Archive - Dec 22, 2010

Tyler Durden's picture

Must Read Introspective: A Look Back At 2010 Events, Key Market Themes And The Circular Nature Of Everything





Tonight's must read piece of introspection comes from the keyboard of Russ Certo over at Gleacher, who has compiled a fantastic look back at the key events that transpired and shaped 2010, and summarizes the key market themes that prevailed in the now past year. In summary: "the answer to the question of what were the main themes in the market
is ...............valuations in equities, credit spreads, sovereign
spreads, exchange rates, mortgage interest costs, bank earnings, net
interest margin, accounting schemes, tax code, debt ceiling and more are
all related.  Related to the ebb and flow of monetary and fiscal policy
aspiring to make adjustments to imbalances caused by earlier failed
fiscal and monetary policies.  How, circular indeed." In other words, not only does history not only rhyme, but chases its tail, and the more things change, the more absolutely nothing has changed. We are where we started, and in fact are in a far worse position, as increasingly fewer last resort levers to push and pull are available to the fiscal and monetary authorities. We jest when we suggest that a Martian bail out of plant Earth will soon be required, but pretty soon, in our Onion (or is that Douglas Adams?) reality, NASA may find itself with the prerogative to rapidly find semi-intelligent and very wealthy life on other located within a few parsecs. We can only hope that the restaurant at the edge of the universe is an In and Out Burger.

 

ilene's picture

Financial Interests Dictate Sovereign Policy





The economic problem is not caused by sovereign debt but by bad bank loans, deceptive financial practice and neoliberal bank deregulation...

 

Tyler Durden's picture

Guest Post: House Values Fall 30%, But Property Taxes Keep Rising





You might think that with home prices off by 30% or more since the housing/credit bubble popped in 2006, property taxes would have declined by a similar percentage. But you'd be wrong: they've gone up. As if the massive reduction in home equity wasn't enough of a blow to the Middle Class, they're also paying higher property taxes. Though house prices have declined roughly 30% nationally since the 2006 peak of the housing bubble, property taxes have continued their decade-long rise, jumping $45 billion (over 10%) since 2008. Local governments are responding to declining revenues by jacking up all taxes and fees. To counteract sharp declines in property values, municipalities are raising their property tax rates, squeezing more out of properties even as they drop in value. Though there are local variations, the result is the same: property taxes are rising.

 

George Washington's picture

The Oil BP Tried To Hide Has Been Discovered In Thick Layers On the Sea Floor Over An Area of Several Thousand Square Miles





Extend-and-pretend won't work for the economy, and it won't work for the Gulf either ...

 

Tyler Durden's picture

NYSE October Margin Debt Jumps To Highest Since Lehman Failure As Investor Net Worth Is At Lowest Since April Highs





It is not just the stock market that is at the highest levels since Lehman. Probably just as importantly, NYSE margin debt has surged to $269 billion, an increase of $13 billion from the prior month, and the highest since September 2008 when it was at $299 billion, and subsequently tumbled as investors rushed to get out of all margined positions. And this has happened even free cash credit accounts and credit balance in margin accounts remained relatively flat. In other words, net NYSE available cash decreased by $10 billion M/M to ($34) billion, the lowest since April 2010, just before the market tumbled, and net cash surged by almost $50 billion in two months. We are confident that NYSE cash in November will be at the lowest level of the year, not to mention December, as hedge funds leveraged everything they could, in some cases hitting as much as 3-4x gross leverage, in pursuit of beta, now that unleveraged alpha strategies have ceased to work. Which means that with retail stubbornly missing from the picture, the only beneficiaries of the HFT and Fed facilitated melt up are the 1000 or so hedge funds, where average net worth is in the 6 digits, that will be profitable this year. Everyone else can drown their sorrows in McDonalds fries which are about to surge in price. Of course, what this means should some unexpected credit event occur, is that the forced selling that will follow this two year high margin debt unwind will lead to a comparable results as those seen after the Lehman collapse. For the sake of America, we can only hope that the centrally planning Chairman can sustain the lie for a few more months before the house of cards on the camel's back, which in turn is suspended on a ladder as the eye of the hurricane passes over, finally topples.

