Archive - Oct 18, 2012

Over the weekend it was not some disenchanted and long-suffering Greek, nor Irishman, nor even a Spaniard, but a German who burned and stabbed himself to death in front of the Reichstag in broad daylight. Moments ago, yet another country which has so far had been spared ritualistic (attempted) suicides, joined the ranks of places where people would rather take their lives than live under the oppressive European depression, when a 55 year man of Romanian origin and father of six, currently living in Pinerolo in Piedmont, set himself on fire in from the presidential palace in Rome, the Quirinale. As Repubblica reports, he was protesting the economic conditions and the lack of job opportunities. It appears that whereas Europe may be "saved" and PIIGS bonds are being bought for the time being, the monetary transmission mechanism is still certainly clogged up and the central bank's record liquidity is neither reaching the ordinary citizens of Europe nor, most certainly, the most political square in Rome.

A month ago every single bank was delighted when Bernanke proudly announced QEternity. What they did not realize is that by doing so, and by "getting to work" as Chuck Schumer had previously requested of the Chairsatan, Congress suddenly has no impetus to do anything over the fiscal cliff, i.e., to lose face with the electorate by compromising over difficult fiscal issues, because, guess what, Bernanke is on top of it. After all look at the market - no risk is allowed ever again. Because since the Fed is now in charge the market, and of fiscal policy, why bother with protection or Plan B. The banks, however, know better, and know that without hundreds of billions in continued stimulus from D.C., the musical chairs game is about to end and the market will implode. Which is why the warnings of Mutual Assured Destruction (M.A.D.) were only a matter of time. Sure enough, here comes JPM with the first of many official GDP revisions (don't worry - JPM's Mike Feroli will promptly revise everything much higher if a fiscal cliff deal is done... some time in March long after the S&P has tumbled by 20% in a replay of August 2011), in which he sees the fiscal cliff now reducing 2013 GDP growth by 1%, up from the previous estimate of 0.5%, and specifically sees Q1 and Q2 GDP of 1.0% and 1.5%. And it's all downhill from there...

"PENDING LARRY [Page] QUOTE"

44 analysts cover Google. 82% are Buys. Average Target Price is $811. The lowest and least herd-like was Heather Bellini of Goldman Sachs who has had a $660 price target (which is where GOOG is implied to trade currently) since 8/13/12. We wonder what Capstone's Rory Maher is thinking today with his $910 target?

While everyone knows that GOOG is halted and may or may not resume trading before market close (and no, RRD merely reported the facts, if only early, and as everyone knows the market has a revulsion to reality peeking during trading hours), few are aware just why it is that everyone dumped the stock which soared to all time highs a few short weeks ago. Here it is, in its full visual splendor - Google's Operating Income, which was expected to come in at $3.536 billion printed at $2.736 billion, a 23% miss!

While GOOG is halted, the rest of the world goes on trading - with 165 hedge funds seeking protection somewhere... QQQ is trading lower, implying a $660 price for GOOG or down 12.5% on the day... so far...

Sorry, it's not the Iranian hackers' fault this time:

• GOOGLE SAYS 8K FILED WITHOUT AUTHORIZATION
  
• GOOGLE SAYS RR DONNELLEY FILED DRAFT 8K EARNINGS W/O AUTHORITY

This means Dubya, Europe and the weather are all off the hook. It also means that the press release is accurate (unless of course GOOG decides to implement a last minute Morgan Stanleyesque's DVA "one-time" charge to EPS that is).

Oops... The second most widely held company after AAPL just destroyed the quarter for 165 hedge funds.

Google is down over 8% as it reported earnings early and surprised to the downside...

• GOOGLE 3Q REV. EX TAC $11.33B, EST. $11.83B           
  
• GOOGLE 3Q ADJ. EPS $9.03, EST. $10.65
• Q3 REVENUE EX-TAC $11.33 BLN VS EXP. $11.83 BN
• Q3 NETWORK REVENUE USD 3.13 BLN

Full EDGAR filing below...

The unending efforts of our glorious central-banking planners to raise asset prices and encourage 'animal spirits' through the trickle-down of unicorn-tears via the wealth effect have side-effects. Unintended consequences of 'leaking liquidity' finding its way into hard assets and 'things that have relatively limited supply' have stalled hopes of a stimulus in China (food inflation) and caused refis to mysteriously lag on misplaced future rate expectations in the US (ZIRP). The biggest 'problem' the central-bankers face, however, is energy prices. The liquidity surges directly impact the price of oil (which is already under pressure from the ever-igniting fears of Middle-East flare-ups). Critically, as Goldman notes, once the price of Brent crude reaches $125, global economic growth becomes challenged and ultimately makes QE self-defeating. This means Bernanke and his cohorts are threading an ever-narrowing needle as crude's price range remains high enough to motivate supply, but not so high as to undermine the global economic recovery - and with a tight physical market, any disruption or 'anomaly' will be hard to jawbone us back from (SPR rumors aside).

First “decent” Spanish auction in ages, decent being just normal, if not even boring. In absence of hard facts, outside the hypnosis trick “All will be well! Believe me…", I’d like to remain on the cautious side, though.

On EU decisisons, it could look like Good Cop / Bad Cop act, if it wasn’t clear that the players actually mean what they are saying.

Won't be EZ...

What few seem willing to acknowledge is the solipsistic, narcissistic nature of this reliance on public display of consumerist fantasy for self-identity. All consumerist fashion is based on superficiality and self-indulgence, of course; but if we look at the energy, money and attention "invested" in fashion lifestyles in Japan, we might conclude it is strong evidence that there is plenty of "money and time to burn" in Japan. While that is certainly true, this reliance on consumerist excess for self-identity and pastime is also evidence of a deeply troubled economy and society. Young people have money and time to burn on outlandish costumes because few earn enough to have their own families or flats. They work part-time for low wages and live at home or in tiny one-room apartments. Few own cars because they 1) don't earn enough to support a car and 2) they're uninterested in acquiring status symbols or prestige signifiers. This is not just a generational shift: it reflects a realistic understanding that opportunities for secure, high-paying employment have diminished over the past 20 years. There are plenty of low-level jobs, but few with the guarantees that their parents took for granted.

There are an awful lot of people who are crapping in their pants over this development

Two weeks ago we reported that the first unintended but perfectly expected consequence of the French socialist revolution, was the plunge in Paris luxury real estate prices as in the aftermath of Hollande's plan for a 75% millionaire tax, the wealthy promptly decided it is time to seek greener pastures and have launched a housing firesale, flooding the market with expensive (but getting cheaper by the day) housing. Now, we find that another consequence of Hollande's creeping government-enforced subsidies to uncompetitive sectors (coming soon to an insolvent country near you) may be none other than the French internet, as the world's biggest agregator of content, Google, is threatening to boycott French media websites if France demands it start paying for linked content.

The world is running down a quite slippery slope in its attempt to avoid calamity. The political machines in Europe and the United States and to a real but lesser extent in China have passed the hat to their central banks because either they cannot or will not face up to the severity of their problems. This “faith based initiative” is misplaced, as liquidity and faith are driving the boat and derelict accounting is providing the fuel. The United States, having moved far past the “safety net” that has always been in place, are faced with a very real choice between Socialism and Capitalism. In Europe the problems are also of a fundamental nature as the definition of “More Europe” in Germany is decidedly different than the definition in Spain. But the fantastical belief that the Central Bank will wave it magic wand and make everything all good again is the stuff of Mommy kissing the boo-boo and everything will be just fine.