• Steve H. Hanke
    02/11/2016 - 16:08
    The burgeoning literature contains a great deal of hype, which validates the 95% Rule: 95% of what is written about economics and finance is either wrong or irrelevant.

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S&P Comes Within Whisker Of All Time Highs, Fails, Despite Lowest Volume Of 2013

"Off the highs" is perhaps the phrase that the mainstream should be using. The S&P gave up allits post-EU-close gains into the US close. It seems, as we noted earlier, that AAPL capturing its 50DMA, relative strength in VIX and Bonds, and a total lack of volume just could not lift the S&P 500 to new highs. The early short squeeze provided the momentum but that faded into the last hour or so. USD weakness supported the risk rally (as very little else did) and commodities were all higher on the day with the Brent Vigilantes on the prowl once again as WTI topped $94.50 back to near 3-week highs. AAPL's best day in over 3 months (up to its 50DMA) led Tech to lead the day (and the Nasdaq was the notable outperformer). The exuberance led stocks rich relative to all risk-assets and the slide into the close merely corrected to that risk-asset-proxy. JPY carry was not helpful as JPY tried and failed to recover the 98.00 level. Silver outperformed. With the Japanese on vacation last night, JPY's rip into the close is a little worrying for the risk-on crowd but month-End here we come...


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And The Highest Paid College Majors Are...

Presented with little comment but perhaps it is time to rethink that $100,000 loan and the extended MBA program...


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What Do Bonds, VIX, 'Shorts', And Volume Know?

With 40 minutes to go, as the world's media focused intently on all-time new highs in the S&P 500 - following a 20 point rip off pre-market lows, seemingly encouraged by the worst miss in Dallas Fed ever - it seems interest in actually participating is lagging significantly. Today's volume pro-rata on the NYSE and in S&P futures is among the lowest non-holiday day in months. There has been no 'rotation' as Treasuries are modestly bid. VIX is not participating in the surge at all. And the 'shorts' have started to outperform on the day (following the squeze earlier).


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Revolving Door Goes Both Ways: Morgan Stanley Hires Former Treasury Staffer To Head Corporate Affairs

Think the revolving door for Morgan Stanley's diaspora of clutch interests goes only from the private sector outward, with the recent appointment of MS' darling Mary Jo White (who will promptly recuse herself in virtually all major cases involved her former clients at Debevoise for years to come) to head the SEC? Think again. Moments ago, Reuters reported that according to a memo sent internally today, Morgan Stanley has hired Michele Davis, "a public relations official and policy director who helped shape the Treasury Department's strategy during the financial crisis, to become global head of corporate affairs, according to a bank memo sent on Monday."


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Guest Post: Why The Fed's Buy-And-Hold (No Sales) Exit Is Not Feasible

In the past months and right after implementing Quantitative Easing Unlimited Edition, the Fed began surfacing the idea that an exit strategy is at the door. With the latest releases of weak activity data worldwide, the idea was put back in the closet. However, a few analysts have already discussed the implications of the smoothest of all exit strategies: An exit without asset sales; a buy & hold exit. We have no doubt that as soon as allowed, the idea will resurface again. Underlying all official discussions is the notion that an exit strategy is a “stock”, rather than a flow problem, that the Fed can make decisions independently of the fiscal situation of the US and that international coordination can be ignored. This is logically inconsistent as we address below...


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At $72.8 Trillion, Presenting The Bank With The Biggest Derivative Exposure In The World (Hint: Not JPMorgan)

Think JPMorgan's $69.5 trillion in total notional derivative exposure is big to quite big? You ain't seen nothing yet...


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The End Of 'Orderly And Fair Markets'

Capitalism may have bested communism a few decades ago, but exactly how our economic system allocates society’s scarce resources is now undergoing its first serious transformation since the NYSE’s founding fathers met under the buttonwood tree in 1792.  Technology, complexity and speed have already transformed how stocks trade; but As ConvergEx's Nick Colas notes, the real question now is what role these forces will play in long-term capital formation and allocation.  Rookie mistakes like the Twitter hack flash crash might be easy to deride, but make no mistake, Colas reminds us: the changes that started with high frequency and algorithmic trading are just the first step to an entirely different process of determining stock prices.  The only serious challenge this metamorphosis will likely face is a notable crash of the still-developing system and resultant regulation back to more strictly human-based processes.


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Iceland Just Says "Nei" To Pro-European Party

During the crisis Iceland was held up as one of the best examples of what was so wrong with the bubble that was created and sold to any and all. The party in power during this debacle was summarily dismissed by the people. However, a mere few years later, and given the apparent abhorrence with all things European, the Icelandic people have just ousted the incumbent pro-Europe party in favor of the Independence and Progressive parties that governed during the crisis. As the WSJ reports, the Social Democratic Alliance, which had overseen economic recovery and pushed for European Union membership, saw support tumble as the electorate's concern about personal finances overshadowed the ruling coalition's ability to stabilize the economy. Couple this with the promises of the two parties to cut taxes and the sweell of nationalist sentiment and the Social Democrats were summarily crushed. The leader of the Progressive party perhaps summed up the poeple's views best: "deeper integration with a Europe in "historic decline" isn't necessarily the best for Iceland," and that "economic crisis in Iceland and Europe has taught us the importance of being able to control your own destiny." Of course, as with any election, lots of promises are made; "they have really been promising the moon, people might get dissatisfied when they see that not everything can be realized."


