Archive - Oct 2012

The most important alliance within the EU, the one that has ultimately defined the union's course over the past few decades, is the French-German axis. It appears that this is no longer the case. The once so strong friendship is in danger of fraying ever since the socialist Francois Hollande has become president of France. Not only was he elected on an 'anti austerity' platform (disguised as a 'pro growth' agenda, which is of course one of the most laughable misrepresentations ever),  it has turned out that his big-brother, anti-free market socialist agenda wasn't merely an electoral ploy to differentiate himself from Sarkozy. He actually means it. One thing is certain: the markets have not yet fully assimilated what is going on here.

Watching the 3000 line on the Nasdaq, and AAPL. 

Forget black swans, Nigel Farage is rapidly turning himself into the black sheep of the EU Parliament with his constant stream of truthiness and honest pragmatism. It seems the broadly nodding-donkeys that fill the chamber remain cognitively dissonant to any and everything in the real world - hanging instead on the next soundbite from Van Rompuy or Barroso on how well things are going, or how the crisis is 'almost' over. If only the Germans would bless them all with their money. In one his plainest-speaking rants, Farage provides clarity to his 'peers' on just exactly what the bailouts of Greece, Portugal, Ireland, and soon to be Spain and Italy are actually about - the "total subjugation of the states to a completely undemocratic structure in Brussels." Is it any wonder Samaras and crew - while happy to accept cash and make promises - are pulling away from yet another (this time is the last time) Troika-driven austerity push? "The euro-zone is in a very dark place; economically, socially, and politically."

UPDATE: AAPL Stock -2.5% - below Friday's Closing VWAP

Below is a picture of the product that Steve Jobs never wanted launched, and which Apple has been forced to release due to competitors which are suddenly beating it in its own game. And the price: $329. The Nexus starting price is $199 which is also Kindle Fire territory. Anyway, the 8 inch iPad is here (which upon measurement actually turns out to be 5"... particularly the white version). So when is the iPad 36C coming? Finally: will there be an iDiscount for those with over $100,000 in student debt?

"God bless Tiny Tim."--R.B.

They may yield nothing (technically 0.295% nominal yield), and they may be still sold by the Fed, but today's 2 Year bond auction had a blistering metric that showed that something is very much unwell with the market. Coming at a Bid to Cover of 4.02, broad demand for today's $35 billion in 2 years was the second highest only below November 2011's 4.07. What happened on November 21, 2011? Well, the world was ending for one, or if not the entire world, then certainly Europe which for those who remember, had to be rescued one short week later courtesy of a coordinated global central bank intervention when the Fed and Europe not only renewed their FX swaps, but lowered the rate paid to OIS+50. So do the bondholders know something about today's market plunge that is not being said? We will find out soon.

In recent months there has been a lot of incorrect speculation that because Iran has been shut off from the petrodollar, SWIFT-mediated regime, its economy will implode as the country has no access to the all important greenback and can thus not conduct international trade - the driving factor behind the international sanctions that seek to topple the local government as Iran dies an economic death. And while there have been bouts of substantial inflation, which so far the local government appears to have managed to put a lid on by curbing gray market speculation, Iran continues to more or less operate on its merry ways with international trade most certainly taking place, especially with China, Russia and India as main trading partners. "How is this possible" those who support the Western-led embargo of all Iranian trade will ask? Simple - gold. Because while Iran may have no access to dollars, it has ample access to gold. This in itself is not new - we have reported in the past that Iran has imported substantial amounts of gold from Turkey, despite the Turkish government's stern denials. Today, courtesy of Reuters, we learn precisely what the 21st century equivalent of the Great Silk Road looks like, and just how effective Iran has been as a lab rat in escaping the great petrodollar experiment, from which conventional wisdom tells us there is no escape. Presenting: petrogold.

Fear the truth, it shall set fundamental market forces free!

