Archive - Oct 2013

Surprised why FB stock is soaring higher by 15% after hours on results that were a beat but nothing all that spectacular, with $2.02 billion in revenues ($1.91 billion expected), and EPS of $0.25 ($0.19 expected)? Because according to the company, it will soon need to colonize a new planet as it will promptly run out of real, bot-based, imaginary and potential users on planet earth following a ridiculous 25% increase Y/Y in daily active users to 728 million, and a mindblowing 18% increase in Monthly Active Users to 1.19 billion (however look at the charts below to see just where the bulk of the growth comes from).  Putting Facebook's numbers in perspective: it has 199 million Monthly Active Users in the US, where the average revenue per user is highest. This is 44 million more than the entire labor force, and 63 million more than the number of employed people in the US.

But, but, but... was the common refrain heard across mainstream media - perplexed that i) stocks could close anything but green, and ii) stocks could close green after the FOMC kept the dream alive. Markets broke everywhere (stock and options) and VIX saw flash-smashes a number of times as the great rotation from stocks to levered stocks (i.e. options) continued (in what smells a lot like the 'what could go wrong' 'portfolio insurance' days of yore). Stocks slid lower into the FOMC, knee-jerked up to VWAP, then skidded to 2-day lows, bounced towards VWAP once again then slumped into the close for the worst day in 3 weeks (down a measly 0.6%). Treasury yields had fallen notably into the FOMC statement and snapped higher after (30Y +4bps on the week). The USD had been rising all week and was smashed higher on the FOMC news (+0.7% on the week). Gold and silver kneejerked lower but bounced back (-0.5% and +0.75% respectively) on the week. Bear in mind that credit markets are now at the worst levels in 2 week as stocks hover just below all-time highs.

Higher energy costs in Japan have not turned consumer opinion back in favor of nuclear power.

The most succinct post-mortem summary of the FOMC announcement comes from Citi's Stephen Englander.

Following Tavenner and Sebelius self-sacrifice in the last two days - despite the grossly partisan questioning (and congratulating) - it seems its time for the Presidential pitchman to take the stand once again. We are sure we'll be told that you can keep your plans (kinda sorta), that it's not about the website, and just how great it is for a few hand-picked kids with diabetes, moms with cancer, and veterans that the rest of Americans should be happy to pay up for. We will also be keeping an eagle eye open for any feinting...

"A liquidity trap is a situation described in Keynesian economics in which injections of cash into the private banking system by a central bank fail to lower interest rates and hence fail to stimulate economic growth. A liquidity trap is caused when people hoard cash because they expect an adverse event such as deflation, insufficient aggregate demand, or war. Signature characteristics of a liquidity trap are short-term interest rates that are near zero and fluctuations in the monetary base that fail to translate into fluctuations in the general price levels." Importantly, this evidence is mounting that the Federal Reserve has now become trapped within this dynamic. The important point is that, for the first time that we are aware of, someone (of apparent note to the status quo) has verbally stated that we are indeed caught within a liquidity trap.  This has been a point that has been vigorously opposed by supporters of the Federal Reserve actions.

In an NSA presentation slide on “Google Cloud Exploitation,” however, a sketch shows where the “Public Internet” meets the internal “Google Cloud” where their data resides. In hand-printed letters, the drawing notes that encryption is “added and removed here!” The artist adds a smiley face, a cheeky celebration of victory over Google security.

There are times when things are jinxed from the very moment they have been drafted into blueprints and right up until the moment they are conceived. There are just times when it would be probably better to cut your losses while the chips are down before it all goes downhill and drags you with it.

In line with what we discussed last night, once cajillionaire Eike Batista's net wealth has now collapsed to less than -$746.5 Million according to Bloomberg as Veja notes, his "take over the world" company OGX has declared bankruptcy following the breakdown of restructuring talks with bondholders:

• *OGX FILES FOR BANKRUPTCY PROTECTION IN RIO, BATISTA LAWYER SAYS
• *BATISTA'S OGX EXTENDS DECLINE TO 30% AFTER BANKRUPTCY FILING
• *BATISTA LAWYER BERMUDES COMMENTS ON FILING BY PHONE FROM RIO

The filing puts $3.6 billion of bonds into default - the largest corporate debt debacle on record for Latin America.

While the pile of debt keeps growing and monetary intrusion becomes more drastic by the day, there’s almost no talk of inflation. A growing number of investors ask themselves this question.

The USD surged and Treasury bond prices and precious metals tumbled instantly on the FOMC's statement but stocks decide it was time to ramp to VWAP (and VIX was hammered lower). After the initial knee-jerk, stocks caught back down to the reality of the other markets as it appears the investing public chooses to "sell the news" on the basis that the Fed removed the 'tightening conditions' language. The only question now is just how much of November, December, and January's seasonal hope has been pulled forward into the last few days.

Just as everyone expected, the Fed (absent its Press Conference) statement confirms they are data-driven, data is not good 'enough', therefore, no-taper:

• *FED SAYS IT WILL AWAIT `MORE EVIDENCE' BEFORE QE TAPER
• *FED SAYS ECONOMY `CONTINUED TO EXPAND AT A MODERATE PACE'
• *FED SEES IMPROVEMENT IN ECONOMY EVEN WITH `FISCAL RETRENCHMENT

There were no clear comments that markets are growing a little too comfortable with the Fed's free-money. Full Redline below...

Despite what the talking heads continue to spew to justify all-time high stock market valuations, the 'fact' is that year-to-date, US Macro data has now performed the worst of all global macro indices. Furthermore, the pace of collapse in the last 4-weeks is the fastest in 8 months. What is perhaps most ironic is that US Macro peaked at the last FOMC meeting (when the Fed decided that data was not supportive enough to Taper) so any surprise today simply supports the fact that the Fed's decision is anything but fundamentally driven (and instead perhaps driven by the four 'bad' reasons for a tapering.)

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