Archive - 2010
With Frau Merkel continuing to talk tough about the need for fiscal discipline, and rejecting euro bonds, it appears that there will have to be more market turmoil before the inevitable decisions are taken. GREED & fear says inevitable because it still seems likely that the end game will involve some form of German acceptance of collective fiscal responsibility and debt restructuring. This is partly because the German establishment is so committed to the euro and partly because of the practical fact that German banks have such big exposure to the debt of the European periphery countries. The past week have seen further signals that the above will be the end game.
Summary of what little activity there was in stocks, bonds, rates, FX, commodities, economic data, and monetary developments.
With Julian Assange's 15 minutes of fame threatening to cut into royalty revenues, the Wikileaks founder has, for better or worse, decided to monetize on his recent fame. The FT reports that "Julian Assange has signed book deals worth more than £1m in the US and UK, to allow the WikiLeaks founder to cover his legal fees and maintain the whistleblowing site." Specifically, "he has agreed an $800,000 (£520,000) contract with Knopf, a US imprint of Random House, the Bertelsmann-owned publisher, and another £325,000 deal for the UK with Canongate, an independent publishing house based in Edinburgh." And since the publication of these books will likely be predicated upon the continued 'backstopped' existence of the Australian, it is probably quite safe to assume that neither his "insurance" torrent, nor his presumably imminent data dump on one or more US banks will have a bite anywhere commensurate with the much advertised bark.
One look at today's trading volume speaks volumes about the state of the market. While today is not the lowest volume day in the past several years, it closely competed with Thanksgiving for the worst participation day in 2010. Furthermore, keep in mind that traditionally record low volumes are reserved for the days just before the New Year. Which means that since we have three more trading days until the end of the week, we will certainly see at least a one day in the upcoming three, when the volume will be the lowest recorded probably this century. Welcome to the new volume normal, when two computers pass three shares to each other all day long. And if there is one thing the flash crash should have taught us, is that computers take months to accumulate a position, and milliseconds to unload...Also what this non-existent volume means for broker commission sales, we leave it up to Dick Bove's abacus.
Of course we felt that last week's zero-volume move higher was fake, Fake, FAKE but, when the acting is that good, there's nothing else you can do but sit back and enjoy the ride.
Remember when double and even triple inverse leveraged ETFs were all the rage? That all occurred in the brief period of time before it became clear that Bernanke would first take down the global financial system before he let Citi get back to $1/share again. Apparently one reader recalls it all too well: "In 2008 at the bottom of the market I sold positions I owned in physical gold and banks stocks such as Bank of America (BAC), Citigroup (C) and also non financial companies such as Ford (F). I used these proceeds to purchased inverse ETF’s such as NYSE: FAZ (Direxion Financial 3x Short) and NYSE:SRS (Proshares Real Estate 2x Short). Since making these purchases, these ETF’s have suffered significant drops in value as reflected in their price. In fact NYSE: FAZ has plummeted from $1100 per share to $11 per share and SRS has reduced in price from $1000 per share to $19.50 per share. It is now apparent that the Fed spent trillions of dollars to raise the price of bank stocks and to inversely suppress the price of these inverse ETFs." Yet is this nothing but a case of fippers' remorse? Is there legal precedent for an actual claim? Was the Fed in breach of duty "by allowing investors to make investments into funds such as FAZ and SRS and other inverse ETF’s, while the Fed was performing transactions that the Fed knew or should have known would severely harm the investors in these publicly traded fund." Will Bernanke cave and make whole everyone who dared to put money into the market, even if it meant betting on a broad market decline? After all the whole purposes of the latest propaganda campaign is to get people to put money in the market with no fear of loss whatsoever: whether one is bullish or bearish (and as the lack of participation shows, most are certainly still bearish). Which is where it gets interesting: "Therefore, I appeal to your office to make due and just compensation in treble damages amounting to $__ million dollars for a full and good faith settlement of this matter. If this is agreeable, I am prepared to enter into a confidential good faith settlement." In our ridiculous bizarro world, in which nothing makes sense following each recurring Fed intervention, perhaps the Fed making whole those who lose money regardless of their bias, is just what is needed to break the 33 weeks of outflows...