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Deutsche Bank Releases Q1 Earnings Early

Moments after reporting its surprising 10% equity dilution, DB proceeds to release it Q1 earnings early. Some of the highlights:

  • Revenue €9.4 bn, Est. €9.23 bn, up €197MM Y/Y
  • Non-Interest expenses €6.6Bn, down 5% Y/Y
  • Net Income €1.661 billion, up €253MM Y/Y
  • Diluted earnings per share €1.71
  • Provision for credit losses at €354MM, up €40 MM from prior year, but down €79MM from Q4.
  • Sales and Trading(debt and other products) down €438MM, or -14% Y/Y
  • Origination and Advisory net revenues increased by EUR 38 million, or 6%, compared to the first quarter 2012

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Deutsche Bank To Sell Up To 90 Million Shares, Will Raise €2.8 Billion In New Capital

And just like that, European banks are back in capital raising mode, starting with what is perceived by some as Europe's strongest bank (alternatively, the most undercapitalized): Deutsche Bank, which at least check had a Core Tier 1 cap ratio somewhere south of 2%.

  • DEUTSCHE BANK TO SELL UP TO 90 MLN NEW SHARES TO RAISE EU2.8B
  • DEUTSCHE BANK SAYS NO PUBLIC OFFERING PLANNED 
  • DEUTSCHE BANK SHRS WILL BE PLACED VIA ACCELERATED BOOKBUILD

Since this is about 10% of the company's total float, the stock is not happy.  The question why DB announced this just ahead of its earnings release should certainly make one ask just how well capitalized Europe (where every bank purports to having a fortress Basel III balance sheet) truly is?


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Jim O'Neill's Farewell Letter

Over the years, Jim O'Neill, former Chairman of GSAM, rose to fame for pegging the BRIC acronym (no such luck for the guy who came up with the far more applicable and accurate PIIGS, or STUPIDS, monikers, but that's neither here nor there). O'Neill was correct in suggesting, about a decade ago, that the rise of the middle class in these countries and their purchasing power would prove to be a major driving force in the world economy. O'Neill was wrong in his conclusion as to what the ultimate driver of said purchasing power would be: as it has become all too clear with the entire world drowning in debt (and recently China), it was pure and simply debt. O'Neill was horribly wrong after the Great Financial Crisis when he suggested that it would be the BRIC nation that would push the world out of depression. To the contrary, not only is the world not out of depression as the fourth consecutive year of deteriorating economic data confirms (long since disconnected with the actual capital markets), but it is the wanton money (and bad debt) creation by the central banks of the developed world (as every instance of easing by China has led to an immediate surge of inflation in the domestic market) that has so far allowed the day of reckoning, and waterfall debt liquidations, to take place (and certainly don't look at the stock index performance of China, Brazil, India or Russia). Despite his errors, he has been a good chap having taken much of the abuse piled upon him here at Zero Hedge somewhat stoically, as well as a fervent ManU supporter, certainly at least somewhat of a redeeming quality. Attached please find his final, farewell letter as Chairman of the Goldman Asset Management division, as he moves on to less tentacular pastures.


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Wall Street Is A Rentier Rip-Off: Index Funds Beat 99.6% Of Managers Over Ten Years

It may seem uncharitable to note that only 0.4% - that's 4/10th of 1% - of mutual fund managers outperform a plain-vanilla S&P 500 index fund over 10 years, but that is being generous: by other measures, it's an infinitesimal 1/10th of 1%. So what do we get for investing our capital in mutual funds and hedge funds? The warm and fuzzy feeling that we've contributed the liquidity needed to grease a monumental skimming operation. Ten out of 10,000 is simply signal noise; in effect, nobody beats an index fund. The entire financial management industry is a rentier arrangement: they skim immense profits and return no productive yield at all.


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This Is What Passes For A Good Earnings Season In The "New Normal"

"With earnings reports in from more than half the companies in the Standard & Poor's 500-stock index, first-quarter revenue for the group is expected to shrink 0.3% from a year earlier, according to Thomson Reuters. That would cut short the sales improvement reported at the end of last year and mark the third quarter out of the past four in which revenues have failed to grow by 1% or more. The sales figures are a troubling sign that business and consumer demand remain weak nearly four years after the recession. They are also evidence that a soft patch is developing in the U.S. economy, as optimism earlier in the year gives way to more sobering data on growth in gross domestic product, retail sales and manufacturing. In response, many companies are cutting jobs and curbing investments in an effort to prop up profits, moves that could make it harder for demand to recover."


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Dallas Fed Implodes: Biggest Drop And Miss On Record Send Market To Intraday Highs

If this doesn't send the S&P to new all time highs nothing will. Moments ago the Dallas Fed reported its April General Business Activity report and in short it was the biggest miss to expectations on record, plummeting from 7.4 to -15.6, on expectations of a 5.0 print and the lowest since July 2012. It was also the biggest one month drop on record. Since all of this will be attributed to balmy spring weather in New Zealand, extra rainfall in the Russian Steppes, the US sequester, evil European fauxterity, Cyprus deposit confiscation, and of course, Bush, there is no point in commenting on this disaster at all. And why comment: judging by the market's response which is now at the day's highs, it is not as if anyone even pretends any data matters. The only hope now for those expecting a 20,000 on the DJIA is that the ISM due out soon, will print at 0 and everything will be permanently fixed. In other news the daily prayer to praise St. Bernanke begins at 11 am when POMO ends. Please orient yourself to face the Marriner Eccles building when bowing down.


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And The Squeeeze Goes On...

In the last five days, the 'most-shorted' names in the Russell 2000 index have surged over 7.3% from their lows. During the same period, the index itself has managed a still-impressive 2.4% gain. The epic triple-beta dash-for-trash continues to rage and tear the faces off every short who dare use reasonable valuation (macro- and micro-) perspectives to make investment decisions. When will it end?


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