Archive - Mar 2012

Futures continue exhibiting a very surprising and ever brighter shade of ungreen as the morning session progresses, starting with the 5th consecutive contractionary Chinese PMI data, going through disappointing European Manufacturing and Services PMIs which came below expectations (47.7 vs Est. 49.5 for Mfg; 48.7 vs Est. 49.2 for Services), with an emphasis on French and German PMIs, both of which were bad (German Mfg PMI 48.1, Est 51, prior 50.2; Services PMI 51.8, Est. 53.1, Prior 52.8), and concluding with UK sales which printed at -0.8% on expectations of -0.5%. And just like that Europe is "unfixed", prompting economists such as IHS' Howard Archer to speculate that following "worrying and disappointing" Euro PMI data, the ECB may cut rates to 0.75%, as Europe is finding it hard to return to growth after the Q4 contraction. And with that the beneficial impact of the €1 trillion LTROs is now gone, as Spain spread over Bunds has just risen to the widest in over 5 weeks, and the beneficial market inflection point passes - prepare for LTRO 3 demands any minute now.

I'm not political...I hate em all!--(excepting RP)...

Why are we not surprised at the fact, as reported by the WSJ, that Deutsche Bank AG changed the legal structure of its huge U.S. subsidiary to shield it from new regulations that would have required the German bank to pump new capital into the U.S. arm. The bank on Feb. 1 reorganized its U.S. subsidiary, known as Taunus Corp., so that it is no longer classified as a 'bank-holding company' (BHC). The technical change has important consequences. Taunus—which at the end of last year had about $354 billion of assets and 8,652 employees, making it one of the largest U.S. banking companies—won't have to comply with a provision of the U.S. Dodd-Frank regulatory-overhaul law that essentially forces the local arms of non-U.S. banks to meet the same capital requirements that American banks fact. A provision of the Dodd-Frank Act was going to require Deutsche Bank to infuse Taunus, which for years operated with thin capital cushions, with what executives feared could be as much as $20 billion. Taunus is no longer a bank-holding company and won't have to comply with the tougher capital rules, even though Taunus still houses Deutsche Bank's U.S. investment bank, making it unclear what jurisdiction the Fed will have to intervene in the investment-banking arm if it has concerns about how the unit is being run or whether it has adequate capital buffers. So much for all that systemic risk control and lessons learned as hey-presto - everything is sidestepped as the farce continues.

Forget China - now this is a hard landing. Because what's $20 million in taxpayer funded equipment between soldiers: LTRO 1+2 alone were like 650 of these...

Moments ago the Chinese PMI as tracked by HSBC/Market (not to be confused with the other PMI, tracked by China itself, which will likely show expansion, like last month), came and printed at 48.1, down from 49.6, and representing a 5th consecutive monthly contraction for the Chinese economy. Whether this means that China will promptly unleash more easing, or will simply wait to import some of Bernanke's own QEasy cooking, remains to be seen. What is far more shocking is that futures are indicating some very odd, ungreen color. It is on the tip of our tongue, but we can't quite place it... We are trying to think back to the last time futures were bathed in this particular shade of non-green, and can't - after all it was banned by the Chairsatan himself. We can only assume that the algos responsible for ramping the futures up are currently on their oil change break.

Apple decide to spread its cash to shareholders.  The more disconerting question: Is this the best Apple can come up with to put its cash mountain to good use, given the company is the leader in innovation and creativity?  

Following last Friday's majority vote by the Israel Security Council authorizing Iranian "action" when required, answering the "if", the only open question remains "when." As it turns out, based on the following analysis by Rapidan Group, there are only 10 or so distinct 10 day New Moon windows for the remainder of 2012. If one removes the sandstorm prone months of April, July and September, there are 7 periods in which a military strike is realistic. Also CVN 65 is moving at a snail's pace and is just now approaching the Straits of Gibraltar.  Since any action will likely not take place unless 3 aircraft carriers are in the vicinity, and because the ICE yesterday instituted ultra-short term trading spike curbs in crude, starting April 1, one can likely eliminate the immediately proximal March 17-27 window. Which leaves six. Our advice would be to buy up OTM calls in Brent in the days just ahead of the start of any such window, as any "surprise" attack will have a uplifting impact on all combustible assets, doubly so for levered ones.

Are you ready?

