US Tries To Wrest Control Of Hostess Liquidation As Management Seeks To Pay $1.75 Million In "Incentive" Bonuses

The Hostess bankruptcy liquidation, the result of a bungled negotiation between the company, its equity sponsors, its striking workers, and the labor union, over what has been defined as unsustainable benefits and pension benefits, is rapidly becoming a Ding Ding farce. The latest news in what promises to be an epic Chapter 22 fight is that the judge, pressured by various impaired stakeholders, among which none other than the US trustee, is that the bankruptcy Judge Robert Drain has ordered the company and its unions to seek private mediation to attempt averting what the company has already said is an inevitable unwind of operations. More to the point, and as we predicted on Friday, if there is an outright purchase of the company, it will be a standalone entity, without its unions: Hostess will draw strategic buyers and private-equity investors for its brands, Rayburn said, without naming potential bidders. The company is “more attractive” to buyers without the unions, he said. In other words, if the Union had hoped that their workers would be retained by the purchasing entity, their dreams just got shattered. But while the Union may be sad, it is about to add another emotion to its arsenal: blind fury. Because it is here that things get truly surreal. As the US Trustee, a Justice Department official responsible for protecting creditors, disclosed, as part of the winddown of Hostess, wants to pay as much as $1.75 million in incentive bonuses to 19 senior managers during the liquidation.

Stocks Jump Most In 5 Months But Bonds Ain't Buying It (Again)

Best day in 5 months for stocks. AAPL jumping to one-week highs with its 2nd biggest low to high swing in 3 years. Wherever you look, the worst came first and so the talking heads re-appeared saying the worst is over and all is rainbows, unicorns, and mountains are once again molehills. Unfortunately, while ETFs were smashed higher (HYG biggest move in a year on 2nd largest volume ever back above its 200DMA, VXX crushed -9%), risk assets broadly speaking were not playing along with Treasuries especially drifting lower in yield from the European close (and EURUSD) as stocks surged to the highs of the day. Commodities soared with Oil leading the way - though post-Europe everything flattened and leaked lower. VIX collapsed 1.2vols to end just above 15% (notably ahead of stocks relatively speaking) but equity volume on the day was dismally low as S&P 500 futures broke back above the 200DMA amid larger than average trade size.

AAPL's 4 Sigma Bounce Is The Second Biggest In Two Years

Today's AAPL move, on no news, is as of this moment a $35+ move in one trading session, or a $30+ billion market cap move in one trading session, and a nearly $60 move from the Friday lows. As the histogram below shows, in absolute terms, this is the second largest intraday move up in the stock in the past two years, and a 4 sigma move for a stock which has moved 7% on a 1.7% standard deviation, for no other reason than the "stock is oversold" or whatever other narrative those who put narratives to stock moves have ascribed to it today. And with HFT's determining valuation based on momentum, RSI, Bollinger bands, and other meaningless New Normal technicals, we have just gone from massively oversold, to massively-er overbought.

Guest Post: Junk Bond Investors - 'Garbage for Brains'?

They do it every time – i.e., they buy more junk debt than ever at precisely the riskiest points in the cycle. Naturally this can go swimmingly for a good while, but as a general rule of thumb it is far better to buy such risky paper when the compensation one gets for taking the risk is actually adequate. In spite of investors' bitter experiences with such exuberance, the cycle repeats over and over again. The driving force behind it is the central bank's easy money policy - which brings the sugar highs of today, but also the hangovers and steep losses of tomorrow. The markets have seen this movie before – long ago.

The Corp-ernment Symbiosis: How Corporations Became A Bloated Government's Best Friend

Corporate profits have been boosted unusually in recent years by fiscal support to the economy, the very heart of the risk posed by 'the cliff.' Despite all the political rhetoric, jawboning and pre-election bluster, corporations may or may not be people, but what they have turned out to be is the government's best friend as without corporations firing millions, the government would be unable to enslave everyone via a habituation to the government's "transfer payment" generosity. Since government has no 'choice' but to do its rightful duty and bail out those poor citizens crushed by the "evil" corporations, it allows the US Treasury to spend, spend, spend under the guise of another false conflict. The corporations (knowingly or unknowingly) are doing the government's bidding (and receiving the quid pro quo) even as the tentacles of uber-government reach everywhere and more than half the US population would exist in a state of learned helplessness if its weren't for Uncle Sam's weekly check, modest as it may be. To summarize: crony Capitalism for richest, socialism for the poorest; and the middle class goes the way of the Twinkie Dodo.

