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Market Thoughts From David Rosenberg

"The consensus view was that QE3 was going to send the stock market to the moon. Yet the peak level on the S&P 500 was 1,465 on September 14th, the day after the FOMC meeting. The consensus view was that the lagging hedge funds were going to be forced to play some major catch-up and take the stock market to the moon too. Surveys show that the hedge funds have already made this adjustment...Q3 EPS estimates are still coming down and now stand at -3% YoY from -2% at the start of October....this is the first time the Fed embarked on a nonconventional easing initiative with the market overbought and with profits and earning expectations on a discernible downtrend. Not only that, but the fact the pace of U.S. economic activity is still running below a 2% annual rate, which is less than half of what is normal at this stage of the business cycle with the massive amount of government stimulus, is truly remarkable. Keep an eye on the debt ceiling being re-tested — the cap is $16.394 trillion and we are now at $16.119 trillion. This is likely to make the headlines again before year-end — the rating agencies may not be taking off much time for a Christmas break."



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US CEOs Opine On America's Debt And The Fiscal Cliff

While earlier we were presented with an extra serving of hypocrisy courtesy of the Fed's James Bullard who lamented the lack of income for America's "savers", next we get a less than random selection of US CEOs, those of UPS Scott "Logistics spending would be great if only world trade hadn't completely collapsed" Davis, Honeywell's David "Look over there, Isn't Iran bombing something" Cote, NASDAQ's Bob "I destroyed IPOs" Greifeld, and, of course, Larry "About to switch jobs with Tim Geithner" Fink, who via Bloomberg TV get to opine on such issues as the fiscal cliff and America's $16.2 trillion, and very rapidly rising debt. Some of their views: "It's Washington's fault we're not hiring and not spending." Honeywell's Cote says, "If we were playing with fire in the debt ceiling, we'll be playing with nitroglycerine now when it comes to the fiscal cliff." Larry Fink says, "We need to speak out as  CEOs…Politicians generally address things when their back's against the wall…We have the threat of going into a recession in the first quarter…This is a very uncertain moment." And thanks to the Fed, which has come at just the wrong moments, and always bailed out Congress every time a difficult decision had to be taken, the likelihood of a benign outcome on the fiscal cliff is far worse, than even Goldman's latest worst case scenario which sees just a 33% probability of resolution before the year end.



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NYSE Short Interest Drops To 5 Month Low

One place where the S&P level still does have a modest influence is the number of shorts in the market, which are strategically used by repo desks and custodians (State Street and BoNY), to force wholesale short squeezes at given inflection points, usually just when the bottom is about to drop out. The problem is that even short squeezes are increasingly becoming fewer and far between, for the simple reason that the Fed has managed to nearly anihilate shorters as a trading class with its policy of Dow 36,000 uber alles. This was demonstrated with the latest NYSE Group short interest data, which tumbled to 13.6 billion shares short as of the end of September, or the lowest since early May, just as the market was swooning to its lowest level of 2012 to date.



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Quote Of The Day: Unbelievable Hypocrisy Edition

Jim Bullard, of the St. Louid Federal Reserve, is currently answering questions following the delivery of prepared remarks. As a reminder, Bullard is a non-voting member of the FOMC this year who in 2010 was the first Fed official to call for a second round of QE. He just said the following:

  • Fed’s Bullard Says He’s Concerned About Low Returns to Savers

Now this is beyond mere sheer hypocrisy and pathetic "good Fed cop, bad Fed cop" routine (still waiting for Bill Dudley to disclose what is the deflating hedonic equivalent of food inflation in a NEW iPad world). This is similar to Stalin saying, several days after completing the purges which saw tens of millions of people quietly "disappeared", that he is concerned that the price of graveyard real estate might be in a bubble.



