Archive - Oct 29, 2013

Resets occur when the price of everything that has been repressed, manipulated or obscured is repriced. The greater the manipulation and financial repression, the more violent the reset. What been manipulated, obscured or repressed? Virtually everything: risk, credit, assets, labor, currency, you name it. Everything that has been manipulated by central banks and central states will be repriced. Trust is difficult to price. Every reset erodes trust in the capacity of the centralized status quo to manipulate/repress price to its liking. Once trust in the system is lost, it cannot be purchased at any cost.

If the investing school of "Ackman-Tilson" is correct, in which nobody actually cares about the content, just the number of pages in a given "investing presentation" slideshow, then recently troubled Chinese mobile internet provider NQ just got the upper hand over Muddy Waters. Recall that on Thursday, with a "Strong Sell" report bashing NQ, alleging the company is a fraud, Muddy Waters managed to cut the price of the company in question by over 50%. The size of that presentation: 81 pages. Moments ago NQ came out with its point by point rebuttal to Muddy Waters. The size of NQ's presentation: a whopping 97 pages.  Game, set, match to NQ, duh.

Aside from the fact that this morning's dismal confidence data likely inspired more Fed-inspiration, the fact of the matter is that US equities remain beholden to the ebb and flow of JPY-carry trades. This morning's surge in the latter (EURJPY) can be attributed to ECB's Nowotny, who dropped this little tape-bomb earlier:

*ECB'S NOWOTNY SAYS 'NO REALISTIC PROSPECT' OF RATE CUT: MNI
*NOWOTNY SAYS ECB UNLIKELY TO CUT BENCHMARK OR DEPOSIT RATE: MNI
*NOWOTNY SAYS POLICY MAKERS 'HAVE TO LIVE WITH' STRONG EURO: MNI

Which strengthened the EUR (against the JPY) and thus - in the new normal interconnected world (disconnected from fundamentals) - US equities spike.

As we pointed out a month ago (and initially over a year ago) in this completely broken, levered-beta, mad dash for yield market, the only alpha-generating strategy that even remotely works, is to be long the most shorted stocks. This was confirmed based on the return of the S&P vs the "most shorted sotcks" - a trade we first suggested in September 2012 - demonstrated by the chart below. Amusingly, as part of the trading basket of only stocks worth owning, i.e., the most shorted ones on the Russell 2000, where the beta is by far the highest, the top stock listed, the one with the highest short interest as a percentage of the total float, was none other than Blyth, Inc., as per the chart from one month ago.  According to the latest Bloomberg data, since then the short interest only rose even more, hitting an unprecedented 82.79% of all shares in the float held short. Well, overnight a lot of shorts suddenly screamed out in terror and were suddenly silenced, not to mention carted out feet first, when none other than the most shorted Rusell 2000 stock received an unsolicited takeover proposal valuing the stock at $16.75/share.

The House Ways & Means Committee holds a hearing to receive testimony from Marilyn Tavenner, Administrator of the Centers for Medicare & Medicaid Services (CMS) at the U.S. Department of Health and Human Services (HHS). Grab your popcorn, nom nom nom

*TAVENNER REFUSES TO TELL COMMITTEE ENROLLMENT DATA ON OBAMACARE
*TAVENNER SAYS ENROLLMENT DATA WILL BE RELEASED MID NOVEMBER

Following the lowest UMich confidence print in 2013, Gallup's economic confidence collapse, and Bloomberg's index of consumer comfort signaling major concerns among rich and poor in this country (in spite of record highs in stocks), today's Conference Board Consumer Confidence data  continues to confirm a problem for all those 'hoping' for moar multiple expansion. From 80.2 in September, confidence collapsed to 71.2 (the largest MoM drop in 2 years) to its lowest in six months, and notably below expectations. As we have noted in the past a 10 point drop in confidence has historically led to a 2x multiple compression in stocks (which suggests the Fed will need to un-Taper some more to keep the dream alive). Hope for the future dropped to 7-month lows but what is perhaps most intriguiging, just as with the Bloomberg surveys, we are seeing the wealthiest cohorts confidence plunging (even as stocks soar to new highs). It would appear the Fed has lost its wealth effect inpiration.

September retail sales were a modest miss: that much was made clear earlier. However, what the market may have missed is that this "miss" was on the back of Department of Commerce's favorite fudge factor: seasonal adjustments. The 0.1% "decline" in retail sales was for the seasonally adjusted numbers of $426.3 billion in August and $425.9 billion in September. So what happens when one strips away the Arima-X-12 a la carte adjustment which is always and everywhere in the eye of the beholder? Well, this...

It would appear that the 'gambler's in these 5 cities were not told that the government would be shutting down, that confidence would drop, that affordability would plummet... instead they were told that nothing has changed and 29% YoY home price gains are for buying not selling..