For those too crippled by ADHD to read John Mauldin's weekly newsletter, whose latest piece focuses on such a once important topic as market timing (which is now completely irrelevant as the Fed gives all the daily green light to BTFD), here is the Texan on Bloomberg TV, recapping his views, all mostly quite hedged, on markets and the economy in 2011.
That sneaky JC Trichet: while the rest of the banker world was preparing to hit the Telluride slopes to spend some of that hard earned taxpayer bailout cash, and otherwise leaving the fate of capital markets to Getco and two or three HFT traders, Trichet was once again busy bidding up every sovereign bond in the secondary market he could find. While in the week ended December 20, the ECB bought just E600 million, which in turn was the lowest since October and before Europe went bankrupt for the second time in a row, last week purchases jumped by nearly 100% to E1.1 billion, bringing the total to E73.5 billion. Which is surprising as there was very little on the surface to indicate that there was so much revulsion associated with sovereign exposures at least as determined by European stock bourses, meaning that equities and bonds even in Europe where there has been at least some tenuous linkage, have completely decoupled and joined their American cousins.
It is those famous 4 words of investing that should have you running the other way and that should be relegated to the trash bin of investing along with such phrases as "stocks climb a wall of worry" and the "stock market can stay irrational longer than you can stay solvent".
No, it is not that redemption gates are coming up again, or that the firm has lost half (or all) of any given team to some other firm that actually doesn't think it is an investment bank-HFT-options-distressed debt conglomerate (ironically Citadel is one of the last investment banks that is not a bank holding company.... when everyone else is a bank holding company...that's ok - Kenny has the balance sheet... until he doesn't), or that it may actually be above its high water mark for the first time in over 2 years... Instead, Ken Griffin recounts the wise words of his first investor and Citadel founding inspiration - grandma Gratz: "While Citadel is remarkably different from what it was 20 years ago, my core vision remains the same, defined by the attributes that my grandmother exemplified - strong character, courageous action, and honor in all her business dealings. These enduring values have underpinned our success and will carry us into the decades to come." Well, when you can't boast with P&L, which is what you actually are paid for, you can at least regale them with stories of your great grandfather's mustache.
Another diffusion index miss, another snooze in stocks, another surge in inventories, another plunge in new orders, and another harbinger of margin collapse: that's how one can describe today's only relevant economic datapoint. The Dallas Fed's December Texas Manufacturing Index came at 12.8, a big miss from expectations of 17, and a drop from the November print of 13.1. And as always, the really nasty news was behind the headlines: finished goods inventories surged by 11.1 to -1.1 (and a whopping 19.5% in the six month forward index), while materials inventories rose by 3.9%. On the margin collapse side prices paid for raw materials jumped by 9%, wages and benefits increased by 4.4%, while new order volume and growth rate bit plunged by 7.5% and 6.8% respectively. We expect the futures to go green imminently on this piece of economic data which no computer gives a rat's ass about.
I thought I would do the Top 10, but I lost count...
While we prepare to present Jim Caron's latest 100+ page report of must read rates/FI data (even if one doesn't agree with it, and after the strategist's deplorable predictive performance in 2009, that is certainly conceivable), we present Morgan Stanley's most recent liquid rates tracker: enough charting goodness to satisfy even the wonkiest government bond fanatics. And with pretty much everyone defecting from stocks, ever more people will be interesting in rates technicals (and fundamentals, as insolvent as they may be) going forward.
- Wen Is Confident China Can Contain Inflation (WSJ)
- Job Offers Rising as Economy Warms Up (WSJ), too bad only temp workers actually get hired
- Euro Pain Turns to 23% Gain for Europeans Through S&P Rally (Bloomberg)
- A neutered teleprompter speaks: Obama Wants Tax Cuts for Wealthiest Americans Ended in 2012 (Bloomberg)
- Krugman waxes philosophic on runaway commodity inflation (NYT)
- China's 2011 money supply back to normal level (Xinhua)
- The Economic Year in Review - Say goodbye to 2010 (Weekly Standard)
- Bankers: Don't fret. Harvard Biz School still loves you (Fortune)