There was a time when catching the silver "whack-a-mole" algo, or process, or intervention, or manipulation, or whatever one wants to call it, in action was a myth: an urban legend, perpetuated by silver conspiracy theorists. Until today that is. Courtesy of Nanex we now have direct evidence of just what the reflexive market (in which derivative products such as ETFs influence underlying assets) goes to town by taking silver to the woodshed at a whopping 75,000 times per second! From the broken market sleuths at Nanex:  "On March 20, 2012 at 13:22:33, the quote rate in the ETF symbol SLV sustained a rate exceeding 75,000/sec (75/ms) for 25 milliseconds. Nasdaq quotes lagged other exchanges by about 50 milliseconds. Nasdaq quotes even lagged their own trades -- a condition we have jokingly referred to as fantaseconds." Translation: so desperate was the desire to crush silver at precisely 13:22;33, that the Nasdaq order flow directive ended up moving faster than light. Frankly, we don't know about you, but when someone is willing to bend the laws of relativity, just to get a cheaper price in silver, to perpetuate a failing monetary system or for any other reason, we quietly step aside...

One of the biggest surprise stories of the past several months, in addition to economic activity skewing record warm weather, and the New Normal seasonal adjustments (which as Albert Edwards noted earlier are giving data an upward bias for each of the past three years), is the consistently "better than expected" jobs numbers. There is one problem: as discussed previously, the rising jobs are purely a quantity over quality trade off, as every month more and more temp jobs take the place of permanent ones, especially those of former professionals from the FIRE sector. In fact, in January temp jobs soared by the most on record, and the total number of temp workers was just shy of all time highs. Ironically, as this happened, discretionary online retail companies have seen their stock price soar to record highs. One of the primary drivers for this has been the increased "efficiency" at these companies' hubs - their warehouses. Which just happen to be staffed with temp workers. The following infographic presents the reality behind these American "sweatshops" - because this is the "quality" of job that is rising rapidly in the current economy (at the expense of traditional permanent jobs) to give the impression of an economic recovery. There is no point in making an ethical judgment - work conditions are as they are. Just as workers at FoxConn likely have far better conditions than their peers, at least in their view, so do these temp workers view their life as better than the alternative, which is unemployment. It is, as they say, what it is.

What a difference two months of record high gas prices make. After Obama unceremoniously killed the Keystone XL pipeline proposal in January, and has since seen his popularity rating slide in inverse proportion to the surge in gas prices, which as noted yesterday have now passed $4 (still quite a bit better than Europe's $9.81 average/gallon), he is now actively seeking to fast-track its approval. Or at least half of it. Per Reuters: "President Barack Obama will issue a memo on Thursday directing federal agencies to prioritize permitting of TransCanada's southern leg of the Keystone oil pipeline, a senior White House official said on Wednesday. With his Republican opponents hammering away at the president over high gasoline prices, Obama will visit Cushing, Oklahoma on Thursday to promote his energy policies, which include support for the southern leg of the pipeline." In the meantime, enviromentalists just realized they were Corzined.

The perceived bull is stronger than the actual bull.

Ever dreamed of getting all the fiat money skeptics together at the same time, all in the same place? Your dream has now come true, courtesy of "End of the Road - How Money Became Worthless."

The money-on-the-sidelines argument has reached deafening and self-confirming as anchoring bias among any and every swollen long-only manager seems to have made them ignore the realities of the situation. David Rosenberg, of Gluskin Sheff to the rescue with good old fashioned facts - as much as they might disappoint the audience. Barton Biggs quote in the USA Today article points out how bullish he is and how cash levels are very high and "idled money is ready to be put to work". However, as Rosie points out equity fund cash ratios are at a de minimus 3.6%, the same level as in the fall of 2007 and near its lowest level ever. The time when cash was heavy and 'ample' was at the market lows in 2009 when the ratio was very close to 6%. Bond fund managers, it should be noted this includes the exuberant HY funds, are now sitting on less than 2% cash so if retail inflows continue to subside as they did this week, buying power could weaken over the near-term. What David points out that is more interesting perhaps is the converse of most people's contrarian dumb money perspective - the household sector appears to have used the rally of the past three years, for the most part, to diversify out of the equity market (getting out at price levels they could only dream of seeing again). As we have pointed out again and again, the retail investor has been a net redeemer in equity funds for nine-months running and has been rebalancing since the March 2009 lows in a clearly demographic shift towards income strategies as the memory of two bursting bubbles within seven years is seared into most private investors' minds.