Archive - Oct 16, 2012

The erstwhile 'developed' market of the Athens Stock Exchange has just suffered a major blow. Coca-Cola Hellenic Bottling Co (CCHBC), the world's second largest Coca-Cola bottler, will quit the exchange for London next year, cutting the value of equities listed in Athens to a mere $31bn - smaller than Vietnam's $35.2bn. CCHBC is Greece's largest company by market value and sets a rather ugly precedent in leaving the troubled nation. Accounting for 23% of the benchmark index weight, it is 50% larger than all four of Greece's major banks combined. A new company, headquartered in Switzerland, will make a share-exchange offer for CCHBC and seek a primary listing on the London Stock Exchange - which will mean around 10% of all trading volume on the Athens Stock Exchange will be lost. The decision to leave Greece was prompted by concerns over political and economic stability - so for the Greeks, Coke Is not It.

A report from German news magazine Der Spiegel states that Iran's latest effort to disrupt key shipping lanes through the Strait of Hormuz may be to cause a massive oil spill. Code-named Murky Water, the operation may serve to force a temporary respite from sanctions targeting the country's energy sector. Iraqi leader Saddam Hussein tried a similar tactic during the first Gulf War to deter invading U.S. forces. If the German report is true, the Iranian operation could be a sign of Tehran's dwindling options.

In addition to the mysterious volley of recent economic data points that have blown even the most optimistic expectations out of the water, it is perhaps notable that not only is the economy in agreement with the status quo in the month before the election, but so is the market, and as can be seen below, on presidential (and vice) debate days, the market has posted some truly six sigma returns. For the month of October, the S&P 500 futures have risen a cumulative 20 points on the days of the debate; and fallen a cumulative 4.75pts on the non-debate days. Forget needing moar QE, we need moar debates! While we leave up to our readers to divine the implications of such outlier moves on debate days, our only suggestion for those who have missed their opportunity to buy the central bank policy vehicle, formerly known as the S&P 500, with both hands and feet, is to wait until the next presidential debate and go all in. After all, "it's only fair" that the market will soar hours ahead of the two teleprompter-less candidates debating highly irrelevant stuff.

If the US government cut all government services except Social Security, Medicare, Medicaid, and interest payments, federal spending would still outpace revenues. As we noted here, these four mandatory items dominate costs. All the arguing over sequestration and the fiscal cliff are moot since as Professor Antony Davis notes in this brief clip, there are no specific cust that will enable government to balance the budget; in fact "nothing less than a complete redesign will solve the problem." That redesign begins with determing the proper role of government.

The ability of reflationary policy to mute the worst risks of debt deflation has been a source of enormous frustration for stock market bears ever since the 2008 collapse. Yes, the initial moderate rally out of the S&P500’s black hole was perhaps not so surprising in 2009. Bombed-out stock markets can always manage some sort of rally. But the ability of the rally to continue through 2010, and then 2011, and now 2012 has been quite vexing and painful for bearish investors. Indeed, the entire post-2008 market phase has now produced an era of consistently poor performance for hedge funds. Recent data, for example, shows that an incredible 90% of hedge funds are underperforming the S&P500 through mid-September. Will the pain continue? If OECD policy makers do in fact lose stock markets as the main transmission mechanism for reflationary policy, then trouble of a very serious nature will make itself known in the biggest way imaginable since the 2008 crisis began.

Curious to learn just why Vik Pandit was given his marching orders with what appears to have been a one day's notice? Hear it from the horse's mouth direct courtesy of his first interview since quitting effectively several hours ago, with BBG TV's Erik Schatzker.

I'll show you what a real  chart look s like...

