Archive - Mar 2013

So far the market has been largely oblivious of the shattered trust and changed dynamic in European banking dynamics for one simple reason: Cyprus banks have been closed, and likely will be closed indefinitely, preventing the mass media from broadcasting what happens when an entire population, and foreign depositors, decide to clear out the holdings of their bank accounts, either physically or electronically, and the public anger the will result when they find that courtesy of fractional reserve banking, only a tiny amount of said deposits is actually present. In the meantime, retail depositors have had their withdrawals limited through a form of capital controls, allowing them to pull only as much as the daily limit is on given ATMs. So far the banks have had enough cash to keep ATMs stocked up to the daily required minimum, but that may soon be ending. BBC's Mark Lowen, in Nicosia, reports that "Cyprus' banks are still giving out cash through machines - although with limits, and some are running low." Ironically, as physical cash becomes ever scarcer, merchants are now clamping down on electronic payments unsure if they will ever be able to convert electronic euros into actual ones: "Some businesses are now refusing credit card payments, our correspondent reports."

As FedEx rained on the market's parade modestly today (with its biggest drop in 18 months and heaviest volume since Jun 2010), it is the 'crash' in Caterpillar's sales that should be more worrisome. Just as the economies of the world are supposed to be getting ready to re-surge and expectations are set for a second half renaissance, it seems that in reality, corporations that build stuff, mine stuff, and move stuff are not buying in anticipation. As the following chart suggests, perhaps CAT is yet another canary in the global economic decline coalmine?

How quickly the mighty can fall. Once again, a leading market bellweather for how awesome everything is has missed. Missed Top-line; missed bottom-line; guided top-line lower; guided bottom-line lower. It seems, surprise surprise, currency headwinds are to blame for some of the damage.

• *ORACLE 3Q NON-GAAP EPS 65C, EST. 66C
• *ORACLE 3Q NON-GAAP REV. $8.97B, EST. $9.37B
• *ORACLE SEES 4Q NON-GAAP REVENUE DOWN 1% TO UP 4%, EST. UP 5%
• *ORACLE SEES 4Q NON-GAAP EPS 85C-91C, EST. 88C

And after all that, ORCL is now trading down for 2013... and don't forget, ORCL is one of the Top 10 S&P 500 stocks accounting for 90% of its earnings beats last quarter...

We have seen again that the Eurozone is unable to deal rationally with its problems. This has got to be the most incompetent handling of a Euro crisis event so far, but underlines the hopeless situation the 17 countries that share the common currency are in. The idea of a one-off wealth tax, however, is not new. Several research reports have pointed in recent years to the fact that the desperate need for funding in the public sector could - and probably will - eventually lead to confiscation of wealth in a monumental scale. Boston Consulting Group suggested in a recent report that about 29 percent of ALL private wealth, not just deposits, will eventually be likely to be confiscated to cover the debts already incurred. So we had better get used to seeing our money being appropriated by money-hungry politicians. This is just the beginning. The cat is out of the bag, no matter if this particular deal should fall apart.

If you don’t collapse the system, the system will collapse you.

It was a dream come true new normal FOMC day - green all around as the overnight pump on Russian hope provided the anchor. US equities (except Transports which were hammered by FDX) wiggled sideways around unchanged from pre-Cyprus, ignored the Fed, jumped on the BoJ non-news, ran some stops into the close, and then gave back all the open-to-close gains as JBL and ORCL missed and reality sunk in. Post-Cyprus, Morgan Stanley remains -4% (and BofA +2%) but homebuilders led the way. Volume was average; average trade size was low (and has been falling). For most of the day Treasury yields (+5bps on the day), S&P 500 futures (+6pts), and EURJPY were inseparable as algos ruled the VWAP waves. The S&P 500 ends below pre-FOMC levels but Oil was among the biggest post-FOMC gainer.

From the cover pages of The Bank of Cyprus 2011 Annual Report...

FedEx started the day down around 4% (on the disaster that we noted earlier) and has not looked back. Now at the lows of the day, down 7% (and 8.5% from its highs yesterday) this is the biggest drop and biggest volume (with 30 minutes left in the day) in 18 months. So much for global trade volumes...

But wait - some regurgitated news from Japan of 'moar easing' and EURJPY ramps to pull S&P futures up to pre-Cyprus levels...

*BANK OF JAPAN GOV TO CALL FOR 'BOLD EASING,' NIKKEI SAYS

You have to wonder when no-news from the BoJ trumps no-news from the Fed in stirring S&P to move (but success as the S&P maaged to finally close the Cyprus gap)... We can't help but wonder who decided that at 2:05am Japan time this non-news algo-pumping headline should be released?

Will the Chairman mention the tools the Fed has to unwind its $3.1 trillion balance sheet, as he did during his Humphrey Hawkins testimony, which included "belts, suspenders -- two pairs of suspenders", will he discuss the many hats broke savers have, will he repeat that he does not provide financial advise, will he praise his tremendous "inflation record" once more, will he discuss the complete lack of the currency war the entire world is engaged in, or will he simply focus on what Corker called the "faux wealth effect"? Found out in moments as Bernanke hand-picked journalists toss him a veritable cornucopia of softball questions.

Cheney Caught In Another Major Lie

The reaction to the FOMC statement is extremely significant in its almost entire lack of response.

Pre: 10Y 1.94%, ES 1550, Gold $1606, WTI $92.70, EUR 1.2950
Post: 10Y 1.935%, ES 1551.5, Gold $1606.5, WTI $92.95, EUR 1.2966

Mortgage spreads widened very modestly; Volume has died; VWAP is your friend; and the Great and Powerful Oz is about to speak.

If there is one thing to be said about the just revised economic projections from the Fed (2013 GDP slightly lower on the upper range, the same as the unemployment rate which the Fed now sees dropping to as little as 6.7% in 2014), is that the economy will do everything but what the Fed has forecast, at least if history is any indication.

As expected, Bernanke and his pals decided moar is betterer and keep the monetary policy foot to the floor even as they suggest things are getting better but not better enough.

• *FED SEES ECONOMY RETURNING TO MODERATE GROWTH AFTER Q4 PAUSE
• *FED CONTINUES TO SEE DOWNSIDE RISKS TO ECONOMIC OUTLOOK
• *FED MAINTAINS $85 BILLION MONTHLY PACE OF BOND BUYING
• *FED SAYS FISCAL POLICY HAS BECOME SOMEWHAT MORE RESTRICTIVE

So everything is moving forward; Politicians are still idiots but don't worry we won't stop...

Though the schizophrenia remains as they cut growth for 2013 ( 2.3%-2.8% vs 2.3%-3.0%) but lowered unemployment for 2013 (7.3%-7.5% vs 7.4%-7.7%).

Pre: 10Y 1.94%, ES 1550, Gold $1606, WTI $92.70, EUR 1.2950