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Jeff Macke On Citi's Earnings: "These Numbers mean NO-THING"

Several years ago Jeff Macke had his brief run in with comedic immortality courtesy of the "Car People" Fast Money episode which promptly cost him his job, if generating countless hours of Wall Street laugh out loud humor in the process. Ever since then he has more or less fallen off the financial pundit horizon, which in retrospect is sad, because as he shows here, he still has a fascinating ability to cut through the BS. Because while earlier we explained why Citi's numbers were nothing short of garbage, with the headline spin being used just to fool algos and various other non-carbon based trading lifeforms, using run-on sentences and pretty charts, Macke does this far, far more efficiently, and with far more exuberance than even we thought possible: "There's a genius to it. These numbers mean NO-THING, because they can report whatever they want." The man's still got it, even if no car people were destroyed in the filming of this segment.



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Timberrrrr!... Will Be The Best Performing Asset In Next 7 Years Per Jeremy Grantham; Large Caps To Return 0.0%

Going forward, when traders yell "Timberrrrrr!" it just may mean the diametrical opposite of what said announcement has traditionally implied. At least according to the latest just released 7 year forecast of various asset class returns as per Jeremy Grantham's GMO. In it, the $100 billion asset manager sees Timber returning an annualized 6.5% over the next 7 years (as of September 2012), outperforming virtually every other asset class tracked by GMO, with Emerging Market stocks (supposedly Africa is envisioned here, as China's debt encumbrance is almost maxed out) second at 6.1%, and International Large stocks in third place. Those who hope to retire with their holdings of US Large Cap firms may want to reconsider, following a 0.0% return in 7 years, underperforming such simple things as cash which GMO sees as returning 0.1% (arguably this implies modest to quite modest deflation in the future). The worst of the worst? US and International bonds, with Inflation Linked bonds underperforming virtually everything with a -2.7% return.



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Guest Post: Let's Talk About Facts, Not Fear

Let’s step away from the noise for a moment and look at the big picture. This isn’t about doom and gloom, or fear, but objective facts. Undoubtedly, the Western hierarchy dominated by the United States is in a completely unsustainable situation. Across the West, national governments have obligations they simply cannot meet—both to their citizens and their creditors. Once again, this is not the first time history has seen such conditions. In our own lifetimes, we’ve seen the collapse of the Soviet Empire, the tragi-comical hyperinflation in Zimbabwe, and the unraveling of Argentina’s millennial crisis. Plus we can study what happened when empires from the past collapsed. The conditions are nearly identical. Is our civilization so different that we are immune to the consequences?
However, one of the things that we see frequently in history is that this transition occurs gradually, then very rapidly.

 



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Latest Unintended Casuality Of QEtc.: Mortgage REITs

In the four weeks since Bernanke unveiled QEtc. and its focus on the MBS market, mortgage REITs have slumped - losing more than half the year's gains amid heavy volume. The selling pressure is warranted as these vehicles tend to be owned by investors seeking high-yield dividend plays - and as such any risk to that stream means high-beta selling. With re-investment opportunities miserly - thanks to Bernanke's ZIRP and spread repression - dividend-paying ability remains questionable. The business model of these entities relies on high asset yields, low liability costs, and access to leverage and the three major hot buttons we look at below do not look like improving anytime soon in a QEtc. world.



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Gold Slides Even As Ongoing South African Gold Miner Strike Means No Production On The Horizon

Anyone wondering what the reason for today's dramatic gold price dump is, look no further than South Africa, where we learn that after nearly two months of endless strikes in the metals and mining complex, the country - the world's fifth largest producer of gold - is nowhere nearer to restoring its mining output. This of course means that less and less gold will hit the market. Which in centrally planned and regulated markets, means gold will collapse far more than the 1% so far, and likely close limit down, with Bernanke's compliment (don't worry that none of this makes logical sense: Heidelberg toner cartridge did a hostile take over of logic long, long ago).