While many are blaming today's weakness on DuPont and a final awakening that earnings might not hockey-stick as consensus believes, CNBC's Gary Kaminsky has an interesting angle that is gaining ground among desks. We can argue all day long that central bank actions have driven a 'wedge' between fundamentals and market prices (as we did here) and as Gary himself notes "printing money around the world does not help corporate profits" but Kaminsky's view of today's weakness is more nuanced to the outcomes of the election. Critically, he makes the case that the market is starting to realize that whoever wins in two weeks, there is a more negative bias post-election. From Obama's higher taxes and more-of-the-same sluggish economy to Romney's potential China-Trade-war, an implied strong-USD-policy, and potentially the end of the 'Bernanke-Put'; Kaminsky says "the easy money days are gone" and warns of a 1000 point correction being possible.

Debt.  There isn't a day that passes as of late that the issue of debt doesn't arise.  Federal debt and consumer debt (including mortgages) are of the most concern due to its impact on the domestic economy.   Debt is, by its very nature, a cancer on economic growth.  As debt levels rise it consumes more capital by diverting it from productive investments into debt service.  As debt levels spread through the system it consumes greater amounts of capital until it eventually kills the host. The problem is that during a “balance sheet” recession the consumer is forced to pay off debt which detracts from their ability to consume.   This is the one facet that Keynesian economics doesn’t factor in. It’s time for our leaders to wake up and smell the burning of the dollar – we are at war with ourselves and the games being played out by Washington to maintain the status quo is slowing creating the next crisis that won’t be fixed with monetary bailout.

Uuuhh. Yesterday a heart attack and today Lights Out? Then again, markets went up seamlessly with no trigger and can thus slide the same way.

AAPL will need to come up with a helluva surprise mini iPad that does the cooking and bring the kids to school to turn around things overnight.

Spain situation still by far not settled enough to last without some real interventions / decisions.

No matter what you are told by the mainstream media, peripheral government bonds have seen the worst 2-day sell-off in over a month with Spanish 10Y spreads +27bps this week so far and 2Y breaking back above 3% yield in a hurry. Just as we warned - this rally is not capital flowing back into 'tail-risk- removed govvies, it is simply fast money front-running actions and now momentum gains for the exits. Swiss 2Y rates fell their most in a month to -20bps as safety was sought. Europe's equity markets dropped for the third day in a row (hhmm more profit-taking we are expected to believe?) with the broadest BE500 index down 1.65% today and almost 3% off its recent high (the biggest 3-day drop in three months) and now at critical support once again. Equities are underperforming credit - as credit suffered the epic short-squeeze last week and we suspect remains a little gun-shy. EURUSD cracked back below 1.30 (down over 100pips to 1.2950 as Europe closes) and Europe's VIX jumped notably back above 23% - its highest in 6 weeks. GGBs lost their most in 3 months...

The theme of buying real estate to rent out is nothing new, in fact courtesy of the government subsidized securitization gimmick known as REO-To-Rent, America's biggest asset managers have been able to load up on real estate virtually cost free, and hold on to it in hopes of renting it out to a US consumer. Alas, there is a qualifier: the "tapped out" US consumer. Case in point is Och Ziff, which as we wrote, after dabbling in the space for a year, has called it quits, and pulled out of the REO-to-Rent game. And they are the smart money, which means the returns for everyone else are only "downhill from here." That said, for now the meme is one of renting. In fact, as Reuters Insider points out, "Renting is the new American Dream." The problem is 'owning' was the old one. That ended in tears. This one will be no different. The only question is when. We think that when Brazilian model brothers come to Florida to buy up condos so they can rent them out, that's about as toppy as tops get (It is unclear if the two models also demand to be paid in EURs back in the homeland, like another infamous topticking supermodel and financial expert).

Romney has stated several that he would fire Fed Chairman Ben Bernanke if he wins office. While this doesn’t represent the real shakeup that the Fed needs, it’s definitely a step in the right direction. The question is if the market is predicting this or something else is happening.

Overall, the acquisition of ANNB by FNB looks like a transaction that will create value for the acquirer’s shareholders, but it comes at a full price.