Archive - Dec 8, 2011

Just in case anyone thought Texas Instruments was joking the first, second, or even third time previously, here is the company to cement that the feces have really hit the fan, as it has been warning for almost a year contrary to what bleary eyed optimists wanted to believe.

In a scheduled update to its business outlook for the fourth quarter of 2011, Texas Instruments Incorporated (TI) (NYSE: TXN - News) today narrowed and lowered its expected ranges for revenue and earnings per share (EPS).  The reductions are due to broadly lower demand across a wide range of markets, customers and products, except for Wireless applications processors.

 

The company currently expects its financial results to be within the following ranges:

• Revenue:  $3.19 – 3.33 billion compared with the prior range of $3.26 – 3.54 billion
• EPS:  $0.21 – 0.25 compared with the prior range of $0.28 – 0.36.

Can one finally say: global recession?

S&P futures fell 3.25% from high (early Draghi) to low (close) on the worst close to close drop in over two weeks as the S&P 500 lost its YTD gains, down almost 2% now. Financials were the clear laggards with the majors crushed. Broad risk assets were in negative mode all day from the moment Draghi slapped traders into reality and lead ES lower and lower. Some late day rumor-denial did little - aside from try and fail to ramp ES back to VWAP - but wherever you look there is blood. Commodities crashed lower - now down 2-3% on the week - but most of the commodity and FX weakness had peaked as Europe closed, and we note that Gold is outperforming other commodities on the week now. It was equities that slowly but surely on a decent volume day in futures (given the roll) leaked lower and lower - now clinging precariously to the edge of the 11/30 4% overnight rampfest levels. Stocks underperformed credit on the day but all ended at the lows/wides as TSYs closed at their low yields of the last 10 days. It seems the implied correlation-VIX divergence signal was flagging caution correctly once again.

This is a snapshot of pure market lunacy.

• Rumor on: 3:25 pm: ESM FUND TO BE GIVEN A BANKING LICENSE ACCORDING TO A DRAFT - RTRS

Not even 20 minutes minutes later:

• Rumor off: 15:45pm: GERMANY REJECTS DRAFT MEASURES INCLUDING BANKING LICENCE FOR ESM

Update: And it gets better. Now Dow Jones:

• Euro-Area Countries Ready To Provide IMF With Bilateral Loans, According To Draft Seen By Dow Jones

Yet earlier today, none other than Mario Draghi said that loans to the IMF to purchase European bonds would be legally unworkable. Brilliant

With just 30 minutes until the close we were cutting it close to a rumorless, headlineless session. So here is Reuters to the rescue:

• ESM BAIL-OUT FUND TO BE GIVEN BANKING LICENCE - DRAFT
• EU DETERMINED TO STRENGTHEN BAILOUT MECHANICS - REUTERS

And from earlier:

• ESM BECOMING A BANK "OFF THE TABLE"

Have fun

Market pundits would have you believe that corporate profits are the driver of stock prices. They're wrong. Ultimately, it is demand for stocks that drive prices. If demand falters for whatever reason (for example, loss of faith in a rigged market), then stocks will decline in price as organic selling pressure (people liquidating positions and accounts for whatever reason, such as paying their mortgage and buying food now that the household is surviving on one shaky income) is a constant that only rises as the economy sheds stable fulltime employment. The Federal Reserve has backstopped the stock market by destroying every other source of yield via zero-interest rates (ZIRP), effectively pushing anyone seeking a yield into long-term Treasury bonds or "risk-on" assets such as stocks and junk-rated corporate bonds. But Fed manipulation cannot overcome the much larger forces of demographics and employment for long. Despite all the brave talk of the manipulators on the Board of the Federal Reserve, they've run out of manipulative tricks. With interest rates already near zero, their most basic toolbox is empty. Now they're reduced to bleating about all the phantom tools in their possession and playing around with long-term bond yields and mortgage rates-- interventions that cannot possibly create jobs or organic (i.e. real, unmanipulated) demand for stocks and housing.

Funny ...

While one of the bigger commodity funds out there, in this case Fortress Commodities Fund, has not done too hot recently (down 7.4% in October), which it humbly admits to and says, "the month of October was a wakeup call for us and we are adjusting accordingly" here are some must read perspectives that lead the Fortress Commodity group to conclude that "We're Long Gold, Short Base Metals, Patient Crude Strength Seller & Buyer Of Corn On Any Real Flush In Prices." Oh, and that it's "macroeconomic outlook remains pessimistic."

It is one thing for conspiracy websites to indicate that the Fed or the global central bank cartel are doing everything in their power to manipulate the price of gold lower. It is something different when the 'reputable', Deutsche Boerse owned Market News does just that.

• MARKET SOURCES REPORT BIS, BOE & FEDERAL RESERVE WERE SELLING GOLD AFTER IT POPPED TO SESSION HIGH AT GMT 1335 -MNI NEWS via BLOOMBERG

So much for all those sworn testimony claims that the central bankers do not manipulate the price of gold.

Due to our less than admirable Farsi skills, we present the following Iranian video showing the captured downed US drone without commentary. As they reverse engineer our planes, we reverse engineer their state media released video.

German banks post some of the highest leverage rations in Europe: higher that Italy, higher than Ireland, even higher than Greece. In fact, German banks are actually sporting leverage EQUAL to that of Lehman Brothers when it went bust

Deeply philosophical headlines, via Bloomberg, from our European allies:

*GERMAN BDB BANKING ASSOCIATION SAYS EBA `HAS LOST CREDIBILITY'

*GERMAN BDB BANK ASSOC. CRITICIZES EUROPEAN STRESS TESTS

*BDB SAYS STRESS TESTS HAVE NOT HELPED STABILIZE THE MARKET

*BDB SAYS GERMAN BANKS ARE NOT UNDERCAPITALIZED

In all the noise, Europe decided to rerun its stress test and come up with the following completely meaningless "latest and greatest" capital shortfalls:

• Greece: €30 billion
• Italy: €15.4 billion
• Germany:  €13.1 billion
• Spain: €26.2 billion
• Portugal: €7 billion
• France: €7.3 billion
• Austria: €3.9 billion
• Belgium: €6.3 billion

Etc. Why meaningless? Simple - one chart says it all...

Well, it seems like the ECB is telling the countries they need to change the treaty if they want the ECB to act more like the Fed (giving up the pretense of sterilization).  Maybe the move is designed to push the issue and make the summit come up with an even bigger plan (regardless of how unlikely it would be to get implemented). For sure, sovereign spreads are indicating disappointment as we suspect the chance of a smiling hand-holding photo op has greatly diminished.