Futures Refuse To Remain Grounded, Unlike Global Boeing Fleet

Same overnight pattern, different day. After a late day ramp in the US market, followed by a selloff in the futures after hours, taking the ES to trading session lows, we get the European trading crew which day after day sends the EURUSD soaring as Europe opens, pushing futures to unchanged or even green and easily negating the key news event of the day, in this case the full grounding of the entire global Boeing fleet which will once again weigh on the stock and DJIA. In the meantime, the big rotation behind the scenes in FX land continues, with the ongoing and very sudden pounding of the Swiss Franc taking the EURCHF to 1.2450, or the highest, since 2011. Same with the USDJPY which after another attempt to fall, rallies on more of the same regurgitated rumors. Not to mention the EURUSD of course, which as mentioned above has surged some 100 pips since the European open. In other words the overnight beating of the USD is enough to push the US stock market high enough in nominal terms, avoiding that there is no incremental cash flow. Then again, who needs cash flow when you have "multiple expansion."

Guest Post: A Message To The 'Left' From A 'Right Wing Extremist'

Some discoveries are exciting, joyful, and exhilarating, while others can be quite painful.  Stumbling upon the fact that you do not necessarily have a competent grasp of reality, that you have in fact been duped for most of your life, is not a pleasant experience. I came to see a dark side to the Democratic Party that had always been there but which I had refused to acknowledge.  During the rise of any despotic governmental structure, there is always a section of the population that is given special treatment, and made to feel as though they are “on the winning team”.  For now, it would appear that the “Left” side of the political spectrum has been chosen by the establishment as the favored sons and daughters of the restructured centralized U.S.  However, before those of you on the Left get too comfortable in your new position as the hand of globalization, I would like to appeal to you for a moment of unbiased consideration.  I know from personal experience that there are Democrats out there who are actually far more like we constitutionalists and “right wing extremists” than they may realize.  I ask that you take the following points into account, regardless of what the system decides to label us...

The Dream Is Over As FAA Grounds Nightmareliner

The pain for Boeing never stops. Just out from Reuters:

  • U.S. FAA says requiring airlines to temporarily stop flying Boeing's 787 Dreamliner. #BREAKING
  • FAA: Battery failures on Boeing 787s could damage critical systems and structures, spark fire, if not corrected
  • FAA: Will work with Boeing, airlines to develop corrective action plan to resume 787 operations as "quickly and safely as possible"
  • FAA: Decision to ground Boeing 787s prompted by second incident involving lithium ion battery failure
  • FAA: Will also examine Boeing 787 batteries as part of comprehensive review announced last week

So, will Transportation Secretary Ray LaHood (i.e., the US government) perhaps reassess his conclusion from last week that the Dreamliner is "safe" or perhaps this too is just more teething problems... Or merely an ultra aggressive case of industrial sabotage from EADS? In other news, perhaps it is time to find a more appropriate name of the Dreamliner?

Complete The Following Sequence...

Some have argued that the market is dead. They may be right, as the following sequence of S&P 500 closes from the past 5 days: 1472, 1472, 1471, 1472, 1473 ...suggests that V-Fib has set in among the equity indices. Perhaps, as the movie Flatliners noted "Some Lines [like SPX 1470] Shouldn't Be Crossed." Meanwhile the 10Y Treasury yield has slipped from 1.90% to 1.82% over the same period.

It Will Take The Fed Seven Years To Deliver 300 Tons Of German Gold

Tthe biggest news of the day comes from the official Buba announcement that, in its official capacity as a prudent central bank, it - as first of many - is looking to repatriate some 300 tons of gold from the New York Fed. That, however, is not today's news - that was Monday's news. What is news is that courtesy of the supplied calendar of events in the Buba statement, it will take the Fed some seven years to procure Germany's 300 tons of gold. This is the same Fed that, in its own words, holds some "216 million troy ounces of gold" or some 6720 tons, in its vault 80 feet below ground level. Putting the above in perspective, the amount of gold that Germany will have to wait 7 years for is shown in red. The amount of gold the Fed supposedly holds, is shown in yellow with a shade of tungsten. Why it will take the Fed 7 years to part with an amount of gold that is less than 5% of its total holdings is anyone's guess.

