Archive - Feb 8, 2013

Whether it is Euro-Skeptic MEPs, tin-foil-hat-wearing bloggers, anarchic facebook-friends, or 'V-for-Vendetta'-atavar'd twitterati, the European Union is now engaging in a social media blast to "correct their misconceptions". In what appears to be a coordinated troll-patrol, Nigel Farage notes the "very very scared" leaders of the European Union are spending taxpayers money to counter growing skepticism at the unelected leaders dragging citizens into a United States of Europe. The outspoken British MEP makes it very clear he thinks this social media smear campaign is leading towards a 'mugabe-like' banana republic, as Europe's leaders, who he believes are the "most dangerous people in Europe in 70 years," are terrified at the citizenry's realization that none of this removal of sovereignty was ever voted for. Banana Republic indeed...

Some hacker hacked into George W Bush's emails and these incredible self portraits were revealed...

We have been monitoring the shifts in the high-yield bond market for a few weeks, noting that bond ETF and credit derivative markets are showing some serious (divergent from stocks) signs of risk-off. Whether this was driven by call-constraints limiting upside potential, a fundamental realization of a shifting macro background, or ad hoc idiosyncratic risk elevation due to releveragings and potential public-to-private transactions is unclear. What is clear is that this week saw the largest HY ETF outflow on record. Furthermore, HYG's shares outstanding have plunged over 11% in the last 90 days as ETF units are for the first time destroyed QoQ not created. The rotation appears to be up-in-quality and up-in-capital structure as loan funds saw inflows - but with stocks and credit linked inexorably via the balance sheet, the divergence cannot last forever (and never has). Until very recently this has not spilled over into the cash bond market, but the last few days have seen selling pressure picking up into this illiquid market.

It’s getting worse

Forget Ackman, Einhorn, Bass, And Hendry. There is only one name in the world of equity market performance in 2012 - Rachel Fox, of 'Desperate Housewives' fame. With a 30%-plus performance, the day-trading debutante has turned from actress to activist as she day-trades her way through the day. The 16-year-old actress who made 338 trades last year, based mostly on technicals, ""...fell in love with the idea and the concept of being able to just buy something, have it go up, or have it go down, depending on which way you bet it and have it make you money. I thought, oh, my, gosh, that's amazing, and so easy, I have to do this." If ever there was a sign of the extreme bubble that central planning has re-created for us - it has to be this. Her advice: "you have to really just trade on your own instincts and not just be like, oh, this person says this is great, let me just go for it." LOL, OMG, IKR ;-( Our advice: next time readers are discussing stock tips with a random employee of Hustler Club, Scores or Spearmint Rhino - don't just stare, listen! Said 'random employee' is almost certainly outpeforming the "smart money", and the broader market, by a wide margin. Thank you Ben.

This is just a disaster - and more prolonged than the depression of the 1930s. If British businesses don’t have confidence in Cameron and Osborne’s policies, if their policies don’t lower unemployment, don’t create growth, don’t boost imports and exports, don’t result in recovery, and don’t even result in less borrowing  (their stated aim), why do they continue to pursue them?

The fact that Evans, a man who has called for nothing but more stimulus for more than two years, is now stating point blank that the Fed may end QE before it reaches its target for unemployment is a major warning sign. Do not ignore it.

By now it is no secret that in the past decade, the "Big 6" global central banks have boosted their combined balance sheet by an unprecedented $11 trillion, from $3 trillion to over $14 trillion, just as it is no secret anymore that the only reason the global market trades where it does is courtesy of the "flow" or liquidity generated as a result of this unprecedented intervention, whose inevitable outcome is eventual inflation. What, however, was hidden in plain sight, was the chart responsible for this massive stock market surge, which has seen the S&P double in the past 4 years (if go nowhere in the past decade). Luckily, we now have "deciphered" the subliminal message contained in the global central bank liquidity "flow", which is shown as the deep blue line in the chart below. Technicians have a specific name for the pattern that has emerged: "the middle finger formation" and while others can call it by a plethora of other names, the central bankers' message to the rest of the world is now plain for all to see.

Central Banks have repressed the sovereign bond markets of the world's currency printers to extreme. This relative pricing makes stocks look extremely cheap on an equity risk premium basis (thank you Ben); however, everyone knows this and, as we have discussed many times, margin balances and net long positions are as high as they have ever been. A zealous belief in the power of the central bank has compressed the market's risk perception to near-zero - but at the same time, returns have been crushed as even junk bond yields are at record lows. In other words - there is no risk any more, and no conventional return. Or rather, the only "return" is in the wholesale herding of cattle into the "safety" of the equity beta butcher house.

We often turn to cycles - business, solar, Kondratieff, etc. - to better understand current events. But what if this era is not just a cycle but the terminal phase of Global Capitalism 1.0? This heretical thought arises from the school of economic history pursued by Fernand Braudel and those he inspired. We need a new model, and a re-hash of the old broken models will no longer do. The road for both global capital and the State is narrowing to a rocky trail that leads to a cliff.

As was reported in the latest Tecne poll for Italy's SkyTG24 released a few hours ago, support for Italian frontrunner Bersani's coalition has dropped once more, declining by 0.8% to 33.2% in the week ended February 7, while the ratings of the bloc headed by Italy's former prime minister Silvio Berlusconi keep rising on momentum generated by Monte Paschi scandal, boosting his popularity to 29.2%, or +1%, and now entirely within the margin of error. At the same time outgoing PM Monti has seen yet another drop in popularity, now down 1% to 12.9% while ex-comedian Beppe Grillo's support keeps rising, and is now at 16.3% up 0.8%. Combining all this data means that with three weeks to go until Italy's February 24-25th election, courtesy of the seemingly improbable surge in Berlusconi's popularity in recent weeks, the biggest emerging risk for Europe in the coming month is that of an Italian "Hung Parliament" which would then likely result in another round of elections in a matter of months, jeopardizing the Italian "success story" and pushing headline political risk once again into the open.

With immigration reform the new hot topic in Washington (along with pretty much everything else that is), we thought it intriguing that, as Bloomberg notes, the government's program allowing foreign 'entrepreneurs' to purchase so-called EB-5 visas saw its numbers more than double in 2012 (up from 69 in 2002 to 3,677 in 2012). The program allows the foreigners 'Alien Residence' status providing they 'show' they will spur 10 jobs for every $500,000 spent. We wonder how much of that 'investment' has flowed directly into cash purchases of REO-to-rent property with some well-drafted white paper explanation for how real-estate-based Keynesian multipliers will create magnitudes more jobs from that spending. "Give me your tired, your poor, Your huddled masses yearning to breathe free... your 'anyone with some cash please...."

Overnight China reported great trade data which saw exports and imports soar by more than 20% each compared to 2012. Of course, when one adjusts for January calendar effects the "rise" was virtually non-existent but that was too much work for the Shanghai Composite algos. A few hours later, the US did the same, reporting even better trade data which saw the trade deficit plunge the most in nearly three years. So far so good: we just have one question - who is lying more. Because unlike all other sole-sourced economic manipulated data which is solely a function of some excel goal seek model and various spreadsheets, bilateral trade has to foot. One country's net exports have to equal its countepart's net imports and vice versa.

Chinese economic data is always good for a laugh. So, courtesy of some observations by Diapason's Sean Corrigan, let's laugh.

Turning your growth trade into a value trade is the quintessential sign of a losing trader on Wall Street.