If yesterday's collapse in September existing home sales was indicative that Housing is tumbling and it means the Fed will not taper until mid 2014 sending the S&P to a new record high, today's August Case Shiller, which beat expectations of a M/M increase of 0.65% with a 0.93% print, and an increase of 12.82% Y/Y, probably means that the economy is very strong and will send the S&P to an even newer recorder high, since both bad and good news send only one signal to algos: buy. What is amusing is that while the NAR's September fiasco was attributed to "concerns" over a government shutdown, the two month delayed Case Shiller print, which was for August, will be spun as no fears of a government shutdown in August, or something.

Moments ago hopes that the S&P would hit 1800 on an epic miss in the September retail sales were dashed after both the headline and ex-auto/gas numbers came largely in line. The total Seasonally Adjusted retail sales for September dipped modestly by 0.1%, on expectations of an unchanged print. Excluding autos the number was exactly in line with expectations at 0.4%, while ex autos and gas was also a very modest miss of 0.4% vs Exp. 0.5%. Still, hardly bad enough to send the S&P500 futures into the stratosphere. The biggest outliers by business category were motor vehicles which tumbled -2.2 in September, the biggest decline since October 2012 (did the US government suddenly stop making NINJA loans?), Miscellaneous stores and Clothing stores, down 1.2% and -0.5% respectively, while electronics and appliance stores rose 0.7% in September. In short: Americans may have no clothing as we enter the winter season, but at least they have the new iPad.

The news keeps going from worse to worse-er for the administration and Obamacare. The latest hit, however, does not revolve around the dysfunctional healthcare.gov website, whose hundreds of millions of lines of faulty code will take a very long time to fix, but relates to Obama's promises that individuals would be able to keep their existing healthcare plans following the rollout of the Affordable Care Act. The truth, as NBC reports, is they can't but what's worse is that Obama knew as early as July 2010 that 40 to 67 percent of customers will not be able to keep their policy. And that's not all: since the 14 millions consumers who buy their insurance individually will be forced into comparable plans, they are all set to experience a "sticker shock" when "opting" for the mandatory alternatives.

• U.S. spy chiefs face Congress amid spying rift with Europe (Reuters)
• Deutsche Bank income hit by €1.2bn of legal provisions (FT)
• China's second tapering attempt fails: China central bank seeks to reassure money markets after rate spike (Reuters)
• UBS Takes Action Against Staff in Foreign-Exchange Probe (WSJ)
• Saudi Arabia frees man jailed for Mohammad tweets (Reuters)
• Tax Revolts Hit Hollande as Farmers, Soccer Clubs Protest (BBG)
• German parliament to meet over U.S. spying scandal (Reuters)
• Google Nears Smartwatch Launch (WSJ)
• How to end gridlock in DC? Pork projects (Reuters)
• UBS ordered to increase capital reserves (FT)

For those curious what Bernanke's market may do today, we flash back to yesterday's AM summary as follows: "Just as it is easy being a weatherman in San Diego ("the weather will be... nice. Back to you"), so the same inductive analysis can be applied to another week of stocks in Bernanke's centrally planned market: "stocks will be... up." Add to this yesterday's revelations in which "JPM Sees "Most Extreme Ever Excess Liquidity" Bubble After $3 Trillion "Created" In First 9 Months Of 2013" and the full picture is clear. So while yesterday's overnight meltup has yet to take place, there is lots of time before the 3:30 pm ramp (although today's modest POMO of $1.25-$1.75 billion may dent the frothiness). Especially once the market recalls that the NOctaper FOMC 2-day meeting starts today.

While the biggest problem facing US bands is lack of demand (and supply, since it is far more profitable for banks to "invest" reserves in risk assets using excess deposits as initial margin) for loans, Japan doesn't have such a problem. At least not, when the loans are made to "gangsters" such as the Yakuza. AFP reports that executives at Mizuho Financial Group, one of Japan's largest banks, knew the firm was doing business with gangsters but failed to stop it, a panel said Monday, as Japan's finance minister slammed the banking giant over the affair. The bank has been in the public spotlight since it emerged last month that it processed hundreds of loans worth about $2 million for the country's notorious yakuza crime syndicates. And while in the US the punishment for banks caught in criminal behavior is a simple slap on the wrist and a settlement paid using TARP money, in Japan bank CEO still have some semblance of honor. Bloomberg adds that in the aftermath of the revelations, Mizuho's president Yasuhiro Sato will give up six months of pay ahead of more penalties, and will resign his Chairmanship at Mizuho Bank while keeping the post at the parent company. Some 52 other current executives will also be penalized.

Usually what goes up normally ends up coming back down to Earth with a damn great thud. Well, that was long ago with good old Isaac Newton and the apple story.