The Most Ridiculous Forecast You Will See In A While

With Apple apparently building a lower-cost iPoor model and now accepting iLayaway payments, the question of margins is once again front-and-center. However, the market as a whole is in a world of its own in its consensus view of what US companies are capable of producing next year. As Morgan Stanley notes, 58% of firms are expected to raise their margins YoY through 2012, and then consensus sees a stunning (record-breaking) 76% of firms will raise margins in 2013. If that eye-watering buffoonery is not enough to raise some doubts at the market's implied ebullience, then a reminder that we have seen this divergence from GDP growth and margin growth before - as, simply put, the squeezing of costs to improve margins inevitably plays out down the chain (aggregate supply and demand lags) and increases the load on government as safety net living-standard-provider-of-last-resort. The bottom line is simple - margin expectations must fall and given the dour outlook for top-line growth in a stagnating global economy, that will expectations correction will drop straight to the bottom-line. Of course, prices will be nominally defended by a herd of talking heads expecting moar multiple expansion.

Another V-Shaped Stock Recovery - But Rates And Credit Ain't Buying It

From last Friday, the S&P 500 had decoupled somewhat (trading in a 10 point range) from credit markets (which had widened notably) while spot VIX had caught up (and over-taken) stocks. Today saw HYG (the high-yield bond ETF) trade sideways to lower all day long, catching down to its credit derivative market cousins, as VXX was the lever of choice to ramp stocks to test the week's highs once again (and scratch a few more stops). However, while AAPL made it up to the lows of the last swing down amid thin volumes, the last hour saw mid-dated volatility being bought which pushed VXX higher and reverted it towards rates and credit un-exuberance. Treasuries ended the day green once again and the USD drifted higher (though most of FX traded in extremely tight ranges). Silver rose further, Gold trod water, and oil played some catch up to the precious metals. Tech outperformed (thanks to AAPL) but financials (apart from some early vol) did nothing - despite Mario Monti's call that "the crisis is over." Another low-range, low volume, mediocre trade size, close-near-the-open day in stocks with bonds bid - and futures fade after-hours.

Crossing Through The "X Date" - What Happens After The US "Default"?

Call it "X Date", call it "D(elinquent/efault)-Day", call it what you will: it is simply the day past which the US government will no longer be able to rely on "extraordinary measure" to delay the day of reckoning, and will be unable to pay all its bills without recourse to additional debt. It is not the day when the US defaults, at least not defaults on its debt. It will begin "defaulting" on various financial obligations, such as not paying due bills on time and in full, but since this is something Europe's periphery has been doing for years, it is hardly catastrophic. It will hardly be pleasant, however, as some 40% of government obligations go unfunded, and the US is converted to a walking, talking bankruptcy as unsecured claimants rush to demand priority, as the market, long living on hope and prayer, realizes that only now is it truly without a cliff under its feet, and most importantly, as suddenly $500 billion in maturing debt between February 15 and March 1 finds itself in a very, very precarious position.

Yet Another Long-Term Mean Reversion Chart

As the S&P 500 pulls within a few percentage points of its nominal all-time highs, despite macro-uncertainty and micro-delusion, perhaps (as UBS' Peter Lee notes) a longer-term perspective is warranted. For over 80 years, the S&P 500 (or its proxy) has cyclically reverted to it its logarithmic trend-line growth. The last time the market pulled away from this bullish up-trend was in 1982 (and the previous period of cyclical reversion took 32 years from 1942 to 1974) and suggests the S&P 500 could well revert to around an 850 level within the next year or so. Perhaps Lee (the anti-thesis of JPM's Tom Lee) needs to read some Birinyi to really understand how to extrapolate? Still, an 80-plus year trend-line perhaps offers some color.

