Archive - Apr 2013

Confused why AAPL is opting for the dividend recap route (as we predicted it would in January )? Simple: as the first chart below reminds us, as of December 31, nearly 70% of the company's total cash, which has grown to a record $145 billion in the current quarter, was held offshore. This means that if AAPL wanted to repatriate this $100 billion or so in cash, it would have to pay Federal tax on it, amounting to dozens of billions in remittances to Uncle Sam as this is cash which AAPL does not have full access to for US based operations. Hence: it has opted to raise cash by issuing debt instead of repatriating its cash.

The United States is a deeply unhappy place.  We are a nation that is absolutely consumed by fear, stress, anger and depression.  It isn't just our economy that is falling apart - the very fabric of society is starting to come apart at the seams and it is because of what is happening to us on the inside. We are overwhelmed by anxiety, and much of the time the ways that we choose to deal with those emotions lead to some very self-destructive behaviors.  Americans have experienced a standard of living far beyond the wildest dreams of most societies throughout human history, and yet we are an absolutely miserable people.  Why is this?  Why is America #1 in so many negative categories? There is vast material wealth all around us.  So why can't we be happy?

Apple is out with Q2 results which are hardly inspiring. Revenue and sales beat, but margins missed and guidance is weak:

• The good news: Q2 Revenue: $43.6 billion, Exp. $42.3 billion
• Q2 EPS: $10.09, Exp $9.98
• And the not so good news:  Q2 margin weaker than expected 37.5%, Exp. 38.5%
• And Q3 revenue seen at $33.5-$35.5 billion far below the estimate consensus $38.4. Remember: AAPL no longer sandbags the future

For those looking for a special dividend you won't see it, instead will have to be satisfied with a buyback expansion by $50 billion (eventually), and an increase of 15% in the dividend. Ironically, cash cow AAPL just announced it will raise debt (and got rated by various rating agencies) in order to fund its cash outflow. In other words, it is slowly but surely becoming a utility. So much for the near infinite growth projections.

As we tweeted somewhat prophetically this morning when futures were still modestly red:

If sliding Chinese and German PMI data don't send the S&P to new all time highs, nothing will

— zerohedge (@zerohedge) April 23, 2013

And sure enough, equities close at the highs of the day (up over 1.5% from the overnight lows) and back near all-time highs once again. Ignoring the well-discussed elephant-in-the-room of the fake-tweet-based-flash-crash which exposed all that is unholy about the financial markets (i.e. coordinated HFT algos across every futures-market risk-asset); we note that shorts were heavily squeezed today, grossly outperforming the indices and JPY carry trades pulled stocks up tick-for-tick. Bonds sold off about 8bps higher in yield from overnight lows on the terrible data but yields ended the day only modestly higher (far removed from equity exuberance). The Dow, intriguingly, closed perfectly unchanged to the moment the Boston news hit last week, but the Russell was the day's big winner...

We have been reporting extensively on the terminal disconnect between the paper gold market, which tumbled ten days ago for a variety of reasons, and the physical gold market which one can safely say, has seen a record surge in demand by those who wish to take advantage of the tumbling prices, depleting inventories of gold and silver in virtually all jurisdictions, and leading to the a record purchase of gold in the US mint a week ago as also reported here. Today, we learn that, as expected, none other than the US Mint has officially run out of small denomination gold coins, in this case One-Tenth ounce American Eagle gold bullion coins. We are confident this incontrovertible proof of soaring retail demand for physical will somehow result in JPM or another bullion bank dumping a few extra thousands ounces of paper/electronic gold or silver to further disconnect the paper price from what is actually going on with physical demand. As for the US Mint, first it's fractions of an ounce: look forward to the mint running out of all bullion denominations in the coming days and week, first in gold, then in silver as well.

“Recovery” has become the shibboleth constantly invoked by people running things after the crisis of 2008. Unfortunately, no such recovery was underway. It was papered over by the twin Federal Reserve policies of quantitative easing and financial repression – a combination of the nation’s central bank loaning vast new amounts of money into existence at ultra-low interest rates (hardly any interest to pay back) and creating steady monetary inflation to reduce the burden of existing debt by shrinking the dollar value of the debt. The program was a racket in the sense that it was fundamentally dishonest. The presumed purpose of these shenanigans from the point of view of the Federal Reserve and the White House was to keep the financial system stable and afloat, and therefore to keep “normal” American daily life going. Unfortunately, it was based on the unreal assumption that the financial norms of, say, 2006 could be ginned back up again, and this premise was just inconsistent with the reality of a post-Peak-Cheap-Oil world. Unfortunately, there was no organized counter-view to this wishful thinking anywhere within the boundaries of the political establishment.

Presented with little comment, but it's another one of those short-squeeze days...

Another word for locked (or where the bid and ask are the same; the only condition which is worse - crossed, where the bid is higher than the ask)? Broken.

A Banzai7 exclusive...

260,000 S&P 500 e-mini contracts traded in the three minutes following the fake AP Tweet. That is ~$20.4 Billion notional value 'changed hands'. For those with trailing stops, our condolences...

When sales reps, Easter, and the sequester get blamed for worldwide sales declines

Presented with little comment aside to note that based on a tweet, the 'deeply liquid' US equity market collapsed instantaneously as all those liquidity-providing 'algos' jumped ship. The good news, if indeed this was merely a test for "the big one", is that everyone managed to sell ahead of everyone else. Right?

Despite a very positive starting point for European citizens' view of the EU; over time, this support and optimism evaporated. Massive central bureaucracy, European arrogance and lack of respect for the independence, history and culture of the national states slowly destroyed confidence in the project. When we look back, we must admit that it took too long to recognise what the European project really was. But we also have to state that this recognition came much later to many others and some of our career politicians obviously still do not get it. The big question is really whether the EU is more the problem than the solution in the current crisis. The euro has shown its true colours and anyone with a rational view of the world sees the currency collaboration as a historic failure that can lead to even further fatal consequences for Europe and the continent’s competitiveness vis-à-vis the rest of the world. There is one thing, and only one thing, that can rescue the euro. That is a much more far-reaching integration between the euro countries; a common financial policy, joint debt issuing, a willingness to pay enormous transfers from the rich to the poor countries or, more specifically, from Germany to all the other member states. That is a possible route, but not a desirable one. The time has come to do everything to ensure that Europeans understand what the future perspectives of this choice are and that Europeans understand the importance of this choice.

All in all, the markets are falling for the same ploy they’ve fallen for dozens of times in the last few months: more political promises from those who cannot and will not do what is needed to solve the region’s problems.