More platitudes is what we would expect. More boiler-plate 'working hard', 'looking for compromise', 'rising above' rhetoric when deep down inside we all know the two parties are as far apart as ever. What will matter as Speaker Boehner talks - live webcast below - is how the algos inspect the flashing red headlines. Then, and only then, can us mere humans know what to think. Equities are limping back higher in anticipation after rising on macro data and falling on Van Hollen's comments.
As of late there has been a flood of commentary written about the housing recovery pointing to the bottom in housing and how the revival in housing will drive economic growth in the years ahead. It is true that the revival in the housing market is a positive thing and is certainly something that everyone wants. However, the hype surrounding the nascent recovery to date may be a bit premature. Much of the current buying in the housing market has come from speculators and investors turning housing into rentals. This, however, has a finite life and rising home prices will speed up its inevitable end as rental profitability is reduced. Furthermore, the majority of home building has come in multifamily units, versus single family homes, and that segment has been growing faster than underlying demand. It is important to understand that housing will recover - eventually. However, the reality of that recovery could be far different than what the current media and analysts predict. The point here is that while the housing market has recovered - the media should be asking "Is that all the recovery there is?"
Senator Reid’s frustration that progress had stalled as he blamed the Republicans for not bargaining fairly in trying to iron out a compromise signaled to Speaker Boehner that the Democrats will play hardball as well. However, yesterday’s Wall Street Journal article, via quotes from Erskine Bowles, claimed the White House will be flexible when proposing a raise to the top marginal tax rate. This perceived increase in the probability of a near term accord appropriately rallied stocks aggressively. We question why Mr. Obama would leak his best alternative to a negotiated agreement (BATNA) so early in the process, for classic bargaining strategy suggests keeping that information close to the vest as long as possible. Complicating matters, Mr. Obama declared a preference to strike a deal by Christmas which approximates the Friday, December 21 “zero barrier”. Ironically, if the Republicans acquiesce to yesterday’s posturing by Mr. Bowles, then the likelihood of a Moody’s and/or Fitch downgrade rises, for the ratings agencies would almost assuredly be disappointed by a lower than anticipated level of incremental revenues.
Headline GDP better than expected (but ugly underneath); claims weak (moar QE); pending home sales (beat - confirmation bias). All is well, right? Stocks surged up to their highs of the day and Pisani proclaimed a deal is close (apparently). And then, one politician uttered those terrifying words: REP. VAN HOLLEN SAYS ON MSNBC `WE'RE NOT CLOSE TO A DEAL' and stocks dive almost instantaneously on large volume (even as most clueless algos google the name and most get hits of a certain 1980s rock band)... happy trading until 1130ET when Boehner will host a press conference.
"We all know what to do, we just don't know how to get re-elected after we have done it." - Jean-Claude Juncker
We have seen some supposed 'fat-finger' trades in the last few days but Stockholm's stock exchange was brought to its knees yesterday as a record-breaking order hit the book and halted trading for four hours. A 4.3 billion contract buy order in the OMX30 futures (the Swedish equivalent of the Dow futures) caused the fiasco. This is equivalent to a SEK460 trillion notional exposure - or 131 times the Swedish GDP (around USD70 trillion). As one trader of the exchange noted, via SvD Narangsliv, "This just shows that it can get really bananas with machines" referring to the growing element of automated securities trading on that exchange. What's Swedish for FUBAR?
