Archive - Mar 2013

Tower to QE4 Heavy: Permission to land denied!

Europe saw red today. Italian equities and bonds traded notably off (with FTSEMIB now -2.7% on the week) amid their biggest drop in over a week and heading back to post-election lows. The driver was a less-than-desirous auction at the short-end of the Italian bond curve (the part of the curve that Draghi 'promised' would be fine) as the 12-month bill went out 43bps above the January lows. This sparked weakness overall as across the board weakness was evident in stocks and bonds in Europe. EURUSD dropped back below 1.2950 for the first time in 3 months. Commerzbank's recap also stumbled markets a little even though it was widely rumored and Europe's financials underperformed broadly. A late-day ramp - oddly starting at 1130ET (when Europe used to close pre-DST) - just like we saw yesterday - saved the day for stocks and crediy overall.

It turns out that when peddling a flaming paperweight (recall "Total Karma Recall: Fisker Pulls All Cars Due To Fire Risk", "As Another Fisker Karma Spontaneously Combusts, "Green" Dreams Go Up In Smoke" and of course "Fisker Karma Is First Car To Burn Underwater"), even if it is a very pretty and streamline paperweight, not even $529 million (or perhaps due to) in government subsidies can lead to a Hollywood ending and everlasing prosperity. As the WSJ reports, "The founder and executive chairman of electric-car start up Fisker Automotive Inc. said he resigned Wednesday because of "disagreements" over business strategy with the ailing company's management." The founder, "said in an email sent to a small number of journalists that has "left the company." Reached by phone, Mr. Fisker confirmed that he sent the email and that he had resigned."

With the marked shift in "coolness" surrounding smartphones away from Apple and toward Samsung (one of the primary reasons why AAPL is trading at or near its 52 week low and at the price target set for it by Jeffrey Gundlach back when the Smart Money crowd was advising their soon to be broke viewers to sell AAPL puts day after day), many wonder if this is merely a drop in innovation by Apple under it new, less visionary and far more Wall Street-friendly CEO, or is it something else? A possible answer is that is may be something as trivial as marketing. As the WSJ reports, in 2012 Samsung for the first time outspent AAPL in advertising dollars, handing out $401 million to raise brand awareness compared to Apple's $333 million.

The spectre of stagflation threatens the UK economy due to concerns that sterling weakness will contribute to even higher inflation amid very weak economic growth and the likelihood of a recession – likely a severe one.

Markets are pricing in a jump in inflation as inflation expectations, as measured by the difference between nominal and inflation-linked bond yields, ticked up to near 3.3% yesterday.

Recent poor economic data and the appalling UK fiscal position are rightly leading to concerns of stagflation as was seen in the 1970s. Conditions that make owning gold and silver vitally important to own in order to protect and grow wealth.

Worried about potential bankruptcy next week, buy the stock. Concerned at slumping top- and bottom-line misses, buy the stock. Regulatory oversight, buy the stock. Over-leveraged, buy the stock. Fortress-like balance sheet, not so much... Since the mid-November lows at the start of this liquidity-fueled rally de luxe, the most-shorted names in the Russell 2000 have risen an impressive 27% - even more impressive is that this is a 1150bps outperformance over the index itself. As we warned a few times, the list of most-shorted stocks is often a place to find epic (and ridiculous) returns but with our macro hats on for one second, if this kind of 'capital' is flooding into these kinds of companies - we can only imagine the landscape of mal-investment that will be exposed if and when the tide ever ebbs even modestly. For now, the dash-for-trash continues - though today is the first 2-day drop in 3 weeks (but still outperforming the not-most-shorted names).

The same warnings flashed in 2008... and they're flashing again now.

Steven Spielberg gave us Pre-Crime; Ben Bernanke gave us Pre-Monetization. Moments ago, as part of today's concluded $1.464 billion market funding POMO operation, one of the issues purchased by the Fed was the 30 year Treasury identified as CUSIP 912810QZ4. Why is this CUSIP interesting? Because at 1 pm tomorrow, the US Treasury will issue $13 billion in the form of a 29 year 11 month bond reopening. The CUSIP of the issue: 912810QZ4. Because the only thing better than monetizing the US debt is, well, pre-monetizing the US debt.

