Archive - Nov 2012

A mere three weeks ago, Nomura's Bob Janjuah forcefully suggested that complacency warranted a tactical risk-off position given the misplaced confidence heading into the plethora of event-risk ahead. It seems, 60 points later, that he is on to something; but this time he is more critically concerned: "Investment decisions based largely on the greater fool theory and predicated by the assumption that central bankers can sustainably and credibly misprice money, supporting a significant misallocation of capital, without any major negative consequences, are in general not good investments."

Question: Is the goal still to get Greece's debt to 120%?

Juncker: The fact is that the target of 120% will remain, but the target as far as the time frame is concerned has been postponed to 2022.

[Laughter in the room]

Juncker: That was not a joke!

Sometimes a picture paints a thousand words. In the case of this chart, it paints an expectation of around 300 S&P points (to the downside). The strange symmetrical exponentiality of the last four years can only be marveled at in its reflection of greed and fear catalyzed by the machinations of an increasingly impotent central banking cartel. Trade accordingly.

In a shining example of the law of unintended consequences, when 2012 started Wall Street bankers had expected that all it would take for bonuses to surge and offset 2011's deplorable comp, is another round of QE. Well, QE came and went, not only in the US, but virtually everywhere else, and sure enough the market traded up to new 5 year highs (and just why of all time highs as well), yet something was not going according to plan: bank revenues. Another side-effect of the Fed buying the long end is everyone piling in and frontrunning Bernanke in the 10-30 Year segment, flattening the curve, and making Net Interest Margin profitability a thing of the past. The result has been a year in which despite stocks rising, banker pay is set to tumble even more (for those lucky enough to still even have a job that is, which for UBS and Nomura means about 80% of the employees a year ago) with traders of cash equities and derivatives set to see another 20% drop in comp from 2011 according to Options Group. The end result: 2012 all in comp will be half of what it was in 2007. Say goodbye to the Master of the Universe - they will now have to settle for a galaxy or two at most.

We expect a return to a skittish environment in markets. We are confident in my prediction for the course of the economy by leveraging simple game theory in handling the upcoming crisis as Congress returns for its lame duck session. “Compromise” reflects a decision from either side that each find unpalatable. Both President Obama and Speaker Boehner would rather shove two sticks in their eyes than move from their hardened stance despite some of the recent rhetoric in favor of bargaining in good faith.  As long as the loss of utility from both sides’ digging in their heels is more favorable than conceding to the preferences from those across the aisle, then the game arrives at a Prisoner’s Dilemma. the above matrix concludes that the fiscal cliff virtually guarantees an aggressive selloff for equities until the stop loss for the Democrats and Republicans has been triggered.  For example, if the clock hits midnight on New Year’s Eve with the blue chip index at or near its September peak, each faction would feel comfortable standing up to the other well into January.

If you still listen to your Brand Name sell side broker, do you deserved to be Grouponed? Is the term muppet an attack or a description? 

Markets, you see, always live in this “day before” where the bend in the highway never comes, where the path is always straight and fixed and where it is generally thought that nothing of consequence will happen. Then some event takes place, something magical or wonderful or awful occurs and the world is turned on its axis and nothing is ever the same again. We are in danger, “clear and present danger” and the strategy of the “day before” is no longer appropriate. $400 billion has poured into bond funds this year, an all-time record, with yields at depressed levels indicating a quite real flight to safety. The United States lost thirty-six percent of its wealth during the American Financial Crisis and, people or institutions, the song rolls across the landscape, “We won’t get fooled again!”