Ugly Q3 GDP Confirms Personal Consumption Collapsing; Headline "Growth" Driven By Government, Inventory AccumulationSubmitted by Tyler Durden on 11/29/2012 - 10:00
One glance at today's second read of Q3 GDP may leave some with the false impression that the US economy is soaring, because after sliding to 1.3% in Q2, and after a preliminary read of 2.0% in the first Q3 estimate, today's print, which missed estimates of a 2.8% print, did nonetheless rise to 2.7%. "A stunning success", the administration sycophants would say. Absolutely wrong. Because a quick glance at the underlying numbers shows the true picture of the economy which contracted far more than most expected, with personal consumption collapsing to 1.4% Q/Q, on hopes of a 1.9% rise, and down from 2.0%. In fact, at 0.99% personal consumption expenditures - the core driver of 70% of the US economy - were a tiny 36% of the headline number. Ironically today's second GDP revision was far worse when analyzed at the component level, than the first Q3 estimate, which while lower overall at 2.0%, at least had personal consumption nearly 50% higher at 1.42%, or well over half of the total contribution. So what drove "growth" in Q3? Nothing short of the most hollow and worst components of GDP: Government Spending, which soared to 0.67% of the annualized number, the first positive print in years, and of course, Inventories, which were responsible for 30% of the headline number. Finally, and most importantly, Fixed Investment, aka CapEx, was a meager 0.1%, or the lowest GDP contribution since Q1 2011. Without CapEx there is no corporate revenue growth (and future hiring intentions) period.
While any and every bad data point recently has been summarily dismissed by the 'transitory' effects of Hurricane Sandy, it appears in the deepest darkest reality that there is more of a structural trend to this shift than simply a 'blip'. Claims missed expectations and prior data was revised higher leaving the four-week-average at its highest since October 2011 jumping back over 400k. More critically, when we dig into the details on the DoL site, we find some rather disturbing trends that totally dismiss Sandy effects. For instance, according to the DoL, there were 30.6k fewer initial claims in New York Last week - when this higher aggregate data point is supposed to be due to 'Sandy'. FL, MI, and MA saw the largest increases in claims. It seems blaming this trend-break on Sandy is now a non-starter - fiscal cliff front-running perhaps? Election hangover?
Just as the ever soaring Argentina default swaps indicated that a technical default for the Latin American country - one which would eventually morph into a second full blown default in a decade - was all but inevitable (and previews extensively here), the twisting and turning multi-year story of Argentina vs its "vulture" holdout creditors got its latest dramatic installment last night. Shortly after market close, the Second Circuit court of appeals once again override last week's critical order by Judge Griesa that Argentina promptly pay everyone or face monetary exclusions, lumping together any and all agents who facilitated the ongoing isolation of the holdout hedge funds from the broader group which in Griesa's view had pari passu status throughout.
As ever, it is very difficult to pinpoint exactly why gold and all precious metals fell in price. Interestingly, oil fell by even more - NYMEX crude was down by 1% and was down by more than 1.7% at one stage. The CME Group, which operates the U.S. COMEX gold futures market, said Wednesday's plunge in gold was not the consequence of a "fat finger" or a human error. The trading wasn’t even fast enough to trigger a pause on Globex, said CME. One thing that we can say for certain was that there was massive, concentrated selling as the New York stock markets opened with some 35,000 lots sold which is equivalent to 3.5 million ounces and saw the price fall from $1,735/oz to $1,711/oz between 0825 and 0830 EST. One sell order alone was believed to be 24 tonnes or 770,000 troy ounces. Incredibly there was 35% daily volume in just 60 seconds. The selling, like all peculiar, counter intuitive, sharp sell offs in recent months, was COMEX driven with COMEX contracts slammed leading to further stop loss selling. The selling may have been by speculative players on the COMEX. It may have been algo or computer trading driven or tech selling – although this is less likely. Informed commentators questioned the nature of the selling as a large institutional COMEX trading entity would normally gradually sell a position of this size in order to maximise profit.
