Archive - Nov 14, 2013

Every day in the New Normal, it is either a mass shooting or an explosion in some pipeline or crude-carrying train. Moments ago, a pipeline in Texas exploded in a massive fireball and has prompted the evacuation of the nearby town of Milford.

Between last night's dismal reality of enrollees in Obamacare, the collapse to record lows of Obama's approval rating, and the growing disillusionment among the President's own party have forced the administration to "fix" Obamacare. As Politico reports, the president’s proposal would allow insurers to offer plans in 2014 that were previously slated to sunset this year, but require the companies to let consumers know how — if at all — their policies don’t comply with the minimum benefits of the Affordable Care Act, according to a source briefed on the proposal. Insurance companies are not amused as risk pools will need to be adjusted. We leave to our policy-changer-in-chief to explain the nuances of this fiasco and why this is not a "fold", not an admission that the law is FUBAR, and not in any way similar to the Tea-Party's suggestion that Obamacare be delayed by one year...

1. The Fed now owns 32.47% of all 10 Year equivalents, up 32.22% from the prior week, and rising at a pace of 0.3% per week.

2. The Fed is now monetizing a record 70% of all net US 10 Year equivalent issuance.

For the benefit of the revisionist media (if there is any media left) once the final asset bubble has popped in a few years time, and which like now will try - incorrectly - to make Yellen appear Oracular in her prophetic "bubble warnings", we would just like to "timestamp" what she just said:

• YELLEN SAYS FED DOESN'T SEE BUILDUP OF FINANCIAL RISKS
• YELLEN SEES LIMITED EVIDENCE OF ‘REACH FOR YIELD’
• YELLEN SAYS FED LOOKS OUT FOR ANY POTENTIAL ASSET PRICE BUBBLES
• YELLEN DOESN'T SEE `MISALIGNMENTS' IN ASSET PRICES

So there you have it: No risks, no bubbles, and on the record. Thank you Mr. Chairwoman. And now, you may continue BTFATH.

UPDATE: Gold is slipping back as Yellen notes:

*YELLEN SAYS QE `CANNOT CONTINUE FOREVER'
*YELLEN SAYS FED TAKES RISKS OF QE `VERY SERIOUSLY'

Yesterday was equity markets turn to get all exuberant over Yellen's promises. Today, it is the reality that she will do whatever it takes and her mention of data-dependence and ongoing use of Fed tools that is sending gold (and silver) higher.

The financial crisis of 2007-2008 has sparked the most intense interest in international monetary reform since Richard Nixon closed the gold window at the New York Fed and devalued the U.S. dollar in 1971.

Off with her Fed!

Following our earlier preview, we expect the Q&A to have some potential fireworks as the politicians demand she "get to work" as soon as possible. If you are playing buzzword bingo at home - drink if she says "bubble", "depression", "data-dependent", "fiscal", or "screw you Schumer."

Sell bonds??  Buy bonds??  What should i do?? 
I'm so confused!!!

Or, in other words, the chart you see here...  it is just a product of your imagination.

It would appear that much of the rally yesterday (and early overnight) was driven by hope (and confirmed relief) that Fed chair nominee Yellen is not about to take on a substantially less-dovish tone in today’s testimony in an effort to garner the support of the more hawkish elements of the Senate Banking Committee. There was a great deal of confirmation bias in the market's move and interpretation but, as BofAML notes below, this may be misplaced. The more important part of today’s testimony is yet to come in the Q&A session - where we will hear likely more unscripted thoughts from the QEeen at her Senate confirmation this morning.

Despite the great shale revolution, US exports posted a $0.4 billion decline to $188.9 billion in October driven by decreases in industrial supplies and materials ($1.3 billion), other goods ($0.2 billion), consumer goods ($0.2 billion), and capital goods ($0.1 billion). This was offset by a $2.7 billion increase in imports to $230.7 billion broken down by increases in industrial supplies and materials ($0.9 billion); automotive vehicles, parts, and engines ($0.9 billion); capital goods ($0.8 billion); and consumer goods ($0.6 billion). End result: a September trade balance of $41.8 billion, which was higher than the highest forecast of $41.6 billion among 72 economists queried by Bloomberg, and the highest deficit print in 4 months.

Following the end of the plague of system glitches last week, the Labor Department admits that 5 states estimated levels this week. The initial jobless claims print remains near 4 month-highs (adjusted to for the prior glitch unreality). At 339k vs 330k expected, this is the 6th straight week of disappointment for the 'critical real-time indicator of the economy's health' that some have called this noisy data series. Last week's 'encouraging' print was revised higher from 336 to 341k, we can't wait to see how the 5 estimates affect next week's revision.

Curious where the "hedge fund hotel" is currently located, for both most loved and hated asset classes? The following table shows both the penthouse and the basement of the most recent groupthink, which not surprisingly, indicates that hedge funds, which have simply become highly-levered momentum and beta chasers, are most bullish on the Nasdaq, and offsetting this, are most bearish on 10 Year notes. Of course, since the bulk of the very highly levered marginal cash (for those who haven't seen it, Balyasny's leverage chart is a stunning eye opener) is already deployed, all that remains now is the profit-taking, and as such anyone who wishes to take advantage of the inevitable and recurring hedge fund hotel collapse would be advised to put on a short Nasdaq, long 10Y pair on and await the unraveling.

It's deja vu time for Wal-Mart. Spot the trend:

• Q1: Wal-Mart Misses Revenue, Guides Below Expectations: Weather Among Factors Blamed
• Q2: Wal-Mart Misses, Guides Below Expectations; Blames Weak Consumer Spending, Payroll Tax, FX And Lack Of Inflation

Spot it yet? Good. Sure enough, in Q3 continuing the trend, moments ago Wal-Mart just missed revenues, and you got it: lowered guidance.