All Aboard The Gold Repatriation Train: First Germany, Next: The Netherlands?

While moustachioed managers, contrary to the far better insight of their superiors, and mainstream spivs are trying to talk down Germany's somewhat stunning shift in thinking - i.e. to repatriate its gold - as nothing but political pandering (or cost-saving); it seems, just as we predicted, the rest of the world are seeing this crack-in-the-confidence-armor the same way we have suggested. As we noted here, the first party to defect from the prisoner's dilemma of all the bulk of global gold being held by the Fed, defects best (then the second, or even the third perhaps) and sure enough, via RTL, we see the Dutch CDA party has requested that Holland's gold supply be repatriated. Who next?

Un-Recovery Continues As Beige Book Lives Up To Its Name

In its somewhat typical fashion, the Beige Book was dominated by the four 'M' words 'mixed', 'moderate', 'measured', and 'modest' as any weakness was blamed on fiscal cliff uncertainty (even though macro data and the market itself seems to have shrugged all of that silliness off rather dismissively). Employment conditions were little changed, Real Estate prices rose in 11 districts,and energy sector activity was mixed:

  • *FED: TRENDS IN WAGES, PRICES, EMPLOYMENT 'RELATIVELY UNCHANGED'
  • *FED REGIONAL BANKS REPORT 'MODEST OR MODERATE' ECONOMIC GROWTH

Unleash the anecdotal spin...

David Rosenberg On "Fascinating Markets", Or 2011 vs 2012 vs 2013

Unsure what the current blistering start for the S&P 500 means in the new year? Here is David Rosenberg putting the last two years in perspective to the last two weeks. Alas, with fat tails now solely emanating from politicians (as the Fed has guaranteed nothing wrong can ever happen again on the monetary side, until everything goes wrong of course), and politicians being inherently irrational and unpredictable, it is not exactly clear how anyone can factor for what in just one month is sure to be the biggest clash in history between two sides of a Congress that has never been more polarized.

Guest Post: The Really, Really Big Picture

There has been a very strong and concerted public-relations effort to spin the recent shale energy plays of the U.S. as complete game-changers for the world energy outlook.  These efforts do not square up well with the data and are creating a vast misperception about the current risks and future opportunities among the general populace and energy organizations alike.  The world remains quite hopelessly addicted to petroleum, and the future will be shaped by scarcity – not abundance, as some have claimed.

Seven Americans Among Hostages Captured In Algeria In Retaliation Over French Mali Incursion

Just because the endless Israel vs Iran foreplay seems to no longer be exciting the world as much as it did all throughout 2010, 2011 and 2012 when military action seemed imminent over and over, it appears the world has a new geopolitical tension point: the recent incursion into Mali by French (and soon many other) forces, to protect "European interests" against "extremists" operating in the North, and as a corollary - the retaliation by the locals against Western Democratic powers. At least such is the simplistic plot line. Sure enough moments ago Reuters reported that islamist militants attacked a gas field in Algeria on Wednesday, claiming to have kidnapped up to 41 foreigners including seven Americans in a dawn raid in retaliation for France's intervention in Mali, according to regional media reports. The raiders were also reported to have killed three people, including a Briton and a French national. Subsequent reports indicate that the Algerian captives have been let go, and that this is purely an escalation against the invaders, an act which the US state department will harshly condemn at a 1pm press conference, and likely use as a catalyst to unleash US forces in the air or on the ground, to support the French campaign which at last check was going horribly.

