Archive - Feb 1, 2012

VIX continues to remain low, but intraday (or intranight) volatility appears to be making a comeback.  That is volatility in the true sense of moves up and down (I'm not sure when volatility came to mean 'stocks went down'). Chinese PMI is supposedly one of the reasons that futures are up, yet, that seems to be a bad explanation, since futures went from an Amazon induced low of 1306, up to 1311 on the PMI news, but then drifted lower and were at 1304 by the time Europe got up and running.  It has been a relentless march higher since then as it went to 1320. Volumes remain low.  Street liquidity remains very low.  I don't see any reason for this trend to reverse itself, and think higher levels of intraday volatility are on the way.  Is it time to buy some options to capture this? Long or short, it looks like trading some options could make sense as some timely 'delta' rebalancing could be very effective and the implied volatility you are paying seems reasonable.

The highly irrelevant economic noise that is the ADP private payrolls indicator has come in form the month of January, and printed at nearly half of the December number  of 325K, which was revised lower to 292K, at 170K, on expectations of 182K. We should be the last to tell readers that anything this unbearably noisy series says is beyond meaningless, but since someone follows it, it bears noting that this was the weakest number since October 2011. Furthermore, with the NFP virtually guaranteed to be a miss for a variety of reasons, this is merely the latest confirmation that economist expectations of the economic recovery ramping up, were short sighted - after all the Chairman has an agenda. Yet what makes this report a total mockery is that in the month in which banks, and the FIRE industry in general, was firing left and right, ADP saw 9K people in financial services added to private payrolls. Ironically the financial jobs "added" were almost as many as the manufacturing jobs, at +10K in January. Who says America is not a manufacturing juggernaut and only exports weapons of financial mass destruction?

All you need to read.

While a few days ago we reported that the US was set to place a third aircraft carrier, ostensibly the USS Enterprise, in the Arabian Gulf in the indefinite future, it appears that the US is wasting little time in making preparations for this latest military escalation against Iran. As RT reports, "two ships of the US Navy, the nuclear submarine USS Annapolis and the destroyer USS Momsen have passed through the Suez Canal into the Red Sea. Although their destination is confidential, they are now getting dangerously close to the Persian Gulf. ­The ships’ passage was a major operation for the Suez administration as due to safety reasons they had to close off the canal to all other traffic and even shut down the bridge, disrupting the link between the banks for some four hours. The traffic on the roadways alongside the canal was also restricted, Interfax news agency reports." What's next: reports that Russian destroyers in Syria are also moving in the general direction of the Arabian Gulf?

Following the Chicago PMI miss, will today's important ISM, which is forecast to grow substantially, be the next disappointment as the "economy" aligns even further with the chairman's vision of more easing, which however has to be justified by the "data"? Find out at 10am. Elsewhere, the ADP will continue to be its utterly worthless indicator self.

Goldman not happy with with the fact that contrary to market expectations, the Amazon negative margin retail caterpillar keeps on refusing to transform into a beautiful apple. To wit: "Amazon reported 4Q11 results after the close. Despite upside to EPS versus consensus and consolidated segment operating income which came in materially above the Street, in our view the focus will be on the shortfall in revenue, which came in at $17.4bn versus consensus of $18.3bn. In fact, the 4Q2011 quarter marks the second consecutive quarter that Amazon has fallen short of the consensus revenue forecast. Along with a slowdown in growth in video games and consoles and an impact on certain sales due to the floods in Thailand, management also referenced the macro environment as a cause for the miss, with weakness in Europe called out in particular. As for its Kindle and Kindle Fire performance in 4Q2011, we estimate sales hit 10.6mn, below our forecast of 13.9mn units. That said, we believe the company hit our more important Kindle Fire unit forecast of 6mn, suggesting the Fire cannibalized sales of traditional e-readers. As for guidance, Amazon gave an outlook below consensus on all major metrics; revenue, GAAP  operating income, and CSOI. As such, we are lowering our revenue forecast for the year by roughly $2bn to $63.6bn versus the Street prior to last night at  $65.3bn, and our GAAP operating margin is being reduced to 0.3% for CY2012, versus consensus of 1.8%. On lower expected sales and higher expenses we are reducing our 2012/2013 GAAP EPS by 75%/40% to $0.36/$2.11 from $1.42/$3.57 versus consensus of $1.88/$3.75 prior to the call. On lower expected earnings we are reducing our 12-month price target to $182 from $190. At around $177 in the after market, Amazon is trading at 29X our 2012 non-GAAP EBITDA estimate of $2.57bn. Our price target is based on our equally weighted DCF, P/E, and EV/EBITDA analysis." Time for Amazon to make up for ever lower margins with even higher volume. Or something.

Anyone who went to bed with the EURUSD about to breach 1.30 to the downside may have been surprised this morning to see it trading nearly 150 pips higher. Checking the headlines for news of a Greek deal however would be futile, as one did not occur. Instead what did, were more promises of a deal being "imminent" even as Greece is doing all it can to appease intransigent creditors, offering GDP upside warrants (something that did not work too well for Argentina), with the IMF stating it demands guarantees that this time Greece will follow through with promises. Oddly enough the German demand for fiscal overrule has gotten lost in the noise but is certainly not forgotten and last we checked Merkel has not withdrawn this polite request. Still futures are up, primarily on a smattering of better than expected PMIs, in China and Europe. Alas, the Chinese PMI beat as discussed last night, was more of a cold water shower as the market had been hoping for much more defined promises of PBoC intervention and instead got a lukewarm Goldilocks economy which could last quite a bit longer without RRR-cuts. As for European PMI numbers being better than expected, we only wonder if these now correlate with the prevailing unemployment rate throughout the Eurozone.

• China’s factories in strong start to 2012 (FT)
• Merkel to court Chinese investors (FT)
• States to decide this week on mortgage deal (Reuters)
• Europe is stuck on life support (FT)
• IMF's Thomsen Says Greece Must Step Up Reform (Reuters)
• Tax cuts expiry to slow US growth (FT)
• Government health spending seen hitting $1.8 trillion (Reuters)
• Romney Win in Florida Primary Shows Strength (Bloomberg)
• EU regulator blocks D.Boerse-NYSE merger (Reuters)
• Greek Bondholders said to get GDP Sweetener in Debt Swap Agreement (Bloomberg)
• S. Korea Plans to Buy China Shares (Bloomberg)