- As this has been priced in since September 13, it should come as no surprise to anyone: Fed Stimulus Likely in 2013 (Hilsenrath)
- Bowles Says Fiscal Cliff Deal Unlikely by End of Year (Bloomberg)
- Argentina debt repayment order frozen (FT)
- Obama Is Flexible on Highest Tax Rates (WSJ)... not really
- Geithner deployed for fiscal cliff talks (FT)
- Audit firms Deloitte and KPMG sued in HP's Autonomy acquisition (Reuters)
- Euro-Zone Budget Proposal Is Unveiled (WSJ)
- EU Nations Clash on Thresholds for Direct ECB Oversight (Bloomberg)
- LDP leader Abe: BOJ must ease until inflation hits 3 percent (Reuters)
- SNB’s Jordan Says High Swiss Franc Burdens Many Companies (Bloomberg)
- EU to launch free trade negotiations with Japan: EU officials (Reuters)
We have again reached a point where attempting to explain away an utterly irrational market, in which sentiment and momentum shifts on a dime overriding any fundamental newsflow, and summarizing overnight catalysts has become a moot point. With stocks acting and reacting like petulant, schizophrenic children with ADHD, fundamentals are totally meaningless: yesterday and the overnight trading session have become perfect examples as prepared bulletins by two politicians, which said absolutely nothing of significance or constructive - have been enough to override 72 hours worth of actual fundamental deteriorating data, and also offset each other. Will Congress resolve the Fiscal cliff in its 10 remaining days in session without a major impetus to move such as a market plunge? Of course not, but once again the question has become one of who sells first, and the momentum piles on - and if there is no downside momentum, there are no volume ramps. In the meantime all the sellside firms have gone uber bullish on 2013, setting up the Fiscal Cliff as a perfect strawman. Of course the "Cliff" will be surmounted eventually, and after some near-term pain, but the reality is that the resulting rising taxes across the world in 2013 will be a major economic headwind, just the opposite of what the sellside crew is saying as one after another strategists push out optimistic outlooks on the next year to sucker in what little remaining retail interest in the farce formerly known as the market may be left.
First Greek Bailout Snag - Local Bankers Refuse To "Voluntarily" Participate In Critical Bond BuybackSubmitted by Tyler Durden on 11/29/2012 - 06:25
Those who have been following the recent developments over the Greek distressed debt buyback, which in any normal universe would have been considered an event of default but certainly not in "special cases" such as Greece where the country's official default would start the Lehman-like domino collapse as apparently getting a 70 cent haircut in 8 months is a "voluntary" event, have been quite confused by the internal dynamics. On one hand the sole beneficiary of the transaction are those hedge funds who bought the GGB2 bonds when they tanked to lows just barely in the double digits as a % of par; on the other, there is absolutely no benefit to the Greek people as a result of this sub-par prepayment, as the only fund flow benefits hit the bondholders (and it is up to Greece to figure out how to grow its GDP by over 4% per year over the next 8 years). Then let's not forget that nobody has any clue yet where the funding for said buyback will come from. And finally, as Kathimerini just reported, we learn that one group that has just vocally declared against the buy back are the very people who are supposed to be benefiting from the Greek bailout: i.e., the country's bankers.
Goldman Wins Again As European Union Court Rules To Keep ECB Involvement In Greek Debt Fudging A SecretSubmitted by Tyler Durden on 11/29/2012 - 05:19
Three years ago, a hard fought landmark FOIA lawsuit was won by the great Bloomberg reports, the late Mark Pittman, in which the Fed was forced to disclose a plethora of previously secret bailout information, which in turn spurred the movement to "audit the Fed" and include a variety of largely watered down provisions in the Frank-Dodd bill. This victory came despite extensive objections by the Fed and the threat that the case may even escalate to the highly politicized Supreme Court, which lately has demonstrated conclusively that not only is justice not blind, but goes to the highest ideological bidder. Moments ago, Europe just learned that when it comes to secrecy of its supreme monetary leaders, in this case all originating from Goldman Sachs and defending data highly sensitive to the same Goldman Sachs, the European central bank's secrecy is not only matched by that of the Fed, but even more engrained in the "judicial" system of the Eurozone, after the European Union General Court in Luxembourg just announced that the European Central Bank will be allowed to refuse access to secret files showing how Greece used derivatives to hide its debt. Why? Simple: recall that it was Goldman Sachs who was the primary "advisor" on a decade worth of FX swaps-related deals which allowed Greece to outright lie about both its fiscal deficit and its total debt levels, and that it was a Goldman alum who became head of the same Greek debt office just before the country imploded. And certainly the ECB was involved and knew very all about the Greek behind the scenes shennanigans. And who happens to be head of the ECB? Why yet another former Goldman worker, of course. Mario Draghi.