Archive - Nov 9, 2012

With the varied interests of constituents very much in mind, finding a compromise over taxation will be worse than Sisyphean in nature we suspect. CNBC's Rick Santelli offers a strawman, that gets around Norquist's 'pledge' and perhaps provides cover for both parties. The Chicagoan recognizes that what seems like a high-salary to some is very much not to others and suggests instead of focusing on the income, we should focus on the wealth. This is not the first time such a proposition was suggested (as we noted 14 months ago that 'muddle-through' was over and "we are confident, that one way or another, sooner or later, it will be implemented. Namely a one-time wealth tax: in other words, instead of stealth inflation, the government will be forced to proceed with over transfer of wealth") Strawman or not, the fact that Santelli is discussing it (and demurs on whether he has been contacted) means it is on the table...

The query in question? "Renounce Citizenship"

Europe had wanted a rebound, tried to hold on, panicked, sold off, triggered stops – and recovered as the US, although not rebounding fast and furious, at least held the line. EGB running a little out of steam, although August levels were traded again in Bunds. Periphery eventually tracking Risk, but with no own dynamic. Need to see how things close tonight. No More.
"No More" (Bunds 1,34% -2; Spain 5,81% -3; Stoxx 2481% +0,1%; EUR 1,271)

Most European equity and sovereign bond markets suffered their biggest loss this week in the last six. Thanks to a somewhat notable rally from the US open today into the European close (seemingly driven by AAPL's bounce off its 55-week average and S&P 500's bounce off 200DMA), things don't look like the 'worst week in six months' that we had been expecting. European credit markets moved tick for tick with stocks - though we note risk appetite does not seem to be following through in high-yield credit. Spanish bond spreads rose 27bps on the week (and Portugal 45bps) as Europe's VIX closed up 2 vols on the week at 22.35% (well off its highs of the day at 24.75% which are two-month highs). EURUSD slid below 1.2700 into the European close (down ~200pips from the highs) - its lowest in two months.

Does China have what it takes to get from here (industrialized export economy) to there (sustainable growth, widespread prosperity)? The same can be asked of every nation: do they have what it takes to move beyond their current limitations to the next level? Consider corruption. Corruption isn't just a "values" issue: corrupt societies have corrupt economies, and these economies are severely limited by that corruption. A deeply, pervasively corrupt economy cannot get from here to there. Corruption acts as a "tax" on the economy, siphoning money from the productive to the parasitic unproductive Elites skimming the bribes, payoffs, protection money, unofficial "fees," etc. By definition, the money skimmed by corruption reduces the disposable income of households and enterprises, reducing their consumption and investment... Pull aside the curtain and what you find is a China crippled by corruption and debt.

Now that I've released my early Apple research and the collapsing stock cat's out the bag, I hear very, very few Margin Compression theory bashers. Crickets anyone? Let's dissect the near 25% drop and how I made the call.

What's Obama going to say?

Shortly, Speaker John Boehner will provide some clarity to what was heralded by so many hope-mongering media types as an olive-branch in his previous speech. We suspect the fire and brimstone will pick up modestly while there will be just enough to offer hope that all our fears are misplaced. This apparent pre-buttal of Obama's 1pmET speech will set the tone for how these two 'colleagues' will play for the next few months... perhaps the "Don't Tax Me Bro'" t-shirts will raise enough taxes to cover the shortfall?

Last week we suggested a reason why the market was unable to hold on to the Bernanke bid. The relative plunge in Goldman Sachs 'bottom-up' Analysts Index (GSAI) suggested that the macro 'strength' that market-savants were so focused on, could perhaps be election-biased (blasphemy). It seems this macro 'strength' divergence (highest since 1996!) from micro 'weakness' reality was enough to get the Goldmanites thinking - and unfortunately for all the cautiously optimistic managers out there, they are not hopeful. As Jan Hatzius explains,  "the GSAI remains closely correlated with other bottom-up measures, including the S&P 500 sales guidance diffusion index; and while one possible explanation is that S&P 500 companies are more exposed to non-US demand than the US economy at large, and the US has been a relative outperformer. But it is unclear whether this accounts for all of the weakness, or whether the bottom-up weakness also holds some additional leading information for the macroeconomic data."

By now everyone knows how Americans feel about America: one quarter of the population (the half of the less than half that voted) is convinced the US is plunging into a socialist void that would make the USSR proud, another quarter of the population is furious at the wealthy and demands that they be taxed up the wazoo because "they didn't build that" but certainly profited from it, and is demanding wealth and income redistribution, while the silent majority is quietly picking up whatever pieces it can, and batting down the hatches, seeing very well, beyond the fog of bias and subjectivity, the inevitable epic deleveraging disaster, followed by even more epic printing that is coming this way. But how does the rest of the world see the US, especially now that the fiscal cliff (and the much less discussed debt ceiling debate: why, we don't know - it was "merely" the debt ceiling that led to a 20% drop in 2011). Yesterday, German financial media Spiegel provided a glimpse into just how Europe, which is in deep feces itself, sees America. The verdict: the next Greece.

Earlier we asked a simple question:

What time is the all time highest UMich Consumer Sentiment out?

— zerohedge (@zerohedge) November 9, 2012

the answer is 9:55... and while not an all time high, LOLfidence, pardon, CONfidence just printed the highest number since July 2007!

Here's why you shouldn't trust sell-side research analyst expectations. Their 'normal' pattern is extrapolate trends in a lemming-like chase to be the headline-maker of the day ($1111 AAPL price-targets for instance) and then - when it's just too obvious (or when the company in question actually 'misses' what they extrapolated by a mile cough JCP cough) - they knee-jerk react at turning points - when it is already too late. So the next time someone on TV 'projects' value based on earnings or tries to convince you to part with your hard-earned money on a stock with great earnings prospects, perhaps this chart will remind you to reduce that exposure. The simple fact is - they do not know; and with the macro 'forest' becoming increasingly binary in its outlook, focusing on the micro 'trees' and supposed 'diversification' is irrelevant as correlations snap and as Goldman notes 'big revisions are the norm' as bottom-up earnings data (guided by the ever cautiously optimistic CEOs) is always slow to reflect much weaker macro data.

Just out from Bloomberg:

• RBS, UBS TRADERS SAID TO FACE ARREST WITHIN MONTH IN LIBOR CASE

Note the word "traders" - not CEOs, not COOs, not General Counsels, not Managers, not Supervisors... Traders. Because remember: it was a scheming 28-year old Frenchman that was the mastermind behind Goldman's CDO fraud for years. Nobody else. Just him. That said, we are looking forward to the latest minimum prison reality TV show: "How Many Cigarettes* For A Bollinger?"

We outline various fundamental and technical characteristics of each of the three stages of a standard rally such that one could use the blueprint in identifying an imminent top. The table below leverages statistics compiled from the prior decade from various selloffs (i.e. > 7%) which have produced consistent patterns that help traders ascertain the potential depth and duration of the current downward move.