UPDATE: MANU below IPO price at $13.90 now....sigh
You know the score by now. Equities stage late day surge to green driven by an irrepressible squeeze lower in short-term volatility but high-yield credit doesn't follow suit as volume remains absolutely amazingly incredibly non-existent. S&P 500 e-mini futures (ES) ended the week nicely higher - closing today at the highs over 1402 (at the day-session close) with VIX at 5 month lows well under 15% (down 0.5 vols on the day which is a big move for a 1.5pt ES gain). HYG (the high-yield bond ETF) ended lower again - basically 5 days in a row - which is very unusual given equity's push to new highs. Risk assets in general did leak higher as stocks pushed up but are notably less bullish (and it appeared from our chats that credit desks left early and the IG and HY indices were simply being reracked higher - as opposed to traded there). Gold outperformed on the day - and it seemed like the EOD ramp in ES was a magnetic pull to Gold - as it disconnected from Treasuries and FX quite handily. The USD ends the week up 0.29% (yes, up), the S&P 500 up 1% while Treasuries limped a little higher in yield today to end the week 5-10bps higher (and steeper) in yield and commodities up the same as stocks (around 1%) aside from oil which managed 2.2% on the week.
Reed Hastings is not a popular man with NFLX shareholders. After taking the stock just shy of $300 last summer, a series of abysmal executive decisions that followed (including buying company stock using corporate cash near the peak) has seen the video streamer plumb news depths, and recently was trading at fresh two year lows. One would think that if indeed the CEO had some extra cash lying around that he could do something, anything to prop up his company, and send some signal of confidence in the now battered one time high-flying DVD-rental company. And would also be right. Partially. Because as the attached From 4 indicates, Reed did indeed just fork over $1 million to buy new shares. Only problem is the stock he bought was not his own but that of... FaceBook. Which he bought at an average price $21. Of course, if one needed glaring evidence that FB is going far lower, this is it. Yet we certainly thank Reed for telling us and his shareholders that NFLX is still not low enough for him to even consider buying some here.
Two months ago, in the aftermath of the "surprising victory" for the Italian PM from the June 29 European summit, which the media mistakenly interpreted as successful for Monti and Rajoy, whose hijacking tactics merely led to even more European animosity and instability in a system that is beyond fragile (i.e., Europe), we proposed an entirely different explanation, namely that "Merkel's Surprising "Defeat" was Merely A Gambit For A German Referendum?" To wit: "it appears that events over the past week may have been merely a gambit for something that Schauble and Weidmann have already hinted at: a popular referendum that decides the fate of Europe once and for all, washing Merkel's hands and letting the people decide if they want the European experiment to continue or not." Turns out we were right.
With 26 million shares traded and two more exhausting market-making hours to go for MANU's underwriters, it is clear that more than double the 16.67 million share float will be 'rotated' at least twice and yet stay in a 10 cent interval (with well over 95% of that within a minute 5c interval). What is perhaps more stunning is the massive bid at exactly $14 - the IPO price - as if they will never learn. Of course there are buyers for every seller and many algos played all day but with a massively dominant bid soaking up any and all offers near $14.00, we suspect the underwriters of the MANU IPO are 'pulling-a-facebook' and onboarding whatever they have to. There has now been 9.5 million shares bid at $14.00 (and none asked) - more than half the float alone! It seems increasingly self-evident that IPOs are simply weath transfer mechanisms - no win-win - and that the value-add from 'stock exchanges' is rapidly converging to zero.
The phrase "Are You Better Off Than You Were Four Years Ago?" and "It’s the Economy, Stupid" have become standards of American election discourse in recent decades. And seemingly for good reason. Although it is rare to unseat an incumbent, poor economic performance seems to play a role. We are less than four months away from the US Presidential election. Financial and economic developments have caused surprise political outcomes around the world from time to time. UBS took a look back at the first terms of the nine presidents that preceded President Obama to determine if the performance of economic variables had any predictive power in determining the odds of re-election for a second term. The news is not good, from GDP growth to real disposable income, and from unemployment to the Misery Index, it seems the bailer-out-in-chief may just have an uphill battle.
The juggernaut continues as Egan Jones exposes a key issue we have been discussing: namely that in the absence of actual trading, banks, which can no longer rely on Net Interest Margin, will have to get smaller, leaner and more efficient, or else lose some of the competition. Such as Bear. Such as Lehman. Maybe, even, such as Knight.
Californicated: From Facebook To Stockton And San Bernardino: How CalPERS Became A Golden State WorrierSubmitted by Tyler Durden on 08/10/2012 - 13:18
The last few weeks have not been fun for California. Facebook's face-plant removed a large part of the unbelievably 'expected' tax revenues for the state, Stockton BK'd, and now we find out that San Bernadino - the latest and greatest city to file for municipal bankruptcy (after a $46 million shortfall in its budget was irreconcilable). The reason it's a big deal - unfortunately the state's retirement fund - CalPERS - is the city's largest creditor by far with a wonderful $143.3 million exposure. This is more than half the entire debt load of $281.4 million of the Top 20 creditors alone! The deadline for creditors to challenge bankruptcy eligibility is September 21st and we suspect that until then, the comptrollers should be renamed the Golden State Worriers? What is ironic is the same unions that we suppose are fighting the city over cuts and forcing it to take such drastic action are likely to be entirely beholden to their pension benefits from the very same CalPERS which is about to take a sizable haircut.
