Archive - Nov 12, 2012

Several months ago, an ad hoc consortium of self-proclaimed millionaires, sent a letter to Obama, Reid and Boehner, demanding that "For the fiscal health of our nation and the well-being of our fellow citizens, we ask that you increase taxes on incomes over $1,000,000." This grass roots initiative sprung up into existence in the aftermath of Warren Buffett's, since defunct, proposal to impose a "millionaire tax" rule. Luckily, as all these very much informed millionaires know quite well, the US Treasury has a dedicated section, named simply pay.gov, which allows anyone: billionaires (here's looking at you Mr. Buffett), millionaire, or even thousandaire, to make a donation which is used directly to pay down the US debt. Because in the absence of the government mandating rich people pay their "fair share" (as determined by a subcommittee of course) for now at least, there is always that other alternative: voluntary action, as per the auspices of something called free will.And not only that, but the US Treasury also provides the general public with a running tally of just how much "Patriotic Millionaire" initiatives have given so far to paying down said debt. As in talk is cheap, signing petitions even cheaper, but putting money where your mouth is actually does go to the bottom line. The bottom line so far in 2012? $7.7 Million - this is how much has been volunteered in total gifts to pay down the US debt. The $16.3 trillion in US debt.

The REAL Meaning of Veterans Day ...

Much is being made of the drop in VIX today - with some suggesting it indicates confidence that investors believe the fiscal cliff resolution is closer. This could not be further from the truth. Investors had bought short-term VIX across the election and are unwinding that protection in the November futures contract but at the same, they are actively bidding for protection across the event-horizon of the fiscal cliff - out to Fedb 2013. The options market is absolutely not pricing in a fiscal cliff resolution and in fact is just beginning to price in the expected rise in realized volatility as the market becomes increasingly headline-sensitive once again.

The partisan politics of this country is simply insane.

The US Presidential election has ended and the market is beginning to return to reality. And reality is not pretty...

First the BBC, then CIA, then Lockheed... and now Elmo!? AP reports, that: "The puppeteer who performs as Elmo on "Sesame Street" is taking a leave of absence from the popular kids' show in the wake of allegations that he had a relationship with a 16-year-old boy. Sesame Workshop said puppeteer Kevin Clash denies the charges, which were first made in June by the alleged partner, who by then was 23. "We took the allegation very seriously and took immediate action," Sesame Workshop said in a statement issued Monday. "We met with the accuser twice and had repeated communications with him. We met with Kevin, who denied the accusation."" And yes, it appears that even for those who have their hand up Elmo all day long, nothing is sacred any more. The good news: Kevin Clash was not scheduled to testify on Benghazi.

Despite the protestation from Juncker that all-is-well and that the Troika report is positive, Europe is not happy. Bonds and stocks across most of the region's continue to weaken. The sacrosanct 2Y Spanish bond yield has leaked back to one-month highs, 10Y Spanish bond spreads are holding above 450bps (as the yield presses back towards 6%), Greek stocks broadly have given back almost 40% of their recent much-aggrandized dead-cat-bounce (remember our Eastman Kodak analogy), as Greek banking stocks are hammered on the day as recaps (as expected) are much worse than it seems hope-filled investors expected... EURUSD is sliding back towards its swap-spread implied reality. Europe's macro data is breaking lower and while some note US' decoupling, we reiterate (below) this is a lag, not a decoupling.

By blaming this week's sell off on the coming fiscal cliff is another belief by market participants that Washington can fix our economy and our markets.

For all our UK readers, who hope some day to collect pension benefits, we have two messages: i) our condolences, and ii) you won't.   Why? The answer comes straight from the ONS:

The new supplementary table published by ONS in Levy (2012)10 includes the following headline figures for Government pension obligations as at end December 2010:

• Social security pension schemes (i.e. unfunded state pension scheme obligations): £3.843 trillion, being 263 per cent of gross domestic product (GDP) (£3.497 trillion at end of December 2009)
• Centrally – administered unfunded pension schemes for public sector employees (i.e. unfunded public service pension scheme obligations): £852 billion, being 58 per cent of GDP (£915 billion at end of December 2009)
• Funded DB pension schemes for which government is responsible: £313 billion, being 21 per cent of GDP (£332 billion at end of December 2009).

In summary, the estimates in the new supplementary table indicate a total Government pension obligation, at the end of December 2010, of £5.01 trillion, or 342 per cent of GDP, of which around £4.7 trillion relates to unfunded obligations.

With JCP's delayed reaction plunge-tastic drop today, it seems shareholders are waking up to the cash-burn and worries implied by the credit market...

It’s a safe assumption to make that the reelection of Barack Hussein Obama to the office of the United States Presidency will be talked about for decades to come. Like Franklin Roosevelt, Abraham Lincoln, and other “transformative” presidents before him, Obama will be praised for keeping the country together in the midst of economic difficulty. The lavishing has already begun with prominent voices on the left like Paul Krugman declaring the “new America” has made Obama their champion. Like most of what passes for accepted history, this is downright propaganda. The country as a whole wasn’t frightened over sudden change by throwing out the incumbent. It wasn’t a declaration of a new, more diverse America. There is a rational explanation for the President’s reelection which doesn’t invoke a deep or complex meaning. The only way to explain the outcome is in the simplest and direct prose: the moochers prevailed.

There was one, just one, country that escaped the bankster Mutually Assured Destruction singularity force field in 2009 and after destroying the financial overhang and starting from scratch, has become a paragon of growth in the New Global Depressionary Normal. Iceland (profiled most recently here). As such, what Iceland says is signal, and what the legacy masters of the abovementioned New Normal repeat day after day, is recurring noise. Here is the signal: when Icelanders were asked if they should join the EU, this is what they responded:

• YES - 27.3%
• NO - 57.6%

Q.E.D.

With AAPL's share price 'off the lows', hope is re-emerging that the company-that-can-do-no-wrong is back (23% decline aside). However, a funny thing happened on the way to the AAPL store. Digitimes is reporting speculating (via China Times) that the tech giant is preparing for trial production of the iPhone 5S in December with an iPad update shortly after. It would seem to us that Apple is scrambling - how does a three-month upgrade-cycle sync with a two-year non-free upgrade contract from the telecoms providers? It appears clear that few will participate and upgrade-cycle take-up estimates will have to be reduced. Furthermore, following in the footsteps of Bernanke's some-is-good so more-is-better strategem, we wonder whether the public will begin to adjust their behavior and delay purchase in an ever-decreasing sales loop since the iPhone 'n+1' is only a few months away... especially as the marginal improvement approaches its zero-limit.

On this day (-1) in 1918, Pvt. Henry Gunther of Baltimore, Maryland thought he saw a suspicious movement in the German trenches across the way. Fearing that the "Huns" were using the mid-morning sun to get some territorial advantage while the peace talks dragged on, Gunther decided to rush the suspicious area. Henry was fast but unfortunately, not invisible. A single shot from a German rifle struck him in the heart and killed him instantly. The time was 11:01 a.m. just 1 minute after the war officially ended, making Put Henry Gunther the final casualty of World War I.