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To Fight Hyperstagflation, Greece Will Allow Sale Of Expired Food Products

Against a deflationary environment of austerity-driven wage and pension cuts combined with rising unemployment; food, commodity, and fuel prices continue to surge in Greece. The government has taken an unusual step - allowing the sale of expired food at lower prices. As Voz Populi reports, this act means the government has 'virtually admitted their inability to control prices" as the worst aspects of stagflation crush the Hellenic Republic. The regulation (allowing from one-week to one-month extensions of foods for sale post their eat-before-this-day-or-you'll-get-Salmonella date) has existed for many years, according to a ministerial decree and this action merely states that these foods must be sold at a lower price. Meat and dairy is excluded but this move is described as "an immoral act" as few believe prices will actually be reduced - since that is at the discretion of the merchant. As the National Food Agency notes: "This is also a moral dilemma, to divide consumers into two groups: those who can afford basic food and those who, because of poverty, are forced to resort to dubious quality food." We presume this will also reduce the drag on pension and healthcare costs as death rates will rise?



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Guest Post: The Future of America Is Japan: Runaway Deficits, Runaway Debts

If you want to know how the Keynesian Cargo Cult's grand experiment in borrowing money to fund bloated fiefdoms, rapacious cartels and bridges to nowhere ends, just look west (from California) to Japan. The Japanese State, partly because they seem to believe in the Cargo Cult, and partly to avoid exposing the insolvency of their crony-capitalist financial sector, has been borrowing and spending money on a vast scale for two decades. Rather than face the fraud and corruption at the heart of American (and Japanese) finance and governance, the Keynesians just want to leave the predatory, parasitic crony-capitalist Status Quo intact and create an illusory world of bogus "demand" and grotesque malinvestment funded by ever-increasing debt. Does anyone seriously think this is the "road to recovery"? If you want a look at the fiscal future of the U.S., look west to Japan, a nation that sits precariously on a fiscal cliff a thousand feet high.



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US Homeowners Launch Class Action Suit Against LIBOR-Manipulating Banks

Nearly four years ago, we started a series of articles in which we methodically presented evidence that LIBOR was manipulated. Then, in late June, the biggest (to date) bank conspiracy was exposed, in which it was found beyond a reasonable doubt that at least one, and in many case all (including the BOE and Fed) were if not engaging, then certainly aware of numerous instances when daily USD LIBOR fixing was fudged one way or another for various non-fiduciary, read illegal purposes. When our conspiracy theory was confirmed to be conspiracy fact (as usual), we suggested the following: "Our advice to anyone who had an adjustable rate mortgage in the period between 2005 and today: speak to a lawyer immediately about suing the living feces out of Barclays, and all other banks who crawl out of the woodwork with purported settlements. Because due to their undisputed mark manipulation, it is absolutely safe to say that ARMs, which rely on Libor for interest rate formation, were grossly manipulated by the same idiot traders who left written evidence of their manipulation year after year. Now it is their turn to pay." As of last night, this too has occurred, after several homeowners, aka Adams et al (Southern New York, 12-cv-07461) launched a class action lawsuit against Bank of America and all other LIBOR banks, accusing the defendants of "unjustly enriched themselves" by manipulating the rate, which allowed them to increase the payments by homeowners on adjustable rate loans, and boosting profits.



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AAPL Goes Baumgartner At 100DMA

Presented with little comment but comparing the free-fall in AAPL's share price to this amazing chest-cam video from Felix Baumgartner's jump yesterday must be how all those hedge fund feel this morning... AAPL is trading below its 100DMA.



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United Swing States Of America

For the majority of Americans living along the country's coastlines, anything that is not within 50 miles of the the big water is pejoratively called "flyover states", its contents to be avoided at all costs, and its contributions to society and the economy to be loudly mocked and jeered at high society cocktail parties from the Hamptons to Malibu and back (but not inbetween). That is, until election time. Because when it comes to determining the fate of America's leadership every 4 years, the bankers, lawyers, venture capitalists, socialites, marketers, hedge funders, Economist PhDs, and other very important jobs, courtesy of the Electoral College, have absolutely no impact, and it all boils down to such swing states as Ohio, Florida, Iowa and Nevada. For the full cartoon presentation of what states do matter this election, see the cartoon below.



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Gold And Silver Lose Bernanke Bump

WTI crude started moving first but soon afte the US day session opened we saw EUR weakness, US strength and precious metals started to fade rapidly. Gold and Silver have now retraced the post-FOMC Bernanke-Bump, but remain above the Draghi-Day levels...



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