I am sickened by the vast sums I see households squandering on hopelessly marginal "investments" in expensive higher education, healthcare and housing. I too am caught in the crony-capitalist/State cartel web of waste, skimming and fraud: we have paid tens of thousands of dollars on no-frills healthcare insurance (no eyewear, no dental, no meds, $50 co-pay) in the past decade, and received perhaps 3% of this sum in care. But to not have health insurance in America is to invite financial ruin should we suffer some serious illness. The same "must-have" argument supports the conventional wisdom about education: a young person "must have" a college degree if they hope to escape a lifetime of poverty. The issue isn't education per se, it's the ever-rising cost of an education that has arguably lost value in a global job market that faces a vast surplus of educated workers and a scarcity of secure, high-paying jobs. Simply put, minting 10,000 PhD chemists (for example) does not magically create 10,000 jobs for PhD chemists. Yes, education and healthcare are necessary, but cartels have leveraged this necessity into vast skimming operations that yield marginal returns even as their costs balloon without limit. Housing is also a necessity, but it does not follow that it is a high-yield investment. Rather, it has become a sinkhole for hard-earned, scarce cash.
What's the point in commenting any more: when two discrete trades manage a nearly 1% cumulative roundtrip move in the entire market, all we can say is "good luck human" - the whale on the other side of "that" trade is far bigger than Bruno Iksil. And good luck when you need liquidity once the selling returns. The discount to the bid will be far, far more than the 5% it cost Knight to unwind its error book to Goldman.
Why Hedge Funds Hate Stocks In A World Where "Tulip Trend" Is Top Performer: Complete July Performance SummarySubmitted by Tyler Durden on 08/10/2012 - 11:35
July was not a bad month for most hedge funds. There is, however, one big problem: virtually all of them underperformed the S&P. As they did in June. As they did in May. Etc. Etc. And that has been the theme this whole year: hedge funds, which account for over $2 trillion in unlevered purchasing power, and between $4-6 trillion levered, are not doing badly, they are simply underperforming the S&P very badly, in many cases by more than 2 standard deviations. And as all those fund managers who wake up and go to bed with two words on their minds: "career risk", underperforming the benchmark, or in this case the broad stock market, which does not demand 2 and 20, is the surest way to extinction. Then again, in a centrally planned market in which a hedge fund called Tulip Trend is the best performer Year To Date (and in which Paulson's Disadvantage Minus continues to be the worst), nothing can really surprise any more.
Gold is significantly #winning today - well ahead of stocks and the USD after being closely synced with them since the lows last Friday pre-ramp. The question is why? We have an idea. Gold and stocks have been closely correlated on the back of expectations of Fed/ECN unsterilized printing - as gold has taken on the appearance of a risk asset - and rightfully so given the nature of these markets dependence on CBs. However, stocks have outperformed in their own manipulated manner as whatever magic pressure has held gold down continues (as they both rise as simple proxies for more money flooding the system). In a very similar echo of 2009, the last 6-9 months have seen the value of the S&P 500 priced in Gold dip aggressively and then surge back. At current levels we are getting 'rich' in terms of equities priced in real stores of value. And perhaps, just as in 2009, we are about to see real stores of value catch up to equity valuations and continue this outperformance...Gold rallied 23% relative to stocks in the preceding three months.
Just when you had got over the entirely inane creation of a living-will that purports to solve the taxpayer's dilemma should a large SIFI hit an iceberg; Reuters reports - this time super secret - the Fed, in 2010, asked for a plan from the US' Big 5 Banks for staving off collapse if they faced serious problems - critically emphasizing that the banks can't rely on government help. Read that again and we dare you not to laugh. It seems regulators are trying hard to ensure banks have plans for worst-case scenarios - in order to act rationally in times of distress. Recovery plans differ from living wills, also known as 'resolution plans', and are about protecting the crown jewels - the shareholders - while a resolution plan is about protecting the system, taxpayers and creditors; of course it's all ridiculous smoke and mirrors. Interestingly, Reuters has uncovered an 'Orderly Liquidation of a Failed SIFI' presentation - embedded below - sponsored by JPMorgan which is reassuringly positive of this end of the world contagion scenario.
While we have pointed out that 10Y Spanish bonds have deteriorated notably since the Euphoric moves recently, we have oft heard the stoic bulls arguing thus: but, but, but... 2Y is where the real action is and that's where the ECB will support them. Umm, sorry, even amid a dismally quiet and illiquid week which should see yields drifting lower as they roll gently down the curve, 2Y Spanish bond yields have retraced 50% of their rally from last Friday and are comfortably back above 4% once again. Perhaps, slowly but surely, the realization that for it to get better, it has to get much worse is taking hold - though obviously US equity holders have yet to get that message.