Archive - Dec 16, 2013

We want to believe the fake unemployment rate of 7% rather than the real rate of 14+% because the officially sanctioned forgery feeds our belief that our bloated, corrupt Empire of Debt is sustainable, fair and working well. To accept that we've been bamboozled, ripped off, taken advantage of and ultimately cheated out of an authentic economy and life by swindlers is too painful.

While stocks clung to overnight ramp gains, tensions were clear under the surface. Managers sought protection as spot VIX trended higher (closing over 16%); JPY crosses were not buying into (or supporting) the equity bounce (off the S&P's 50DMA), credit markets remained unimpressed, Treasuries closed practically unchanged (30Y was worst +2bps), gold and silver were bid, and another Hindenburg was spotted. The previous two "clusters" of Hindenburg Omens produced meaningful corrections in the US equity market (albeit dips that were rapidly bought). While ominous in its wording, the features that cause an Omen are all about market confusion with highs, lows, advancers, decliners, and momentum all signaling opposing (and mixed) views. With this week's FOMC meeting likely to resolve in significant volatility one way or the other, it is perhaps not surprising that the 3rd H.O. has just been spotted.

UPDATE: Herbalife is halted for the following news:

- HERBALIFE COMPLETES RE-AUDIT FOR FISCAL '10 '11, '12
- HERBALIFE NO MATERIAL CHANGES TO 2010, 2011 OR 2012 FINL

Which opens the doors for the substantial buyback they have planned. We suspect one can hear a pin drop in Pershing Square's headquarters.

Herbalife has re-opened up 9% over $75 on very heavy volume - It seems Ackman's "end of the earth" bet may take a little longer...

This week marks the one-year anniversary of Bill Ackman’s 342-page slide presentation at the Ira Sohn Conference in NYC.  At that time he publicly disclosed his $1 billion short bet against Herbalife (HLF), accusing the company of being a pyramid scheme and claiming its stock was destined to fall to zero once regulators stepped in.  As everyone knows, HLF shares plummeted, losing nearly half their value in the three days after the presentation.  The market’s initial response did not last, and HLF is up about 160% since its 12/21/12 low of $26.06 (vs S&P 500 +24%).  Pershing Square’s public campaign has taken many forms, as Barclays outlines below...

Saying we need continuous financial bubbles to keep full employment is such a flawed conception of economics, it belongs on an island of misfit philosophies. Krugman’s incessant promotion of statism is doing more harm to the economy than good. As an opinion-molder, he is perpetuating the economic malaise of the last few years. More bubbles won’t help the recovery, just harm it more. In the middle of a grease fire, Krugman calls for more pig fat. And the rest of us are the ones left burnt.

Presstitute Media Shills for Nuclear Power

... the average person in the generation that turned 65 this year received $327 thousand dollars more in lifetime government benefits than they paid in Federal taxes. On the other hand, children born in the future (e.g., yours) will have a lifetime deficit on this basis of -$421 thousand dollars. If it sounds unfair, it is.

A federal judge ruled Monday that the National Security Agency program which collects information on nearly all telephone calls made to, from or within the United States is likely to be unconstitutional. As Politico reports, Judge Richard Leon blasted, "I cannot imagine a more ‘indiscriminate’ and ‘arbitrary invasion’ than this systematic and high-tech collection and retention of personal data on virtually every single citizen for purposes of querying it and analyzing it without judicial approval." This is the first significant legal setback for the NSA’s surveillance program since Edward Snowden exposed it.

The Federal Reserve System was created on December 23, 1913, when President Woodrow Wilson signed the Federal Reserve Act into law. Today, the Fed has decided to commemorate the event today with all three living Fed chairman delivering remarks. We are sure it will be very exciting but in the interests of 'balance' we offer a few alternative views of the "success" of the venerable monopoly including its cost: since 1913, the dollar has lost nearly 90% of its purchasing power.