Broke Beggars Again Are Choosers: Greece Refuses To Comply With Latest Troika Demands

It has been a while since broke Greece, which has been begging Europe for the 5 month delayed €31.5 billion tranche, which will be used to pay the ECB and other German banks, and not to enter the Greek economy, was a chooser. Today, the little country that could not, has once again stretched its feeble repo'ed muscles:

  • GREEK OFFICIAL SAYS GOVERNMENT WON'T ACCEPT NEW TROIKA REQUEST
  • GREEK OFFICIAL SAYS TROIKA WANTS 20,000 STATE EMPLOYEE SACKINGS 
  • GREEK OFFICIAL SAYS COALITION PARTIES TO SET UP C'TEE FOR GOVT

Perhaps Greece forgot to clarify "by email" but certainly by fax, telex, or even carrier pigeon, because once the Troika calls it bluff, the "lost in translation" explanations will commence. Until then, the farce continues.

Monday Humor: Sex Sells... Japanese Bonds

As many prepare for the imminent demise of the JPY (courtesy of Abe's aggression), Mike Krieger of Liberty Blitzkrieg reminds us of possibly the greatest (and most unbelievably hilarious) financial advertisement ever. From our friends across the ocean, "Men that own government bonds are popular with the ladies!" Don't believe its real? Bloomberg story here.

"The Fed, Having Used Its Bazookas, Is Now Down To Firecrackers"

Austerity is coming our way, it's just a matter in what manner and by how much, and whether it becomes an orderly or disorderly process. The fiscal cliff is really a bit of a ruse in that respect, but the key here is that years of fiscal profligacy is coming to an end and the Fed at this point, having used its bazookas, is now down to firecrackers. The economic outlook as such is completely muddled and along with that the prospect for any turnaround in corporate earnings... Once we get past the Fiscal Cliff we will confront the inherent inability of the Democrats and the GOP to embark on any grand bargain to blaze the trail for true fiscal reforms. The U.S. has not had a rewrite of its tax code since 1986, which was the year Microsoft went public and a decade prior to Al Gore's invention of the Internet. The tax system is massively inefficient and leads to a gross misallocation of resources that impedes economic progress — rewarding conspicuous consumption at the expense of savings and investment. It is the lingering uncertainty over the road to meaningful fiscal reform that is really the mot cause of the angst — the fiscal cliff is really a side show because who doesn't know that we are going to have a Khrushchev moment?

Japan Is Losing The Race-To-Debase

While some of the smartest chaps on the street suggest that being long of Gold in cowbell terms is the trade of the decade, it appears the winner off the March 2009 lows remains long of Gold in plain-old USD terms. Gold in USD terms has risen 84.5% from the 2009 equity lows and leads the race-to-debase while JPY (until very recently) was the big loser among the majors - debasing itself a mere 52%. It seems Mr. Abe had better get to work...

For Greece: "Nothing Is Gonna Be Alright"

During a week in which Americans are supposed to give thanks, we thought this inside look at the reality on the streets of Greece was worthwhile comprehending. From the May 2011 Syntagma Square uprising to "the 'firesale' of their country, their labor rights, and their livelihoods to corrupt domestic elites and foreign financial interests" the brief documentary follows the dramatic portrait of a country veering to the brink of collapse - and the people who choose to struggle to build a new world from the ruins of the old. "For [the elites] Greece is a guinea pig, to find out up to what point they can 'milk' [us]" is how one narrator describes the situation, adding that "they are refusing to see the reality [saying] it's not happening, it's not happening, it's not happening, everything is gonna be alright; Nothing is gonna be alright" as "loans enslave people." Utopia remains on the horizon...

Europe Squeezes Back To Wednesday's Reality

Quite a shocker of a day in FX and European corporate bond and stock markets as shorts are squeezed back up to last Wednesday's levels. Sovereign bonds - which one would think the beneficiary of all the exuberance are flat as a Gaza-strip apartment building: +/-2bps in the last 4 days (aside from Portugal which rallied over 30bps today). The following four charts gives a sense of the anxiety both ways in this market with the low volume this week likely to help all those hoping for a final solution. Credit markets gapped tighter and kept going (one of the biggest moves of the year with XOver -35bps) with financials outperforming (more life-lines for the over-levered?); equity markets all retraced last week's losses in large part (aside from Greece); EURUSD broke back above 1.28 and its 200DMA; and Europe's VIX has collapsed from over 22% to 19.6% at the close today.

The Three 'P's Of The Fiscal Cliff

On the basis of a joint press conference following a one-hour chat, the S&P 500 is up over 2.5%; it seems there is little doubt that the fiscal cliff is front-and-center in people's minds. And yet, positioning is far from biased towards negativity and sentiment remains positive - the 'they will fix it; they have to, right?' meme is everywhere. As Morgan Stanley notes, however, a smooth resolution requires some of the same public officials who created the cliff to cooperate to avoid it. As far as hope of a short-term solution, Obama's Burma trip aside, Speaker Boehner has already indicated that it would be inappropriate to pass comprehensive legislation in the Lame Duck session, given that more than 100 current members of the House will not be returning next year; and as for any actual substantive change: the sequence most talked about is patch (stop-gap legislation) and promise (ten-year budget reduction), followed by a plan. In that regard, politicians’ solution to the 2012 fiscal cliff will be to create another one in 2013. Thus, only a portion of the uncertainty about policy will be resolved by the patch and promise, as much could go wrong with the plan.

