Archive - Dec 17, 2012

Buried in the Empire Fed manufacturing data is the forward expectations for Prices Paid and Prices Received. Taken together, somewhat obviously, they reflect businesses views of their margin expectations for the future. For seven of the last nine years, this future margin expectation has risen from mid-year into the end of the year (whether hope-driven or real fundamentals is unclear), but this year, the picture is very different. For the first time since 2007, future margin expectations have plunged into year-end as expectations for prices-paid have notably risen relative to expectations for prices received. Though the sample is small, the last time we saw such a huge divergence from the seasonal tendency for margin expectations was followed by an equity market reaction many would prefer not to remember.

We suspect even the CNBC anchors were somewhat taken aback by the babbling of the now infamous David Tepper this morning. A lot of bluster to basically tell us not to fight the Fed and ride the wave - as far as 'mistakes' in the past "Hi Mom" and "my friend likes your friend" was the omnipotent manager's response. However, Tepper's main thesis, reiterating his September 2010 speech, that 'all voluntary action abandon to the Fed, ye who trade these manipulated markets' remain in place. So how has that worked out for i) Tepper, and ii) those who continue to refuse to yield to Central Bank authority? See below...

Whereas last month's negative print in the Empire Fed index (which beat expectations), was attributed to Sandy, it will be difficult to see what attribute can be blamed for this month's major miss, in which the NY Fed just disclosed a -8.1 General Business Conditions update, down from -5.22, and below expectations of -1. This was the fifth consecutive month in which the index has printed negative, and the 6th miss of the past 9 reports. The new orders index dropped to -3.7 from +3.08, while the shipments index declined six points to 8.8. At 16.1, the prices paid index indicated that input prices continued to rise at a moderate pace, while the prices received index fell five points to 1.1, suggesting that selling prices were flat. Bad news for anyone that needs positive margins (i.e. everyone). But that's ok, because the Hopium index, i.e., the Six Month Ahead index, which is the only thing those who fail to see what Bernanke's just announced $1 trillion injection means for the economy have to fall back on, rose from 12.88 to 18.66. So it is all about the future, forget the present, but whatever you do, don't look at the forward Prices Paid indicator which soared to 52, the highest since May: surely NY corporations are optimistic due to the fact that they can now kiss margins goodbye for at least half a year.

"Greece is not Japan" - at least that is the forecast reality when comparing official IMF projections for the two depression-torn countries. Yet one needs to see the projected GDP/debt chart side by side to truly appreciate the humor and lunacy of Greek economic expectations. We give Greece 3-4 years before its ongoing socio-economic collapse, and its relentless plunge in GDP, brings it on par with Japan's basket case economy. End result: both countries will proudly sport debt/GDP in the 250% ballpark by the middle of the decade. But for now, let's pretend that Greece is not Japan.

• New Calls for Gun Limits (WSJ)
• Funerals begin for Newtown victims as schools confront tragedy (Reuters)
• Introducing The Stock Trader of the Future (WSJ)
• Feds knocking on 72 Cummings Ave door any minute now? SAC E-Mails Show Steve Cohen Consulted on Key Dell Trade (BBG)
• China Signals Tolerance of Slower Growth After Meeting (BBG)
• Huge mandate for Japan's LDP may be less than meets the eye (Reuters)
• UBS Said to Face $1.6 Billion Libor Penalty This Week (BBG) - shareholders pay, and nobody goest to jail
• Treasury Plan Would Cut Rates on Some Mortgages in Bonds (BBG)
• Egypt opposition calls for protests against basic law (Reuters)
• Euro Crisis Will Linger, Merkel Tells Summit (WSJ)
• Economic slowdown throughout euro zone a worry for ECB: Liikanen (Reuters)

At a time in the year when the market should be at a standstill, and when all trading should be over, the tension in the S&P is unprecedented, driven by two main factors: the ongoing Fiscall Cliff confrontation, which now appears set to not be resolved by Christmas, and very likely to persist into the new year, and what happens with hotel AAPLfornia, as suddenly it has become a liability to show LPs any holdings of the fruit in the year end statement. The two events combined will likely see furious market volatility persist well through the year end, and since volumes will further die down, we may well see massive stock moves on odd lots. And while AAPL is trading under $500 for the first time since February following last night's Citi downgrade, the confusion over the Fiscal Cliff persists, with The Hill first reporting that Boehner is willing to cave on the debt ceiling extension,  even as Boehner himself subsequently tweeted that "Any increase in the debt limit will require a greater amount in spending cuts and reforms." So back to square one, with a red herring proposal that Boehner can say we offered to the president and the president turned down. Japan continues to attract a lot of attention with the ADHD market desperate to hope that the coming of Abe 2.0 will be much better than that of 1.0, when in one year he achieved nothing and then resigned due to diarrhea. Judging by the action in the USDJPY, we may be a few short hours away from closing the gap that sent the pair to 84.30 first thing, and proceeding to unwind the near record JPY commitment of traders short position as the JPY realizes this time will not be different. Quiet calendar in the US, with the Empire State Manufacturing Index expected to print at -0.5 at 8:30 am Eastern, TIC data to show China's ongoing TSY boycott at 9 am, and a hawkish Jeff "Mutiny on the Eccles" Lacker speech at 1 pm.