Archive - Nov 15, 2012

While in the short-term the equity markets are falling, we are told again and again that if only we look just beyond the horizon, all will be unicorns and rainbows. The 'buy-and-hold'/invest-for-the-long-term mantra is what pays most of Wall Street's bills and keeps your wealth manager in his Hawaii vacation home. However, while the current jitteriness is ascribed (potentially wrongly as we noted yesterday) to the 'fiscal cliff', as Morgan Stanley notes, "A near-term fiscal cliff resolution won’t remove politics from the investing calculus, far from it. Developed-economy governments have significant negative net worth, which means that the public sector will ultimately impose a cost on the private sector. The political process will determine when and how the private sector bears the cost. This political uncertainty seems likely to remain a persistent and potentially critical factor for investors over the medium term. At a minimum, it will likely affect, detrimentally, the valuation of risky assets." Must read.

Let's see if Bush Sandy can be blamed for not only the Empire Fed, whose employment and expectations components plunged, for the Initial Claims, which soared and missed expectations by the second most in the past 13 years, but also for the Philly Fed, which just plunged from 5.7 to -10.7, far below consensus of 2.0, the 6th miss of the last 8 (except for last month of course), and returning to solidly negative territory after last month's "miraculous" pre-election surge. And while virtually all subcomponents plunged, the one that stood out to the upside was Prices Paid, as the margin collapse is set to ravage all companies not only in the greater Philadelphia region but everywhere else soon as reality, deferred for the duration of the Obama reelection campaign, slams everyone in the stomach.

For the third day in a row, gold and silver are being monkey-hammered at the open of the US equity market day session. Whether this is margin calls mounting or a dedicated 'hedger of client portfolios' is unclear, but fool me once - shame on you, fool me twice - shame on me, fool me thrice - ask Janet Yellen...

Until recently, the only question traders had to ask themselves was "how much more to buy?" The last week or so has left traders across the market now suddenly plagued by numerous questions. Will an Obama speech continue to be the catalyst for selling pressure to resume? Why is VIX 'low' when all around is asunder? When do the BTFD crowd step back in? Where's the 'wall of money' flowing now? From new issue demand to Italy's ratings agency trials and from bounce-buyers waiting for Godot to VIX's complacency, FBN's Michael Naso and Mint's Blain cover some of the conundra.

ith Israel having launched the biggest Gaza escalation in years, the waiting game now turns to the Gaza retaliation, which if the rhetoric is any indication, will be substantial. So what can Gaza do, and how far can its rockets penetrate, assuming they can bypass the Israeli "Iron Dome" defense shield? The following infographic from Stratfor explains it. The ranging is particularly relevant in the context of the Dimona nuclear power plant, which at least at first blush appears unreachable - after all, if Gaza really wanted to unleash the gates of hell on Israel, it would focus all of its firepower precisely on this one spot.

Hope - it appears - peaked at the start of the year in the US, following the global coordinated central bank pump which ramped it from lows to highs within a few months. All that hope - and then some - has now apparently faded. The General Business Conditions expected six months forward dropped to its lowest level since March 2009. What is perhaps worse, given the focus on jobs jobs jobs, is that for the first time since April 2009, the employment outlook for employment turned negative - suggesting firms are looking to reduce employees at the fastest rate in over three-and-a-half years. The hopium seems to have been depleted...

Get ready for the "it's all Sandy's fault" barrage, because the post-reelection status quo sure will desperately need it today. The latest initial claims data posted a multi-year high 104,548 surge in weekly NSA claims from 361,800 to 466,348, and even the Seasonally adjusted number soaring from 361K to 439K on expectations of a 375K print. In other words, a complete disaster for any economic data bulls. What is truly amusing is that the same Wall Street "experts" who set expectations were unable to foresee the Sandy effect that every "macrotourist" on Twitter apparently is so very aware of. Also, it is apparently also "Sandy's fault" (now that the Bush excuse is back in retirement) that the prior week's claims were revised from 355K to 361K. Basically, just as we said 3 weeks ago, ignore every negative data point: it is Sandy's fault. However, for the snapback, when there actually is good news to be had, well, "four more years." Finally, to all the Sandy apologists: is the logic here that: if Hurricane, then Fire everyone? Because that is what is implied. To summarize: a hurricane is good for GDP (lots of broken windows), but any actually negative news (surge in firings) is perfectly expected.

I don’t know where Obama learned his negotiating skills, but he needs a tutor.

