Are Stocks Cheap?

Each and every day, we are bombarded by a never-ending series of asset-gatherers whose sole aim in life is to convince investors to put more money to work. Whether it is because 'we are climbing a wall of worry', whether 'long-term' equity investors always do well, whether the 'cash on the sidelines' is coming out (note - remember there is a seller for every buyer and a buyer for every seller); the most frequently proposed reason for buying stocks is 'because they are cheap'. No matter where they are trading - high or low - they are cheap. Well, in an attempt to suggest otherwise - or at least provide fact rather than accepted wisdom, the following two charts from Morgan Stanley's Adam Parker provide the reality that, in fact, stocks are not cheap - and given where rates are, they are in fact expensive. Empirical fact not fiction.

Former Head Of Plunge Protection Team Lands At DE Shaw

Brian Sack, he who held the fattest finger on the Fed's green buy button until Simon Potter and his young protege Kevin Henry stepped into those prodigious shoes, has landed a role at mega quant fund D.E.Shaw. As Reuters reports, the former head of the Fed's Market Group will be the co-Director of Global Economics. The fund, with its reputation for mathematical modeling and computer-driven trading over short-term horizons will, we are sure, benefit from Sack's empirical ability to stomp on the throat of the VIX and tinker with VWAPs, though we hope he lasts longer than Larry Summers did. Of course, this almost guarantees that former-D.E.Shaw alum Jeff Bezos' share price will continue to surge as its fundamental performance plunges. The Plunge Protection Team, it appears, is in strong demand, though we hope someone explains that maybe D.E.Shaw does have a MtM policy (and not unlimited balance sheet).

Guest Post: Retirees No Better Off Than In 1999

ICI recently released their retirement plan data through Q3 of 2012 - including IRA's, defined contribution plans, private defined benefit plans, state and local government pension plans, federal pension plans, and annuities. The good news is that the liquidity induced rally over the last four years has finally, along with plan matches and contributions, recovered much of the lost value that occurred during the financial crisis in 2008.  The bad news is, as shown below, that on average each working age person has roughly only $79,651 saved up for retirement and is no better off today than they were in 1999. There are two major problems that arise from this.  The first is that for individuals trying to save for their retirement they have lost 14 years of irreplaceable time to do so. Secondly, consumption makes up roughly 70% of the overall economy - and with the average income at roughly $55,000 per year - retirees have little margin of error with only 18 months of incomes saved up in retirement plans.

Blast From Dick Bove's Long And Illustrious Past

No, this is not about Dick Bove's Buy recommendation of Lehman days ahead of the bankruptcy, or what seems like his "Buy" rating on Bank of America since the end of World War II, or 4 years after Bove's birth. No: we have a special surprise for readers out of the overhyped banking analyst, who still inexplicably appears on various TV outlets, even if the anchors have a tough time remembering just what firm he is with these days. So, without further ado, here is Bove's take on the single worst merger in the history of the financial industry: that between Bank of America and the toxic mortgage factory Countrywide Financial.

Chart Of The Day: Plunging Gasoline Demand vs The "Soaring" Recovery And Record Dow Jones

Let's try to spin this: "Gas demand is plunging on a soaring economy, a record DJIA and a more resilient consumer"... Hm, no, that didn't work. Let's give it another try: "Surge in sales of flaming paperweights known as Chevy Volts leads to a plunge in gasoline demand." Uh, no. One last try: "Consumers migrate to Flintstonemobiles, gas up what internal combustion engine cars they have with redbull vodka"... Sorry, we suck at this "spin" stuff -  we will leave it to CNBC. They are the real pros.

Guest Post: Exchange Traded Funds 'Dumping Gold' – Does It Matter?

Imagine the following: you read in a newspaper that a group of investors has sold US dollars to the tune of $820 million over the past two months for other currencies. This incidentally represents approximately 0.082% of the broad dollar money supply TMS-2 (which amounts to roughly $9.3 trillion at present). It means they would have been selling roughly $20 million per trading day. You then learn that $4 trillion of US dollars are traded in global currency markets every single trading day. Would you believe that their selling has influenced the exchange value of the dollar beyond a rounding error? And yet, we are supposed to believe that the selling of an equivalent amount of gold from the gold holdings of exchange traded funds over the past two months (they have sold 140 tons, or 0.082% of the total global gold supply) has greatly influenced the gold price.

Trade Deficit Snaps Back In January, Larger Than Expected

So much for that December plunge in the US trade deficit, which plunged from $48.6 billion to three year low of $38.5 billion supposedly on a drop in energy imports, but in reality was due to a drop in broad imports as the US economy ground to a halt ahead of the Fiscal Cliff. In January, or after the stop gap measure to allow the economy to continue, things went back to normal, with the US returning to doing what it does best: importing, especially importing expensive energy, and sure enough the deficit spiked promptly back to $44.4 billion - it recent long-term average - as exports were $2.2 billion less than December exports of $186.6 billion while January imports were $4.1 billion more than December imports of $224.8 billion. Immediate result: look for banks to trim 0.2-0.3% GDP points from their Q1 GDP forecasts.

