Archive - Feb 2013

While it was relatively well-known (or expected) that YUM's China business was hurting (after its PR snafu), this is considerably worse than expected (hoped for). Revenues and earning met considerably lowered expectations but the outlook is drastically slashed:

*YUM SEES CHINA COMP SALES JAN AND FEB COMBINED DOWN 25% :YUM US
*YUM! SAYS CHINA DIVISION JAN. EST. COMP SALES FELL 37% :YUM US

which leaves them expecting *YUM SEES YR ADJ. EPS DOWN MID-SINGLE DIGITS VS $3.25, EST $3.57. But there's always hope...* YUM! SEES KFC CHINA COMP SALES POSITIVE IN 4Q :YUM US. The stock is down 8% after-hours (for now). The question is - of course - WWJCD?

Following Europe's worst day in months, the US stock markets saw the biggest drop of 2013 today. For those shunning the brief period, aside from 12/28 swings, this is the worst drop in the S&P 500 futures since early November on a relatively high volume day. EUR's weakness was a major driver (just as it was on the way up) jawboned by various CEOs and leaders and pressured down to almost a 1.34 handle (down over 1% against the USD as JPY gained 0.6% against the USD). Treasury yields clattered lower - to Friday's lows - and credit markets remained much less exuberant (as stocks played catch-down). Gold was relatively bid even as the USD gained, testing up to $1675.  Homebuilders continue to slip lower and with AAPL's ongoing demise, there was no OPEX/month-end pump to save Tech and implicitly the rest of the market. HY Bond ETFs and synthetics remain weak but selling is thin in bond-land - it seems everyone knows that the cash market can't stand a herd heading for the exit all at once. VIX jumped a considerable 1.75 vols to 14.65% - its highest close of the year.

Following our most recent discussion of David Tepper's apparently 'now' bearish bias to financials (based on his $400mm BWIC), it appears that his latest "balls to the wall" thesis is not playing out so well. The S&P 500 just touched the key 1491.50 'Tepper Balls'-Day highs... meanwhile VIX has jumped by the most this year from Friday's lows...

These days one has to laugh with the Japanese, as the temptation to laugh at them is just so high. Because, sadly, the endless barrage of negative developments surrounding the "Land of the Rising Sun" may soon require a constitutional amendment replacing that key adjective to "Setting." And while everyone knows that Japan's economy is the Keynesian voodoo religion's event horizon laughing stock, caught between a 30 year deflationary implosion which is the only permissive factor allowing it to sustain interest payments on a 235% debt/GDP mountain, and a banking, debt and funding crisis should the government "succeed" in generating inflation, it is the intangibles that will be the proverbial straw that breaks this particular camel's back. Intangibles, such as 2011's tsunami and Fukushima explosion, which have made sure that every piece of domestic sushi will be pre self-cooked for generations. Yet glowing in the dark may have just been the beginning: now Japan also has a toxic, photochemical smog problem to boot.

Lanny Breuer, the Assistant Attorney General who claimed that prosecuting banks for crimes poses a risk to the financial sector and so corrupt bankers are “too big to jail” has lost his job. But the man who put him there, and who is ultimately responsible for the policy — the Attorney General himself — is here to stay. Fundamentally, Obama’s continued support for Holder illustrates that Obama is still committed to the policy of holding financiers to a lesser standard of justice than other citizens. The big banks continue to ride roughshod over the American people with the complicity of the political class.

Thanks, Bernanke and Holder!

First Italian bank failures, then Greek strikes, and now Spanish protests: Europe is back at square one where the only thing fixed are the local football matches.

Egan-Jones may have been barred from rating sovereigns for 18 months due to missing a comma here or there in its NRSRO application (when everyone knows this was merely retribution for downgrading the US ahead of all the other rating agencies), but now the time has come for that other rating agency which dared to follow in EJ's footsteps and downgrade the US of AmericaAA+ in August 2011 to be punished: Standard & Poors. Moments ago we learned that federal and state prosecutors will five civil charges against S&P for its mortgage bond ratings during the housing crisis.

