Archive - Oct 12, 2012

BP’s Explanation Is Incorrect

With AAPL sat just above its 100DMA, unable to hold gains this morning, the S&P 500 futures have just broken below their 50DMA for the first time since July 25th. The Bernanke-Spike has gone and now the Draghi-Dagger comes into focus... as financial earnings fail to spark another hope-driven rally. From the day before Draghi's spike, the VWAP (volume-weighted average price) for S&P 500 futures is 1444.5 - so on average in aggregate buyers are now losers.

To quote David Rosenberg: "there is no good time, but better now than waiting to be shocked into the retrenchment later on. If left unchecked, the Federal debt/GDP ratio will breach 100% within the next two or three years. Do we really need to turn European? And more importantly, even under a sustained low interest rate policy, debt service costs will continue to bite into the revenue base - so much so that they will soon begin to absorb more than 20% of total tax receipts. At a time when grim demographic realities will push dependency ratios higher and with that ever-spiralling entitlement spending, the power of compound interest on a continued mountain of debt even assuming years of low rates will ensnare fiscal finances and seriously limit our policy flexibility in the future."

"We've seen rallies that fizzle before" is why Bob "I don't see the reason to call this a major turning point" Shiller is not calling the bottom in the housing market as he notes that while momentum helps, "right now it is partly seasonal" in an excellent reality-based discussion with CNBC's Rick Santelli. From the rise and fall of Greenspan's nationwide housing market correlations (not convinced this is anything but idiosyncratic) to the fact that a 'bottom' does not mean a recovery is coming and his expectations of longer-to-wait; the esteemed gentleman, dismissing concerns over rising interest rates and house prices - and pointing out how mortgage rates do not help forecast a house price recovery, makes a vital point: "Why the urgency" to buy a house? Despite the 'money for nothing', Shiller and Santelli explain there is "no way for Bernanke to change our 'animal spirits'" and his ZIRP is in fact psychologically damaging not invigorating. Absolute must watch!

Stronger Periphery trapping European equities, with the latter dragged down by US apathy.

Risk adverseness factors (equities – Periphery - EUR) decoupling.

US equities seem utterly tired.

Somehow the last months’ rally ahead of QE has tired everyone and since delivery every step seems sooooo heavy.

While last night's VeeP debate was all feces and frolics, UBS' Art Cashin and his 'Friends of Fermentation' recently drifted onto the topic of the Presidential Election - and the conversation was not what he calls "reassuring" as they move from margins of victory to result-challenges and banana-republic like street demonstrations and riots. The heart of this discussion is the acrimonious tone that has evolved and grown in our political exchanges. All the "us and them" and class warfare posturing sets a dangerous backdrop to a close election.

The exuberant OMT-driven froth of the European equity markets appears to be fading. All major stock indices across the region ended the week red - with Spain worst down 3.3% and Italy down 2.2% (though as CNBC would say - off their lows). This looks like catching-down to European sovereign's less sanguine view of the world as Italy and Spain sovereign bond spreads end almost perfectly unchanged (having been up 15bps and 25bps respectively mid-week). Corporate and financial credit spreads outperformed equities on the week - ending unchanged also - with most of the move occurring today. Interestingly, the LTRO stigma is rising once again - as non-LTRO-encumbered bank credit spreads hit a 14-month low this week and the spread to LTRO-banks widens. Europe's VIX ended the week unchanged at 21.9% - thanks to a significant spike into today's close.

For the first time since July, Turkey scrambled two F-16 fighter jets to the Syrian border following a Syrian military helicopter bombed the border town of Azmarin. The WSJ reports that the two fighters flew along the border shortly after 2pm local time following heavy fighting between rebels and Syrian government forces. Booming explosions and the rattle of machine guns around Azmarin could be heard Friday morning from the small Turkish border town of Hacipasa. One eyewitness said the Syrian attack helicopter retreated when the Turkish jets flew along the border. Turkey's move on Friday to scramble jets close to the fighting inside Syria comes amid a sharp escalation of tensions along the shared 565-mile frontier.

Dimon: "So, we were asked to buy Bear Stearns.  Some said the Fed did us a favor...No, no, we did them a favor.  Let's get this one exactly right.  We were asked to do it."

In an attempt to break the now ubiquitous narrative that "its all about income tax rates", and to challenge the ridiculous new support for QEternity; 'The Bears' that brought you 'The Bernank' are back. In this cartoon, they explain how the bailouts made people like Warren Buffett far wealthier than they should be and exposes who actually benefits from all this QE. The Bears, The Buff-ate, and The Bernank - simply perfect.

Blowout quarter, or do US bank numbers just blow?

Back when everyone had given up on natgas in April when John Arnold was liquidating the Centaurus Master Fund and everyone thought it was an indication of the collapse in nattie end demand (it wasn't), the general peanut gallery said the time of bidless gas is coming. It didn't. Instead, as we then said expected, and as Goldman recommended, it was the time to buy natgas. We are now nearly 100% higher from those April lows. For those who listened to ZH and Goldman, the time to be greedy is over, and as David Greely from Goldman says, it is now "time to take profits." Feel free to sell to all those other banks who are once again about 6 months late to the party.

In continuing the pre-election twilight zone data series, respondents to the UMichigan consumer confidence poll apparently have not a care in the world about the upcoming fiscal cliff, or record high gas prices in California for that matter, and are more confident than they have ever been in the past 5 years. With the final number printing at 83.1, well above the highest Wall Street forecast of 81.0 from DB's Joe LaVorgna of course, and 5 std deviations above the consensus forecast (a 7 year beat of expectations) of a decline to 78.0 from last month's 78.3, all one can do at this point is pull a Biden and just keep on laughing. The internal, while completely irrelevant as we have uncovered merely the latest doctored economic data set, joining the unemployment rate and the initial claims number, current conditions rose to 88.6 from 85.7, while it was expectations that set the mood, rising to the highest since July 2007 or 79.5, up from 73.5. And while last month it was the inflation expectations, both 1 and 5 year, that soared because apparently UMich was unaware these have to decline for "inflation expectations to be anchored" this time around respondents saw 5 year inflation decline from 2.8% to 2.6%, apparently confused that the only reason why expectations are soaring is because the Chairman promised to send future inflation soaring. But who cares about logic when massaging data.