Stocks are once again doing their own thing, detached not only from credit, but also from FX. The early ramps in stocks on little volume which is the HFT Monday morning pattern we have all grown to love and expect, saw no validation in either bond spreads or the carry trade. In fact, stocks have decoupled from the AUDJPY by as much as 8 points early on. As usual, there is nothing in the factual arena to validate this kind of move. Incidentally, there is now scientific evidence that validates the fact that HFTs distort markets. We will post on it shortly, although anyone who have been trading stocks over the past year is more than aware of this.
Stocks Expected To See 12% Increase In Revenues In Q2, 41% Increase In EPS, And A Summary Outlook From RosenbergSubmitted by Tyler Durden on 07/12/2010 - 09:53
With the imminent launch of the Q2 earnings season, below is a summary of consensus for year-over-year top and bottom line performance. In summary, the outlook is for a 12% pick up in top line YoY (ex fins), and pretty much staying flat at that level of outperformance for the next 2 quarters, and for a 41% rise in EPS compared to Q2 of 2009 per Bloomberg consensus estimates. For those looking for further granularity, David Rosenberg presents a detailed break down sector by sector, and warns of the risks to betting it all on the earnings parade, even as analysts are once again at near all time record bullishness on stocks.As a reminder, the consensus view is for a 2010 absolute EPS of 82, and for a simply ridiculous all time record 96 in 2011, higher than the 88 seen all the all time high three years ago, when the economy had the benefit of a multi-trillion shadow credit system. Who knows, maybe the Fed can take over that full responsibility as well.
Gold gained some ground Friday, opening at 1198.5 and closing at 1209.8, its highest close of the week. The trend seems to be reversing this morning however, as it is down slightly this morning. Also, Part 3 of the Gold/ Comex Arb - The EFP and Pot-Odds
- Kan election loss may impede effort to cut debt (Bloomberg)
- Chinese Dagong credit rater gives China higher credit rating (AA+, stable) than US (AA, neg outlook) (BusinessWeek)
- Staring into the abyss (Economist)
- Bank profits depend on debt-writedown abomination (Bloomberg)
- Niall Ferguson: "A US debt crisis is on its way" (TechTicker)
- If BP asset purchase rumors are true, Apache is about to incur a whole lot of extra debt (Bloomberg, WSJ)
- Housing gets sick on Keynesian rollercoaster (Bloomberg)
Don't panic - the fact that capesize operators are on the verge of losing money on charters and facing bankruptcy is irrelevant: China just announced the biggest export balance with the US on record. And that very credible number must surely mean all is good, and trade by Pacific Ocean rail is surging. In the meantime, the BDIY dropped 3.3% to 1840 from 1902, a 32nd sequential decline and a the longest drop in 9 years.
- Australian home-loan approvals climbed in May, first gain in eight months
- Bank of Korea raises country's 2010 growth forecast to 5.9%.
- Big election losses could hinder Japan ruling party attempts to revive economy.
- China shares rise led by banks and property developers.
- Euro falls below $1.26 in morning European trading; pound also lower.
- Frankfurt airport passenger numbers up 7 percent on year in June, 1.4 percent in 1st half.
- French President Sarkozy to go on national television amid scandal involving L'Oreal cosmetics.
- Taiwan Central Bank seeks to curb housing speculation as prices surge 20%
- Oil falls to near $75 in Asia.
- Yen weakens against Euro on Japan elections; Asian exporter stocks advance.
Bear Curve Flattening In Europe - Two More European Bond Auctions Come At Higher Yields, Lower Bids To CoverSubmitted by Tyler Durden on 07/12/2010 - 08:08
Two more European auctions have closed at terms that show continued deterioration in sovereign demand conditions. Earlier, Italy auctioned off €7.5 billion in one year BOT (bills) at a yield of 1.399% and a 1.659 bid to cover. This compares to the precious auction that closed at 1.377% and a 2.359 BTC. Elsewhere, the German government had to retain 15%, or €807 million, of a €5 billion 6 month bubill issue to "sell" as much as had been hoped for. The issue came at a 1.9 bid to cover, excluding the government retention, compared to 2.2 previously, and had to double the yield on the issue from 0.1923% to 0.4226%. Of the €2.153 billion in non-competitive bids were obviously accepted 100%, it is the non-competitive ones that were problematic. It was the 5.765 of competitives that were an issue: just 2 billion of the competitive bids were found to be "acceptable" to the government, meaning €2.8 billion offered rates far too high to be accepted. Is the German curve starting to bear flatten as well?
RANsquawk European Morning Briefing - Stocks, Bonds, FX etc. – 12/07/10
Tomorrow the Q2 earnings season kicks off, with Alcoa as usual leading the parade. The chart below shows all the S&P stocks that report in the coming week. The key day will be Friday when GE, BofA and Citi all report together. With earnings still expected to post healthy gains over Q2 of last year, it will become increasingly difficult for companies to report the same type of blow out bottom line outperformance that was seen earlier in the year on continuing cost cutting, which is still accompanied by merely tepid revenue growth. If anyone is so confused as to why corporations continue to hoard cash, the record high margins may be a good place to start. CEO are not stupid and know all about the reversion to the mean phenomenon, and are stockpiling cash precisely for that, and for the imminent increase in corporate taxes, whose recent collapse has been a primary reason for the cash stockpile (a topic we discussed first about 3 months ago). Tangentially, for readers who trade across asset classes, in addition to the recurring FX-risk decoupling seen between the carry pair of choice, another notable observation is the recent decoupling between stocks and IG bonds, as represented by the on the run IG CDS index.
