Archive - Jul 2011

Presented without comment

A snapshot of the US Afternoon Briefing covering Stocks, Bonds, FX, etc.

Market Recaps to help improve your Trading and Global knowledge

Here is the summary of the beat:

• Revenues: $28.6 billion on Exp. of $25.02 billion
• EPS: $7.79 on Exp. of $5.87
• Q3 Gross Margin of 41.7% on exp. of 39.2%
• Sold 9.25 million iPads on expectations of 7.8 million
• Sold 3.95 million Macs on expectations of 4.2 million
• Sold 20.34 million iPhones
• Sold 7.54 million iPods
• International sales account for 62% of total revenue

Here is what the street expects:

• Revenue:$25,020.4
• Operating Income: $7268.8
• EBITDA: $7869.9
• EPS GAAP: $5.87
• EPS: $5.87

The actual results are due out any minute.

Equities up, gold down. Are we up for a false break out on the upside? by www.thetrader.se

OTM Google calls purchased a couple of weeks before earnings returned roughly 10-20x the original investment. How did practically the entire Sell Side of Wall Street miss this opportunity while we screamed on the undervaluation of Google since last quarter? Well, you just can't plan or measure the domination of mobile computing 3 months at a time (and of course, front running clients make for more profitable trades)!

Those hoping for some relative distribution in this rally will have to do what they always do on up days: wait until a down day. The chart below shows cumulative divergence from average volume. Ever since yesterday's late ramp on hopes for yet another European solution through today's so called debt ceiling resolution, when we have seen 30 points surge in the ES on no actual news, the volume has been well below average for two consecutive days in a row. Yes: the move is once again based on marginal churning courtesy of HFT vacuum tubes and the occasional day trader. Everyone else has already tapped out their margin account.

With Apple due to report earnings after the close, everyone is focusing on the stock whose market cap at this rate of growth will surpass $1 trillion within a few short years. While we wish Apple all the best in that questionable pursuit, especially if it wishes to avoid a Volkswagen-Porsche type short squeeze, it is interesting to note that the WSJ has reported that "some directors" are pondering the succession of the iconic Steve Jobs, who until 2 years ago was perceived as instrumental and the vision behind what has become the "coolest" brand in technology. The surprising finding is that this may be happening behind his back. From the WSJ: "Since Steve Jobs went on medical leave this winter, some members of Apple Inc.'s board have discussed CEO succession with executive recruiters and at least one head of a high-profile technology company, according to people familiar with the matter. The conversations weren't explicitly aimed at recruiting a new chief executive and were more of an informal exploration of the company's options, said these people. The directors don't appear to have been acting on behalf of the full board, some of these people said. Apple has seven directors, including Mr. Jobs." Jobs response was not very agreeable: "It is also unclear whether Mr. Jobs was aware. "I think it's hogwash." However, while we assume that no voicemails were hacked in the procurement of hits article, we do tend to believe the WSJ, especially with Jobs' frail health in the last few months. Will it impact the stock as it did once upon a time: probably not. Or at least not until such time as the absence of Jobs does change the precarious ecosystem balance of geeky, techy and cool. Finding a replacement will not be easy.

This lack of accountability leads to increasing bad behavior.

First Spain's Castilla La Mancha region was the first to announce it had "discovered" major debt ceiling holes, now it is Portugal's turn. The Telegraph informs that "Portugal's new leader Pedro Passos Coelho has told the nation to brace for further austerity measures after his government discovered a "colossal" €2bn (£1.7bn) hole in the public accounts left by the outgoing Socialists." And while it answers our immediate question "who's next" it certainly does not provide an answer to who's last. Because as more and more governments are changed, more and more such "discoveries" will be announced, but luckily for Europe (and then America), there are far more pressing issues that distract the populace than discoveries than in the past would have led to popular backlash. Concurrently, Portugal joins Greece in indicating that beggars can most certainly be choosers: "Mr Passos Coelho also appeared to caution the European authorities that his government will not tolerate heavy-handed interference in the country. "We want to take part in an ambitious European project and make our contribution so Europe can confront its problems in the most ambitious way, but as prime minister I will not stand by and let Europe govern Portugal," he told a party gathering." And while short-termism reigns across capital markets at least for a few more hours, the reality is that there is simply not enough money out there to plug each and every hole as it is uncovered. But that will take the market a few weeks to months to realize.

Since we don't have minutely Europe headlines, instead we get US ones. And here is the first official reaction to the McConnell plan from a rating agency. Since this Plan B is far more concrete than the Gang of Whatever Plan, Moody's will have absolutely the same to say about the previously noted 5 page talking points memo.

While it is easy to ignore the latest delayed and frankly laughable melt up in stocks, which reacted to nothing but Bloomberg headlines even as the "Gangbang of Three hundred million" information was well in the public domain, and have surged on the usual and now much adored low-to-no volume move, the move in bonds is far more troubling for the simple reason that unlike stocks (recall that most fast money asset manager are now in cash and just intraday HFTs and day traders rely on the S&P, as well as the dumb money of course) bonds are far more critical. And it is there that we have a truly unprecedented buying rampage, with an emphasis on the 30 Year, which has moved from being most hated this morning to most loved in the span of a few hours: a move which courtesy of massive leverage has left many holders with a whiplash induced concussion. And since the Congress has said absolutely nothing good about this news, expect the same whiplashing that we saw out of Europe on every headline to make its way to the US bond market.

You guessed it: the second the headline scanning momos and HFTs got wind about the new debt program, despite it being out there for over an hour, the market surged. But only stocks. The broader representation of risk has barely budged. Is this divergence sustainable? Who knows (except for Brian Sack of course). Those who can recreate the RISK basket synthetically may wish to contiune the trend of profitable compression trades between reality and momo stupidity.

Is this like South Africa at the end of the Apartheid era, where those in power have to hand over some of the reins to the majority to prevent violence?

Well it's not a 3 page term sheet. It is a 5 page talking point bulletin full of ridiculous fluff with nothing substantial.