended the day modestly higher (albeit amid wide dispersion). Treasuries were mixed with the short-term battered (1w to 1m Bills +10-15bps!!!!), 2Y +5bps on the week, 30Y -2.5bps (which is notable in that it is not tracking stocks implying some angst over TSY ownership). Gold, Silver and Copper were pushed lower as stock fell but the PMs remain bid on the week. Stocks dived into the close with no VIX monkey-hammering to help; The Dow is now 5.9% off its highs and testing its 200DMA for the first time this year.
It’s clear to everyone by now that the government of the largest country in the world is careening towards default in just over 200 hours. Yet curiously, even though the US government’s completely ridiculous, untenable fiscal situation is a front page embarrassment for the entire world to see, markets have barely budged. A few very short-term rates have shot up, but for the most part, stocks are very close to where they were before the shutdown. Stocks and bonds haven’t moved because nobody cares what’s happening in the US government anymore. And that’s because every serious investor understands that the US government long since abdicated any economic power to the banking sector. Everyone knows that the Fed is going to keep printing money, ergo they’re going to keep sending markets higher. And this debt ceiling charade only proves it. The secret is out there in the open. And now it’s completely obvious who’s really in charge.
"Neither the Treasury Department nor the Federal Reserve believes that the law can or should be used to facilitate the production of platinum coins for the purpose of avoiding an increase in the debt limit" Anthony Coley, spokesman for the Treasury Department.
In an ominous supplication to the fact that a deal may not be coming President Obama admitted that his administration is "exploring all contingencies on the debt limit." We assume, given his dismissal of the 14th Amendment and the idiocy ("there are no magic bullets" to avoid default) of the trillion-dollar-coin and premium-bond issuance to the Fed, this implies - unlike the ECB - that they are conceding it is possible we cross the "X" date. His remarks were a perfect rehash of everything he has said before... unless the Republicans stop demanding 100% of what they want and give him 100% of what he wants, he will not negotiate. In Summary: no negotiation with extremists holding hostages
Given the statements this morning it is clear that President Obama is unwilling to negotiate on his unwillingness to negotiate. It would seem that he would do well to listen to the immortal words of Mike Tyson, "everyone has a plan, until they get punched in the face," and we suspect the market is about to deliver that upper cut... which in reflection is exactly what the President called for last week - though as we noted earlier - the polls are mixed as to who is to blame.
There has long been a quasi-magical belief in the U.S. that capitalism's intrinsic dynamic of creative destruction will always create more jobs than it destroys. The evidence is compelling that this belief is no longer reality-based. The U.S. has reached Peak Jobs - at least the sort that can support a household.
Following today's explosive 4 Week Bill auction which priced at the highest yield since October 2008, the subsequent $30 billion 3 Year auction was rather anticlimatic. While the WI had been rising modestly all day, the final high yield of 0.71% was through the When Issued 0.719%, which was also the lowest since August, following the pre-Taper fears blow out in short-term yields in September when it priced at 0.913%. Still, the Bid To Cover was hardly anything to write home about, which at 3.048 was the lowest since June and higher only than the 2.946 from June, going back all the way late 2010. The ongoing decline in Bids to Cover is very obvious in the chart below. The internals indicated a modest increase in Indirect Bidders, which took down 34.4% of the auction, compared to the 28% TTM average, leaving 19.7% to the Directs, in line with the trailing twelve month average, and 45.8% to Dealers, below the 52.7% TTM average. Overall, the fear in the bond market continues to be confined to the ultra-short term bonds, where fears of a technical default in the next month is all focused on the next month, but for now is confined solely there.
President Obama had no choice but to cancel his trip to the Asia-Pacific Economic Co-operation Summit in Indonesia because he was forced to stay in DC and not negotiate (perhaps Jakarta should invest some more capital in some world class golf courses) but John Kerry, happy to have put the Syria fiasco behind him and since boating season off Nantucket is over, was there an represented. Dressed appropriately.
Between IB's margin hike yesterday (crushing MOMO leverage), a rising JPY squeezing carry trades, and high-beta to a plunging market, the momentum-mavens are hurting. Of course, as CNBC just said - now is the time to BTFD to make your year when they all bounce... with the Russell back to its 50DMA -with its biggest 2-day drop in almost 4 months.
Recent speeches from the SEC indicate they plan to use Midas to look at the details behind quote stuffing, excessive order cancellations, the cause of mini flash crashes, and other nefarious activities. While these are all good uses for a market analysis tool (Midas), they pale in comparison to a data-feed delay analysis, because the former are governed by blanket, hard-to-prove manipulation laws, while the latter can be tied directly to a core rule that lies at the heart of Regulation NMS. An improper data-feed delay was the reason for the $5 million fine against an exchange in September 2012. Furthermore, millions of people are directly affected and disadvantaged by illegal data-feed delays. Therefore, it would be a great waste of public resources to not immediately pursue a data-feed delay analysis, because there exists ample evidence that an illegal speed advantage exists in direct feeds over the public quote.
"Escalating..." Whocouldanode that exploding T-Bill yields (which have been doing so for a week) would suggest more anxiety? Tempest in a teacup...
Moments ago, the just concluded 4 week Bill, with a Cusip which appropriately enough was BK, priced at a stunning 0.35%, blowing through the 0.295% When Issued, the highest yield since October 2009, the lowest Bid to Cover since March 2009, and the largest tail since March 25, 2008. The bond market panic is palpable, and just as we predicted would happen in a market gripped by sheer "Bernanke will kiss and make it all better" complacency.