Archive - Oct 16, 2012

Well, who knew it was gonna actually get close to fisty-cuffs? According to CNN Polls, 65% believe Obama won (with 50% saying by a lot) and 19% that Romney won by a lot. Obama dominated speaking time 44:05 to a mere 40:50 for Romney (almost the same margin as in the last debate); but Romney (somewhat ironically) crushed Obama in the drinking game 44:23. Obama Intrade Odds wavered during the debate ending marginally higher but S&P 500 futures are tracking lower. Twitter interest fell 30% from the first debate. Full Bloomberg Headlines and Top Ten Debate Lines below. Obama uttered a brisk 7651 words for a 173 word/min pace (172 last debate) while Romney's 8006 words  were spoken at a 196 word/min pace (slower than his 217 pace of the last debate) but still the winner. So, time: Obama, drinking-game: Romney, word-count: Romney - the winner of tonight's debate is Mitt Romney.

For those who missed it earlier, Intel reported results that were just slightly better than expected, and yet the stock tumbled over 3% after hours. The reason is because despite a weak quarter which had been pre-guided down by the sellside community every so effectively, the semiconductor manufacturer saw even more weakness in Q4. Those who wish to read the details can do so here. For everyone else who is more of a visual learning bent, we present the following chart which shows the year-over-year change in Intel revenue, which shows that for the first time in 12 quarters, INTC reported a decline in annual revenue. Furthermore, there is virtually no question that Q4 will also see a revenue decline: the only question is whether it will be greater than Q3's 5.5% Y/Y drop.

This is the real thing. Forget the Thrilla-in-Manilla or the Rumble-in-the-Jungle, tonight's no-holds-barred, no-truth-spoken 'Tumble-in-the-Town-Hall' debate promises much (but will likely deliver little). Fighting out of the blue corner is a toned middleweight - the comeback-kid Barack 'the basher' Obama. His opponent, fresh from victory in their previous epic battle, fighting from the red corner, the deceivingly slippery Mitt 'the mauler' Romney. Intrade has the 'basher' at 60.5% odds of winning it all on November 6th - at its lows of the day after suffering some heavy action in the early afternoon - while RealClearPolitics has the pair evenly matched. Live webcast below:

The battle lines are set; the VeePs have stepped in (we laughed and we grimaced); and now its time for main-event. In preparation for this evening's Town-Hall style debate, we present the critical-to-enjoyment drinking game rules and live webcast scorecard (which stands at Team Obama 1 - 1 Team Romney) but perhaps more importantly, we offer the most epic rap-battle version of the debate with an eagle-riding Abraham Lincoln delivering these infamous words to the two challengers: "By the power vested in me by the power of this bald bird, the president shall not be shiniest of two turds." Indeed, Abe, indeed.

The period from 2003 to 2008 has been nicknamed 'The Great Moderation' as credit spreads collapsed close to zero, free-wheeling securitizations flooded the market with liquidity which repressed every credit instrument and forced investors to reach down in quality and out the curve for every extra tick of yield or carry. The period from the lows in 2009 could well be nicknamed 'The Great WTF' as credit spreads collapsed back down, and free-wheeling central banks flooded the market with liquidity which repressed every credit instrument and forced investors...blah blah blah... It would appear from the analog below that while markets do not repeat, they sure like to echo. We just remind those bulls looking for the next 18% lift that the analog period is when reality started to come out from behind the curtain - beginning in 2007...The Great Realization.

The muni market is not yet fully pricing in potential negative outcomes around tax reform, for which both candidates propose reforming tax rates and treatment of investment income, including muni interest, in a demand-negative fashion. Morgan Stanley summarizes the muni credit outcomes of competing reform proposals for healthcare, defense, and entitlement spending, among others. The tax treatment of munis would be at risk under either an Obama or Romney administration. In aggregate, both policy sets are likely negative for munis’ tax value and a headwind for performance, though it is difficult to state if one set is definitively better than the other. However, we believe the muni market may need to reach yields equivalent to other credit options, at least temporarily, given that both proposals include the possibility of impairment of munis’ absolute or relative tax value.

