Archive - Dec 20, 2012

Update: market so far seems to be happy with extracting cash from working capital so is squeezing the shorts 8% higher after hours

Moments ago Blackberry stock was halted in advance of earnings. Here they are.

The good:

• Revenues: $2.72bn, Est. $2.66 bn - beat
• EPS: -$0.22, Est. -$0.35 - beat
• Cash increase of approximately $600 million to $2.9 billion; Cash flow from operations was approximately $950 million

The bad:

• Subscriber base: 79 million, down from 80 million
• Phone units sold 6.9 million, down from 7.4 million
• RIM's Chief Information Officer, Robin Bienfait, announces retirement
• "The Company expects that there will be continued pressure on operating results as it gets set to launch its BlackBerry 10 platform in the fourth quarter"

There have been very few times where in my 40+ years of capital markets participation that I’ve strongly believed that we have witnessed a significant, material, public but seemingly under-discussed, under appreciated watershed event that will over the next several years, impact capital markets in a profound manner.  The recent announcement by the Fed that they were to pursue the future course of monetary policy with direct regard to a specific, numerical level of unemployment in my mind, represents exactly one of those rare events. While the optics of the recent decision to accept an active target of the unemployment rate might be well meant, socially responsible and politically correct, the dependency upon the single datum construct already of a highly controversial nature may well likely reduce further the credibility of the Federal Reserve’s monetary efforts, thereby leading to slower economic growth, hiring and economic well being as adverse unintended consequences. Indeed, another triumph of form over substance wherein appearances of a literally wondrous intent might soothe the fevered brows of the public but remain entirely within the manipulative province of the data managers.

The Bernanke Banking Put enriched the banks, extended the unemployment line, and created a margin call in the retail specialty sector. All in a days work.

If one reads sellside research (especially that of Bank of America or Goldman), if one listens to comedy-finance fusion TV channels, if one reads newspapers, one can't help but be left with the impression that everyone and their grandmother is now dumping Treasurys and buying stocks. Why - because this is a key part of Bernanke's latest masterplan (which is the same as all his previous "masterplans", which have failed so far about 4 times previously) to force what little retail investing capital is left out there out of the safety of bonds (return of capital), and into stocks (return on capital). The catalyst? This time, for real, central planners will generate enough (controlled) inflation to create losses for anyone holding long duration paper (such as the Fed of course, whose DV01 is the biggest in the history of the world at over $2 billion, but we digress). So just to test whether or not this was indeed the case, we decided to go to the source data for what the smartest money of all is doing: the 20 or so (RIP 21st PD MF Global) primary dealers. After all, if everyone is dumping Treasurys over fears of an imminent surge in yields, and rotating into stocks, it would be them right? Well, the result is charted below: we present it without commentary.

With precious metal prices echoing 2011's year-end plunge, it is perhaps worthwhile considering the bigger picture. To wit, Central banks in emerging markets have increased their purchases of gold in recent years to bolster their rapidly growing currency reserves as the global financial crisis unfolds. Brazil, until recently, held only 0.5% of its foreign reserves in gold, but as Bloomberg reports,  the nation's official holdings of gold now stand at 2.16 million troy ounces - double the 1.08 million ounces it held in August. Brazil's foreign currency reserves grew USD807mm in November (during which the nation bought 472,000 ounces of gold) as "anecdotal reports suggest that demand from central banks will remain strong." As one analyst opined, "Central banks will remain a source of demand in the gold market," as is increasingy obvious in the chart below, "liquidity is paramount and gold will deliver."

It would appear that despite the market's apparently self-fulfilling 'proof' that we will not go over the cliff, that investors are far less exuberant than the indices would suggest. Today credit and interest rates markets are not following along and over the last two days, implied volatility (VIX) has been significantly bid as prudent investors appear comfortable (or stuck) holding their near-record net longs (as long as they are put-protected)... The volatility term-structure has flattened significantly (14 month flats) as short-term put buyers are very active (and not just in HLF).

Good news for all those who have nightmares about the prospect of peak oil: scientists have discovered an oil field which has a gargantuan 155 quintillion barrels of oil, or about 200 times more hydrocrabons than there is water on earth. There is however, a catch: the field is located some 1,300 light years away.... The good news, for all the Keynesians out there, is that the idea to build the Death Star, as proposed first on Zero Hedge, may finally get some life, especially if the Death Star is provided with some exploration and production capacity. And what self-respecting Keynesian wouldn't salivate at the prospect of injecting $852 quadrillion of debt growth into the economy at this time?

The equity market is seemingly paralyzed now in anticipation of the vote to take place later today. In the meantime, Speak Boehner is about to rally his team for the big game. With Harry Reid (and the Schumer sideshow) already out this morning, we suspect the hushed chants of "fight, fight, fight" will be heard in the background as the speaker takes the podium... ES 1433.50

Something BIG surely must be coming to justify the ferocity of the cartel. We will wait and see, and wonder where they are getting the physical to pull this off. Non-physical gold investors may come to better understand the phrase "getting Corzined".

And at the end of time all there will be is ground zeroes...

The subject of inflation has remained an emotionally charged topic of debate over the last several years.  As rising prices for individuals, and businesses, has negatively impacted their prosperity; reported inflation has remained at very low levels.  With the Fed pumping trillions of dollars into financial system the fear of much higher inflation, as the dollar is debased, has caused gold prices to soar in recent years. The sole purpose in measuring inflation is to help businesses, individuals and government adjust their financial planning for the impact of inflation.  Inflation erodes future purchasing power, and decreases economic prosperity, if not accurately accounted for.  The accuracy of measuring inflation, and accounting for it properly, is essential to long term economic prosperity. Shortly after Clinton entered the White House the Bureau of Labor Statistics (BLS) altered the calculation of inflation by changing the weighting of goods in the CPI fixed basket. But the manipulation of the data did not stop there.

When people throw around "trillions" (and in the case of local-denominated Japanese debt and/or total outstanding gross derivatives, quadrillions) with the facility that mere billions was being dispensed with as recently as 5 years ago, it is easy to lose sight of the big picture. So what is the big picture? Well, recall the following quote from Warren Buffet's letter to investors: "Today the world’s gold stock is about 170,000 metric tons. If all of this gold were melded together, it would form a cube of about 68 feet per side. (Picture it fitting comfortably within a baseball infield.) At $1,750 per ounce – gold’s price as I write this – its value would be $9.6 trillion....You can fondle the cube, but it will not respond." Gold is now 7% lower, and even when netting incremental mining production in the interim period since this letter was written, one can roughly say that the total value of all gold in the world is $9 trillion. In other words, in 2013 the Fed, alone, excluding all the other central banks, which as we pointed out earlier is vary naive, will conjure out of thin air enough 1s and 0s, equivalent to $1 trillion, or enough money to buy 11% of all the gold in existence in the world. Add all the other central banks, all of which are now engaged in "unlimited easing", and this number will likely rise to about 20% of total. 

While the Feinstein-Lee Amendment wasn’t perfect, it was a small step forward as Mike Krieger outlined in his piece:  My Thoughts on the Feinstein-Lee Amendment to the NDAA.  Amazingly, this small victory has been stripped out of the final bill by our “representatives.”  If this doesn’t prove without a shadow of a doubt that this government is criminal and wants the power to lock up citizens without trial we don’t know what will.

Following Cantor's explanation of the 'bill', we thought it useful to consider a quick-and-dirty scenario outline for the FX (and implicitly market) implications of today's 'Plan B' vote.