• The Bild is now a source for EURUSD stop hunts: Germany eyes 'bundled' loan payment to Greece-paper (Reuters, Bloomberg)
• Congress comes back Tuesday to confront “fiscal cliff.”  (Reuters)
• Gen. John Allen ensnared in Petraeus scandal (Politico)
• FBI Agent in Petraeus Case Under Scrutiny (WSJ)
• Comcast's NBCUniversal unit lays off 500 employees (Reuters)
• University Fees Stoke U.K. Inflation (WSJ)
• Consumers Closing Wallets in Japan Add to Noda’s Woes (Bloomberg)
• John McAfee Wanted for Murder... and explaining bathsalt anal suppositories (Gizmodo)
• Europe Gives Greece 2 More Years to Reach Deficit Targets (Bloomberg)
• Where Spain Is Worse Than Greece (WSJ)
• Microsoft's Windows unit head, once a possible CEO, exits (Reuters)
• Glitch stops NYSE trading in 216 companies (FT)
• Large European Banks Stash Cash (WSJ)
• The death of San Bernardino: How a vicious circle of self-interest sank California city (Reuters)
• Apple stores most productive US shops (FT)
• Treasuries See U.S. Falling Over Cliff as Yields Converge (Bloomberg)
• Bra-Bodysuits Make H&M One Hit Wonder as Zara Prospers (Bloomberg)

It wouldn't be the New Normal if the basket case that is Europe, and its amusingly named "Union", didn't somehow manage to trip over itself. This is precisely what happened last night at the European finance ministers meeting after IMF head Lagarde and pathological liar and chair of the Europe's mostly broke Finance Minister, Jean-Claude Juncker, openly disagreed with each other, an event even the FT called a "feud" after they proposed two alternative visions for Greece, one which envisioned the 120% debt/GDP debt target goal pushed forward to 2022 (for Juncker), and on the other hand, IMF, which has been humiliated enough with its horrible predictions, and which refuses to budge from its 2020 Greek target. Per the FT: "In a rare breach, Mr Juncker told a post-meeting press conference the target would be moved to 2022, prompting Ms Lagarde to insist the IMF was sticking to the original timeline. When Mr Juncker again insisted it would be moved – “I’m not joking,” he said – Ms Lagarde appeared exasperated, rolling her eyes and shaking her head. “In our view, the appropriate timetable is 120 per cent by 2020,” Ms Lagarde said. “We clearly have different views.” Officials will meet again November 20 in an effort to reach agreement, Mr Juncker said. Despite the delay, officials insisted Greece would not default on Thursday, when Athens must make a debt payment of about €5bn without the benefit of international aid." Nothing like total coordination and organization within a monetary union that may not exit if Greece does not make its November 16 bond payment, which it likely will, by issuing debt and forcing the ECB to accept it as eligible collateral so that Greece can roll the maturity. And concluding this hilarious incident was Juncker's statement this morning that there is "no real dispute" with the IMF. When it gets serious...

First, we'll have a G Male orgy, then we'll go fire up the drones.

Fiscokiller, fa fa fa fa fa fa fa fa fa fa

Two months ago, when we commented on Apple's pyrrhic courtroom victory in which it managed to halt sales of older generation Samsung smartphones - a "victory" which would backfire with Samsung phone sales soaring, while AAPL results missed, forcing the company to accelerate its product launch cadence to a ridiculous 3 months with news that the iPhone 5s is already in the works a month after the launch of the iphone 5 -  we said "The paradox here is that AAPL's victory is quite pyrrhic: if and when Samsung feels sufficiently threatened, it can just pull a Gazprom and halt the supply of mission critical components to the world's biggest publicly traded company." Naturally, the hyperbolic all out response would mean an immediate nuclear war of attrition between the two electronics giants. Instead Samsung would be even better served to show Apple who is boss in quantized increments. Today, it has done just that, forcing Apple to swallow a 20% price increase on hundreds of millions of Samsung application processors used in iPads and iPhones. "Apple first disapproved it, but finding no replacement supplier, it accepted the (increase.)" Game, set, match Samsung.

Following the disaster at the nuclear power plant in Fukushima last year, nearly all of Japan’s reactors have been shut down. The only power plant to remain operational today is the Oi nuclear plant in western Japan. A geologist working as part of team looking at the power plant, its location, and the geological history of the area, has now stated that the power plant is built on top of a fault line that can be described as ‘active’, and advises that it be shut down immediately. Watanabe fears that any seismic activity on this fault line could cause a catastrophe similar to the one at Fukushima; although his colleagues on the advisory panel disagree.