Archive - Nov 6, 2012

While little makes sense any more in the New Bizarro Market normal, Dow Jones believes it may have stumbled upon one "reason" for the stung like a bee 11:30 am market ramp. Markets proved once again that they are far from the paragon of efficiency that so many prefer to proclaim - bending their movements to the headline of the day to prove one's point. Today was a perfect example. Efficiency at its best...Total no news = 10 S&P points

T minus 7 hours. That is how long until both all important Florida and Ohio polls close. As previously explained, whoever gets these two states will almost certainly carry the election, which means that by 8pm Eastern, the marginal votes will be in, and shortly thereafter one after another media organization and network will begin calling both these two states, and the election, for either the Democrats or the GOP (at which point the litigation and recount demands can begin). The complete guide to the closing times of the polls in assorted East to West states, together with their respective seats in the electoral college, is shown below, although it is likely that long before California polling is even concluded the next president will already be known.

Predictions regarding the election outcome are all over the place. Dennis Gartman for instance thinks that 'Romney will win quite handily'. While this opinion may be largely informed by wishful thinking in this case, there are two interesting points made by Gartman. One concerns poll errors, and the other the Bradley (or Wilder) effect (or 'political correctness effect' - i.e., it is not motivated by racism, but by the fear of people that they might be seen as racist). Jim Cramer is taking the exact opposite view from Gartman's, expecting a 'landslide' victory for Obama. Of course Cramer wouldn't be Cramer if his forecast didn't stand out for being a bit extreme. The Princeton election consortium's latest update of the meta-analysis of the electoral vote count on the eve of the election continues to predict an Obama victory as well, but clearly the race is getting tighter. However, across the pond, it is clear that the Europeans see the election (and indeed any election it seems) very differently, highlighting their ignorance of the difference between 'total capitalism' and 'crony capitalism'.

Following the biggest drop in almost five months, Gold has bounced hard off its 100DMA as it goes vertical - rising the most in two months. Breaking back above $1700, we can only speculate that this cross-asset class ramp is due to rumors that Bernanke is currently in the lead in Ohio... Spot Gold $1715 as we post...

 Markets have found a good excuse to be on hold. Elections. No real US figures and a tendency to ignore European ones. No shoe dropping means upside, a little. Core EGBs rather firm nevertheless, for choice. Periphery, in absence of news, trading back and forth, so better today. EZ Q4 growth looks like stalling with a catch-up of a more lenient summer. More to come.
"Elected " (Bunds 1,43% +1; Spain 5,64% -9; Stoxx 2513 +0.5%; EUR 1,281)

Since early this morning when Germany dropped its nasty econ bomb, the US has been bid. It's not like Europe was sold, it's just that US Treasuries, US Equities, and US-denominated Gold have been on a tear (as the USD has been sold). Equity volumes remain dismal but apart from a near-vertical snap up to VWAP, AAPL has been going the opposite way all day (down!)... Or perhaps, now that Europe is closed, someone just leaked the election results given that ridonculous surge in S&P futures?

"Capitalists seem almost uninterested in Capitalism" is how Clayton Christensen describes the paradox of our recovery-less recovery. In an excellent NYTimes Op-ed, the father of the Innovator's Dilemma comments that "America today is in a macroeconomic paradox that we might call the capitalist’s dilemma." Business and investors are drowning in Fed-sponsored liquidity (theoretically, capital fuels capitalism) but are endowed with what he calls the Doctrine of New Finance - where short-termist profitability guides entrepreneurs away from investments that can create real economic growth. We are trying to solve the wrong problem. Our approach to higher education is exacerbating our problems. There is a solution, it's complicated, but Christensen offers three ideas to seed the discussion.

For certain, no matter who wins today, Europe’s a complete disaster. Greece is once again out of money and will need someone (though at this point it’s not clear who is willing to pony up the cash) to foot the bill. Elsewhere, Spain continues to lurch to a full-scale collapse. 

Few charts capture as effectively the shift in foreign demand for US Treasurys over the past 4 years, or under the Obama administration, as the following two, courtesy of the latest TBAC Q4 refunding presentation. They are quite self-explanatory.

There are few practical limits on presidential power. This is a key dynamic in the failed presidencies of G.W. Bush and Barack Obama. If you're not familiar with the term The Imperial Presidency, you soon will be. Presidents before G.W. Bush and Obama managed to perform their duties with a handful of Executive Orders--five per term seemed about average. President Bush issued 160 in his first term while President Obama has so far issued 139.  The implicit claim by defenders of essentially unlimited presidential power is that these broad powers are needed to run the American Empire. No Establishment figure would dare openly state that the U.S. operates a military, diplomatic, financial and commercial Empire, but that is nonetheless the case being made to justify the Imperial Presidency: an Empire requires an Imperial President with broad powers to act not just in the domestic economy and society but anywhere in the world. What we need is not a new president but a new presidency. Unfortunately neither candidate has expressed any interest in limiting the powers of the Imperial Presidency.

Rochdale Securities executes a trade levered at 294x its capital base, in direct contradiction to BoomBustBlog research & FINRA arrives with a fire hose to wet the smoldering ashes.

Presented without comment - adding anything to this concise summation of the state of the union is superfluous...

Gross: Whew! It’s over. To the victor belongs the spoils of political power but to the US voter only continuing frustration will accrue.

— PIMCO (@PIMCO) November 6, 2012

We have discussed in detail the potential ramifications of a 'close' vote (here, here, and here), and only yesterday UBS Art Cashin opined on the potential for an 'embarrassing victory'. Today, the wizened market participant turns the rhetoric dial to 11 (and rightly so) as he warns "pray it's not close" for fear of the polarization of the populace that could occur. If Florida 2000 was a horror, a close election this year could present six or seven Floridas.

Forget Florida. This election it is all about Ohio: without Ohio, Romney's winning chances plummet (as can be observed at the following interactive chart), even if one ignores history which is that since 1862 no Republican has won the presidency without winning Ohio. This is a fact well-known to the Obama administration, which explains why the incumbent has spent so much time in the ravaged state, where he has spent so much time ruminating on the the Ohio "unemployment rate miracle." Sure enough, in September, the Ohio unemployment dipped to 7.0%, the lowest since September 2008! On the surface, a tremendous metric and great improvement for a state that would have certainly been firmly in the pro-GOP camp had Obama not been able to hammer on this statistic time and time again. Yet, as always, the unemployment rate is only part of the story. The bigger question is whether or not another data set is being fudged to make the Ohio jobs situation appear better than it is in real life. The answer is, predictably, yes.

Ahead of today's presidential and congressional elections, Goldman provides some brief thoughts on various election-night (and beyond) events. From a viewer's guide to the poll-closing times to a discussion of the apparent 'closeness' of the race and post-election market performance, they note that equity performance post 'tight' races has been better than in elections where the winner is more clear-cut. This election has a twist though in that it will be immediately followed by debate on the fiscal cliff, and thus resolution of the election will reduce, but not eliminate policy uncertainty.