Archive - Oct 30, 2012

Update: 15 seconds later, all open Per Se reservations had been taken. Better luck after the next hurricane.

New York is back, baby. Best way to check? Restaurant reservations. And the best cross referencing place for that these days is OpenTable. A cursory check shows that of the 616 restaurants indicating availability for tonight, many already have the much desired 7:00 pm slot already booked up. Among these are such bastions of haute gourmet as Asiate, Rouge, Cipriani Caravaggio, Ouest, Felidia, Triomphe, and of course Dorsia Per Se. Which means only thing: New York has picked itself up, brushed off the rain drops from its $10,000 fitted Zegna suits, and is back to eating. The good news: Per Se still has a 6 PM opening (although probably not for long after this post).

Readers of Zero Hedge know well that one of the most abhorred (by us) accounting gimmicks employed by banks each and every quarter over the past 3 years to boost their bottom line, is to engage in loan-loss reserve releases: a process which has absolutely no associated cash flow benefit, but merely boosts EPS for GAAP purposes. In some cases, like this quarter's absolutely farcical JPM earnings release, the abuse is beyond the pale, as the offending bank releases reserves even as it reports surging non-performing loans: two processes which in a normal world can not coexist. Yet quarter after quarter banks keep on doing this, and in fact a big part of Q3's to date EPS outperformance is courtesy of financial company "earnings", of which, in turn, loan losses amount to about 50% of the entire blended financials bottom line. Yet while we can rage and warn, nothing usually happens until there is a market crash due to the gross manipulation of reality that such an activity entails. Luckily, this time someone with more clout in the legacy establishment has now stood up to warn about the mounting dangers associated with the relentless abuse of loan-loss reserve releases: none other than the US Comptroller of the Currency.

The US elections have the potential to have a significant impact on US equities and rates markets, according to a recent survey by Barclays Research. Investors seem to believe in a more promising growth outlook under a Romney win, in spite of their concerns about a likely tighter monetary policy stance. They favor long equities and short bond portfolios as the best way to express a Romney win. Under an Obama win, investors favor bonds and are divided about the direction of equities, but would choose bonds and equities over FX and commodities to express this scenario. Obama’s victory would likely be perceived as preserving the status quo (asset market moves are expected to be muted across the board), while a Romney win is more likely to suggest a change of direction to clients by way of a better growth outlook. Congressional deadlock remains the biggest economic/policy concern no matter who wins.

While every talking-head that is not bailing out their Westchester McMansion is claiming that AAPL's firing of its iOS and Retail division heads is somehow a bullish thing, European traders in AAPL disagree. Given where the European composite price for AAPL (via Deutsche Bourse) is trading, it would appear AAPL is back back under $600 - quick, we need another narrative for why stocks will open up tomorrow!

Because while to ConEd, the bulk of New York south of 34th Street can operate without electricity for days, the stock exchange must.be.online.or.else.the.terrorists.win:

• NYSE TO OPEN FOR NORMAL TRADING OPERATIONS ON WEDNESDAY
  
• NASDAQ STOCK MARKET, OTHER NASDAQ OMX-OWNED EXCHANGES OPEN WED

Why? Just so hedge funds can square away position for month end. In other news, CNN furious trying to figure out how the NYSE TV stuido in downtown Manhattan (because all the trading actually takes place out of a fortress in Mahwah, NJ), can operate under 3 feet of water.

European stocks popped at the open and then generally trod water for the rest of the day. The initial liquid-driven surge had no follow through and in fact European sovereigns bled wider most of the day - with Greek govvies now down almost 10% (in price) in the last week.  Credit markets re-racked along with stocks - with XOver outperforming and Main (investment grade) underperforming (along with financials). The story of the day was yet another 100pip-or-so rampapalooza in EURUSD - the 3rd in 5 days - as we noted earlier, when everything else is shut, EUR is simplest lever to drive markets higher given the correlations (and no Treasury police to keep things under control). Despite today's push, Spain's IBEX remains -0.5% on the week (as its peers are all up around 0.5%) and Italy and Spain bond spreads are up around 15bps on the week. So with EUR up around 0.22% vs USD on the week and fulcrum securities from Spain down, take your pick on where risk is being flushed.

Canada's TSX is now up over 1% from its pre-vertical ramp yesterday afternoon as it is now extremely clear, to all those who take the time to consider why, that as central bank liquidity provision must flow somewhere, so the algos latch on and follow the momentum. We have just had what will likely be the most costly US disaster in history, earnings are anything but robust, BoJ's QE9 failed instantly last night, Greek Government Bonds are fading (now off almost 10% from recent highs) as deals look set to be voted down, and European sovereign bonds are leaking wider; and so - with US equities shut, that PBOC/BoJ liquidity must flow somewhere and the closest proxy is our Canadian brethren. TSX current price implies S&P futures around 1425 and S&P cash at around 1430 - back to Bernanke's starting point for QEtc. We suspect this is just auctioning up to previous resistance but USD weakness is helping modestly (even as commodities slide lower) but of course it is just as likely to be all about slamming the European close.