The latest release of the National Federation of Independent Business Small Business Survey was a bit of dichotomy of interpretation. Is the inventory increase really a sign of optimism or is it an unwanted buildup as sales have slowed as shown by the latest wholsesale inventory report?  Are capital outlays really a sign of optimism or is it simply just required maintenance and upkeep?  The interpretation of the data is key to understanding the direction of the overall economy. Economic confidence still remains at levels lower than in 2011 or in 2008 during the depths of the financial crisis. Concerns for businesses remain weighted toward the consumer and the government.  Weak sales, government regulations and taxes are the top 3 biggest headwinds curtailing small business currently.  With the upcoming debates over the debt ceiling and the budget it is unlikely that these concerns are going to improve much anytime soon.

"Clearly, the USDA has made up its mind that Big Sugar is going to trump the American consumer," is how industry exec perceives the news that the government is considerng buying 400,000 tons of sugar, as WSJ reports, to stave off a wave of defaults by sugar processors that borrowed $862 million under a government price-support program. Since these 'loans' were given nine-months ago, sugar prices have plunged 18% - and could leave the government's price-support program with an embarrassing $80 million loss given the additional sugar-to-ethanol purchase losses. Of course, rather than pass on lower prices to a struggling consumer, the government's decision is to avoid a loss for corporations such as American Crystal Sugar Co., Amalgamated Sugar Co. and U.S. Sugar Corp., and, as Sen. Jeanne Shaheen notes "unfairly leaving consumers and businesses on the hook to foot the bill and that is unacceptable." Moar Big Gulps...

I would say that we are in the void; a place where not much matters. The actions of the world’s central bankers have created not only a global financial bubble but a market assumption that everything is backstopped and that nothing can go seriously wrong. Equities rise, bonds compress and everyone plays along. The last time I felt so strongly about this was in the infamous era of “money for nothing, checks for free” just prior to the subprime prick that sent the financial markets into the balloon careening around the room event. It is Ben and Mario’s ice cream store; open twenty-four seven, dessert for breakfast, lunch and dinner and the “full faith and credit” promise that you won’t put on an ounce. It is a world full of “non-conforming loans” and you might wish to remember what happened last time.

There was much chatter by the punditry in the early part of 2013, when the Shanghai Composite appeared relentless in its surge, when it was tracking the S&P virtually tick for tick, hitting a 2013 high in mid-February, and which was "explained" to be the prima facie proof of the Chinese rebound. The reason said chatter has disappeared is that as of last night's close, the SHCOMP is now officially red for the year.

A straight forward explanation of two elements of the options market and what it is suggesting about market positioning and psychology. Sometimes the options market acts as a parallel market to express views. Sometimes it acts as an insurance market. Written with the non-specialist in mind.

In a news release that would have been blamed on delayed tax refunds and "the weather" if it was a miss, but confirms a stronger consumer if it beat, and denies everything Wal Mart was warning about regarding February sales, today's retail sales just came stronger than expected in both the headline print (+1.1%, on expectations of a +0.5% rise), the Ex-Autos (+1.0%, Exp. 0.5%), and the Ex-autos and gas (0.4%, Exp. 0.2%). All of this of course was on a seasonally-adjusted basis (more on this shortly). This was the biggest beat of expectations since October 2011, and the biggest monthly rise in five months. The number was driven by a 5.0% jump in gasoline station sales, a 1.8% increase in Miscellaneous store retailers, a 1.6% rise in non-store retailers and a 1.1% increase in the broad retail and food services category. Declines were noted in Furniture stores (-1.6%), Electronics and Appliance stores (-0.2%), and Sporting goods and music stores (-0.9%). So on the surface all was good. The seasonally adjusted surface. because the unadjusted headline number in February actually posted the first sequential decline since 2010, as retail sales declined from $382.4 billion to $381.0 billion: this was the first sequential decline in retail sales in the month of February in three years. Yet somehow the decline actually translated into a growth of $4.4 billion on an adjusted basis, meaning the entire beat was, once more, purely in the calendar adjustment.