Archive - Feb 2012

With AAPL's stock price up another 1.5-2% today, we thought it instructive for all those index traders, hedgers, arbitrageurs, and market prognostictors to comprehend the scale. 90% of the move in the NASDAQ today is directly due to AAPL. Perhaps the drop in iAd sales rates or the drop in market share will dent expectations? Perhaps growth expectations from Europe will temper the excess? Or perhaps the 209 hedgies who rely on this stock for their year will play prisoner's dilemma (and free ride) one too many times and dismiss their recency bias to remember that the first one to migrate wins when prices go vertical.

No this is not a trick question... well maybe a little. Minutes ago the National Association of Home Builders announced that its Housing Market index soared from 25 to 29, trouncing not only expectations of a 26 print, but just like the Empire Fed, the highest forecast. This was supposedly the highest since May 2007. In other words, everyone is confident, and the commentary is that this print is "reinforcing optimism that the housing market is finding a bottom" and that "this consistency suggests that the housing market is moving toward more sustainable growth." That at least is the spin. Below we show the reality, in the form of the Mortgage Brokers' Association mortgage applications index. We somehow fail to see just where the onslaught of demand for new home loans is, and just where all this optimism comes from.

Today's disappointing TIC report confirmed what Zero Hedge reported back in January, namely the record dumping of Treasurys by foreign entities as tracked by the Fed's custodial account. And while we will spare you the details of the report (found here), two things bear pointing out: the very demonstrative selling of US paper by Russia continues, and is now in its 14th consecutive month (as has been reported here consistently), as total USTs in Putin's possession declined to a fresh multi-year low of $88.4 billion, half of the $176 billion in October 2010. Also confirming that the Asian anti-USD axis is now one which consists of at least Russia and China (and certainly Iran), was the stepwise dump of US paper by Beijing which sold $32 billion in US bonds in December, bringing its total to a new post 2010 low of $1100.7 billion. And lastly, this was not isolated to just these two: in December the grand total of US Treasury holding by foreigners declined from $4.75 trillion to $4.732 trillion. The question then is: just what are China and Russia buying (ahem stockpiling) with all the dollars that are not recycled back into Treasurys?

Outspoken and oracular MEP Nigel Farage bombards his fellow unelected officials with 'you can't handle the truth' comments as he points out the total contradiction that is the European Parliament's (and 'Puppet Papademos') view of how things are going in their democracy relative to the reality of a TROIKA-ordered coup forced on the man in the street. Greece is being driven further and further into chaos and as he implores his peers: "If they don't get the Drachma back, you will be responsible for something truly truly horrible!".

Overnight, Peugeot, the struggling European car-maker, announced dismal results and significant over-capacity in Europe pushing its stocks down 6% (down almost 13% since last week). The somewhat unsurprising twist was that the CFO said they were approaching the ECB about collateralized loans. As Bloomberg notes:

• *PEUGEOT DISCUSSING WITH ECB, PRESENTING COLLATERAL, CFO SAYS
• *PEUGEOT PRESENTING COLLATERAL ABOVE EU1 BLN TO ECB

So the ECB has now managed its other unintended consequence - to replace the entire bank intermediation credit creation channel (ring any bells?) as Europe embarks on its own 'Cash-for-Clunkers', ECB-Style.

Chalk this one to "seasonal adjustments" or something, cause we no longer have any clue what is going on with the data fudging in America. When it comes to banana republic economic indicators the US is rapidly eclipsing China - case in point the Empire State Manufacturing Survey, which despite seeing the majority, or 6 out of 9 sub indices, declining in February, managed to not only rise, but beat the highest Wall Street estimate, printing at 19.53, the highest since June 2010, on expectations of 15.00, and compared to a previous print of 13.48. What lead to this epic surge? Why nothing short of a decline in just about two thirds of the components: New Orders declined from 21.69 to 22.79, Unfilled Orders declined from -5.49 to -7.06; Inventories declined from 6.59 to -4.71, Prices Paid declined from 26.37 to 25.88; Prices received declined from 23.08 to 15.29, and Number of Employees declined from 12.09 to 11.76. What increased? Shipments, Average Employee Workweek, and, drumroll, Delivery Times. And somehow this disaster of a report is supposed to bring peace and comfort to the market that things are getting better? Perhaps at the Fed's data manipulation department. And just like a 2.9 million seasonal NFP adjustment in January has resulted in an ebullient market tone, we wonder just how high 3 out of 9 subindices improving will send the market today?

