Archive - Jul 16, 2013

Following this morning's "if we hope it, they will buy" NAHB data, the venerable Goldman Sachs released their housing market Swirlogram (and it's something to behold). What we found most interesting was the massive inflection point that occurred just as the chart was collapsing back into the miasma of contraction... Cause or effect, QEternity?

As far back as ancient times, whenever civilizations fell into great crisis, people in desperation have almost invariably turned to a single individual who promised them better times. Of course, history is full of examples of men who did not give up power willingly once the crisis passed.  As an example, the 1920s economic crisis in the Weimar Republic had a huge impact in the rise of Adolf Hitler’s National Socialism.  In the 1920s, there was one bankrupt country. And the consequences still define the world we live in. But Jim Rogers sees another "man on a white horse" that scares him even more today...

Better volume than yesterday, but still below average, saw the S&P suffer its devastatingly worst day (and first down day) in the last 10 days. The sell-off appeared to start on some Esther 'hawkess' George comments and were stick-saved by rumors of a Hilsenrath article (which appeared and was full of nothing). The S&P futures 'miraculously' reverted perfectly to VWAP but still ended its 10-day-winning-streak. Bonds were very modestly bid but liquidity was thin and activity muted. Gold and Silver had a positive day (up 0.55% on the week) as the USD kept falling (down a matching 0.55% on the week). WTI limped a little lower holding at $105.75 as gas prices continue to surge. Builders remain worst on the week (despite the 'awesome' NAHB print today) and Utilities best. Since 6/19's FOMC meeting, QE-sensitive sectors Energy, Materials, and Homebuilders remain the biggest losers with the winners (Financials and Discretionary) giving some back today. VIX was relatively well bid today as hedgers dug in ahead of Ben's speech.

History shows us that panic follows a loss of trust. The financial house of cards we've built today is ripe for a panic-causing event.

Is the "hip" Marissa Mayer's honeymoon with Wall Street finally over? After getting the vast benefit of the doubt from Wall Street for some 50%+ upside in the stock price without generating any actual results, moments ago the search engine that everyone used over a decade ago before the arrival of such better alternatives as GOOG, once again failed to deliver. Specifically, while the company beat the EPS estimate of $0.30 with eash and a print of $0.35, it was the top line that the firm posted a miss, revenue coming at $1.07 billion on expectations of $1.08 billion. But it was the outlook that really impacted the stock, which initially was trading higher only to turn lower as the company's guidance cut was released. To wit:

• YAHOO SEES 2013 ADJ OPER INCOME $900M-$1B, SAW $1.05B-$1.1B
• YAHOO SEES 3Q REVENUE EX TAC $1.06B-$1.10B, EST. $1.12B
• YAHOO SEES YR REV. EX-TAC $4.45B-$4.55B, EST. $4.54B

And while the traditional deus ex of a share buyback was used to confused the GETCO algos as usual, this time to the tune of $1.9 billion, it appears it was no longer sufficient to make the market forget that YHOO is the perpetual "promise" stock that just somehow never manages to deliver.

Does the NSA's surveillance reach under the water too? Russia's president is about to find out...

A few days ago, Edward Snowden made even fewers friends in the corporate tech community with his Guardian disclosures that "Microsoft Helped The NSA Bypass Its Own Encryption Software, Spy On Its Clients." This promptly got the legal team the MSFT scrambling, and moments ago, the firm's General Counsel Brad Smith posted on MSFT's blog that, guess what, the world's biggest desktop OS maker doesn't give government data encryption keys or customer data. Well... what else were they going to say? Oh yes, repeat "direct acces" 6 times in a blog post, making it all too clear the whole issue is merely about semantics.

As the EPA’s RFS mandate has surpassed the industry standard of E10, the demand for RINs has likely increased as refiners/blenders need to show compliance with the RFS mandate to the EPA. This is reflected in ethanol RIN prices, which have surged to the highest levels since the peak in March earlier this year. Higher RIN prices could dissuade refiners from producing finished gasoline, and instead, would incentivize them to send more of the gasoline internationally to minimize their gasoline production with mandated RIN compliance. This gasoline would likely be sent as motor gasoline blending components, which includes RBOB. In theory, this could also help tighten the US gasoline market, however, there are limited markets for this gasoline, so unless it is pricing at a significant discount to world prices, it may be difficult to push this gasoline out of the US market without sufficient demand pull.

The concept we call gross domestic production (GDP) is highly distortive. It obfuscates intelligent debate in economics as the true underlying force for economic growth, capital accumulation, is seen as detrimental to prosperity

Some of us are old enough to remember when honor and truth mattered. Integrity and ethics drove behavior rather than “what can we get away with.” Unfortunately for society, that is no longer the case.

As the death count rises - last night's actions in Alexandria and Cairo appear to be more escalations by the pro-Mursi supporters - AFP reports that Israel has given Egypt the go-ahead to deploy two battalions to the Sinai to tackle militants in the sensitive region where deployments are restricted by treaty. The Egyptian army is preparing to go on the offensive against Islamist militants in the Sinai who have escalated attacks since the 'coup' on July 3. Over the past two weeks, militants have launched almost daily attacks on troops and police in the peninsula, killing several members of the security forces and two Egyptian Christians. A senior Egyptian military official confirmed that the army "will carry out an operation" in the Sinai, without giving further details.

"As Chairman of the Senate Intelligence Committee, I can tell you that I believe the oversight we have conducted is strong and effective and I am doing my level best to get more information declassified. Please know that it is equally frustrating to me, as it is to you, that I cannot provide more detail on the value these programs provide and the strict limitations placed on how this information is used. I take serious my responsibility to make sure intelligence programs are effective, but I work equally hard to ensure that intelligence activities strictly comply with the Constitution and our laws and protect Americans’ privacy rights."

What goes up appears to come down faster. Thanks, apparently, to a well-timed Goldman Sachs suggestion that the heavily-shorted (28.4% of float) electric-car maker is over-priced (whocouldanode at 303% YTD gains), the shares are down 14.5% today on massive volume (-18% from yesterday's highs) but still notably above Patrick Archambault's $84 target.

On that "coup-like overthrow thingy"...

The ongoing fight between Elliott Capital (et al, i.e., "the holdouts") and Argentina may moved to the backburner recently as the topic of sovereign bond impairment is not as actual today as it was a year ago (it will be again soon once the European double bluff of OMT and Japan's carry trade finally fizzle and European political crises return) nor have any Argentinian ships been confiscated recently by the multi-billion hedge fund, but that does not mean it is any less relevant or has any less implications for the global sovereign debt market. But while global consensus had largely been largely against Argentina in its treatment of holdouts, that may soon change in a very dramatic manner with a new and very unexpected entrant, one supporting the Argentinian position, and for all the wrong reasons too: the US president.