Kate and William had a boy. Our bet on a name is George, but only because that appears to be the odds-on favorite among the London bookies. Still, all that money flowing around must at least be a little “Smart”, right? But as ConvergEx's Nick Colas notes, the same dynamic applies, albeit on a larger and hopefully more informed scale, when it comes to how capital markets price securities. We have our baselines – the price-earnings ratio of the market, the interest rate on Treasuries, the average price per square foot for real estate, and so forth – and then we tweak everything else up or down from there. That method has the benefit of simplicity, but comes with problems as well. More than anything, Colas warns, it pushes investors to “Anchor” their notions of valuation to benchmarks which may move when the wind shifts.
"In the last week of June, the dollar value represented by ARM applications accounted for 16 percent of mortgage requests, the highest share since July 2008, two months before Lehman Brothers Holdings Inc. collapsed, according to Mortgage Bankers Association in Washington." Oops.
While Edward Snowden can perhaps breathe a sigh of relief at being abale to avoid the humdrum beat of airport food for a while, he will be stepping out into the 2nd most expensive city in the world. Based on a survey of over 200 items, Moscow ranks 2nd in the world (with $8 cups of coffee and $4,600 average apartment rental costs), and Tokyo 3rd (with $5 newspapers and $7 coffees). But the most expensive city in the world will come as a surprise to most and likely create the need for a Google Maps search. With 40.5% of the population of this nation living in property and the average monthly rent a sky-high $6,500, this southern African country's capital is the most expensive city in the world (it would seem the Chinese arrival in resource-rich African nations - N'Djamena, Chad is 4th - has had its hot-money inflationary effects).
Much has been made of the inflows into US equity markets in the last few weeks with the heralding of The Great Rotation that will lift us to Dow 36,000 and beyond. The only problem with this rather wonderful meme-du-jour (being the only thing left in the asset-gatherer's armor since bottom-up and top-down fundamentals are nothing but collapsing near-term, hockey-stick mid-term flights of fantasy) is that, as BofAML notes, institutional investors have never (that's a long time) sold as much stock as they have in the last 4 weeks - as retail has been piling in. So it would appear the 'real' great rotation is passing the hot-potato of liquidity-driven stocks from the 'smart' money to the 'dumb' money once again.
According to Interfax, Russia have authorized Snowden to leave the airport where he has been stuck for nearly a month, and grant him temporary asylum in exchange for his cooperative silence. RT adds that "Russia’s Immigration Service has reportedly granted entry permission to NSA whistleblower Edward Snowden, who has been stranded at a Moscow airport since last month. “The American is currently getting ready to leave. He will be given new clothes. Lawyer Anatoly Kucherena will bring the papers he needs to leave the transit zone of the airport,” says Interfax citing an airport source familiar with the situation. The migration service would not immediately confirm the information.
"Overall end-user demand is similar to our previous outlook, but we now expect a more significant reduction in dealer machine inventory. That's the main reason for the reduction in the sales and revenues outlook. During the second quarter, dealers increased their utilization of inventory from our product distribution centers, which allows them to meet customer demand with less inventory. With the sharp reduction in dealer inventory and the decline in mining, 2013 is turning out to be a tough year and we've already taken action to reduce costs. During the first half of the year, we've had temporary factory shutdowns, rolling layoffs throughout much of the company, reductions in our flexible workforce, and we've reduced discretionary and program costs. While we've taken significant action already, we will be taking additional cost reduction measures in the second half of 2013,"
- Humans Beating Robots Most Since ’08 as Trends Shift (BBG)
- Easing of Mortgage Curb Weighed (WSJ)
- European Banks Face Capital Gap With Focus on Leverage (BBG)
- Signs Suggest China Warming to Idea of Stimulus (WSJ)
- China Coal-Fired Economy Dying of Thirst as Mines Lack Water (BBG)
- Jeans and shoes show criminal underbelly of China-EU trade (Reuters)
- How U.S. drug sting targeted West African military chiefs (Reuters)
- Japan scrambles jets after China plane flies by southern islands (Reuters)
- Apple Plots Return to Growth After Coping With Aging Lineup (BBG)
- AT&T Falls Shy of Analyst Estimates as Discounts Hurt Margins (BBG)
- SAC insider trading case takes twist (FT)
Plunging Chinese manufacturing and an 11 month low PMI got you down? Don't worry: there's a Europe for that, which overnight reported that manufacturing and service PMI in Germany and, don't laugh, France soared far above expectations (German Mfg and Services PMIs of 50.3 and 52.5, up from 48.6 and 50.4, and above expectations of 49.2 and 50.8; French Mfg and Services PMIs of 48.3 and 49.8, up from 47.2 and 48.4 and an 11 and 17 month high, respectively, blowing away expectations of 47.6 and 48.8). The result was a composite Eurozone Manufacturing PMI of 50.1, above 50 for the first time since February of 2012, up from 48.8 and at a 24 month high - reporting the largest monthly increase in output sunce June 2011, as well as a composite Services PMI of 49.6, up from 48.3, and an 18 month high. In other words, European Composite PMI is expanding (above 50) for the first time since January 2012.
