Archive - Oct 22, 2012

Whether you believe "your vote doesn't count" or taking productive time out of your day to be a part of selecting the next 'change' agent for the nation is worthwhile, Doug Casey - as ever - has strong views:

"a rational man, which is to say, an ethical man, would almost certainly not vote in this election, or in any other – at least above a local level, where you personally know most of both your neighbors and the candidates."

Don't expect anything that results from this US election to do any real, lasting good. And if, by some miracle, it did, the short-term implications would be very hard economic times. More important, however, is to have a healthy and useful psychological attitude. For that, you need to stop thinking politically, stop wasting time on elections, entitlements, and such nonsense. You've got to use all of your time and brain power to think economically.

Was it just us - or was that a bit of a snoozer? Some fascinating 'off-topic' debates that dragged us from Mali to Massachusetts 1st grade math scores, and from Bayonets to Obamacare. Some reasonable amount of agreement between the two on foreign policy punctuated by flip-flopper and weakling name-calling. Ironically, given our boxing-match meme - the counterpunches were incessant though Romney seemed to play defense more and Obama appeared to more urgently change the discussion (with little impact). Lots of braggadocio on naming multi-syllabic foreign towns and leaders. Obama won the drinking-game challenge by a long-way 53:34. Obama also won the 'time-spoken' challenge (by the narrowest margin of the 3 debates) 41:42 to 41:07. Obama's odds of an election win levitated modestly from the beginning (from around 59.5% to 61.5%). Of course, Wal-Mart got very, very quiet when the cheap China import bashing started, but luckily it too was based on generic 10 second attention span talking points, and led nowhere, so the Waltons can get back to doing what they do best. So far an Obama clean-sweep on our scientific study, which of course was highly irrelevant: all the truly important foreign issues (EU, China economic ascendancy, Japanese decline) were ignored. Why? The "Mr. Chairman will get to work" of course, showing once again who is truly in charge.

Surging demand, but drilling is still not a survivable activity

Even though The Powers That Be pushed the market higher at the close, I was pretty pleased with how the day went. My portfolio was profitable for most of the day - - although a lovely five-figure profit dwindled to a two-figure profit (!) by day's end - - but the point is that my portfolio hugely outperformed the market (on an inverse basis since, as you've probably guessed, I was so short I could jump off a nickel). I remain positioned for a fall.

This evening's main event (well aside from the baseball and the football), taking place in beautiful Boca Raton, Florida will be fought over six rounds focused on the 'never-a-dull-moment' topic of Foreign Policy. After last week's STFU stare on the Benghanzi bungle, we expect the incumbent from the blue corner to come out swinging (on his experience). The challenger from the red corner, will likely keep his distance early on as general items such as 'America's role in the world' are discussed but once his jab has been measured, and the debate switches to 'The changing face of the Middle East', we would expect the haymakers to start to be thrown. Let's get ready to deeeeebbbaaaatttteeeee! And may the first person to point out where the Straits of Hormuz are on a map, win!

The nation is facing an extremely difficult decision; the outcomes of which could well be career-defining for the protagonists. We are of course talking about the dilemma that the nation faces in choosing Monday Night Football, NLCS Game 7, or the third Presidential Debate. In order to help focus public opinion, we offer the debate drinking game, live-stream scoring, and suggest readers invest in Picture-in-Picture (or have their edible iPad on their lap as the sports get under way this evening). For those who prefer to 'hedge': Obama is 67% likely to win the debate, Detroit are just favored to beat Chicago, and the Giants are favored (on momentum) to beat Arizona - so it seems like the debate is the most one-sided affair (though we suspect will be more contentious).

A mere nine years ago, California's governator uttered his now infamous words that his opponent's income tax loophole was wide enough to drive his Hummer through. Now in 2012, Bloomberg's Chart of the Day has found another glaringly wide 'loophole' in common financial wisdom. As Sebastian Boyd and Ye Xie note, Ireland and Kazakhstan both belong to the same BBB-rated S&P cohort and yet have debt/GDP loads of 106% and 11% respectively. While debt/GDP is not the sole arbiter of credit quality (ask the Americans) it seems the market is more than willing to effectively differentiate based on this as is clear from CDS levels; but the growing pile up of sovereign nations in this edge-of-the-cliff rating bucket suggests two things to us: 1) "The entire rating system is flawed" as Bloomberg notes; and 2) The self-destroying (or reflexive) nature of a non-investment grade rating shift is now seemingly totally politically motivated (as opposed to quantitatively defined) - perhaps nowhere better signaled than an unwillingness to downgrade Spain yet willingness to downgrade its regions. For your risk comprehending pleasure, we present - the BBBs!