 

Tyler Durden's picture

No End In Sight To Equity Outflows As Stock Boycott Persists Despite Largest Bond Outflow Since Lehman Failure





For the second week in a row, those claiming that flows will any.minute.now. shift away from bonds and go to equities are proven dead wrong. ICI has just reported that in the week ended December 15, not only was there another massive outflow, the 33rd in a row, from domestic equity mutual funds to the tune of $2.4 billion, but taxable and municipal bonds saw a stunning $8.6 billion in outflows, including another record $4.9 billion in muni outflows. At this point absent another major pull back in bond prices, we anticipate that bond inflows will once again resume, even as stock outflows persist indefinitely. Year to date investors have pulled just under $100 billion in money from US-focused equity mutual funds, offset by just $16 billion in comparable inflows into equity strategies via ETFs as we described yesterday. The reason for this seemingly endless boycott of stocks via the bulk of the population was given best by Geoff Bobroff, who told Bloomberg: "I would guess most retail investors are staying put
because you aren’t seeing the money go anywhere else." Another explanation, and just as spot on: nobody, save for a few hedge funds, gives a rats ass about manipulated stocks prices anymore.

 

RANSquawk Video's picture

RANsquawk Market Wrap Up - Stocks, Bonds, FX etc. – 22/12/10





RANsquawk Market Wrap Up - Stocks, Bonds, FX etc. – 22/12/10

 

Tyler Durden's picture

The First Casualty Of An "Improving" Economy: The Fast Food Dollar Menu, As McDonalds Considers Hiking Prices





As the fallacy that an economy is improving if the stock market is higher percolates, accompanied by the all too real surge in input costs (yes, oil really is on the verge of breaking $91 first, and then $100), the margin contraction we have been discussing for over 2 months is becoming increasingly acute: for a good recent example nowhere is it more evident than in the latest Philly Fed reading. Yet what is true for manufactured products, is far more applicable for food products, whose input costs are determined by the daily vagaries of millions of speculators. Which means that as the catch 22 of an "improvement" for some courtesy of 3 year highs in the Nasdaq is perceived by the speculators as an actual improvement for all (which would be the case if stocks were owned uniformly by every layer of society, which is certainly not the case), prices will eventually hit the tipping point where retailers will be forced to start passing on cost increases to consumers. Enter McDonalds whos executives according to AGWeb, were quoted as saying that "menu prices could rise if the economy improves." And since after listening to the endless barrage of brainwashing from the mainstream media, one can't not be left with the impression that the economy is doing anything but improving, conveniently ignoring the fact that the Fed is stimulating it coincidentally via QE2, the next step for the broad part of the US population for whom there is no improvement in anything, which would be the majority of America, is about to get its next whopper (pun intended) of a Bernanke side effect, namely inflation in the most affordable of food product categories: fast food. But since this is not caught by the core CPI, all shall be well, and the Fed will be able to proclaim, without losing any sleep, that inflation is truly contained, when the only thing that is contained is lending to those who most need it.

 

ilene's picture

Wednesday’s Worry – ETF Madness hits $1,000,000,000,000





The real problem with having $1Tn worth of US ETFs out there (and who knows how many foreign ETFs are holding US equities?) is that, as happened in 2008, should investors begin cashing out, they will create waves of indiscriminate selling – just as we currently have waves of indiscriminate buying.

 

Tyler Durden's picture

Phil Falcone Sued Over Stock Swap At Harbinger Group





About a month ago we observed some rather unpleasant disclosures in the public vehicle of Phil Falcone's publicly traded entity, Harbinger Group, f/k/a the infamous Zapata Corp of George H.W. Bush fame. Back then we observed that "Harbinger Group., Inc appears to be a shell for an investment company with $141 million of cash and short-term investments on the books, and no operations, and is currently being assimilated by Falcone in an elaborate scheme for his Spectrum Brands shares, which would bring his total holding in Zapata from 51.6% to 94%." It is this same company that has now gotten the increasingly more troubled satellite mogul-cum-hedge fund manager in court. Reuters reports that a lawsuit has been filed against Philip Falcone which charges that the investor took advantage of his position in engineering a stock swap between his hedge fund and a small publicly traded company that he also controls.

