Archive - Dec 2012

Our Interests Are - Of Course - STRICTLY Academic

Yesterday, while the market was absolutely euphoric that a Fiscal Cliff deal was imminent in the aftermath of the release of PR theatrics also known as "Plan B" we said:

GOP plan passes Congress, is blocked in Senate and Boehner can say it is the Democrats fault US is going over the Cliff

— zerohedge (@zerohedge) December 18, 2012

Moments ago, Boehner confirmed that, at least as of this moment, this is precisely the plan, when he said that tomorrow the House will pass legislation extending tax cuts on those with incomes over $1 MM. He added next that Obama can either convince the Senate to pass "Plan B" (which won't happen) or be responsible for the largest tax hike in history. And now the ball is in Obama's court, where things look increasingly bleak that any further compromises are imminent, and the only thing that Obama will retort with is a veto to the House's vote.

After spending a few seconds earlier discussing gun law, President Obama discussed at length how Plan B is a no-go, how he has come more than half-way, and how Boehner seems happy to allow those earning $800k or $900k to 'get away' without paying more taxes. Speaker Boehner's rebuttal is due at 215ET... ES at 1437.5

Back in May, Herbalife stock got monkeyhammered when one of the best performing hedge fund managers of the past few years, David Einhorn expressed a bearish thesis in the company. Today, the stock just got the double tap following no new information, but merely the second part of the Einhorn-Ackman-Loeb activist triangle (who most of the time operate as an informal cartel), as it plunged by over 10% when William Ackman, smarting from the hundreds of millions lost in JCPenney just piggybacked on Einhorn's thesis, as reported by CNBC, said he is short Herbalife, calling it a pyramid scheme, and saying he has done fundamental research for a year (it takes a year to read Einhorn's presentation?). Essentially, nothing new here. All we await now is that 13F chaser Whitney Tilson to finally jump on board what is becoming the world's biggest hedge fund short, and get a catalyst, any catalyst that scrambles the shorts into covering, and sends the stock in the triple digit range.

The last 10 days have seen some remarkable moves across asset classes. None less so than the US equity markets where despite weak macro developments, AAPL's collapse, and the overhang of Fiscal Cliff uncertainty, stocks have gone from strength to strength on the back of the ubiquitous (and apparently oh so easy to trade) Santa Claus rally. However, a scratch below the surface, as indicated in these 3 charts, suggests that perhaps the US trading public is not allowed to participate - as the great majority of the gains have occurred only when the rest of the world is playing (and the worst performance is when only US residents are active).

Ever wondered whether the Fed actually has/had a plan? Gluskin-Sheff's David Rosenberg attempts to overlay some intelligence to the last seven years to get a grasp for what the venerable institution is actually up to. To wit, the seven stages of Federal Reserve jiggery-pokery... Will the seven become twelve as the addicts take over the asylum? Seven-point plan or seven-year dud?

Today, Spain barely functions as a country. Basic services have shut down. The entire banking system is on life support. And yet banks and the stock market are ralling.

When we commented on yesterday's 5 year auction, most remarkable for a surge in 5 Year Direct awards to a stunning 30%, which in turn followed a record low Indirect takedown, we wondered if "there some major shift in the underlying dynamics for US paper based on these recent results? You bet. What is said shift? We hope to find out soon enough." Today, we still can't confirm what the reason for said shift is, but we can certainly confirm that the same pattern continues, as the US Treasury just sold its monthly $29 billion allotment of 7 Year paper, at a high yield of 1.233%, well above November's 1.05%, and a bid to cover of 2.72, just below the TTM average of 2.75, but the most notable feature was that just like yesterday, the Direct award was the highest in series history, at a whopping 23.11%, and above last month's 19.71%, which also was a record. There is a distinct shift in awards to Direct bidders, especially with PDs getting just 37%, the lowest since December 2010. Just who these bidders are, and is this merely a year end window dressing phenomenon, seen periodically when money managers need quality collateral for year end purposes, remains unclear. Keep an eye on the Direct bid in the January auction to see if the trend persists. If it does, it may be time to ask some questions.

EU confidence sparks a Euro bull run. Both the EU’s strongest and weakest economies are positively shifting. The S&P has lifted Greece’s credit rating by 5 notches to a “B minus”, and Germany’s IFO survey came in strong for the second month running indicating that business sentiment is on the rise.

The Hunger Games trilogy of books (and rapidly expanding film franchise) is set in a dystopian future of depleted natural resources, with humanity clinging to survival in the wake of unspecified environmental apocalypse. The Capitol governs what remains of North America, with its citizens enjoying a lifestyle redolent with material possessions - albeit often financed by debt. Meanwhile the populations of the Districts toil in dangerous conditions, generally without basic political rights, to provide the Capitol with the consumer goods that its citizens demand. UBS' Paul Donovan notes that the parallels to modern society are not stretched too far here. Substitute the OECD for the Capitol and a number of emerging markets for the Districts, and we are viewing the world today reflected back from a distorting mirror as a grotesque image of modern reality. The challenge faced by humanity today is the unsustainable nature of modern living. Borrowing future standards of living to enhance current standards of living is all credit is about.

Another one for posterior...

So, John Kerry As Secretary of State and now Joe Biden as the new Gun Tzar... should be fine...

*OBAMA SAYS VICE PRESIDENT BIDEN TO LEAD EFFORT ON GUN VIOLENCE
*OBAMA SAYS HE WILL PUSH `WITHOUT DELAY' BIDEN RECOMMENDATIONS
*OBAMA SAYS BIDEN TASKED WITH `REAL REFORMS' ON GUN VIOLENCE
*OBAMA SAYS BIDEN TO REPORT BACK NEXT MONTH

Market reaction is RGR and SWHC rallying from the news...

Will there be a hint of Plan B angst in there? It seems RGR and SWHC shareholders are not too worried about what the President will say... yet...