Usually your bank issues the commitment letter, not the other way around. Either way someone needs to tell those Troika morons and the crowd that follows them, what an MOU is.

S&P futures have moved more than 20 points since 3:30.  The first big move was on the back of a story that Greece really will commit to the whatever the EU demands.  The second move was after China re-pledged to invest in Europe.  IG17 is about 1.5 bps tighter than the wides of the day and is unchanged this morning.  In Europe, Main is unchanged while stocks are up about 1% across the board.  Even the 10 year bond which saw yields drop from 1.98% to a low of 1.92% are only back to 1.94%. Why? Sentiment seems overly bullish, overly complacent, and the credit markets are sending a warning sign to stocks about irrational exuberance.

While the pathetic lunatics and kleptocrats in Europe debate just who wants Greece to default more, gold has had enough of the endless BS. And while one would think that the plunge in the EUR, and the resultant surge in the USD would push gold lower. Wrong. After all a strong dollar means weak gold, conventional wisdom says. Apparently a continent on the verge of dissolution is gold beneficial. Strange.

And scene.

• EURO ZONE FINANCE OFFICIALS CONSIDERING PROPOSAL TO DELAY ALL OR PART OF GREEK BAILOUT YET STILL AVOID DEFAULT-EU SOURCES

Yes: Europe suggests it may be best for Greece to be partially pregnant... er, in default. But all will be "controlled" - promise. We were a little generous in our estimate for the halflife of the Chinese bail out rumor. Either way, EURUSD plunging down to under 1.3070 on the news.

While much of the focus has been on Paulson & Co., the hedge fund founded by billionaire John Paulson, cutting its stake in the SPDR Gold Trust by 15% in the fourth quarter, possibly of more importance is the fact that PIMCO, the Texas Teacher Retirement System and George Soros all increased their holdings of the biggest exchange-traded product backed by gold. Paulson cut his gold ETF bullion holdings by about 600 million dollars in Q4, a reduction that was likely driven by client redemption needs as he and his fund remain upbeat on gold – primarily due to inflation concerns.  Paulson’s reduction in SPDR was offset by other important buyers such as PIMCO, which oversees $1.36 trillion and is home to the world's biggest bond fund and significant institutional buying from the likes of the Texas Teacher Retirement System and billionaire investor George Soros. ‘Bond King’, Bill Gross recently wrote about gold as a “store of value” and PIMCO’s allocation to GLD may be ongoing as they seek to diversify their portfolios and hedge against inflation. Soros, who once suggested gold was or would be "the ultimate asset bubble," raised his stake in the SPDR Gold Trust (GLD), a gold-backed exchanged-traded fund, to 85,450 shares, up from 48,350 shares in the period. Soros, who had disclosed call and put options on the gold fund in the prior period, reported no such investments in the fourth quarter. Soros’ GLD position is worth a mere $13 million, however it suggests that he is not as bearish on gold as portrayed and that he sees further upside for gold.

And the hits from the broken gramophone just keep on coming... on coming.... on coming:

SCHAUBLE: SO FAR THE NECESSARY DOCUMENTS FROM GREECE ARE NOT PRESENT

Wait, Germany wants.... Greece to fail? Shocker. But, but, but at least China is still bailing out the world. Right? We are now taking bets on what today's idiotic 3:45pm rumor will be.

Greek "idiotic" 3:30 pm rumor undone-

• GREEK CONSERVATIVE PARTY SAYS POLICY MODIFICATIONS "MIGHT BE REQUIRED" FOR IMPLEMENTATION

But don't expect the market to give up the gains . After all, the market only goes up on rumors, but never down on refutation, or as it is otherwise known, reality.

• Europe ushers in the recession: Euro-Area Economy Contracts for the First Time Since 2009 (Bloomberg)
• Greek conservative takes bailout pledge to the wire (Reuters)
• China Pledges to Invest in Europe Bailouts (Bloomberg) - as noted last night, the half life of this nonsense has come and gone
• Japan's Central Bank Joins Peers in Opening the Taps (WSJ)
• EU Moves on Greek Debt Swap (EU)
• EU Divisions Threaten Aid For Greece (FT)
• Athens Woman facing sacking threatening suicide (Athens News)
  
• King Says Euro Area Poses Biggest Risk to UK’s Slow Recovery (Bloomberg)
• Sarkozy to Seek Second Term, Banking on Debt Crisis to Boost Bid (Bloomberg)