As we noted overnight, at 22:08:32 ET, a large wave of sell orders hit many stock index futures contracts. Most notably, Nanex notes, over 6,000 March 2014 eMini contracts traded in 1 second. After closer inspection, it appears that trading began almost simultaneously in several contracts, with the March 2014 eMini (ES) starting just a few milliseconds before the others. It's unclear whether the trades in the other contracts were a reaction to the eMini or part of the same sell program... but the slowness of reversion in prices makes it clear that while the mainstream media would like to shrug it off as just another "fat finger," it was anything but.

As was reported several days ago, the latest embarrassment for US foreign policy in Syria took place when the US-backed commander of the Free Syrian Army was forced to flee the country to Qatar after "Islamist fighters ran the top Western-backed rebel commander out of his headquarters." In other words, the Islamic Front, which is a more palatable name for the six major groups among Syria's religious extremist rebels, or as some call them, Al Qaeda, is now the only entity "fighting" the regime of Assad (funded with Qatari and Saudi financial generosity), which as recently as September was a very theatrically sworn enemy of John Kerry. So what is an isolated America to do in a country in which ambitions for Qatari nat gas pipelines will almost certainly rear their heads as soon as the spring of 2014? Why engage directly with Al Qaeda, pardon, the Islamic Front of course. Because the enemy of my enemy, who obstinately refuses to throw Putin under the bus or allow a Qatari gas pipeline under their territory, is my friend.

Malodorous taper emanations and bankruptcies are a toxic mix for munis

Despite numerous "13s", infamous technical analyst Tom DeMark tells Rick Santelli, the Fed's liquidity pump has negated every one of these 'potential sell' signals and stocks have "unusually" kept going. DeMark goes on to note several analogs and trendlines that look extremely familiar; warning that the convergence of all these signals is notable and suggest "something comparable to 1929". Unable to get a word in edgeways, Santelli is more intrigued by DeMark's call on precious metals as he notes with downside limited, there is "a big move coming" for gold to the upside in 2014. Precious metals prices started to accelerate as POMO started (and again when it ended) and are extending the gains post DeMark (Silver +4% from early lows).

Though still a week shy of its centennial anniversary, the US Federal Reserve will hold a celebration this afternoon in Washington DC. Just imagine the scene - a bunch of current and former central bankers slapping each other on the back, congratulating one another for a job well done over the last 100 years. Of course, this is total nonsense... as is the concept of our modern monetary system in which we award total control of the money supply to a tiny central banking elite. Human beings are fallible. We are not gods. Yet we practically deify central bankers and entrust them with the power to manipulate markets, control prices around the world, and effectively dominate the economy. This system has proven to be foolish and destructive. While the Fed engages in its self-aggrandizement this afternoon, there is another far more important anniversary today - the Boston Tea Party.

Now that the CapEx drought has become a mainstream topic, it bears reminding that this phenomenon will continue indefinitely, and certainly as long as CapEx hurdle rates are far greater than issuing a low-yielding bond and using the proceeds to reward shareholders: indeed, this shareholders friendly topic has been perhaps the dominant theme of 2013 when activist investors stormed to the forefront once again, most prominently in the face of Carl Icahn, and have managed to force even lower revenue growth prospects by levering companies with debt loads that are now greater than during the prior credit bubble peak. Naturally, one after another bank has come out once again, as they did, and is predicting that the great deferred CapEx renaissance is upon us... any day now. Unfortunately, it isn't. And just to confirm this, here is Archer Daniels Midland summarizing the company's plans for its 2014 free cash flows. In short: they don't involve any US growth CapEx spending at all.

The so-called Volcker Rule for policing banking practices, approved by a huddle of federal regulating agency chiefs last week, is the latest joke that America has played on itself in what is becoming the greatest national self-punking exercise in world history. The Glass Steagall Act of 1933 was about 35 pages long, written in language that was precise, clear, and succinct. It worked for 66 years. The Volcker rule comes in the form of nearly 1,000 pages of incomprehensible legalese written with the “help” of lobbyist-lawyers furnished by the banks themselves. Does this strain your credulity? Well, this is the kind of nation we have become: anything goes and nothing matters. There really is no rule of law, just pretense.