Archive - 2012

If fracking comes to your neighborhood, it may be a good idea to get in on some Reg D Private Placement offerings...

While generally a rather boring auction, with the 0.245% When Issued coming right on top of the final High Yield, in addition to bringing the US another $35 billion closer to the debt ceiling breach, today's 2 Year auction was remarkable for one more thing: the Indirect Take down of 17.7% was the smallest such award on record, which in turn confirms that last week's trend of collapsing Indirect interest is persisting. Has the Chinese boycott of US paper now moved to all foreigners? Forget the 2 month delayed TIC data, and keep an eye on the weekly updated Fed Custodial holding data - if we see a drop in this week's update for TSY paper, it may be time to start getting concerned.

In the least unexpected news of the week, Mayor Mike, whose forays into central planning started with banning sugary sodas, and then proceeded to gas rationing, has just done what everyone expected him to do, and demand a ban on all assault weapons:

• MAYOR BLOOMBERG CALLS FOR ENFORCEABLE ASSAULT WEAPONS BAN
• MAYOR BLOOMBERG CALLS FOR PASSING GUNS CHECK ACT
• MAYOR BLOOMBERG CALLS FOR MAKING GUN TRAFFICKING A FELONY
• MAYORS AGAINST ILLEGAL GUNS TO SEND VIDEO STATEMENTS TO CONGRESS

We eagerly await the imminent escalation: the "taxable inhalable oxygen for those making over $250,000 - it's only fair act" to be proposed by Mayor Mike and his central-planning enamored brethren in D.C. next.

Consensus seems convinced (and short-term market prevarications suggest) that once we get past the 'uncertainty' of the fiscal cliff, then there will be a surge in pent-up spending from companies in the first half of 2013. Morgan Stanley's Adam Parker snubs the mainstream meme and looks at the data - finding four significant reasons why a surge in capital spending is unlikely. From 'average' sales-to-capex ratios and manufacturing utlization to inventory levels and the overall trend in deprecation, Parker interestingly questions whether "high capital spending is ever good?"

Why The Founding Fathers, Gandhi and the Dalai Lama Were All AGAINST Gun Control

By now everyone should know what is at stake in the Fiscal Cliff, which unless resolved in precisely under two weeks, will introduce America to something disastrous, horrifying, unbearable and simply ghastly: living within its means. And in case there is still any residual confusion, here is yet another infographic, this time from Saxo Capital Markets, to simplify it so well even an economist will get it.

Back in 2010, an explosion at the deepwater horizon oil rig killed 11 workers and resulted in around 206 million gallons of crude oil leaking into the Gulf of Mexico over a period of three months, before the well was finally capped and sealed. In September an oil sheen was spotted about 50 miles off the Louisiana coast, and tests proved that it was indeed oil from BP’s infamous Macondo well. BP sent a probe down and saw that oil was indeed seeping from the containment dome, however by the 23rd of October they were able to declare the leak “plugged”. Despite this declaration more oil, in sheens of varying sizes, continues to surface around the Gulf of Mexico, discovered by satellite photos and aerial videos. Ed Markey, who led the initial investigation into BP after the spill back in 2010, has stated that history is repeating itself, concerned “that substantial amounts of oil could still be leaking from the wreckage," but BP is not releasing information to Congress.

“Something bad happened in November…and it wasn’t merely Hurricane Sandy”, the NFIB chief economist Bill Dunkelberg is quoted as saying - see chart below and link. Even scarier than the decline in the headline measure was the 37% slump to an all-time low in those firms who believe economic conditions will improve over the next six months. That 37% drop is twice the previous record 18% decline, which occurred in the immediate aftermath of the Lehman’s collapse (see chart below). For those who might immediately retort that this is a sentiment indicator that should be used as a contrary indicator - you are wrong. It is a good leading or at worst coincident indicator. I would say this datum is more than consistent with the recession that Lakshman Achuthan of the ECRI has been warning of, wouldn't you?

 As I mentioned before, without a doubt 2013 will be a disastrous year for the global economy and for the financial markets. Things could get ugly before then due to any number of issues that are boiling just beneath the surface… but barring any sudden developments, most of the key players will try to hold things together into year end.

New Fed minutes reveal powerful CEO voted to make William Dudley president of FRBNY and grant him conflicts waivers for investments in CEO's own company.

Options prices have been biased for JPY weakness for a while. Positioning across many segments is drastically short JPY as everyone and their pet giraffe Roger knows that Abe will demolish the JPY with all his anti-diarrheal might. The problem is - everyone knows; and as Morgan Stanley's position tracker below shows, JPY is hugely short and on the exact opposite side, traders are drastically long the NZD. The NZDJPY cross has recently broken out and traded back to September 2008 levels. The breakout perfectly retraces 50% of the 2007-2009 plunge in the cross. While the world seems full of traders who claim to be contrarians, the true contrarian trade right now is short NZD, Long JPY (an oft-used carry pair) and these technicals suggest the pair could be the highest beta risk-off trade currently.

The Fed has one, the ECB has one, the BOE, BOJ, SNB also have one. Even Zimbabwe has one. And anyone close to them is filthy rich and has nothing to worry about, ever again. So it is only fair the "Magic Money Printing Machines" which are now the bedrock of the "developed" world's economies, should be made available to everyone. And at a price of just $4.79, soon everyone can be a self-made (literally) trillionaire, and live in filthy Keynesian opulence until the end of time.

Buried in the Empire Fed manufacturing data is the forward expectations for Prices Paid and Prices Received. Taken together, somewhat obviously, they reflect businesses views of their margin expectations for the future. For seven of the last nine years, this future margin expectation has risen from mid-year into the end of the year (whether hope-driven or real fundamentals is unclear), but this year, the picture is very different. For the first time since 2007, future margin expectations have plunged into year-end as expectations for prices-paid have notably risen relative to expectations for prices received. Though the sample is small, the last time we saw such a huge divergence from the seasonal tendency for margin expectations was followed by an equity market reaction many would prefer not to remember.

We suspect even the CNBC anchors were somewhat taken aback by the babbling of the now infamous David Tepper this morning. A lot of bluster to basically tell us not to fight the Fed and ride the wave - as far as 'mistakes' in the past "Hi Mom" and "my friend likes your friend" was the omnipotent manager's response. However, Tepper's main thesis, reiterating his September 2010 speech, that 'all voluntary action abandon to the Fed, ye who trade these manipulated markets' remain in place. So how has that worked out for i) Tepper, and ii) those who continue to refuse to yield to Central Bank authority? See below...