Archive - Oct 2013

In a stunning claim, Germany's Der Speigel reports that the US targeted Angela Merkel's private mobile phone for years...

• *MERKEL TOLD OBAMA TAPPING WOULD BE UNACCEPTABLE, SEIBERT SAYS
• *MERKEL COMPLAINED TO OBAMA ABOUT PHONE SURVEILLANCE: SPIEGEL
• *MERKEL DEMANDS FULL EXPLANATION FROM OBAMA, SPIEGEL SAYS

So Obama promptly complied:

• *OBAMA TOLD MERKEL U.S. NOT TAPPING HER PHONE, SPIEGEL SAYS

We await Snowden and Greenwald's clarification...

In a “Sponsorship Agreement” between the Maryland Health Connection and the Ravens, Judicial Watch reports that the state (read taxpayers) will pay the Super Bowl champs $130,000 to push Obamacare on television, radio, the team’s official website, its newsletter and in social media. If Obamacare is the great thing that we are constantly reassured it to be, why are we seeing the administration feeling the need to constantly market, pitch, and sell the idea by any means possible (from keg standing college students to Superbowl shuffles)?

Which comes first, Dow 20,000 or Dow 5,000... and when?

When economic troubles strike, policymakers are eager to do something (anything) to try to help the citizenry. But, as Prof. Lawrence H. White argues in this brief clip, government doesn't necessarily know how to relieve economic woes, and in fact, often wastes and mismanages resources. Individuals in the market know better what they need in their circumstances, as economist Friedrich Hayek argued during the Great Depression. Critically, he points out, relying on government to fix our economic woes instead of allowing individuals to make decisions for themselves means putting all of our eggs in one basket. Individual decisions in the market won't be mistake-free, but each individual mistake will be smaller and will correct more quickly. The unusually slow and painful recovery that we have seen in this recession surely points to problems with the "government should do something" view.

Albert Edwards: "Only the brave can react to what they see and leave the markets. The global macro looks an appalling mess and even more importantly, long-term equity investors can find nothing worth buying. For equity investors we are closer to 2007 than 2001 as the vast bulk of the equity market, as represented by the median PE, PB or Price/Sales, is expensive. The US median price/sales ratios is at a record high, indicating that there is practically nothing cheap in the equity market left to buy."

Across the board, we are seeing European bank stocks (most notably Italian) trading halted. The 5-7% plunge in prices - just when everyone is proclaiming victory in Europe - reflects an apparent concern that the tougher-than-expected European bank stress-tests will expose the Italian banks for the bloated sovereign debt issuance soaks that they have become. As Draghi himself noted, in a desparate plea to maintain some credibility "banks do need to fail" to prove the credibility of the exercise, adding "if they do have to fail, they have to fail. There’s no question about that.". Spain is also under pressure and it would appear the "smart"money that chose to catch some knives in Greek banks may just lose more than one finger...

The global scramble for Africa's estimated 25 billion barrels of oil is on. Those scrambling to secure (and/or exploit) the continent's abundance of fossil fuels include each oil-rich nation's political and economic Elites, international oil corporations, regional powers, trading blocs and the four major (and energy-hungry) economic players: the E.U., the U.S., Japan and China. But, Oil-rich nations are bedeviled by the Resource Curse...

Today's Chart of the Day comes by way of SocGen's Albert Edwards who in one image shows why, with gross debt issuance needs between budget funding and rolling maturities at 60% of GDP, Japan has no choice but "to print and print and print"

We can only imagine the overwhelmingly positive perspective that Boehner and the GOP leadership will have as they discuss Obamacare's early days... What's worse than a "train wreck?" ...grab your popcorn...

We're not criticizing Krugman for the number of battles he gets himself into. If he argued his case truthfully and respectfully, there would be little reason for this post. But Krugman accumulates enemies by inventing his own facts, denying obvious mistakes, displaying über-arrogance and insulting those with opposing views. Fortunately, folks such as Ferguson occasionally bring these points to light.

While the world awaits with bated breath until the moment that Greece can no longer afford to pretend it is solvent and has to apply for its third bailout from Europe, or else threaten to take down Deutsche Bank and its tens of trillions in gross derivatives, the world has to listen to the constant jawboning from the Troika which for the past nearly 4 years continues to express its displeasure with Greece, and yet still provides every Euro of funding the imploding country requests. In the latest iteration of this charade, the Troika has apparently flexed its muscles and made it clear that if Greece wants to receive the next round of cash, it will have to shutter the state-owned Hellenic Defense Systems (EAS) and the Hellenic Vehicle Industry (ELVO). In short: shut down the domestic defense and auto industries, and we'll talk. Oh, and if as a result you have to import your guns and cars from Germany (whose generous funding has kept you afloat so far), and have to take out Deutsche Bank loans to pay for them, so be it.

The FHFA reported home prices gained at the lowest pace in 11 months (0.3% MoM vs 0.8% expected) missing expectations by the 2nd largest amont on 13 months. It seems, just as we pointed out that with fast money leaving the room and slow money crushed by higher mortgage rates at the margin that indeed something had to give... Prices in the South Atlantic and East Central actually fell MoM.

Only 38% of S&P 500 companies that have reported have beaten revenue expectations - compared to a historical average of around 46%. As Bloomberg notes, Q3 2013 will be the first time for 3 consecutive quarters of sub-50% meeting expectations since their records began. Earnings are not much better having seen a slide in performance relative to expectations for 4 quarters now. It seems the hockey-stick of H2 2013 earnings hope that we so vociferously pointed out as ridiculous early in the year is indeed far too high and combined with valuations (as we noted here) that are stretched (Price-to-Sales at 1.6x is around twice the norma since the 1990s) it suggests that any hint of a taper will remove the only leg left for stocks - that of hope-based multiple expansion.

With the government reopened, and the debt-ceiling non-negotiation off the table, if only for another 3 months, Wall Street's experts have fallen back to what they do worst: attemping to predict when the Fed will Taper. And just as virtually all economists were convinced the September tapering is a done deal, so nobody sees a Taper in the next three months, and certainly not before March, or, in the case of Larry Fink, June 2014. One thing, however, that nobody in polite, statist company has brought up yet is not only the possibility, but increasingly the probability, that there may not be a taper. At all. Well, Deutsche Bank - the first of any major Wall Street institution - just floated "that" particular bubble. To wit: since "the Fed possibly only has a narrow window to taper before it’s faced with economic headwinds again and if this is the case then why bother taper at all?"

With every passing quarter, Caterpillar, perhaps the last truly industrial company in the epically misnamed Dow Jones (non)-Industrial Average, provides an ever clearer answer to the question we posed this past July, namely "Is CAT Nothing But The Dow's Most Overpriced Dog?" The most recent affirmative response came moments ago when the company announced Q3 earnings which were for lack of a better word, disastrous: EPS came at $1.45 on expectations of $1.67, revenues missed by a whopping $1 billion, when the sales print $13.4 billion missed expectations of $14.47 billion - perhaps the biggest top-line miss in the company's history since the Lehman bankruptcy. But it was the guidance that is slaying the stock right now: "The company has revised its 2013 outlook and now expects sales and revenues to be about $55 billion, with profit per share of about $5.50.  The previous outlook for 2013 sales and revenues was a range of $56 to $58 billion with profit per share of about $6.50 at the middle of that range." But don't worry: despite our continuous warnings about the sad state of this company the trend, it is only "transitory", and any minute now thing may get better. Unless they don't.