Archive - 2012

Following today's increasingly more adverse news for Sears, which saw primary vendor funder CIT cut ties with the Eddie Lampert mega investment, it was only a matter of time before the market realized that the jig for the once bankrupt retailer may be up, and a Chapter 22 is the only possible option. Sure enough, the first to respond to this is the rating agency that not only is capable of forward looking activity, unlike all the other NRSROs, and also managed to get Jefferies to admit it had a far greater European exposure than the market was comfortable with (resulting in a major cut in gross and net, and a far greater transparency into its balance sheet). As of minutes ago, Egan Jones just downgraded Sears Holdings to the lowest rating just above default: C, from CC.

UPDATE: As an observation, QQQ Short-Interest is at 11 year lows (January 2001), down 43% into year-end

Curious what has provoked a vicious year end (and 2012 year beginning) Santa Rally, which until today had seen the S&P trade higher on 12 out of 15 consecutive days? Wonder no more: the reason is the same it has always been - year end short covering, which in turn has spilt over into the new year's momentum chasing HFT brigade and the occasional retail momo who still has some cash left after covering commission costs. According to the latest NYSE biweekly update, the short interest as of the end of 2011 was a modest 12.8 billion shares, a sharp drop from the 13.4 billion and 14.2 billion 2 and 4 weeks prior, and certainly a very far cry from the over 16 billion shares short which market the market bottom in late September. Also, for anyone wondering why so far 2012 is an identical replica of 2011, decoupling and all, look no further than the SI data as of early 2011 - SSDD. Short covered, and only as the year unwound did they dare to challenge the central banks and to increase their shorting activity.

Imagine pensions not paying retiree funds, insurers not paying claims, and banks collapsing everywhere. Sounds like fun? I will be discussing this live on RT's Capital Account with the lusciously locquacious Lauryn Lyster at 4:30pm.

Wondering how wives of (ex) central bankers would engage in insider trading if that was their intent (forgetting for a second that if one is the wife of a central banker one probably should not be engaging in any FX transaction to begin with)? Now we know, courtesy of this first interview with the wife of the former SNB head following his departure in which she tell us how a former Moore Capital currency trader would engage in FX insider trading "if one wanted to..."

Confused by the untenable UK debt (and as the country is the latest to re-jump on the QE bandwagon, it is only going higher)? The following inforgraphic from Borrow money online should explain it all.

While economic data may be manipulated daily, and markets can be pumped in any of many different ways (such as the ongoing preparation by the ECB to accept any collateral for the upcoming LTRO which will bring the ECB's deposit facility usage to $1 trillion), there is one true indicator of economic prospects: immigration. Long a target for immigrants from all over the world, something has changed very drastically for Italy in recent days. Art Cashin explains why the one indicator that matters - Italy's desirability for immigrants from countries such as Afghanistan and Bangladesh, means everything has changed now.

All you need to read.

Remember that whole "US is decoupling" theme so pathologically spread around by two-bit propaganda media outfits staffed by journalism B.A. majors? Time to put it in the trash where it belongs. As long expected, the temp hire surge, so effectively used by retailers to dump inventory below cost (just ask Sears), is over, and in the first week of 2012, Seasonally Adjusted claims soared to 399,000, the highest since November and a number which next week will be revised over 400,000, a decimation of expectations of 375,000 (naturally last week's number was revised upward from 372K to 375K - a long-lasting BLS tradition of fudging data that everyone knows about now). The Non-Seasonally adjusted number was +102,314 claims in the first week of the year. And the real question is how many of these real departures were of the banker type, where the impact on lost withholding taxes going forward, and thus government revenues, will be quite dire. Continuing claims also missed expectations, rising to 3628K from a revised 3609K (expectation was for an unchanged print, pre revision, of 3595K). And the worst news is that the 99-week cliff continues to grab more and more, with 48k people dropping off all rolls, and thus from the labor force completely, meaning the labor force participation rate in January will likely drop to another fresh 30 year low. But the horrendous jobs update was only one part. The other one focuses on actual consumer spending, as confirmed by the major miss in retail sales which were up 0.1% on expectations of 0.3%, but the entire gain was due to car purchases primarily driven by cheap govt-funded subprime credit for GM vehicles. Sales ex-autos actually declined by 0.2%, on an expectation of 0.3% rise: this was the first decline and worst print since early 2010. So much for the consumer-led recovery. And so much for the unemployment pick up. And so much for the decoupling. The chart below shows what will happen as the world finally reconverges, as was posted yesterday.

UPDATE: EURUSD at highs of day now 1.2790, sovereigns and corps/fins tightening back modestly

The ECB press conference has begun and immediately the headlines are flying and driving EUR weaker (ironically not helped by the dismal US macro data that just printed). European sovereign spreads are leaking wider, stocks are underperforming, treasuries outperforming bunds, and corporate and financial spreads are widening rapidly on his comments, via Bloomberg:

• *DRAGHI SAYS ECONOMIC OUTLOOK FACING SUBSTANTIAL DOWNSIDE RISKS
• *DRAGHI SAYS FISCAL COMPACT MUST HAVE UNAMBIGUOUS WORDING
• *DRAGHI SAYS FISCAL CONSOLIDATIONS ARE UNAVOIDABLE
• *DRAGHI SAYS ECB WILL ACT AS AGENT FOR EFSF
• *DRAGHI SAYS HARD DATA DON'T YET SHOW STABILIZATION
• *DRAGHI SAYS HILDEBRAND WAS `VERY, VERY GOOD' GOVERNOR
• *DRAGHI SAYS ECB DIDN'T DISCUSS CUTTING DEPOSIT, MARGINAL RATES
• *DRAGHI SAYS ONGOING TENSIONS KEEP DAMPING ECONOMIC ACTIVITY
• *DRAGHI SAYS ECB `VERY CONCERNED' ON HUNGARY
• *DRAGHI SAYS ANY WAY TO INCREASE THE 'FIREWALL' FIREPOWER WELCOME
• *DRAGHI: NATIONS SHOULD HAVE HAD CAPITAL READY ON STRESS TESTS
• *DRAGHI SAYS NEW COLLATERAL RULES EXPANDED POTENTIAL RISK
• *DRAGHI SAYS PSI WAS RESPONSE TO `SELFISH' BEHAVIOR
• *DRAGHI SAYS ECB EXPECTS SUBSTANTIAL DEMAND FOR SECOND LTRO
• *DRAGHI SAYS GREEK CASE IS `UNIQUE'