Okun Shrugs With Productivity Plunging, Labor Costs Surging, And Claims Improving

Initial claims were expected to rise modestly to 355k from last week's noisy 344k print (which was revised up) but instead (seasonally-adjusted of course) they improved to 340k (from a revised 347k). However, non-seasonally-adjusted claims rose at their fastest rate of the year. Adding further confusing salt to the wound, as we noted here, it seems Okun's Law is broken, with productivity dropping at its fastest since Dec 2008, unit labor costs surging at their fastest since in 11 months - and all with GDP going nowhere and initial claims improving.

Mario Draghi's ECB Press Conference - Live Webcast

No change, no change. Disappointing some who hoped for more of Zee Stabilitee and less denomination risk as EUR loses 1.30, we suspect Draghi will see this as a non-inflationary positive, pat himself on the back for a job well done, urge the Italians to get it together in his independent way, and hint, promise, jawbone, talk-loudly-and-carry-a-big-stick but do nothing. Chatter is of easing collateral requirements to include used Italian voting slips and old Spanish passports but we will have to see...


The markets are where they are for one reason only, just one, the sea of money that the central banks have poured out across the globe. There is no other reason. Money flows into the corporations, money flows into the markets and the tide rises because it must but it is a House of Cards, a dangerous game that works because there is no place else to go with money and the euphoria, New Year’s Eve at the Big Casino, continues but the price will be high when it all ends and it will end because it is not this or that asset class that is in a bubble but the entire world that is a giant soap bubble that will float until the heat of the sun pops the thing in one ugly mess. I fear that subprime loans, fantasies, and the S&L crisis will pale when we are done with this party because, my friends, the bill for the festivities must get paid. Watch the hat; the rabbit will be coming out soon.

Berlusconi Sentenced To One Year In Prison For Wiretapping

It is no secret that one of the main reasons why Italy's former PM, and resurgent soon to be member of government, Silvio Berlusconi, is so adamant to be in parliament, is simply to obtain the immunity he would need to stay out of prison as a result of countless lawsuits which he has valiantly fought, and lost. As of this morning, a rather convenient time for sure just as Italy is preparing to create a coalition government, Silvio has one more lawsuit he will need to appeal, and evade in Parliament, following news that he was convicted in a 2006 wiretapping scandal, and will have to serve a one year prison sentence. Will he serve even one day? Of course not - the appeals process alone will take at least several years, and when that runs out, well, the 76 year old Silvio is a billionaire, and will have ample opportunity to spend his money to buy himself enough freedom to last him until the end of his life.

ECB Keeps Rates Unchanged

As was largely expected by the sell-side, the ECB kas kept all three key rates unchanged. From the ECB:

At today’s meeting the Governing Council of the ECB decided that the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will remain unchanged at 0.75%, 1.50% and 0.00% respectively.

The President of the ECB will comment on the considerations underlying these decisions at a press conference starting at 2.30 p.m. CET today.

It is expected that Draghi will tone down his expectations at the press conference in 45 minutes, although what actual steps he will take as opposed to just talking even more, is unclear. As for JPM, which was alone among those calling for a rate cut, it will promptly pull reality's margin and bankrupt the real world, leading to a new, better world, one in which JPM is the only entity.

Frontrunning: March 7

  • French unemployment rises again to highest since 1999 (Reuters)
  • BoJ rejects call for monetary easing (FT)
  • North Korea threatens pre-emptive nuclear strike against US (Guardian)
  • Firms Race to Raise Cash (WSJ)
  • Time Warner Will Split From Magazine Unit in Third Spinoff (BBG) - slideshows, kittens, "all you need to knows" coming to Time
  • U.S. economy, world's engine, remains in "neutral": Fed's Fisher (Reuters)
  • BOE Keeps QE on Hold as Officials Weigh More Radical Measures (BBG)
  • Jobs start to go as US sequestration cuts in (FT)
  • BofA Times an Options Trade Well  (WSJ)
  • Congress Budget Cuts Damage U.S. Economy Without Aiding Outlook (BBG)
  • Dell’s Crafted LBO Pitch Gets Messy as Investors Circle (BBG)
  • Dell says Icahn opposes go-private deal (Reuters)
  • Portugal Rating Outlook Raised to Stable by S&P on Budget Plan (BBG)
  • China’s Richer-Than-Romney Lawmakers Reveal Reform Challenge (BBG)

Futures Ignore 13 Year High In French Unemployment, Tumble In German Factor Orders; Rise On Spanish Auction