Watch Obama's Gun-Control Decree - Live Webcast

It would appear, given the equity market reactions, that investors are not expecting a dramatic impact to the gun-makers as Sturm, Ruger, Smith & Wesson, and even Cabela's are all rising ahead of the Biden-Obama Gun-Control Decree. Perhaps, this is front-running of what is likely to be record-breaking gun sales in the next 48 hours if past history is anything to go by. From the NRA's view of Obama as an "elitist hypocrite", Republican calls for his impeachment, and many US citizens against gun control (even though emotions are raw - 51% of men polled want to protect the right to own guns), it would appear that the populist might be struggling, especially as Politico notes that there are strong indications that any comprehensive legislation restricting weapons and/or ammunition won't even see a vote on the House floor.

World War Is Coming, Currency War That Is - Russia Warns

It will not come as a surprise to anyone who has spent more than a few cursory minutes reading ZeroHedge over the past few years (initially here, and most recently here, and here) but the rolling 'beggar thy neighbor' currency strategies of world central banks are gathering pace. To wit, Bloomberg reports that energy-bound Russia's central bank chief appears to have broken ranks warning that "the world is on the brink of a fresh 'currency war'." With Japan openly (and actively) verbally intervening to depress the JPY and now Juncker's "dangerously high" comments on the EUR yesterday, it appears 2013 will be the year when the G-20 finance ministers (who agreed to 'refrain from competitive devaluation of currencies' in 2009) tear up their promises and get active. Rhetoric is on the rise with the Bank of Korea threatening "an active response", Russia now suggesting reciprocal devaluations will occur (and hurt the global economy) as RBA Governor noted that there is "a degree of disquiet in the global policy-making community." Critically BoE Governor Mervyn King has suggested what only conspiracists have offered before: "we'll see the growth of actively managed exchange rates," and sure enough where FX rates go so stocks will nominally follow (see JPY vs TOPIX and CHF vs SMI recently).

NYSE Short Interest Plunges To March 2012 Levels

As if the already documented record $220 billion year end equity market injection courtesy of deposits (being used by bank prop arms to invest in risk assets) was not enough to send markets into nosebleed territory to start the new year, which fully explains the institutional (note: not retail) capital flood into equity funds and ETFs as has been trumpeted every day for the past week by CNBC (we will update the retail data from ICI today), here is yet another reason why the 2012 to 2013 transition has everything to do with trading technicals and nothing to do with fundamentals. As the chart below shows, the reported level of NYSE short interest tumbled as of December 31, to 12.9 billion shares, a major 5% decline - the largest incidentally since December 30, 2011 - the lowest level since March, and a trend which has likely persisted as the shorts once again have thrown in the towel (except for Herbalife of course). Of course, this collapse in bearish sentiment, which goes hand in hand with the surge in NYSE margin debt to 5 years highs, is only sustainable if and only if the Fed has now fully eradicated all risk and all volatility in perpetuity. Which for now, judging by the epic ongoing smackdown in the VIX, is succeeding. That will change.

Here Comes The Sequester, And Another 1% Cut To 2013 GDP

From Goldman Sachs: "Allowing the sequester to hit would, in our view, have greater implications for growth than a short-lived government shutdown, but would not be as severe as a failure to raise the debt limit. Although Republicans in Congress generally support replacing the defense portion of the sequester with cuts in other areas, there is much less Republican support for delaying them without offsetting the increased spending that would result." And in bottom line terms: "Sequestration would reduce the level of spending authority by $85bn in fiscal year (FY) 2013 and $109bn for subsequent fiscal years through 2021. The actual effect on spending in calendar 2013 would be smaller--around $53bn, or 0.3% of GDP--since reductions in spending authority reduce actual spending with a lag. The reduction in spending would occur fairly quickly; the change would  be concentrated in Q2 and particularly Q3 and could weigh on growth by 0.5pp to 1.0pp." In other words: payroll tax eliminates some 1.5% of 2013 GDP growth; on the other side the sequester cuts another 1%: that's a total of 2.5%. So: is the US now almost certainly looking at a recession when all the fiscal components to "growth" are eliminated? And what will the Fed do when it is already easing on "full blast" just to keep US growth barely above 0%?