If one is curious why the EURUSD has been ramping as if no one will ever sell one more euro ever again, the reason is simple: the BIS is desperate to mask the fact that the fragile Greek coalition, whose creation sent Europe to the edge back in June during the Greek re-elections that just barely avoided a Grexit, has just crumbled. And with an illiquid market, the reflexive argument always is a simple one: if someone is buying, the news must be good, so dear momo-chasers - buy along. Only the news isn't good, and in a centrally-planned world, the only buyer left are central banks, who are now solely political, and not market, forces. What the news really is, is that with Greece poised to vote on critical labor reforms (read more layoffs) next week, which must be passed in Parliament with a majority vote in order to get the next Troika bailout tranche, the Samaras-led coalition just lost one of its three members, after the Democratic Left announced it would take its 16 votes and vote against any further austerity. In doing so it has effectively joined Syriza and any other anti-bailout powers, and has made certain that yet another Greek election is imminent, one which will finally see the rise of the "anti-memorandum" forces on top, and finally launch the 3 year overdue departure of the Greek ferryboat from the monetary landmass, with even more dire consequences for the USS EURtanic.

While the massive population of New York City is awfully impacted by Sandy, there is a more populous and even more caustic population that is struggling with the aftermath: Rats! As Forbes notes, the NYC Subway is notorious for its rat population and with all five subway tubes now submerged, one can only imagine where these cute cuddly rabies-wielding devil rodents will make their new homes. "Rats are incredibly good swimmers and they can climb" is hardly the reassuring news lower Manhattan homeowners were looking for, and as the Daily Mail notes, this could bring infectious diseases such as leptospirosis, hantavirus, typhus, salmonella, and even the plague into human contact. On the bright side (well not really), rats don't need to bite a human to transmit its gross payload; rodent feces and urine can spread conditions like hantavirus just as easily - get long hand sanitizer stocks!

Other than some obligatory arrests for disorderly conduct, the Occupy Wall Street movement celebrated its one year anniversary this past September with little fanfare. While the movement seems to have lost momentum, at least temporarily, it did succeed in showcasing the growing sense of unease felt among a large segment of the US population – a group the Occupy movement shrewdly referred to as “the 99%”. The 99% means different things to different people, but to us, the 99% represents the US consumer. It represents the majority of Americans who are neither wealthy nor impoverished and whose spending power makes up approximately 71% of the US economy. It is the purchasing power of this massive, amorphous group that drives the US economy forward. The problem, however, is that four years into a so-called recovery, this group is still being financially squeezed from every possible angle, making it very difficult for them to maintain their standard of living, let alone increase their levels of consumption.

Stunning pictures of the devastation the east coast wakes up to the morning after.

Plus, Brownie says...

Presented with little comment - for any comment would simply end in ridicule and exasperation - but it seems quite clear that more than a few algos feel the need to keep S&P 500 futures above 1400 into the month-end and OPEX. S&P futures closed at 1411.25 (+3.75 from Friday's close).

While it is too early to estimate the ultimate losses wreaked by Hurricane Sandy in the last 24 hours, we thought it useful to start gauging relative exposures and which companies are the most exposed. As it stands, Hurricane Katrina remains #1 of all US Catastrophes as the most-costly at $46.6bn (2011-equivalents) with 9/11 second at $38.5bn; with the worst MTA disaster in its history and the relative wealth in the areas affected, one can't help but feel like Sandy could be up there. The P&C insurance industry will bear the brunt of personal and corporate losses (as well as federal relief we pre-suppose) and is better capitalized than in the past but as JPM notes, initial estimates of losses tend to be revised upwards. The most exposed insurer is State Farm with an 11.4% share of all potential liability lines in the states impacted, followed by Allstate and Travelers. We finally note that when the P&C industry experiences losses of this magnitude, it typically leads to increased pricing for an extended period of time (as they rebuild capital bases).

As everyone who has been to New York City knows, without its underground arteries - the subway system - the city is if not dead, than certainly in an indefinite coma. By that logic, New York will not get out of the critical ward for many days, because hours ago the head of the New York City’s transit system just called Hurricane Sandy "the most devastating event to the city’s subway system ever." At last check seven subway tunnels under the East River had flooded, as did the Queens Midtown Tunnel—and Metropolitan Transit Authority chairman Joseph Lhota said there is “no firm timeline” for when the system would be back up and running. According to other MTA employees it would take between 14 hours and 4 days just to pump the water out of the subway system. We'll take the over. And as long as there are no subways, there are no clerical and support workers, there is no Wall Street, there is no beating heart to the city.