As the world's economic powers squabble over the intricacies of cause and effect in a vicious cycle of currency devaluation and domestic economic defense; it appears, NYTimes reports, that the US is leading the way in another direction. A secret legal review on the use of America’s growing arsenal of cyberweapons has concluded that President Obama has the broad power to order a pre-emptive strike if the United States detects credible evidence of a major digital attack looming from abroad - i.e. if we 'suspect' someone is going to hack us, we can hack them. In what appears to be Stuxnet's bigger (and scarier) brother,one official noted, "there are levels of cyberwarfare that are far more aggressive than anything that has been used or recommended to be done." New policies will also govern how the intelligence agencies can carry out searches of faraway computer networks for signs of potential attacks on the United States and, if the president approves, attack adversaries by injecting them with destructive code - even if there is no declared war. Cyberweaponry is the newest and perhaps most complex arms race under way, based in Cyber Command at The Pentagon, with the unspoken question being, ‘What are we going to do about China?’

Now that Europe is clearly unfixed once more, it is time to shift attention back to broke Greece where as we showed yesterday things are certainly back to the "new normal" with 24 hour strikes again on the daily agenda. And just to keep it real, Greek police reported that the new Greek Finance Minister received a care package with just two contents earlier today: a bullet and a death threat.

While we may not all need to turn to meth labs for our income, it would appear the exuberant wealth creation of the last month or so is up against a tough place here - as credit has been warning all of January. S&P 500 futures are testing critical support here for the 5th time in 5 days, EURUSD is breaking below key support levels, and the decoupling with Europe is very concerning (as opposed to cleanest dirty shirt) as one only needs to look at last year to see that... Dow 14,000 and S&P 1,500 have been lost for now - get back to work Mr. Bernanke...

The other half of the reason for today's Italian stock market collapse is the well-known to our readers scandal involving Italian bank Monte Paschi, which also refuses to go away due to its massive political implications three weeks ahead of the Italian elections. Yet the reason why little if anything has been mentioned about what may soon be a nationalization of the third largest (and just as insolvent) Italian bank in the mainstream US press is the resulting humiliation for the current ECB head, ex-Goldmanite Mario Draghi, who has been aggressively pushing to become a bank supervisor of all European banks as ECB head, yet with every day new revelations emerge about how epically he failed to supervise a major Italian bank right under his nose as head of the Bank of Italy. The latest in this developing scnadal which not even the market can ignore any more comes once more from the Bank of Italy, which has once more changed its story. Recall that as recently as January 23 Mario Monti vowed to Davos that nobody knew nothing: BANK OF ITALY SAYS MONTE PASCHI HID DOCUMENTS ON TRANSACTIONS. This was a sentiment that was vouched by the Bank of Italy itself, which pled complete ignorance and accused then BMPS management of everything. Turns out Monti and the Bank of Italy both lied.

Despite the Pretense that the U.S. and Israel Are Not Intervening In Syria’s Civil War, They Are Both At War With Syria

Speculative bubbles often produce an "echo boom" a few years after the bubble has burst, as the cultural/institutional memories of the asset's spectacular gains remain operative long after the initial boom/bust. Is the much-hyped housing recovery an organic, sustainable trend, or is it merely a speculation-driven echo boom that is doomed to fade?

Rajoy tried to assert some confidence in Spain this morning (#Fail) but the realization of the potential for fraud tape-bombs being everywhere in Europe's financial and political elite appears to be pricing in. All five of Italy's largest banks are halted currently (all down 8-12% from Friday's open) as the broad stock markets continue to sink (despite short-selling bans - so don't blame them nasty bearish speculators). Even more dramatic is the blow-out in European financial credit spreads. The Subordinated financials spread has been on the rise from the first day of 2013 - and has now seen its biggest 3-week loss in over 14 months! There is a way to play this trend in the US...