Draghi's third press conference begins. Will he announce new unconventional measures such as a new LTRO or even QE? Find out here.

Crude prices rose modestly this morning so far (up to $102) as news of the Nigerian oil and gas union will shut down all production starting Sunday in a nationwide strike over fuel prices. As the Associated Press reports, the nationwide strike has been under way since Monday and the 20,000 oil and gas union members joining on Sunday will mean a top supplier of crude to the US (approximately 2.4mm barrels per day) will stop production. The union notes that the Nigerian government's reversal of a two-decade-long subsidy program to keep gas prices low for Nigerians "forced them to go ahead and apply the bitter option of ordering the systematic shutting down of oil and gas production." The market for now does not seem too bothered by this drop in supply, even in the tight markets we are facing, as most of the oil move seems driven by USD weakness post the ECB decision - perhaps things will change when the unions call the market's bluff on Sunday?

Even as we are drowned by yet another avalanche of lies and cow feces that the Greek private sector bailout negotiation is going well, despite everyone knowing very well by now that various hedge funds like Saba, York and CapeView are holding the entire process hostage and the culmination will be a CDS trigger, the underlying dynamics of the Greek "bailout" once again resurface, which are and always have been all about Germany and the tensions within its various political parties. And unfortunately at this point things are looking quite bad for Greece. As Bloomberg reports, "Greece will have to exit the euro area as it struggles under a mountain of debt, unable to regain its competitiveness without having its own currency to devalue, a senior lawmaker in Chancellor Angela Merkel’s party said. The comments by Michael Fuchs, the deputy floor leader for Merkel’s Christian Democratic Union, contradict the chancellor’s stance in a sign of the domestic headwinds she faces in leading Europe’s efforts to keep the 17-member euro area intact. With the debt crisis into its third year, Merkel is due to join CDU lawmakers at a two-day policy meeting beginning tomorrow in the northern German city of Kiel." The truth hurts: "For Greece, “the problem is not whether they are capable of paying their loans -- they will not, not at all, never." So, why are we optimistic on Europe again? Oh yes, because European banks issued tons of equity and now have a capital buffer to the imminent hurricane that will be unleashed once the Greek restructuring finally enters freefall mode and the country leaves the Eurozone. No wait, that's not right: only UniCredit tried that and its stock collapsed by 50%. Must be something else then - oh yes, Italy successfully sold debt maturing in one year!

Two weeks ago, when we first announced the catastrophic earnings preannouncement by Sears we noted that we were stunned "that as part of its preannouncement, Sears has decided it would be prudent to provide an update on its credit facility status as well as availability. As a reminder to anyone and everyone - there is no more sure way of committing corporate suicide than openly inviting the bear raid which always appears whenever the words "revolving credit facility" and "availability" appear in the same press release. Just recall MF Global. And here, as there, we expect shorting to death to commence in 5...4...3..." Subsequently, when the company was downgraded to triple hooks S&P we said that "Accounts Receivable about to become one big perpetition charge off", the implication naturally being that the company is about to lose its vendor financing - which for retailers is the last step before outright default. Sure enough, the WSJ reports that this is precisely what happened. "Struggling Sears Holdings Corp. suffered another setback when a large lender said it would no longer finance loans to suppliers awaiting payment from the company. Sears representatives played down the decision by CIT Group Inc., the largest U.S. provider of what are known as factoring services for vendors, saying the payables the firm had financed amounted to only about 5% of the retailer's inventory." Basically this means that the company Net Working Capital is about to go poof, as there will be nobody to finance the Receivable-Payable spread, SHLD will have to demand COD or even cash upfront, vendors will balk and switch to other, and slowly Sears will suffer an inventory liquidation stranglehold which will culminate with the company's bankruptcy unless Lampert provides a massive liquidity injection, which also however will have a brief impact, as the company is now perceived by all as Dead Man Walking. In other news, we are hearing that several bankruptcy advisors are already preparing the K-Mart pre-pack/freefall pitchbooks... all over again.

Demand in Asia continues to be strong.  China remains the world’s largest producer of mined gold. Premiums for gold bullion bars in Asia are rising again and are at their highest since October in Hong Kong and Singapore. Premiums are at $2.15/oz in Hong Kong and $1.65/oz in Singapore.  Bullion’s strength was also attributed to the euro’s 16 month low, with Fitch warning the ECB to purchase assets to try to stabilize the euro.   Spot gold was up 0.6 percent at $1,650.34 an ounce at 1009 GMT, having earlier touched a one-month high at $1,652.30. U.S. gold futures for February delivery were up $12.60 an ounce at $1,652.20.  A stronger rupee has boosted the purchasing power of gold bullion consumers in India.  This is in the run up for the Indian Wedding Season which resumes January 15th and continues until April, leaving a  few weeks break for a period that is considered bad luck for nuptials.  Chinese demand will weaken next week as many factories and businesses are set to close for the Lunar New Year’s celebrations.