Archive - Nov 27, 2010

Netflix stock has really taken off since 2008 –up 800% in two years. Piper Jaffray raised target to $202 as the company is now setting sight on the streaming video business. Here is my take on this classic momentum stock.

Even as an ironic major snowstorm blankets most of Europe, the upcoming week will likely be one of the most heated in European history, as the untenable debtload of the periphery becomes increasingly irrelevant and more vigilantes start looking first on Belgium, then Italy, then all of the core (at which poin the EFSF will have run out), then finally America. Which is why to assist our readers with a one stop shop for all the relevant sovereign debt metrics out of Europe, we present the following exhaustive cheet sheat that covers all you need to know and then some on how the European collapse is likely to play out.

The shopping day that was supposed to signal the renaissance of the US consumer, and justify the massive overhiring by US retailers (not to mention the completely dislocated from reality surge in stock price for razor thin margin retailers like Amazon), is increasingly seeming to be a dud. WSJ reports, citing channel checker ShopperTrak, that "Black Friday sales rose only slightly from a year ago even though more
shoppers visited stores, retail traffic monitor ShopperTrak said
Saturday, setting the stage for another uncertain holiday season for
retailers. Sales increased 0.3% to $10.7 billion, according to ShopperTrak, which
installs monitoring devices in stores to gauge traffic. Traffic rose by
2.2%, ShopperTrak said." For the observant ones out there, this is in nominal terms: adjusted for inflation there was actually a drop in end sales. Even so, the primary reason for the disappointment is that Black Friday actually started early on in the month, with most retailers offering comparable loss-leading deals such as those seen on the Friday after the national holiday early in November, reducing the actual purchasing power for the all important day. "The smaller than expected increase is due in part to discounts offered
earlier in November as well as online-only promotions, ShopperTrak
founder Bill Martin said. Traffic to stores was up over 6% for the first
two weeks of November, an early boost that could affect retailers'
performance in the coming weeks, he said." Last but not least it should also be noted that with millions of Americans living mortgage payment free for over 18 months now, and using money that should be going to banks (and nationalized GSEs) to instead purchase shoe closet 32 inch TVs, that sooner or later the bulk of American taxpayers who funded yet another top line (but certainly not margin) bonanza for the nation's retailers may soon say enough, and vote against further subsidies of zombie companies whose existence allows for continued US consumer "strength."

When back in April we wrote about the huge expansion in the IMF's New Arrangement to Borrow (NAB) multilateral facility (which was expanded from $50 billion to over $550 billion), one of our observations was that "Funny money will galore. At this point nobody will allow anyone or anything to fail." And since all of Europe is about to be bailed out by the now insolvent ECB and the still somewhat solvent IMF, it strikes us as an opportune time to recall just who will bear the cost of this pan-European rescue. Surely, by now even idiots realize since the ECB is bailing out Europe, it is really bailing out itself, in a process described beautifully by Sean Corrigan recently, and any incremental money coming from ECB member countries will really go to themselves, and therefore its "new capital" contribution can be completely ignored. The same thing goes for European member countries of the IMF: that Ireland has pledged $2.9 billion to the IMF's NAB (not to mention Spain's $10.3 billion and Portugal's $3.4 billion) is late night comedy circuit fodder. Which is why it is not at all surprising that new capital will come from the US, Japan and China, in that order: the trio is about to spend over $250 billion (and soon much more) to rescue Club Med, as the Ponzi unwind shifts into a higher gear.

The dominoes are starting to fall ...

On Monday, Brian Sack will go for an all-out onslaught of Netflix and Amazon shorts. For the first time ever the New York Fed will hold not one but two monetization procedures. Incidentally both will focus on the part of the curve that in the past two weeks has been performing best: the sides of the belly. The two operations, expected to be about $2 and $7 billion, will focus on bonds in the 10-17 Y and 2.5-4 Y sector. In keeping with the tradition of sharing with our readers the bonds that Sack will almost certainly end up monetizing, we present the 10 cheapest bonds that will likely end up being acquired on Monday. As the Fed is now the largest single holder of Treasurys (since the announcement of the SOMA reinvestment program on August 10, the NY Fed has purchased a total of $124bn Treasuries / TIPS: of the $105bn scheduled for the current month, the Fed has purchased $48bn per MS) expect to see increasingly more detailed analyses of the Fed's SOMA composition as cartoons about how to front run the Fed become increasingly more popular.

The latest Korean escalation continues to refuse to be relegated to the annals of history. Various demonstrations on Saturday in the two countries confirmed that people on both sides of the the DMZ are demanding far more than just rhetorical placation. And now that the USS George Washington has symbolically entered the fray, the escalation has become about far more than just Korean nationalist pride, but is about Chinese and US spheres of influence. Which is precisely why most were speculating that a reversion to the mean was imminent: after all neither China, nor the US would benefit from a regional conflict. However as the AP reports, events may soon be spiralling out of control: "As protesters in Seoul demanded their government take sterner action against North Korea, the North issued new warnings against the war games scheduled to start Sunday with a U.S. nuclear-powered aircraft carrier in the Yellow Sea. The North called the games an "unpardonable provocation" and warning of retaliatory attacks creating a "sea of fire" if its own territory is violated. The comments ran on North Korea's state-run Uriminzokkiri website a day after the North's warnings that the peninsula was on the "brink of war." China, under pressure from the U.S. and South Korea to rein in its ally Pyongyang, urged both sides to show restraint while Washington played down the belligerent rhetoric, noting that the weekend war games were routine and planned well before last week's attack." That said - there is probably no reason to worry.... After all now Hillary Clinton is involved.

"What hurts me the most is why is the taxpayer paying for the IMF. Why are we bailing out the banks. These are the people who took the risk, let them take the hurt, let them feel the hurt." That is the common refrain of the tens of thousands of people who took to the streets today in Dublin, protesting against the government's rescue of various European banks (and Goldman Sachs) investment losses. More from RTE: "Gardaí said that around 10,000 people started the march, however the crowd swelled to around 50,000 people as it moved down the quays. Speakers at the march had estimated that the crowd was between 100,000 and 150,000. A small group of around 400 protestors are currently at the front gates of Leinster House. Some 60 gardaí are lining the footpath in front of the building, with crash barriers erected in front of them."

Risk sees a very black Friday as trifecta of periphery concerns, Korean tension, and cautious RBA sentiments quell preliminary US holiday retailer optimism. This weekend is shaping up to be quite the significant one as the illiquid holiday markets sold off pervasively, with a flurry of high-volume dumping after-hours in US equity and other risk products.

Don’t rush in the last year’s trade, but the Ausie still looks great for the long term.

The European stress tests have worked wonders, and so did the American stress tests ...