From S&P: "Discussions with the IMF reportedly concluded July 17, 2010, without a subsequent donor package having been agreed. We understand that the IMF will return to reactivate discussions with the authorities in September 2010. In our view, the likelihood of a new program with the EU and IMF being agreed could be contingent on some amendments by the government of some aspects of specific policy measures such as the temporary financial institutions tax. We believe that without an EU/IMF program to anchor policy, Hungary is likely to face higher and more volatile funding costs, which in our view could weigh on financial sector balance sheets, the public finances, and economic growth."
- Euro weakens versus Dollar, Yen on speculation tests to reveal loan losses.
- 3M net income climbs 43%; raises 2010 EPS view to $5.65-5.80 (prev $5.40-5.60).
- Adidas posts 2Q results 'significantly above' market expectations.
- Akzo Nobel says net profit rose 76% in 2Q thanks to sales growth.
- Amazon's Q2 earnings rose 45% to $207M on a 41% increase in sales of $6.57B.
- AmEx's Q2 profit rose to more than $1B from $337M, and Capital One's increased to $608M from $223M.
- AT&T's Q2 net income jumps 25% to $4.0B; adds 1.6 million wireless accounts.
A New Normal world is likely to
be one with frequent flips between “risk on” and “risk off” days. With
so much profit and loss riding on tail events and so little profit and
loss tied to the cluster of outcomes near ex ante means,
repositioning will likely be more frequent. This is because many
investors lack conviction in their understanding of the true
distribution, so that each passing day provides an opportunity to learn
or unlearn how likely the relevant tail events are. Positioning
for mean reversion will be a less compelling investment theme in a world
where realized returns cluster nearer the tails and away from the
mean. James Carville said twenty years ago that he
wanted to be reincarnated as the bond market because the vigilantes had
so much clout over policymakers. But in the New Normal world, he might
wish to be reincarnated as the Asian equity markets because they are
where traders in Europe and the U.S. look to see if it is a “risk on” or
“risk off” day. With so much money chasing fewer assets with known
return distributions, and with reliable investment rules of thumb
scarce, frequent flips between “risk on” and “risk off” days will likely
be a continuing symptom of the Knightian uncertainty that still, to
some extent, hangs over global financial markets.
- Richard Clarida, Pimco
RANsquawk European Morning Briefing - Stocks, Bonds, FX -- 23/07/10 (Stress Test Special)
Charlie Rangel Charged With Numerous Ethics Violations, Among Them Offshore Drilling Tax-Related KickbacksSubmitted by Tyler Durden on 07/22/2010 - 18:17
In the latest black eye to the democrats' midterm election chances, Charlie Rangle, the former chairman of the ways and means committee was charged with a plethora of ethics violations, confirming yet again that the phrase "honest politician" is just as oxymoronic as "Non-stripper-abusing Wall Street CEO." And while we will leave the politics aside, one of the charges is particularly interesting as it ties in closely with the recently popular topic of offshore drilling. Specifically, one of the allegations against Rangel is that he was guilty of: "Preservation of a tax shelter for an oil drilling company, Nabors Industries, which has a chief executive who donated money to the center while Rangel's committee considered the loophole legislation." It appears offshore drilling is not just a republican provenance. If NBR is about to be exposed for a kickback scheme with one of the (allegedly) most "ethically violated" politicians, one wonders just what a detailed investigation into any very probable comparable corruption schemes by BP, DO, HAL, APC and others would reveal and just how far the trail of Corexit-laden corruption would lead.
The market continues to chop around aggressively in the 1,055/1,100 for the S&P future.
