Archive - Nov 2013

As we recently exclaimed, European macro data is deteriorating rapidly (even as talking-head after talking-head simply ignore this 'fact' and steer investors into EU stocks because, well, they are going up). That "Europe is recovering" meme appears an unarguable truth - except when you look at the truth of the following charts.

The financial markets continue higher, and the excesses of the status quo continue expanding with little ill effect (so far). Why is it so difficult to predict the timing of crisis/collapse? The question is equally valid for both bears and bulls; how could all the boosters of housing be so wrong in 2008 when they asserted that "housing is not a bubble"? Here are ten possible factors in why it's so difficult to predict crisis/reset.

The last time we looked at Thorsten Heins' potential "golden parachute" farewell gift from Blackberry for, well, completing the destruction of the company started by former Co-CEOs Mike Lazaridis and Jim Balsille when he took over in early 2002, the amount could have been as gargantuan as $55 million. This number has subsequently been revised modestly lower, and while nobody is precisely sure just what Heins is entitled to, according to the Globe and Mail's latest calculation, the golden parachute in question could be as large as $16 million. Then again, considering RIMM stock back then was $18/share and by the time Heins left BBRY will be just over $6, one wonders if instead of any bonus Heins shouldn't instead be paying the company's long suffering shareholders for virtually destroying what was once the world's dominant smartphone brand.

Via an emailed statement, the soon to be jailed SAC logo (since nobody else is actually going to jail) proudly proclaims: ""We take responsibility for the handful of men who pleaded guilty and whose conduct gave rise to SAC’s liability.The tiny fraction of wrongdoers does not represent the 3,000 honest men and women who have worked at the firm during the past 21 years."... aka the textbook definition of "just us" justice.

It's been three months since we discussed in depth the 'problems' that CAT faces. Recent earnings were a disaster and the CEO offered little to no hope for short-term recovery. Today, things got a little worse...

*CATERPILLAR TO CLOSE UNDERGROUND-MINING EQUIPMENT PLANT
*CATERPILLAR SAYS DECISION AFFECTS ABOUT 40 PEOPLE

Of course, the irony is not lost on us as we rhetorically ask, who said the following: "You Can Measure America's Bottom Line By Looking At Caterpillar's Bottom Line." Let's hope not for the nation's sake.

Having discussed the "unprecedented" scale of their law-breaking previously, we expect Bharara to bring a little gloat with the SAC press conference today...

Obesity rates have increased at least slightly so far in 2013 across almost all major demographic and socioeconomic groups, according to Gallup's latest study. The largest upticks between 2012 and 2013 were among those aged 45 to 64 and those who earn between $30,000 and $74,999 annually - which 'coincidentally' is perfectly in the cohort that is 'disincentized' to work by the growing shadow of bought votes and entitlements. So, the question then becomes, is the considerable spike in 2013 that is so evident below the "peak" in obesity rates as the government is forced to introduce more haircuts on its foodstamp program? Time will tell...

'Another week, another high for equities' is the resigned way JPMorgan's Jan Loeys begins his discussion of "bubbles" this week - the massive gains in equity markets, in a month and a year of lower economic growth and earnings expectations, are raising a warning flag for many investors that easy money and liquidity are creating serious asset bubbles that threaten future growth and investment returns. Simply put, "a bubble view is a view that the Fed will stay easy for too long" and will then have to stamp on the brakes when growth and inflation suddenly react to easy money; and "a sudden spurt in growth is the biggest risk to asset reflation."

It is only fitting that promptly following the third worst bear market of all time resulting from the bursting of the biggest, until that point, credit bubble that as a result of over $10 trillion in global fungible central bank balance sheet expansion, and a new and improve and bigger than ever credit bubble, one which includes the sovereigns too, the S&P is now 162% higher from its March 9 2009 lows of 676.53, making this the fourth biggest bull market in US history. The next logical question: what would make this relentless Fed balance sheet tracking "bull market" become the 3rd biggest bull market in history, or 2nd biggest... or biggest of all time. Here are the S&P500 breakevens for those particular thresholds...

President Obama, the US federal government shutdown, the omnipotence of the National Security Agency and the anger of the world at just how much the USA flouts the laws that we thought we might have lived by. 

In what is the biggest black eye for Bill Gross and the largest bond manager in the world, moments ago Bloomberg reported that the title of the world's largest mutual fund has just changed hands:

• PIMCO TOTAL RETURN LOSES LARGEST MUTUAL FUND TITLE TO VANGUARD
• GROSS'S PIMCO TOTAL RETURN BECAME LARGEST MUTUAL FUND IN 2008
• PIMCO TOTAL RETURN HAD $247.9 BILLION IN ASSETS AS OF OCT. 31

This comes on the heels of what Reuters reports is the sixth consecutive month of outflows for the TRF, with $4.4 billion withdrawn in October, while on the other side Vanguard, now at $251 billion, has more than tripled in size since the end of 2008 as the scramble for equities in Bernanke's new normal has become the only game in town.

While we are sure many will proclamin 'this is just a witch-hunt' - and all the hangers-on will be defending Stevie's decision... the fact is that:

• *SAC AGREES TO PLEAD GUILTY TO END U.S. INSIDER-TRADING CASE
• *SAC WILL PLEAD GUILTY TO EVERY COUNT IN INDICTMENT, U.S. SAYS
• *U.S. SAYS SAC AGREEMENT PROVIDES `NO IMMUNITY' FOR  INDIVIDUALS

Seems pretty cut-and-dried to us... As part of the deal, Reuters notes that SAC will terminate its investment advisory business.

One increasingly reads of capital stewards complaining that things seem more difficult today. We think it’s because they are. We are also increasingly mindful of conversations with friends, family and colleagues that reveal a widespread perception that  something is very wrong, though people can’t quite put their finger on what it is. As we have just argued, we think the answer is that the inflation of credit has driven an inflation of asset prices, which has driven an inflation of future expectations, which has driven an inflation of time preference… and that while the consequences of these various inflations are profound, the new language of ininflation which it has spawned is shallow.

Following the disappointing delayed durable goods print from last week, it was expected that today's Factory orders number would disappoint as well, and sure enough, it did not disappoint... in that expectation. With consensus looking for a 1.8% increase in September for the headline number, the delayed September number came out at 1.7% for the headline, the 6th miss in the past 9 months, while the ex-transport factory goods print dropped -0.2% following the August ex transports falling -0.4%. In other words, it was all transports once again, reflecting the rebound in orders for civilian aircraft as China's excess capacity bubble now seems to include all Boeing aircraft from 737 to 787.

UPDATE: 10 minutes later - *BATS EXCHANGES REVOKE SELF-HELP AGAINST NYSE EXCHANGES

It's Monday morning and stock "markets" are open for trading... well some of them...

• *BATS EXCHANGES DECLARE SELF-HELP AGAINST NYSE
• *NYSE AND NYSE MKT REVIEWING TRADES MARKED AS SOLD

Of course, as CNBC once said, we are all getting used to this now (and stocks are going higher) - so it doesn't matter.