That troubled battery-maker A123 has just filed for bankruptcy (and no, in this case bankruptcy is not equal with deleveraging) should not be news to anyone who has followed the US government subsidized trainwreck of a company (especially since as we updated yesterday it was known it would miss its bond payment today). Well actually we take that back. The bankruptcy may come as a surprise to the president. Recall that Obama called A123 Chief Executive Officer David Vieau and then-Michigan Governor Jennifer Granholm during a September 2010 event celebrating the opening of the plant in Livonia, Michigan, that the company received the U.S. grant to help build. Surprise and epic humiliation that is. "This is about the birth of an entire new industry in America -- an industry that’s going to be central to the next generation of cars," Obama said in the phone call, according to a transcript provided by the White House. "When folks lift up their hoods on the cars of the future, I want them to see engines and batteries that are stamped: Made in America." Needless to say if the car is a flaming Fisker Karma or Chevy Volt, the hoods may be too hot to lift but that's another story. Most importantly, it will come as a big loss to the firm's equity holders (who have already lost their entire investment so hardly a surprise) creditors, who will likely be wiped out almost entirely (listed below), but most importantly US taxpayers, who funded the firm not on one occasion as conventional wisdom will have it, but with four distinct Federal and State agency grants, as is highlighted in the first day motion affidavit by David Pyrstash in support of the Chapter 11 petition.

Hmmm… Bunds getting trashed by equities and Spailout; Spain getting a lift on the latter, but a break from Greek Troika news and German back pedalling.

Spain better, but had lost 20 bp just yesterday.

Equities stopping out and squeezing. Credit ripping tighter.

Risk On, but not everywhere. Wild...

Speaking on conditions of anonymity, four administration officials have commented that they are actively seeking a target and readying strike forces and drones as retribution for the Sept 11 attack on the US Consulate in Benghazi. As AP reports, if the administration does find a target, officials say it still has to weigh whether the short-term payoff of exacting retribution on al-Qaida is worth the risk that such strikes could elevate the group's profile in the region, alienate governments the U.S. needs to fight the group in the future and do little to slow the growing terror threat in North Africa. The efforts show the tension of the White House's need to demonstrate it is responding forcefully to al-Qaida, balanced against its long-term plans to develop relationships and trust with local governments and build a permanent U.S. counterterrorist network in the region. The verbal rhetoric is escalating from Biden's last year comment that "if you do harm to America, we will track you to the gates of hell if need be." to "If America hits us, I promise you that we will multiply the Sept. 11 attack by 10," said Oumar Ould Hamaha, a spokesman for the Islamists in northern Mali. U.S. officials say covert action is more likely.

Even Slave-Holding Societies Had More Economic Equality than Modern America

Gideon Gono, the governor of the Reserve Bank of Zimbabwe who destroyed the Zim dollar by creating hyperinflation, weighs in on the parallels between QE3 and the policy he followed last decade, in the RBZ’s mid-term 2012 monetary policy statement. Even though Ben Bernanke and Mario Draghi and all other central bankers will try to convince you that what they are doing are really different to what Gideon Gono did, you should really be taking Gideon Gono more seriously, who is basically admitting that the money printing strategy does not work to ‘stimulate’ growth. All it can stimulate are high- and hyperinflation risks.

First the Greek Troika fiasco, and now the only reason stocks had to ramp today, just got rejected:

• SENIOR GERMAN LAWMAKER SAYS MEDIA REPORT ON SPAIN APPLYING FOR PRECAUTIONARY CREDIT LINE "OVER-INTERPRETED" HIS COMMENTS
• SENIOR GERMAN LAWMAKER SAYS WAS NOT REFERRING TO SPAIN IN HIS COMMENTS TO BLOOMBERG

Watch Simon Potter the market completely ignore this rejection of the catalyst for today's spike and continue levtiating higher as Liberty 33 continues doing what it does best: expanding credit multiples, even as it destroys cash flows.

Yes, even the perennially rose-colored eyeglass wearing IMF is seeing the Eurocalypse, but what's even more interesting is what's not being said.

UPDATE: Added Credit Positioning - most bullish since 2008

We noted yesterday that NYSE short-interest dropped to a five-month low removing much of the kindling for a centrally-planned world of goal-seek'd equity wealth creation. So when we hear that sentiment is so bad, and everyone's bearish - the simple fact is: they are not. To wit, the S&P 500 e-mini futures contract - the most liquid equity trading vehicle in the world - has pushed to its most net-long position since December 2008. The last time equity traders were this net-long, the S&P fell 22% in the next 11 days. The psychology may be different - from "surely it can't drop any more" then to the current "it can't drop much because Bernanke/Draghi has our back" - but the positioning is just as complacent this time.