We are number 1 right? USA! USA! No one can beat our wealth creation machine, our economic dynamism, our level playing field and our bastions of higher education. We have a middle class that is the envy of the world, right? Well, like so much of the “American dream” we have been force fed for a generation or more, this perception is not based in reality whatsoever.
It would appear the camel's back of the career of Steve Cohen and his firm SAC Capital has received its last straw. As the WSJ reports, Federal prosecutors plan to bring criminal charges against the firm as early as this week. This spells trouble for SAC which, while still reeling from the SEC's attempt to effectively shut it down, will now have to fight a two front war; defending its key executives against criminal charges as well, including the risk of jail time for what is most likely going to be a securities fraud charge. While a disgraced Steve Cohen may, in theory, run his or whatever employees' he has left, money as a "family office", it would take a very strong wi-fi signal to do that from even a minimum security prison should he finally suffer Martha Stewart's fate.
Missing expectations badly, HSBC's Flash China PMI for July printed at its lowest in 11 months (a dismal 47.7) making this the worst 4-month collapse in the manufacturing indicator in three years (and diverging dramatically from the fence-sitting unreality of the Chinese government's own PMI index). Under the surface things were even worse. The employment sub-index plunged to 47.3 - its lowest in 52 months. Weaker new orders confirm the "continuous slowdown" in China's manufacturing sector, and as HSBC's chief China economist Hongbin Qu, said: "the flash PMI reinforces the need to introduce additional fine-tuning measures to stabilise growth." 'Fine-tuning' seems like a major understatement given this reality. One wonders whether the recent outperformance of gold prices has been front-running the coming shift from 'fine-tuning' to outright RRR cuts - bringing with it that 2011 deja vu that sent gold to an all time high - domestic inflation.
The words of central bankers have for a very long time been poured over by those believing their utterances to have mystic qualities, but we now live in an era where their fallibility is coming into question. The Governor of the San Francisco Fed has written a paper debunking the effectiveness of quantitative easing where monetary policy is "uncertain", a state of affairs that has been with us since QE was started and reinforced by Bernanke's two recent press conferences. To taper or not to taper; will he or won't he? Your guess is as good as mine. “No pain no gain”, is what my fitness trainer tells me with irritating relish and frequency, but you know what? He's right! So what should our central banks and politicians be doing? Debt is the problem so deleveraging has to be the answer.
Lately, the parasitic, price manipulative "Office Space"-inspired HFT practice known as "spoofing" has been consistently in the news: a week ago, it was the third largest futures broker, Newedge, who made headlines following a "record" FINRA handslap. Then yesterday, a Red Bank, NJ-based HFT shop called Panther Energy Trading, and its sole owner Michael Coscia were fined $4.5 million and got a 1 year ban from the industry for engaging in the same activity. "Panther, based in Red Bank, New Jersey, and Coscia used a computer algorithm that placed and quickly canceled bids and offers in futures contracts for commodities including oil, metals, interest rates and foreign currencies. Panther and Coscia engaged in spoofing from August 8, 2011, to October 18, 2011, related to 18 futures contracts. The firm accumulated $1.4 million in profits by using the algorithm." While none of this is fundamentally new to any of our readers, we are happy to report that in conjunction with Nanex, we can now present documentary evidence of the Panther algo in action.
The on-again-off-again 'great rotation' from bonds to money-markets to stocks has (so far) seen retail flood into stocks as the BTFATH mentality is rife. As BofAML notes, through soothing "word of mouth" intervention, Bernanke's most important accomplishment over the past few weeks has been to significantly reduce the market's perception of upside tail risk for longer term interest rates. But, they remain very concerned in the short term about the scenario of a more disorderly rotation out of high grade funds, where credit spreads widen in response to further increases in interest rates. In this case, institutional investors will 'leave' risk markets en masse (with no rotation to stocks) as unwinds occur en masse. For now, it appears a 3.5% 10Y rate is the line-in-the-sand for a 'disordely' rotation.
Facts are treasonous and dangerous in an empire of lies, fraud and propaganda. It is maddening to watch the country spiral downward, driven to ruin by a psychotic predator class, while the plebs choose to remain willfully ignorant of reality and distracted by their lust for cheap Chinese crap and addicted to the cult of techno-narcissism. We are a country running on heaping doses of cognitive dissonance and normalcy bias, an irrational belief in our national exceptionalism, an absurd trust in the same banking class that destroyed the finances of the country, and a delusionary belief that with just another trillion dollars of debt we’ll be back on the exponential growth track. The American empire has been built on a foundation of cheap easily accessible oil, cheap easily accessible credit, the most powerful military machine in human history, and the purposeful transformation of citizens into consumers through the use of relentless media propaganda and a persistent decades long dumbing down of the masses through the government education system. This national insanity is not a new phenomenon. Friedrich Nietzsche observed the same spectacle in the 19th century: “In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule.”