Archive - Aug 24, 2012

and the Bain way...

Today's Durable Goods number was blistering, if only on the headline. Coming at $230.7 billion, it was up a whopping $9.4 billion or 4.2%, on expectations of a 2.5% increase. The reason for the surge: the volatile transportation segment, which rose 14.1% to $80.4 billion. This is entirely due to Boeing aircraft orders, which rose to 260 this year compared to 10% of that a year ago, which however, as Quantas reminded us yesterday, can and will be promptly reversed (see: "Boeing hit by 'biggest-ever 787 order cancellation'"). In other words next month will be a headline disaster. So what happened beneath the headline when excluding volatile series: well - Durable Goods ex-transportations decline -0.4% in July, missing expectations of a +0.5% print, with the June number revised down from -1.1% to -2.2%. It gets worse: Nondefense capital goods excluding aircraft tumbled in July, and imploded to -3.4%, crashing below expectations of a -0.2% print, with the previous print revised from -1.4% to -2.7%). This means that indeed the brief blip higher in economic activity in the summer was largely transitory and was purely a byproduct of seasonal adjustment. Expect cuts to Q3 GDP forecasts to commence imminently by the sellside lemmings.

Color us unsurprised; but the UK's Independent is reporting that American officials are worried that if the Troika decides Greece has not done enough to meet its deficit targets, it will withhold the money - triggering Greece's exit from the eurozone weeks before the presidential election. British government sources have suggested the Obama administration is urging eurozone Governments to hold off from taking any drastic action before then - fearing the resulting market destabilization could damage President Obama's re-election prospects. The Troika are expected to report in time for an 8 October meeting of eurozone finance ministers which will decide on whether to disburse Greece's next EUR31bn aid tranche, promised under the terms of the bailout for the country. European leaders are thought to be sympathetic to the Obama lobbying, fearing that, under pressure from his party in Congress, Mitt Romney would be a more isolationist president than Mr Obama. So once again GRExit is assured economically; but it is an entirely political decision.

There is a frequent tendency to over state the importance of the Fed and its policies and ignore the primary fundamentals driving the gold market which are what we have long termed the ‘MSGM’ fundamentals. As long as the MSGM fundamentals remain sound than there is little risk of gold and silver’s bull markets ending. What we term MSGM stands for macroeconomic, systemic, geopolitical and monetary risks. The precious metals medium and long term fundamentals remain bullish due to still significant macroeconomic, systemic, monetary and geopolitical risks. We caution that gold could see another sharp selloff and again test the support at €1,200/oz and $1,550/oz. If we get a sharp selloff in stock markets in the traditionally weak ‘Fall’ period, gold could also fall in the short term as speculators, hedge funds etc . liquidate positions en masse. To conclude, always keep an eye on the MSGM and fade the day to day noise in the markets.

Since the GOP presidential candidate still refuses to give any substantial details on how the republicans plan to grow the country, not to mention fund the budget deficit (even as various pageview hawking blogs concurrently try to give the impression that private equity prospectuses stamped with the "confidential" seal for purely regulatory reasons will somehow provide an insight into the Bain Capital CEO's taxpaying practices, confirming that "finance for the masses" may not be the best idea), those who wish to gain some insight into the actual workings of Romney's brain may have to resort with the following Op-Ed published overnight in the WSJ titled, "What I Learned at Bain Capital: My business experience taught me how to help companies grow—and what to do when trouble arises. When you see a problem, run toward it before the problem gets worse." Read it - it may well be the only public policy "prescription" out of the republican before the election.

• So Draghi was bluffing after all: ECB Said To Await German ESM Ruling Before Settling Plan (Bloomberg)
• German finance ministry studying "Grexit" costs (Reuters) - it would be bigger news if it wasn't
• Money Funds Test Geithner, Bernanke Resolve as Schapiro Defeated (Bloomberg)
• Top Merkel MP says Greek deal can't be renegotiated (Reuters)
• China Eyes Ways to Broaden Yuan's Use (WSJ)
• Armstrong ends fight against doping charges, to lose titles (Reuters) - Dopestrong?
• Need more socialism: Public confidence in France's Hollande slips (Reuters)
• Seoul court rules Samsung didn't violate Apple design (Reuters)
• France, Germany Unify Approach to Greek Talks (WSJ)
• Stevens Sees Mining Boom Peaking, RBA Ready to Act (Bloomberg)

While we await the release of pictures for today's caption contest, namely Merkel and Samaras hugging it out, which incidentally will be today's top news, as the Greek PM enters the lioness' den and begs for more, only to hear Merkel recite Herman Cain's tax plan, here is another picture: it is of "America’s Next Top Model" contestant and MTV anchor Kim Stolz, who was just hired away by Citigroup from BTIG to be a VP in equity-derivative sales, according to Bloomberg’s Donal Griffin. This is a welcome development: with trading volumes at levels last seen in 1998, more and more banks will resort to hiring underemployed supermodels to incite their clients to transact with them (for all the obvious and not so obvious reasons). It also means that said supermodels will soon know all there is to know about delta, gamma, vega and theta. Which naturally sets the stage for Zoolander 2 and the latest and greatest face name: step aside "Blue Steel", enter "The Schwab Baby" - a look describing what happens when that massive short gamma position suddenly blows up in your face. At least the next round of Congressional hearings, when banks scapegoat the next bailout request on supermodels selling VIX, will be somewhat more attractive. Win win for everyone.