Archive - Dec 23, 2013

New 52-week highs reached 2-month highs (and lows at 1-month lows) as stocks ruged to new record-er highs once again today. Aided by AAPL, the NASDAQ outperformed but the ridiculousness was not limited as TWTR continues its exponential rise (up over 59% in the last 2 weeks). Today's range was small in stocks (except for a strange - likely rebalancing related - 6% rise in the Russell at the open) and volume barely above the lowest of the year. Bonds sold off modestly with 7s and 10s worse at +3.5bps following ths morning's un-fat-finger idiocy in Treasury Futures markets. VIX was banged lower (with a late flourish) to 1-month lows. The USD slipped modestly lower on the day but rallied from the US open but correlations to JPY crossesd were not great for stocks once again. Commodities were quiet with Silver up and gold down (back under $1200).

While the full impact of CMHC on the Canadian housing and banking sector remains debatable, one thing can be said: next to the Bank of Canada, it is perhaps the most critical entity in preserving the nation's financial stability. And with a key player responsible for the perpetuation of the status quo having departed Canada recently, namely Goldman's Mark Carney leaving the BOC and heading to the Bank of England, some were wondering just who would supervise thing up north if and when things turned sour. Those questions were answered on Friday, when Canada named the next chief executive officer of the government-owned housing agency. His name is Evan Siddall, and, what we assume will came as a surprise to nobody, he was formerly a banker at, drumroll, Goldman Sachs.

While tapering in the US has had only good consequences (so far); in China it has crushed money markets. Of course, some might argue this is merely a coincidence, but since both the US and China appears to have launched their tapering together, the question is what will break to force China to pull back, since for the Fed it is all roses.

December 23rd, 1913 is a date which will live in infamy.  That was the day when the Federal Reserve Act was pushed through Congress.  Many members of Congress were absent that day, and the general public was distracted with holiday preparations.  Now we have reached the 100th anniversary of the Federal Reserve, and most Americans still don't know what it actually is or how it functions.  But understanding the Federal Reserve is absolutely critical, because the Fed is at the very heart of our economic problems. Since the Federal Reserve was created, there have been 18 recessions or depressions, the value of the U.S. dollar has declined by 98 percent, and the U.S. national debt has gotten more than 5000 times larger.  This insidious debt-based financial system has literally made debt slaves out of all of us, and it is systematically destroying the bright future that our children and our grandchildren were supposed to have. The truth is that we do not have to have a Federal Reserve.  The greatest period of economic growth in U.S. history was when we did not have a central bank.  If we are ever going to turn this nation around economically, we are going to have to get rid of this debt-based financial system that is centered around the Federal Reserve.  On the path that we are on now, there is no hope.

Gross:Part 1of 2: We live not in a new gilded age but a bitcoin age where artificial money (from central banks) creates temporary prosperity

— PIMCO (@PIMCO) December 23, 2013

It was nearly three months ago when we warned that Ackman's latest strategy of converting 40% of his Herbalife short exposure into puts would massively backfire, first because he still have major short squeeze potential left on his books, and second because now he is subject to theta or a time horizon, for his thesis to play out. Ackman's (il)logic was summarized as follows: "The explanation of being forced out of nearly half of his position is amusing: "we minimize the risk of so-called short squeezes or other technical attempts by market manipulators to force us to cover our position." So Ackman is forced out by his Prime Brokers so as not to be forced out by market manipulators? That's an interesting explanation for what is a far simple situation: booking your paper losses." Just under three months later HLF hit its all time highs, and Ackman's puts (not to mention his stock short) have generated material losses. Back then we concluded that "with trades like this, which has now become an ideological obsession and moved beyond and semblance of rational investing (any normal person would have pulled the plug on the nearly half a billion dollar losing trade long ago) and is rapidly morphing into a replica of Pershing Square IV, said career may not be too long." Today, the embattled so-called retail expert pours more fuel in the futre, and provides a 7-page update on what his plans for Herbalife are. In short: it really does seem that Ackman is prepared to take his HLF short until the end of the world...  or its LBO. Whichever comes first.