An Interactive Guide To The "Housing Recovery"

On the block of Hazelwood Road in Memphis, Tennessee, where Rebecca Black used to live, 17 out of 30 parcels have either been completely reclaimed by nature or have houses that sit empty. Five of the 15 parcels on her side of the street were abandoned after the recession ended, public records show. Many of the deserted properties are still legally owned by the mortgage borrowers. Nine of the properties are behind on taxes owed to the city or county governments, or both, public records show.

EURUSD Soars As Eurogroup Calls IMF Bluff

Whether it is a pure low volume technical run for the 200DMA, or fundamental bias as 'officials' comment that the release of a EUR44bn aid tranche to Greece is expected by December 5th, is unclear. One thing is certain, the Eurogroup is placing the decision squarely back in Madame Lagarde's lap as it appears to be behaving as if the IMF's threat not to disburse funds (due to Greece's unsustainable debt load) does not exist. While Lagarde is unlikely to want to be the trigger for GRExit, the non-European members may have differing perspectives or will they all just continue kicking the can down the road - proving once and for all that all the power lies with the Greeks as their supposed overlords "can't handle the truth".

US Capital Spending Plummets To Recession Levels

Back in April, we did an extensive analysis of what, in our opinion, is the primary reason for the slow burn experienced by the US, and global economy, and why virtually every liquidity pathway used by central banks is hopeless clogged: the complete lack of capital expenditures at the corporate level, and lack of (re)investment spending. Specifically we said that in both the context of Japan's plunging corporate profitability over the past 30 years despite year after year of record budget deficits, and its implications everywhere else, that "we get back to what we have dubbed the primary cause of all of modern capitalism's problems: a dilapidated, aging, increasingly less cash flow generating asset base! Because absent massive Capital Expenditure reinvestment, the existing asset base has been amortized to the point of no return, and beyond. The problem is that as David Rosenberg pointed out earlier, companies are now forced to spend the bulk of their cash on dividend payouts, courtesy of ZIRP which has collapsed interest income. Which means far less cash left for SG&A, i.e., hiring workers, as temp workers is the best that the current "recovering" economy apparently can do. It also means far, far less cash for CapEx spending. Which ultimately means a plunging profit margin due to decrepit assets no longer performing at their peak levels, and in many cases far worse." Today, with the usual six month or so delay, this fundamental topic has finally made the mainstream media with a WSJ piece titled "Investment Falls Off a Cliff: U.S. Companies Cut Spending Plans Amid Fiscal and Economic Uncertainty."

Housing Confidence Soars To Early 2006 Levels

The always prescient NAHB index reached levels not seen since May 2006 this morning completing its sixth beat out of the last seven with its biggest jump since July (a five-sigma beat of expectation no less!). Driven by a huge 8 point jump in 'present' sales and a rise in the outlook driven by a huge jump in Midwest expectations. We can only look on with incredulity that this index is given any credibility at all. Perhaps a longer-term look at the index is useful to realize that while we have risen, we are merely at the 9/11/01 trough levels - as always context is king.

Q3 Earnings In One Chart

A shockingly low 30% of S&P 500 firms beat revenue expectations in the prior quarter and while Bloomberg's data suggests around 65% beat earnings expectations, the in-period adjustment of expectations (analysts ratcheting down earnings as the season progresses) naturally biases this to look rosier. The critical question is - how much more fat is there to cut? With Sales (and outlooks) so weak, how many more jobs need to be cut to meet margin expectations? 2013 top- and bottom-line (+13.6% EPS growth) expectations remain magnificent in their optimism - do you believe in miracles?

Commodities Gone Wild

It all makes perfect sense. S&P 500 futures are 33 points off Friday's lows (Boehner's 'constructive chatter' and Fiscal Cliff is fixed), EURUSD is rallying decently (Greece is fixed), and commodities in general have gone vertical. Gold is back above $1730 but its Silver and Oil (tensions rising - despite cease-fire?) that is running the high-beta pump this morning. WTI is almost 4% higher than Friday's lows up near $89. The highly correlated nature of everything is perhaps merely sympomatic of a low volume week ahead and short-term oversold conditions - we suspect little is really resolved in any of these three 'event risks' and the same real-money anxious investors will use strength to reduce exposure further - since remember, if the S&P 500 is anywhere near its highs by year-end, there will be no fiscal cliff resolution.