Copper has broken out which is one of the markets we had our eye on. The next big resistance beyond 317 is 328/329 (huge overlap and 61.8% retracement). The next two mornings we walked in to strong bids in the commodities space and higher equity prices in China. The Shanghai composite has lost 33% from the highs of the summer 2009, so the market has a lot of room to bounce and that's why maybe copper which is highly correlated to economic and market activity in the region has taken the lead breaking out. Note that the Nikkei has not recovered much from the lows so far but has held the key support at 9,090. I would be tempted to play long in that market at least since I see the future moving up to 10,600 if the bounce continues. - Nic Lenoir
Will The Government's Entry Into Small Dollar Lending Mean Bernanke Is About To Start Handing Out Cash To Everyone?Submitted by Tyler Durden on 07/22/2010 - 17:26
Deep in the bowels of Donk (DOdd-fraNK Financial abomination bill, whose 2315 pages nobody has read in their entirety), in Title XII: IMPROVING ACCESS TO MAINSTREAM FINANCIAL INSTITUTIONS, section 1205 is a provision titled "Low-cost alternatives to payday loans" in which the government outlines its plans for establishing what is essentially a payday loan advance business. Does this mean the government is going into the business of direct lending and bypassing the stingy banks completely? As payday loans tend to be the most usurious of all short-term credit instruments for the lower classes, will the government's intervention into this most recent arena result in the obliteration of the existing business model for payday lenders? But far more importantly, will the government use this platform as a means to provide cash to virtually anyone in exchange for shoddy collateral and mere promises to repay the loan? And nowhere in the text is it said the loans are even collateralized with something like a deferred paycheck: these loans could very easily be on par or even worse than NINJA loans, in which the ability to breathe and walk at the same time is sufficient for eligibility, while the ability to actually repay never even figures in the loan officer's mind?
No commentary needed
RANsquawk Market Wrap Up - Stocks, Bonds, FX etc. – 22/07/10
It appears the Derek Zoolander Center For Children Who Can't Read Kindle Good And Want To Learn To Go Long AMZN Stock good too (and must be at least this big), is just not gonna get built after all. And so America's brief infatuation with yet another fad draws to a close. All AAPL fans: keep an eye on this one. Don't worry though, both Amazon and Apple will pass the ECB's stress test with flying colors.
More as we get it.
As the world focuses its attention on Europe where tomorrow at 4pm GMT (the idea of an earlier release was scrapped) the results of Stress Test version Europe will be released, there are two types of pundits: those who know the tests are weak and have been designed by the very banking system they are presumably supposed to test, yet due to billions of dollars in vested interest are preparing to put on a cheerleading show that would leave the Laker girls green with envy; then, there are those who know the tests are weak and have been designed by the very banking system they are presumably supposed to test, and as a result refuse to even look at them due to advance knowledge they are nothing but a systematic farce which should achieve nothing, yet will likely provide a sufficient excuse for those who lift every offer regardless of cost to send the market to A. Joseph Cohen giddyness levels (at least if our own experience with stress testikng is any indication). Needless to say, we fall in the latter category, and would be more than happy to deconstruct these tests, if only the criteria were publicly known in advance! So for those who actually do pretend to care, here is a Q&A with Goldman Nick Kojucharov in which the Goldman analyst discusses the ins and outs of the Stess Test. And since it has been leaked that the only bank which will fail is Germany's permabankrupt Hypo (even as the Cajas, Landesbanks and Greek aluminum shacks with a backyard vault and a repo line to the ECB, all pass), the only part of the Goldman report that caught our eye was the following: "There is obviously the risk that if too many banks pass and do so with a comfortable margin, the test may be judged as too easy to have actually been informative about the strength of the banking system, and markets may not draw any new comfort or optimism from the exercise."
The spy novels just keep on coming. The latest is out of the FT which speculates that due to numerous delays and technical setbacks in Iran's nuclear program, it could have been the target of sabotage. "A series of recent reverses, notably affecting Iran’s ability to enrich uranium, is prompting debate over whether the programme is being undermined by sabotage, sanctions, or the incompetence of the regime’s scientists." Of course, while the latter is most likely the correct answer, the fact that the FT is floating this story now is cause for concern. The reason: Iran will likely not take too kindly to even mere speculation that its control structure is weak enough to allows spies to interfere with its identity-defining and critical nuclear program.
The 10 Year is now back to almost the lowest levels since market open, even as stocks are at their highs. At the risk of sounding like a broken record, bonds are completely not buying the stock rally, and the fact that we have in fact seen a rush of money into bonds since 10am, when the 10 Year peaked at 2.940%, only to be down to 2.9174% currently is yet another indication that nothing makes sense any longer, and that stocks are not completely disjointed from a capital flow reality, in which just one marginal buyer/printer magically has the power to set any price desired.
Now that the market is back to mirroring the melt up from last summer where bad news drove the market higher, and rare good news drove it to the moon, and every day's closing price is more or less predetermined in the prior premarket session, is it ok if those handful of people who still give a ratus gluteus about market structure understand just what happened last Thursday, July 15 (incidentally the day Goldman announced its settlement, and just pre the infamous OpEx), when the ES-SPY relationship blew up, as the chart below shows. Where futures and SPY have traditionally correlated to 0.999*, on July 15 something snapped.