Archive - Jan 2013

Sit down, but first and remove all coffee and beverages...

Just because there is a superficially-pacifist, yet supraficially genocidal, dictatorially-inclined egomaniac in every one of us, the moment the Maisto Fresh Metal Tailwinds 1:97 Scale Die Cast United States Military Aircraft - US Air Force Medium Altitude, Long Endurance, Unmanned Aerial Vehicle (UAV) RQ-1 Predator went on loss at Amazon (we would say sale, but that would imply some probability of profit, which as even the hotdog guy, knows is never going to happen at AMZN), everyone scrambled to buy one.  However, only those first in line got one: everyone else was greeted by a "Currently unavailable. We don't know when or if this item will be back in stock" sign. So what does one do: what one should have done in the first place before going for the one impulse purchase that can murder innocent children half way around the world courtesy of the latest iPad app "iKiller": read the customer reviews of course. Below is a broad sample of the rather bipolar main street America response when faced with the opportunity of having the same great power, if not so great - or any - responsibility, as is  given, by some 25% of the population (factoring for the 55% or so who don't vote) to the president of the USA, even if on a 1:97 scale.

Early in the 4th century, Emperor Diocletian issued an infamous decree to control spiraling wages and prices in the rapidly deteriorating Roman Empire. As part of his edict, Diocletian commanded that any merchant or customer caught violating the new price structures would be put to death. This is an important lesson from history, and a trend that has been repeated numerous times. When nations are in terminal economic decline, governments will stop at nothing to keep the party going just a little bit longer. I thought of Diocletian’s desperation a few days ago when I read about the recent sanctions imposed on US rating agency Egan-Jones. Given that all this is happening at a time when Congress is voting to suspend the debt ceiling entirely, these actions are the clearest sign yet of just how desperate the government has become. Could the warning signs be any more obvious?

Smarmy is gone.

There has been some confusion about the quality of the ongoing Q4 earnings season, which has seen some 47% of the S&P 500 companies report to date (and with 53% still left things can certainly change). The confusion apparently is that this has been a "good" earning season so far. Nothing could be further from the truth, and as Goldman shows in its midterm Q4 earnings report, the reality, not spin, is that earnings are tracking at $24.03, or some 6% below the consensus estimate at the start of earnings season of $25.51. This revised number, which could well drop even more from here, means that Q4 earnings will post a minuscule 1% growth in EPS year over year compared to Q4 of 2011 when Europe was imploding, and when the world's central banks had to arrange a global bailout to prevent yet another Armageddon.

At the heart of it, visualizing the record $3 Trillion Dollar Federal Reserve balance-sheet is practically impossible. However, in two simple charts we can easily visualize what impact that gargantuan amount of printed cash has had on the 'real' economy and the 'real' market via Bernanke's magic wealth-effect. Presented with nothing to add...

Since 2009 all cash buyers have purchased roughly one third of all Southern California home sales. This is a significant number and unlike the early 2000s, many of these buyers are looking to hold onto properties as rentals. A good portion of buying has come from larger hedge funds and an increase of foreign money has caused competition on an already low selection of homes to become more pronounced. The latest inventory report for California is telling in many ways. Many of the larger metro areas in California are seeing annual inventory drops of 50 to 70 percent. Those looking to buy are facing added competition from a variety of unlikely sources. Last year in February we set a record with the number of homes sold to absentee buyers (29.9 percent). Where is all the inventory going in California?

Following the epic rap battle we noted yesterday, today saw probably the greatest (and most enthralling) segment on CNBC ever as 'Bullshitting' Bill Ackman took on 'Cry-baby' Carl Icahn in a no-holds-barred discussion that covered everything from religion, ethics, trust, blasphemy, greed, desperation, and independence. CNBC's Scott Wapner found himself in the middle of a clash of the titans. The full clip has to be seen to be believed but our bevvy of quotes, tweets, and quips should summarize what happens when two Billionaire BSDs get into a pissing competition live on TV.

and this is the SOPHISTICATED money

— zerohedge (@zerohedge) January 25, 2013

The name Christian Bittar is well-known to regular Zero Hedge readers. Recall from "Deep Into The Lieborgate Rabbit Hole: The Swiss Hedge Fund Link?": " just like in the case of Barclays (with Diamond), JPM (with Bruno Iksil), UBS (with Kweku) and Goldman (with Fabrice Tourre), there always is a scapegoat. Today we find just who that scapegoat is. From Bloomberg: "Regulators are investigating the possible roles of Michael Zrihen at Credit Agricole, Didier Sander at HSBC and Christian Bittar at Deutsche Bank, the person said on condition of anonymity because the investigation is ongoing." We proceeded to do a circuitous analysis to find that despite assumptions to the contrary, not only has Mr. Bittar not been expelled from the industry for manipulating Libor, but he is still collecting fat paychecks at Swiss hedge fund BlueCrest, Europe's third largest, with some $30 billion under management. Today, courtesy of Bloomberg we get the details of how Mr. Bittar departed Deutsche, and just what his responsibilities there were.

Irony of all ironies; on the 1-year anniversary of AAPL replacing XOM as the world's most-expensive market capitalized company, the incessant fall of the formerly invincible has dragged it back below XOM once again. This one-year of glory is disappointing as when MSFT managed to top XOM in 1998, it held on to the top-spot for almost 3 years before relinquishing it back to the company that runs the world's most valuable limited resource.

While Chinese economic data seems designed to blow minds in its Schrodinger-like good/bad oscillation at the same time, it seems Europe's investors have now taken up the mantle. There is ammunition across every asset class to suggest all is well and things are progressing yet at the same time that risk is rearing its ugly head and momentum is fading. On the bright side, Swiss 2Y rates are at +4bps (having surged 25bps this year) and are back at 'normal' 10-month high rates; European stocks pushed 1-2% higher on the week; Europe's VIX dropped; and EURUSD gained over 1% (not necessarily a positive but seemingly signaling to the world that all is well) mostly in the last 24 hours. The LTRO repayment has pushed EONIA swaps up to six-month highs (liquidity needs remain high - though normalizing) but European credit markets are absolutely not playing along. European corporate and financial credit spreads pushed notably wider on the week and are grossly divergent from stocks now on the year. At the same time, European sovereign spreads ended the week practically unchanged - dislocated from EURUSD exuberance. Europe remains spellbound by the promise of OMT yet the very markets that benefit from that promise are losing their momentum...

There has been an burst of exuberance as of late as the market, after four arduous years, got back to its pre-crisis levels.  Much has been attributed to the recent burst of optimism in the financial markets from: better than expected earnings, stronger economic growth ahead, the end of the bond bubble is near, the long term outlook is getting better, valuations are cheap, and the great rotation is here - all of which have egregious holes. However, with the markets fully inflated, we have reached the point that where even a small exogenous shock will likely have an exaggerated effect on the markets.  There are times that investors can safely "buy and hold" investments - this likely isn't one of them.

Correlation may not be causation but it seems more than a few funds were using precious metals as collateral for their levered longs in AAPL...

We could bore readers with the details of the just announced New Homes Sales data from the Census Bureau, which put a somewhat largish dent in the "undisputed" housing recovery fairytale taking place in America (perhaps in the Hamptons, and triplexes in Manhattan where the NAR continues to launder Chinese and Russian oligarch money).... or we could just show this chart of the non-seasonally adjusted, unannualized New Home Sales in the past decade, and ask: just where is this recovery everyone keeps on talking about?

Today is Tim Geithner's last day as Treasury Secretary. Below are some quotes from various exit interviews and recaps conducted with the former NY Fed president. We provide our succinct annotations to some of his answers.