 

madhedgefundtrader's picture

Soaring With the Eagles





The tax compromise between the President and the Republican leadership has led to a wholesale rerating of the Treasury market. Massive, short term government stimulus is working far better than imagined or publicized. Needless to say, this is a hugely positive backdrop for stocks.

 

Tyler Durden's picture

The Details Of The CitiFX Contrary Call For A Watershed Bear-Market 2011





The report making the rounds today comes from CitiFX' Technical group which goes against the Wall Street conventional wisdom and instead of a 1,550 on the S&P forecasted by discredited permabull David Bianco, expects to see the market drop 16% by the end of next year. The punchline is that "the peak may be posted as early as the opening days of January 2011 (possibly even 3rd January as per the other 3 examples) with a down month in the region of 5%." And if a down 5% January is not enough, the firm believes that based on historical precedent, we will also see a 20% intrayear drop, and close the year 16% down. The catalysts: i) The bond market falling sharply as it did in 1977 sending yields higher and fueling inflation or supply fears or both, and ii) Europe imploding. While this could stress our view on the dollar fixed income and commodities, this dynamic still supports our bearish equity view. The report's conclusion may prove to be very prescient: "Happy holidays, get some rest. You may need it." On the other hand, with the Fed now practically solely responsible for risk asset pricing, we would not be surprised to see the Dow end 2011 at 36,000.... of course as gas hits $36/gallon, but that's irrelevant. Wealth effect forever!

 

Tyler Durden's picture

Is There Any SNB Out There? Eurostoxx' Head Deep In Koolaid





We have already discussed at length European sovereign spreads, the cost of keeping the PIIGS in the eurozone, the inevitable break-up down the road of the EMU, and how EURCHF is ratting out major stress in the system at a time when everybody is trying their best to look the other way. Today adding to our arsenal of charts highlighting the build of massive distortions in the system, I look at EURCHF against Eurostoxx. A friend of mine sent a chart that got me thinking about quantifying the distortion between the two. In order to compare apples to apples, I compared the 1-month % change of both EURCHF and Eurostoxx normalized using their respective volatility. Basically I divide the 1M % change in Eurostoxx by the VDAX index (equivalent of VIX for the Dax) and multiply it by 100. For EURCHF I use the annualized volatility implied by 1M options.

 

Tyler Durden's picture

Refuting The Housing Recovery Falacy Courtesy Of... The Fed?





With the Federal Reserve now openly endorsing the ponzi scheme nature of the US stock market, it would be expected that any releases out of the Fed or its regional offices would be strictly within the limits of preapproved propaganda. Which is why we were stunned when we read the following research piece released from the Dallas Fad, titled: "The Fallacy of a Pain-Free Path to a Healthy Housing Market" in which we read unpleasant facts that traditionally are relegated only to the dark and murky world of the blogosphere. Among these are the following pearls: "Prices, in fact, have begun to slide again
in recent weeks. In short, pulling demand forward has not produced a
sustainable stabilization in home prices, which cannot escape the
pressure exerted by oversupply
", "
About 3.6 million housing units,
representing 2.7 percent of the total housing stock, are vacant and
being held off the market....Presumably, many are among the 6 million distressed
properties that are listed as at least 60 days delinquent, in
foreclosure or foreclosed in banks’ inventories.
" (the bulk of which are still populated by squatters who pay no mortgage, yet who are not booted by the lender banks, and who instead can redirect the money to uses such as iPad purchases), and this stunner: "With nearly half of total bank assets backed by residential real estate, both homeowners on the cusp of negative equity and the banking system as a whole remain concerned amid the resumption of home price declines.....The latest price declines will undoubtedly cause more economic dislocation. As the crisis enters its fifth year, uncertainty is as prevalent as ever and continues to hinder a more robust economic recovery. Given that time has not proven beneficial in rendering pricing clarity, allowing the market to clear may be the path of least distress." This is a stunning admission: in essence the Fed itself is advocating for mark-to-market, and the ensuing bloodbath that would ensue with bank book, and market, capitalization. Will this proposal by authors Danielle DiMartino Booth and David Luttrell see more traction at the Fed or promptly disappear in someone's inbox? Our money is on the latter.

 
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