In today's overnight trading, it was all about Europe (and will be with today's BOE and ECB announcements), where things continue as they have for the past six months: when it is a problem that can be "solved" by throwing bucketloads of money, and/or guaranteeing all risk, things appear to be better, such as today's EUR5.03 billion Spanish bond auction (the 0.03 billion part being quite critical as otherwise how will the authorities indicate the pent up demand by the Spanish retirement fund and various other insolvent ECB-backstopped Spanish banks for Spanish debt). And while events that can be "fixed" with massive liquidity injections are doing better, those other events which rely on reality, and the transfer of liquidity into the real economy, are just getting worse and worse. Sure enough, today we also learned that French unemployment rate just hit a 13 year high. But it wasn't only the French economy that continued to slide into recession: Germany wasn't immune either following "surprising" news that German January Factory Orders tumbled -1.9% M/M on expectations of a 0.6% rise, down from a revised 1.1% in December. The great equalization in Europe continues, as the PIIGS, kept still on artificial life support do everything in their power to drag down the core.

Previewing Today's ECB's Decision

With Europe once more unfixed, its economy mired deep in a double, and in some cases, triple-dip recession, Italian elections leading to many months of political uncertainty (and according to a new Corriere poll, Beppe Grillo now has 28.7% of the vote, his popularity soaring +3.1% since the election, ostensibly making him the biggest party in Italy), the French finmin saying the outlook for Euro area growth outlook is "very worrying" a few hours ago, and otherwise every indication that the European "fixing" has thoroughly failed once more, following the massive miss in German Factory Orders which printed at -1.9% on expectation of a +0.6% January number, many will be looking to today's ECB meeting to see if Draghi will cut European rates further. The EUR has tumbled 700 pips in a month (with Goldman having shorted it all the way on the way up) on fears the Italian may do just that, although the sell-side consensus is less confident. Of all the banks polled, only JPM and to a lesser extent Rabobank believe Draghi will announce another 25 bps cut today. What will Europe do today, and will it proceed to take some of its interest rates negative for the first time ever, proving once and for all its economy is the worst its ever been? Find out in just over an hour.

China Threatens Currency War Retaliation, Warns Japan Against Using China As "Garbage Bin" In Race To Debase

About a year ago we warned that in a world devoid of bond vigilantes, long emasculated by the Fed's relentless attempt to bring inflation back or go bust trying, the only forces left willing to stand up to Bernanke are the Brent Vigilantes TM, who succeed in crushing every recent reflation attempt whenever Brent reaches $130 or above (and US gas at the pump rises above $3.80) yet which are rather leery and susceptible to the CME's surprise margin-hike counterattacks, and of course China, the same China which every other lemming said last summer would scramble to join the global reflation except for us, as we made it very clear that all hopes of an RRR or interest rate cut are unfounded. Because all the inflation that China (did not) need would be exported to it courtesy of Bernanke and Company's deliberate and now open-ended printing. For a long time China kept its mouth shut, however, when Japan also joined in this pathological central bank pumping, China may have just had enough. As the WSJ reports,"The president of China's giant sovereign-wealth fund warned Japan against using its neighbors as a "garbage bin" by deliberately devaluing the yen, joining growing international griping about a potential currency war."

Global Risk Appetite Signals 'Risk-Off' Process Starting

Despite the improvements in equity markets, Credit Suisse's global risk appetite indices are flashing warning signals. Their equity risk model points to weakness (most notably - Emerging Market underperformance relative to Developed Markets) and their credit risk appetite model maintains its 'sell' signal (which is what we are seeing in the broad credit markets). Finally, their bond risk model suggests a confirming signal getting long US duration.

Guest Post: Why Our Current Way of Living Has No Future

Rampant malinvestment is creating scarcity of capital, energy & justice. All the sordid and spellbinding rackets working their hoodoo on the financial scene have obscured a whole other dimension of the fiasco that America finds itself in, namely the way we have arranged the logistics of everyday life on our landscape: the tragedy of suburbia. I call it a tragedy because it represents a sequence of extremely unfortunate choices made by our society over several generations, and history will not forgive the excuses we make for ourselves, nor will it shed a tear for the tribulations we will induce for ourselves by living this way. Politically, all this mischief has manifested as a campaign to sustain the unsustainable, to keep all the rackets running at all costs, including most particularly the suburban way of life. It is unlikely that we will succeed at that - though it does account for the desperation running through the national zeitgeist these days. 

Venezuela After Chavez

The passing away of president Chávez has important implications ranging from the political spectrum to the economical spectrum. These implications will be crucial in assessments of the future of the country. Stratfor's Karen Hooper provides a succinct summary of the short-term (who will be the interim president until new elections take place? When will the elections take place, and what is the most likely result of the election), medium-to-long-term (Uncertainty about future economic management creates an additional downward bias in macroeconomic performance in a 1–2 year horizon), and Citi, despite the uncertainty-removing finality of Chavez' death, maintain an underweight as while neither political unrest nor a near-term default are likely, markets are also not pricing in much risk of either.