China's first trade deficit in many years of ($7.2) billion recorded in March is now a distant memory. The Chinese General Administration of Customs has released June trade data, which confirms that no matter what China does with the yuan, and no matter the amount of posturing coming out of the US and Europe, in their attempts to 'stimulate' an export economy at least in words, the Chinese export juggernaut marches on: the June trade deficit came in at an even $20 billion, on relatively flat imports, and relentlessly growing exports. In fact, after surging by $32 billion in March, imports have remained flat each month at just under $120 billion, while exports have been increasing consistently as month after month of fiscal stimulus has been pushing the domestic export industry to the redline. Indeed, in the midst of a CNY reval, and a complete collapse in the Baltic Dry as excess supply, especially in capesize vessels is causing shipping rates to rapidly hit unsustainable levels, exports to the US and the Europe hit multi year records - the EU came in at $27.2 billion, the highest since the summer of 2008, while the US saw a record number of Chinese exports in the month at $25.5 billion, as well as the biggest trade deficit with China in history (at least according to China) at ($17.7) billion- something tells us Chuck Schumer will not be too happy with this number. Most importantly, total Chinese June exports of $137.4 were, paging Chuck Schumer again, an all time record.
Joe Cassano is a very good liar, which is why it would be so hard to prosecute him for perjury. When testifying before The Financial Crisis Inquiry Commission, the former head of AIG Financial Products kept blending in half-truths with his audaciously dishonest claims, so that the overall effect was nonsensical. For instance, to justify his outrageous claim that, "the books were generally considered fully hedged," he explained that "we were using it basically in actuarial basis ...[so] it's not hedged in the conventional sense." (Translation: The book was never hedged in any sense. Nor was there any actuarial analysis, only a reliance on triple-A credit ratings.) These rhetorical tricks were designed to throw sand in everyone's face. But his tactics seem to have worked. The staunchly unregenerate Cassano framed a media narrative that deflected away from his dishonesty and gross incompetence. Here's a reality check on some of his more ridiculous claims, in order of appearance.
As part of its Commercial Real Estate Project, PIMCO has conducted an extensive overview of opportunities in the U.S. CRE market. In this most perplexing of markets, where if one follows REIT stock prices, a V-shaped recovery is all but guaranteed, PIMCO has a notably less optimistic outlook. Based on the framework of its well-documented "new normal" paradigm, the Newport Beach asset manager is far less sanguine about investment opportunities in the market - in evaluating prospects for the most relevant CRE valuation metric, PIMCO sees a gradual return to 8% capitalization rates. "the market can expect long term cap rates near or above 8%. In this case, even if properties with floating rate debt can successfully avoid defaults in the short term, rising longer term rates will create a floor for cap rates and limit recoveries." On the other hand, extrapolating from current CMBS spreads, the prevailing market expectation is for a current and future cap rate up to 150 bps lower. Which means that as securities backed by existing assets see their cash flows dry out, as all valuable assets get extinguished, the repricing in assorted CRE fixed income securities, and their equity counterpartes in the REIT realm, will likely have a very dramatic downward repricing event in the future.
BP Rumormill Update: Sunday Times Reports Exxon And Chevron Receive Green Light From Obama To Plot TakeoverSubmitted by Tyler Durden on 07/11/2010 - 18:13
You know someone is losing (a lot of) money when the heavy artillery of the rumormill department goes into overdrive. According to the Sunday Times, the Obama administration has given its blessing to Exxon and Chevron to consider takeover bids of the troubled major unimpeded. Because obviously any deal in the current environment must first and foremost get the Obama stamp of approval or else the Steve Rattners of the world will be sic-ed on your sorry derriere, and before you know it your equity will be trading above your vendor payables in right of guarantee. It is refreshing to know that the other majors can somehow handicap the outcome of the tens if not hundreds of billions in liabilities that will tie down BP in random lawsuits for decades, and that will make WR Grace et al seem like a PG-13 dress rehearsal for Scores when Lindsay Lohan is in town.
Bank of America Admits To Repo 105-Like Fraud, Even As End Of Quarter Window Dressing Continues UnabatedSubmitted by Tyler Durden on 07/11/2010 - 11:52
In what will come as a complete lack of surprise to everyone, Bank of America has officially confirmed it "mistakenly" used Repo 105-type transactions on $10.7 billion in assets, which had been misclassified as sales rather than borrowings, or repos, in the period between 2007 and 2009. As Bloomberg reports, the bank used the excuse that a $10+ billion fraud is simply an rounding error so you must acquit: "Bank of America said the inaccuracies aren’t material and
“don’t stem from any intentional misstatement of the
Corporation’s financial statements and was not related to any
fraud or deliberate error.” We are sure that late night comedians can come with enough material in which a $10.7 billion "mistake" is not material so we will leave it to them, and instead we will ask another question as pertains to the whole end of quarter window dressing theme: namely - why does it continue to this day? As per the FRBNY's public disclosure of Primary Dealer holdings, the week ended June 30 once again saw the traditional balance sheet collapse, with total PD assets as of June 30 closing once again at the lowest level of the entire quarter. This marks the 7th consecutive quarter in which primary dealer assets finished the quarter at or near the lowest exposure during the quarter, and 9 out of the last 10. But it's all fine - according to the SEC mangled rules of corrupt statistics (soon taught at a Princeton University near you), an event that occurs 90% of the time is not at all significant or notable.
Sometimes, when chasing the bouncing ball of fraud and corruption on a daily basis, it is easy to lose sight of the forest for the millions of trees (all of which have a 150% LTV fourth-lien on them, underwritten by Goldman Sachs, which is short the shrubbery tranche). Luckily, Charles Hugh Smith, of oftwominds.com has taken the time to put it all into such simple and compelling terms, even corrupt North Carolina congressmen will not have the chance to plead stupidity after reading this.