Almost exactly a month ago, the BOJ surprised most analysts with an unexpected increase in its asset purchase agreement by JPY10 trillion bringing the total to JPY80 trillion. There was one small problem though: the entire impact of the additional easing fizzled in under half a day, or 9 hours to be precise. This was, as Art Cashin summarized the following day, Japan's failed QE 8. It is now a month later, and with nothing changed in the global race to debase status quo, the time has come for the BOJ to attempt QE 9. Or that's the case at least according to the toothless Japanese government, which has formally demanded that Shirakawa do a nine-peat of what has been a flawed policy response for over 30 years now, this time with another JPY 20 trillion, or double the last month's intervention. Because according to Japanese Senkei, it is now Japan's turn to pull a Chuck Schumer and demand even mor-er eternity-er QE out of monetary authority of the endlessly deflating country. In reverting to the Moore's law of failed monetarism, we expect that a QE 9 out of Japan will have the same halflife as QE 8, if indeed the program size is double the last. At which point it will again fizzle.

While our highly sophisticated scoring methodology - based on length-of-time speaking, words-spoken, and drinking-game-based buzzword bingo scores - has produced a result skewed to the Republican candidates, it seems the real world of intelligent voters sees things more tied with the last debate having been won by the incumbent. However, in order to settle the tie, Jimmy Kimmel decided to ask members of the voting public who they thought won the 'First Lady' Debate; the results will not surprise you - though clarification of stereotypes, biases, and why none of it matters (we refer readers to our earlier post on Deer Crossings for clarification) will be helpful we are sure...

Brilliant ...

Or to put in another way, by Christmas we may very well see Case-Shiller and other indicators of home prices headed back down, erasing the gains made in housing during 1H 2012.  

Mr NeoCon USA...

At this point saying Texas Instruments guides lower is about the most habitual thing about this broken market, aside from the traditional Fed-Citadel juiced 3 pm ramp, of course. Sure enough, moments ago the analog circuits company announced results which were modestly better on the bottom and top line (following repeated earnings guidance lower), and yet which did the usual TXN thing and slashed guidance:

• SEES 4Q REV. $2.83B-$3.07B, , EST. $3.22B
• TI SEES 4Q EPS 23C-31C, EST. 37C

Just a tad. And, amusingly just as we predicted moments ago that in a ZIRP environment CapEx will be the first thing let go, here is TXN announcing it is slashing its full year growth spending forecast by 30%:

• TI SEES YR CAPEX $0.5B, DOWN FROM PRIOR VIEW $0.7B

Of course who needs to invest in future revenue growth when the Fed has toner. The market, which is back to responding in absolute bizarro fashion is taking the latest disappointment in short squeeze stride, and has even managed to push the stock higher in the after hours session.

Curious why there are those with an online business, who believe that handing over their entire back office infrastructure to one company, aka "going cloud" may not be the wisest of ideas. Just ask all those websites that use Amazon's cloud service today, who suddenly went dark when the Amazon cloud crashed.  From the NYT: "Amazon’s data centers in Northern Virginia crashed Monday afternoon, taking with it a number of popular Web sites, from Someecards, the quirky e-card company, to mobile applications like Flipboard and Foursquare.  Amazon reported having problems with the data centers in Northern Virginia. Those problems appear to have had a ripple effect across the Internet with several sites hosted on Amazon’s popular EC2 cloud hosting service also reporting problems."

What can we say? All makes perfect sense: earnings dismal (worse than expected) means BTFD and if there is one lever to do that effectively given the massive over-exposure in every levered fund in the world, its AAPL. A 4% rally in AAPL - which perfectly topped out at Thursday's closing VWAP - was enough to drag stocks comfortably green by the close with a near-vertical ramp in S&P futures just to help things along. Seems like the standard pre-debate rally that we warned about last week - so let's not get too carried away by today's 'all-is-well' rally. Broadly speaking, risk-assets did not dip as hard as stocks and the ramp into the close (which as is typical) pulled stocks back up to 'fair' - but with the inevitable overshoot. 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.