Archive - Jan 2012

All you need to know.

The bullishness is rather interesting considering the notable headwinds that exist in the European sovereign debt markets, the geopolitical risk seen in light sweet crude oil futures, and the potential for a recession to play out in Europe.

Any all you other Tylers out there...

We did a double take when we read the following lead sentence from a just released Bloomberg report on what is about to take place in China: "China’s stocks regulator will “actively” push pension and housing funds to begin investing in capital markets, and encourage long-term investors such as insurers and corporate pension plans to buy more shares." To paraphrase Lewis Black - we will repeat this, because it bears repeating - "China’s stocks regulator will “actively” push pension and housing funds to begin investing in capital markets, and encourage long-term investors such as insurers and corporate pension plans to buy more shares." And that is the last ditch effort one does when one has no choice but to push "long-term investors" into the last giant ponzi. Of course, this being China, "long-term investors" means anyone at all, and "pushing" ultimately involves either 9MM or a 0.44 caliber. And what was said earlier about mocking mainstream media spin - well, the first opportunity presents itself a few short hours later - when Bloomberg, the same agency that wrote the above report, tells us that "Asian Shares Rise Amid Global Economic Optimism." Odd - no mention of the fact that China is now pushing habitual gamblers, which over there is another name for "investors" into what is openly an invitation (at gunpoint nonetheless) into the latest and greatest bubble. That said, we give this latest artificial attempt to boost stocks a half life of several days max before the SHCOMP plunges to new lows for the year.

In keeping with the theme of everything decoupling from everything else these days, a comparable decoupling pattern could be observed in China's December trade data, which experienced a surprising jump in its trade surplus from $14.5 billion in November to $16.5 billion in December, even if exports broadly slowed down and grew at the slowest pace in 10 months. This number was quite odd as it represents almost double the consensus forecast $8.8 billion, predicated by a matched slow down in imports which were up only 11.8% Y/Y, the smallest rise since the October 2009 decline of 6.4%. The odd jump in the trade surplus appeared at a time when many were expecting that the slowing Chinese economy would be well on its way to shifting from surplus to deficit, leading to a devaluation of the CNY (as opposed to the constant badgering form the US and Chuck Schumer demanding a revaluation of the renminbi). Furthermore, as the year winds down to the Chinese Near Year in February, this has been a traditional time when Chinese surpluses decline and go negative, even in good years (see 2010 and 2011). Yet a quick glance at China's two primary trading partners: the US and EU does not reveal anything peculiar: both were either flat or saw just a modest drop in the trade surplus - good news for anyone concerned if the European slowdown would hit the country's largest trading partner. Which is where the decoupling occurred, as the surplus soared in the "rest of the world" or the non-EU/US category. As can be seen below, December is traditionally a month when the surplus contracts and approaches the flatline. Yet this year, oddly enough, the December surplus doubled from $5.8 billion to $11.4 billion. Just who is it, outside of the US and EU, that suddenly saw a pressing need for Chinese imports?And yet all of the above is likely just minutae when one considers something far more important: Chinese Oil imports. As the chart below shows, sooner or later excess capacity within the OPEC system is going to disappear. And then it gets really interesting.

Today is the three year anniversary of Zero Hedge...

Why Do We Write Again and Again About SOPA?  Because It Would Kill the Internet and Free Speech ...

It’s the kind of fraud case that makes the taxpayer’s skin crawl. And it’s part of a vast scheme. But no insurance company would have fallen prey to it. Only Medicare....

Ted Butler on three elements of manipulation.

The geopolitical foreplay is getting ridiculous. At this point it is quite obvious that virtually everyone involved in the US-Israel-Iran hate triangle is just itching for someone else to pull the trigger. And the latest report out of the IAEA will only precipitate this. Who - remember the IAEA? The same IAEA which did not find nukes in Iraq in 2003 only to be overriden by Dick "WMD" Cheney to "justify" an invasion. As RIA reports:  "The International Atomic Energy Agency officially confirmed that Iran has started enriching uranium to the 20-percent level, which can easily be turned into fissile warhead material. "The IAEA can confirm that Iran has started the production of uranium enriched up to 20 percent using IR-1 centrifuges in the Fordo Fuel Enrichment Plant," the agency said in a statement. However, IAEA Spokeswoman Gill Tudor said that all nuclear materials and operations in the Fordo facility are “under the Agency's containment and surveillance."" Naturally, that leaves the "use of uranium" variable quite subjective and in the hands of political manipulation. Which means at this point it is only a matter of days before the meme that Iran already has nuclear warheads becomes actively adopted by warmongers everywhere.

Gold registered its eleventh consecutive annual gain, extending the bull market that began in 2001. The yellow metal gained 10.1% – a solid return, though moderate when compared to previous years. Silver lost almost 10% year over year, due primarily to its dual nature. Currency concerns lit a match under the price early in the year, while global economic concerns forced it to give it all back later. Gold mining stocks couldn't shake the need for antidepressants most of the year, and another correction in gold in December dragged them further down. Meanwhile, those who sat in US government debt in 2011 were handsomely rewarded, with Treasury bonds recording one of their biggest annual gains. In spite of the unparalleled downgrade of the country's AAA credit rating, Treasuries were one of the best-performing asset classes of the year. The driving forces there are expanding fear about the sovereign debt crisis in Europe, combined with the Fed's promise to keep interest rates low through 2013.

The circle remained exclusive because real influence, for Mills, was located not in individuals (where it should be for that would release true creative and productive energies from said individual into greater society), but in their access to the “command of major institutions…the necessary bases of power, of wealth, and of prestige.”

NYSE total volume was the lowest for the year today. Almost 20% below December's average and down 10% from Friday's already low volumes, US equity markets managed to limp higher post the European close. Notably, volume in ES (the e-mini S&P 500 futures contract) was also the lowest of the year (at around 1.43mm cars vs 2.11mm 50-day average) and what volume there was focused on the European trading session (and right at the close). Today saw the average ES trade-size rise to recent peak levels as we note trade-size picked up into the Europe close (considerably higher average trade size around the European close than normal) and then again at the close. Peaks in average trade-size have often pre-empted turning points in the market and we note that while markets closed quietly unchanged (practically), high yield credit lost ground on the day and broad risk assets (while mostly showing small net changes) did not as a whole rally off the European close lows as enthusiastically as stocks. VIX futures and implied correlation continue to diverge as we note that VIX actually closed higher for the first time in five days.

Alcoa was expected to generate $(0.03) in EPS in Q4 and so it did. However, it took it 5.99 billion in top line revenue just to not miss traditionally lowered Wall Street estimates. This compares to the $5.7 billion it was expected to make: so there goes your margin. And when one looks at EPS on a purely operational basis, the Company had a loss from operations of $193 million or $(0.18) EPS which included a $74 million benefit from taxes. But of course who cares: after all Alcoa reported "restructuring and other charges" of a whopping $232 million for the quarter, just to make sure everything is apples to oranges. Otherwise the reported $445 million in EBITDA (on $449 million in consensus) would have been more like $200 million. Even so: EBITDA margin dropped from 13.8% in Q4 2010, and 12.8% in Q3 2011, to a measly 7.4% in Q4 2011. Other notable items: CapEx jumped from $325 million in Q3 to $486 million in Q4, meaning that based on the traditional Free Cash Flow definition of EBITDA-CapEx, that used for bond indenture purposes, Alcoa actually burned cash in Q4. Finally, the company forecasts global aluminum demand and supply deficit (probably does not explain why it has been shuttering smelter capacity all around the world) of 7% in 2012- a big drop from recent years. All in all - not quite the right way to start the new year.