As UBS reported said, in both the Republican primary and the general election campaigns in 2012, various Presidential candidates in discussing taxes have recommended that voters "do the math" in evaluating various tax change proposals. The following preliminary 2010 data from the Internal Revenue Service (IRS) should be helpful for performing such calculations. We present a variety of self-explanatory exhibits sourced directly from the IRS, which include all the DIY math on income distribution, tax rate schedules, who is affected if Bush taxes cuts for high-income taxpayers expire, sources of itemized deductions and higher incomes, the size distribution of businesses paying individual income taxes, and everything else that may and likely will be thrown out, if incorrectly, by one or both candidates tonight, in an attempt to rally any one group of people behind the cause (what cause exactly remains to be seen).

Entering the final quarter of the year, Lacy Hunt and Van Hoisington (H&H) describe domestic and global economic conditions as extremely fragile. New government initiatives have been announced, particularly by central banks, in an attempt to counteract deteriorating economic conditions. These latest programs in the U.S. and Europe are similar to previous efforts. While prices for risk assets have improved, governments have not been able to address underlying debt imbalances. Thus, nothing suggests that these latest actions do anything to change the extreme over-indebtedness of major global economies. To avoid recession in the U.S., the Federal Reserve embarked on open-ended quantitative easing (QE3). Importantly, in their view, the enactment of QE3 is a tacit admission by the Fed that earlier efforts failed, but this action will also fail to bring about stronger economic growth. H&H go on to break down every branch that Bernanke rests his QE hat on from the Fed's inability to create demand, to the de minimus wealth effect, and most importantly the numerous unintended consequences of the Fed's actions.

For those who are curious why Tim Geithner has been invisible in the past 2 months, the answer is he has been manning the phones like a true patriot, and making sure nobody dares to rock the European boat ahead of the US election (as was already disclosed), in this case exemplified by Moody's just released announcement that the rating agency will not downgrade Spain to junk, soaring debt, collapsing GDP and laughable unemployment rate notwithstanding (unless of course the ECB fails in its mission to scare all shorts from approaching within 10 miles of an SPGB, and Spain loses private market access again, in which case Moody's would proceed with a "multiple notch downgrade"). At least not until the US election that is. After that... well, with the fiscal cliff, debt ceiling, Greece vs Troika, etc, etc, buy VIX.

The head of industrial and precious metals trading at Barclays, Cengiz Belentepe, has told Bloomberg that investors are selling their investments in gold ETFs and opting for the safety of allocated physical gold.

Barlcay’s Belentepe said “the question is whether the pace of buying has slowed, or whether the people have become a bit more sophisticated in recognizing the costs and liabilities.”

No clowning around!

UPDATE: IBM -3% after-hours (equiv. 50 Dow Points)

Citi was the headline-maker of the day and is now (somehow) up 12.4% from QEtc. AAPL's low average-trade-size but reasonable volume rip (+2.3%) just failed to fill the gap-down from 10/5 but provided just the excuse the market needed to rip on a debate-day. Tech remains the only sector in the red post-QEtc. The last two days we have seen the same pattern play out as in the last few weeks, a plunge-plunge-linear-ramp with the opposite scale on volume during these moves. Today's equity market levitation was predicated on rumors of a pending credit line with Spain - which was denied by everyone involved but by then correlations were high and momentum was in charge. FX markets are highly dispersed with JPY weakness and EUR strength leaving the USD -0.44% on the week. Commodities recovered a little on the day with Oil/Copper +0.25% on the week and gold/silver still lagging. Treasuries bear-steepened with 30Y +8.5bps. VIX dropped marginally to 15.22%. Credit was dead after Europe closed, underperforming equities push.

The departure of Vikram Pandit as CEO of Citigroup (C) should come as a relief to the markets, regulators and customers – indeed, just about everybody besides the volatility junkies who like to trade this very liquid, very unstable stock.

While earlier we reported that the under Vikram Pandit the stock price of Citi, net of reverse stock splits, has collapsed by 90%, some have inquired how it is possible that the market cap under Pandit has declined by far, far less, or from about $150 billion when Vikram was appointed to CEO, to a little over $100 billion today. The answer is simple: shares outstanding.