In a world in which the Chief Risk Officer of the formerly free capital markets, Ben Bernanke, has made any downside hedges obsolete (and as a result hedge funds have posted 5 years of returns without outperforming the S&P500), the first casualty has emerged: fund of funds. These parasitic, fee-soaking institutions, which merely collect a fee on top of the fees already charged by hedge funds, are rapidly on their way to extinction as the following charts from Eurekahedge prove conclusively. Naturally, the FOF industry which generates massive fees for its "value adding" managers, will not go down without a fight. And as Pensions and Investment reports, the FOFs have found a way to strike back: convert hedge funds into long only, idiot money, and we do enjoy the irony that in this centrally-planned market the idiot money is outperforming the smart, nimble asset managers by orders of magnitude.

"Twas the days before Christmas, and all across the street, not a human was trading..." but, as tradition demands, UBS' venerable director floor operations - Art Cashin - unleashes his annual poem. Summing up the year in amazing alliteration, Cashin takes on Bitcoins, The Fed, the Volcker Rule, and... Anthony Weiner.

Things are going so well for Obamacare that the administration has decided, at the very last minute, to extend the deadline to sign-up for Jan1st coverage through the end of Christmas Eve. As WSJ reports, this change - which follows weeks of last-minute policy shifts - gives young people and the uninsured 24 more valuable hours to decide but, as we have previously noted, initial sign-up tallies are falling dramatically short of expectations. Of course, with the pitchman-in-chief busy on the links, we wonder how much difference this will make...

A Ponzi Noel...

It is perhaps ironic that the creator of the AK-47 assault rifle, also known as the Kalashnikov named for its creator Mikhail Kalashnikov, and of which there are between 70 and 100 million in circulation making it the world's most popular weapon, has just passed away from what is essentially old age, at 94. "It is difficult and sad to realize that Mikhail Kalashnikov is no longer with us. We have lost one of the most talented, memorable and committed patriots of Russia, who served his country throughout his life,” said the statement from the press secretary of the Udmurtia administration Viktor Chulkov.

What would we do without Zero Hedge?  Does anyone else notice the rapid deterioration of financial news media, especially in the US?  OK, we are not naive, there are biases in the media, traders from big ibanks talking up their positions, and trading is all about information arbitrage.  But financial news used to be really serious.  Traders could turn on a TV to see what the markets were doing.

Investors from multi-billion dollar hedge funds to individuals buying as few as 10 properties have acquired more than 1 million homes across the U.S. in the past three years, transforming a mom-and-pop business into one of Wall Street's hottest investments. As we noted here, Blackstone Group LP alone has acquired more than 40,000 properties in 14 cities to become the largest single-family landlord in the country. As Bloomberg notes, the new landlords are transforming the way Americans live and accumulate wealth. But while Wall Street is becoming America's largest residential landlord, it appears China wants to get paid for commercial properties... and Detroit.

While Citi's earnings-yield gap model indicates stocks are over-valued currently, their proprietary panic/euphoria model has now been in "euphoria" mode for six straight weeks. Having risen further into extremes, Tobias Levkovich notes that readings at this level indicate the market may retreat with an 83% historical probability of losses in the next 12 months.

While the US is debating which set of Al Qaeda "rebels" in Syria is the best local partner for the State Department to provide military support to, once Qatar's demands for a trans-Syria pipeline return some time in 2014, Vladimir Putin - fresh from his diplomatic oup in the Ukraine - is reinforcing his other major victory in 2013: the preservation of the Assad state, this time however with more than words. As Reuters reports, Russia has sent 25 armored trucks and 50 other vehicles to Syria to help transport toxins that are to be destroyed under an international agreement to rid the nation of its chemical arsenal, Defense Minister Sergei Shoigu said on Monday. Or in other words, Russia just sent Syria more than 75 military vehicles.