Archive - Oct 1, 2013

A US government shutdown, slumping vehicle sales, Aussie trade deficit double what was expected (and building approvals tumbled), Asian growth expectations being cut, and Japan's monetray base is up 46.1% YoY (versus 42.0% exp.)... Japanese stocks are down over 400 points from the US day session highs, falling for the 4th day in a row (down 4.8% from the highs last week) as the third arrow confusion reigns taking the Nikkei 225 back to 3 week lows. The Rupiah (Indonesia) and Baht (Thailand) are weakening (bucking the 3-day weakness in the USD) and Indonesian (+10bps), Aussie, and Kiwi bonds are leaking higher in yield. In general, AsiaPac equities are holding modest gains but Singapore and Japan are taking it on the chin... S&P futures -5 from day-session highs.

Presented with little comment aside to note that perhaps the House should rename the amendments they propose to "defund" in order to gain a more popular position among the citizenry?

Still three-plus years left in Obama’s presidency, where mediocrity has been elevated to a highly acceptable status.  A good and intelligent man has proven to be an incapable leader, often by making poor choices in the advice received... However, not all has to be lost for Obama; he still has time to reweave a legacy that now appears grey and bleak.  And that reweaving will not be on the domestic front; for the economic future of 80 percent of Americans has already been cast... the slope pointing downward no matter what hopeful lies are manufactured in Washington.  Reweaving, for Obama, should take place at the international front; a great opening has appeared before him partly by chance and partly by what other world leaders have to gain as well.

Everything looked so good in August. Goldman's global leading indicator (GLI) "swirlogram" had recovered quickly from a 'growth scare' in Q1 and was holding firmly in "expansion" territory. Then reality hit as new-orders-less-inventories worsened, various manufacturing surveys rolled over, industrial metals gave up gains, and Korean exports provided no help. Among the few factors holding up the index from already plunging levels was the Baltic Dry Index (which has collapsed now in the last few days) and Consumer Confidence (which appears to also be rolling over). September's plunge into "slowdown" for the GLI is the biggest drop in 8 months.

This morning's media blitz by Carl iCahn - demanding that AAPL's Tim Cook, borrow money cheap, lever-up, and gift it all back to shareholders through buybacks - reminded us of our previous post on the record high levels of leverage in US corporations. To a point, firms can add debt as earnings and equity value increase - leaving leverage and credit risk somewhat constant. However, the last few years, in spite of Maria Bartiromo's constant drivel of cash on the balance sheets, companies have increased debt faster than EBITDA, leverage is at record levels, and credit markets appear to have peaked (as they did in 2007).

One wonders: with 91% of the IRS' total 94,516 workers stuck at home, downloading porn, is the government shutdown really such a bad outcome?

The sad truth is that, based on Gallup survey data, Americans have never trusted other Americans less. Is this the "short" that catalyzed the real trade of the decade - "long gold" - as a hedge for the lies and liars that run the nation...

"It seems to me that if you went to college and took on student debt, there used to be greater assurance that you could pay it off with a good job," sums up one "millennial", adding - sadly - "but now, for people living in this economy and in our age group, it's a rough deal." As WSJ reports, only about a third of adults in their early 20s works full-time - the lowest rate in 40 years - as the combination of structural changes and this recession "is devastating for millennial." Despite think-tanks demanding more of employers in terms of workplace rules and minimum wages, the reality is workers are expected to do more for less and be grateful - "this is a huge problem when think of where demand is going."

Not a segment goes by on today's business media when we have not heard that "Bill Miller says AAPL is a no brainer." Of course, it is no surprise that markets have no memories but to heed the vehement advice of an almost self-proclaimed dip-buyer who told the New York Times that "not understanding the systemic nature" of the market "was his biggest mistake," in the new normal of too-bigger-to-fail banks and ever-longer collateral chains seems risible. As to his confidence, we remind those who care, that on Dec 3rd 2008, Miller said the "bottom has been made" in U.S. equities. Trade accordingly...

The Chief Economist at Citi Willem Butler has said today on CBC in an interview that the fiasco over the US budget and the lack of money is nothing more than irresponsible on all political wings and that the country is being run by Munchkins in the Land of Oz.

As stocks press back towards all-time highs amid a US government shutdown, extreme weakness in earnings pre-announcements, slower-than-expected China growth, Europe's recovery in doubt, and a looming debt-ceiling debate in the US, we look at four 'big picture' charts of dismal divergences that suggest it's not different this time at all...

While over 800,000 furloughed government workers took the bulk of today's "shutdown" hit (even if that means record high traffic and ad revenues for the world's porn websites) in the form of compensation (that is merely delayed) one of the parties impacted by the first government shutdown in 17 years was none other than the Ku Klux Klan. Reuters reports that a KKK rally was one of the first casualties of the U.S. government shutdown on Tuesday when National Parks officials told the white supremacist group the event would have to be canceled. The KKK had been granted a permit for what it dubbed a First Amendment demonstration on Saturday at Gettysburg National Military Park, but park officials said it could not take place because all National Parks have been closed. "Because of the federal government shutdown, Gettysburg National Military Park has rescinded all permits for special events, including the October 5 First Amendment demonstration," the park said in a statement.

To suggest that the United States is not the richest country in the world, or that the government could default, is tantamount to blasphemy. It doesn’t matter that every objective scrap of evidence points to the inevitable conclusion that the US government is going to have to default on its obligations. The hubris and arrogance here is amazing. And it just goes to show that if you just repeat something over and over again, people will believe it... no matter how absurd. This is the basic premise behind propaganda. Start with an idea. Inundate the population through constant repetition. And soon it becomes the unquestionable truth.

Rather than discuss this insanity in the end-of-day note, we though the following charts deserve their own moment in the limelight of algos-gone-wild "momentum ignition" infamy (as we explained here and here). The fun began as usual at 330ET as VIX and EURJPY was employed but clearly with S&P futures stuck at VWAP they needed some help... so with 10 minutes to go in the day, size entered and short-term protection was smashed lower, Dec VIX was sold heavily, and EURJPY (FX carry) bid aggressively... the result - a 9 point almost instantaneous ramp through the entire order stack to close the cash markets at their highs on the day the US government shutdown. As Bart Chilton said - the CFTC is offline - so anyone can bang, pardon monkeyhammer the VIX close; after all it's not a stock.

US Equity markets started green and ended green despite giving back some POMO gains in the afternoon. The Russell 2000 closed at all-time highs with the best day in a month (up over 2% from yesterday's lows)... on the day the US government shutdown for the first time in 17 years. The big news was in commodity-land where gold and silver were smashed early (and silver rebounded somewhat) as were copper and oil. The lunatics had full control into the close as VIX was Heisenberg'd (along with EURJPY) taking the S&P to its highs of the day - totally incredible.