Listening to Rehn, Van Rompuy, Juncker and their cohorts is rather like listening to the cheerleaders at the football game and their advice on financial matters is probably right in-line with the knowledge of the cheerleaders; but then I don’t want to insult the cheerleaders. Everything is always “good, fine, hailed, welcomed” and the sunrise is always moments away. Europe officially entered into a recession it was just announced this morning. The economy in Europe is so bad now that a picture is only worth two hundred words. The Europeans blame everything on the ratings agencies lately. There is some wisdom to this. “Moody” is how they are feeling and “Standard & Poor” is what they will be feeling soon. Recently in Spain it was reported that a teacher asked one of her students what his father did for a living. The little boy said his father did a striptease in one of the clubs in Madrid. The teacher was shocked and asked if this was true. The young fellow said, “No, he is the head of corporate credit for Bankia but I am too embarrassed to tell anyone.”

The World Gold Council issued a report “Global gold demand reflects challenging global economic climate: ETFs up 56% and India up 9% in Q3 2012”  which showed that global gold demand fell 11% in the three months to September from record levels seen during the same period last year, which was curbed by a sluggish Chinese economy and stronger Indian demand limited the drop. In Q3 2012, gold investment demand (total bar and coin demand plus ETFs and similar products) was 429.9 tonnes down 16% from Q3 2011. Although the year-on-year snapshot for investment demand suggests falling interest, this is not the case. Rather, it highlights the strong demand seen in Q3 2011. Interestingly, demand for ETFs rose 56% to 136t, compared to Q3 2011. Demand for gold-backed ETFs in Q3 grew significantly in the quarter partially due to institutions responding to the additional QE measures in the US and Europe. At 87 tonnes, Q3 2012 investment demand for gold surged from 78 tonnes in Q2, a rise of 12%. Examining this over the longer term, Q3 represents the first quarter-on-quarter increase in Indian investment demand since Q2 2011.

This is what the most brand name US hedge funds bought and sold in the third quarter.

• Wal-Mart misses topline expectations: Revenue $113.93bn, Exp $114.89bn, Sees full year EPS $4.88-$4.93, Exp. $4.94, Unveils new FCPA allegations; Stock down nearly 4%
• China chooses conservative new leaders (FT)
• Eurozone falls back into recession (FT)
• Moody’s to Assess U.K.’s Aaa Rating in 2013 Amid Slowing Economy (Bloomberg)
• Another bailout is imminent: FHA Nears Need for Taxpayer Funds (WSJ)
• Hamas chief vows to keep up "resistance" after Jaabari killed (Reuters)
• Obama calls for rich to pay more, keep middle-class cuts (Reuters)
• Obama Undecided on FBI's Petraeus Probe (WSJ)
• Battle lines drawn over “growth revenue” in fiscal cliff talks (Reuters)
• Rajoy’s Path to Bailout Clears as EU Endorses Austerity (Bloomberg)
• Zhou Seen Leaving PBOC as China Picks New Economic Chiefs (Bloomberg)
• Russia warns of tough response to U.S. human rights bill (Reuters)
• Japan Opposition Leader Ups Pressure on Central Bank (WSJ)
• Zhou Seen Leaving PBOC as China Picks New Economic Chiefs (Bloomberg)

The main overnight event, if not very surprising, was the formal announcement of the power moves at the top of China from the now concluding 18th Communist Party Congress, which occured largely as expected. To summarize: "Xi Jinping took the helm Thursday of a new, trimmed down Communist Party leadership that insiders said was shaped less by the daunting economic and political challenges facing China over the next decade than by bitter personal and factional rivalries within a secretive Party elite.  In a surprise move, Mr. Xi replaced outgoing Party chief Hu Jintao as head of the powerful Central Military Commission, which controls the armed forces, making Mr. Hu the first Communist Chinese leader to cede all formal powers without bloodshed, purges or political unrest. But the new leadership lineup did not include the two figures with the strongest track record on political reform, dimming prospects that a new generation of rulers is committed to tackling vested interests within its own ranks." In other words and just like after the US elections - to quote the announcement during every 2:15 FOMC release from now until eternity - "no change, repeat, no change" (and the SHCOMP closing down 1.22%, and the Hang Seng down by over 1.5% more or less confirmed this). An interactive infographic of who's the new who in China can be found here, while a summary of what this means and what to expect are here and here.  Elsewhere, the other main event was the formal announcement that, as everyone certainly expected, Europe officially is now in a recession. The euro-area economy slipped into a recession for the second time in four years, with GDP falling 0.1 percent in the third quarter. The official start date of Europe's recession is now Q3 2011. And with October Eurozone CPI pushing at a perky pace of 2.5%, one can add stagflation to the official list of terms haunting Europe.

With impeccable timing