Archive - Jul 31, 2013

While 'tentative', the Fed's POMO schedule for August signals no Taper anytime soon. But, the Fed has generously 'allowed' 4 days for the shorting of stocks in August (Friday 2nd, Friday 9th, Wednesday 21st, and Friday 30th). Away from those days - BTFATH...

Anyone, or rather any vacuum tube algo, hoping that Fed mouthpiece Jon Hilsenrath's traditional post mortem would be kind enough and summarize the FOMC with a simple one or at most two-word phrase ("Buy" or "Superstrong Buy") will be disappointed. At best, the following summary can be summarized as "Neutral", or "Cautiously Non-committal", although as he correctly points out "Modest" is worse than "Moderate" as most recall from elementary school - it is unclear if this news is horrible enough to send the S&P to record highs.

The usual schizophrenic reactions across asset classes are progressing but with 30 minutes down, it appears bonds are benefitting most (10Y -5bps), gold is up modestly (+$10 at $1320), and the USD down small after swinging both ways already. Stocks are the most 'confused' but just as they tumbled on the realization that the taper is not only still on the table but coming, a rumor spread like wildfire that Hilsenrath was about to provide the much needed "Strong Buy" interpretation of the virtually unchanged from June FOMC statement.

The FOMC appears to have 'tweaked' its message to fit with Bernanke's confusing commentary and confirms that 'tapering is not tightening'.

• FED SAYS INFLATION 'PERSISTENTLY' BELOW 2% GOAL COULD POSE RISK
• FED SAYS ECONOMIC GROWTH WILL PICK UP FROM RECENT PACE
• FED REPEATS RATES 'EXCEPTIONALLY LOW' UNTIL JOBLESS AT 6.5%
• FED SAYS UNEMPLOYMENT WILL GRADUALLY DECLINE
• FED SAYS 'DOWNSIDE RISKS' DIMINISHED 'SINCE THE FALL'
• FED NOTES THAT MORTGAGE RATES HAVE RISEN SOMEWHAT
• FED SAYS IT IS PREPARED TO INCREASE OR REDUCE THE PACE OF PURCHASES

Bullard no longer dissenting, George is sole dissenter. And don't forget, of course, that this is all pretense in the face of the inevitability of the taper due to refunding, political, and technical reasons. As we noted earlier, it seems preferable to pretend the economy is strong enough to withstand less-easing (tightening) than admit the Fed is cornered.

Pre: S&P Futs 1685, 10Y 2.65%, USD Index 81.80, WTI $104.65, Gold $1311

Redline to follow

As liquidity-slurpers the world over wait for the written words from the FOMC this afternoon, it seems the bond market has sold-first-asked-questions-later on its 'Taper' expectations (with 30Y yields now at 23-month highs). It is little surprise (given the real reasons for a Taper as we discussed here and here) but today's ADP and GDP data provide more 'headline' ammo for the Fed to cover the reality that they are cornered. It seems it is better to project the 'fallacy' that the economy is strong enough to withstand a 'tapering' of monetary policy than to admit that there is a technical limit to the extent by which the Fed can print money before it breaks the market and shifts sentiment to a realization that it's nothing but monetization. The US bond market has suffered losses for 3 months in a row now, and this is the first July loss in 10 years - or will the FOMC save them?

And we don't mean vision...

Mass Surveillance Is “Killing Our Most Productive Golden Goose”

Seven minutes. That’s how long it would take to crack one of the passwords we had been using for more than ten years, according to the crypto experts at Silent Circle. The typical 'dog's name, daughter's nickname, favorite ice-cream' style password won’t typically thwart government agencies that are keen to spy on their citizens. They can easily be cracked in a matter of minutes. Since cracking algorithms succeed by picking up patterns in human behavior, the key to a secure password is randomness and disorder. In the security business, this is known as entropy.

It seems 'someone' doesn't want the world knowing just how much of a 'long shot' Larry Summers is for the great-and-powerful-Oz position of Chairman of the Federal Reserve. As we showed just last week, PaddyPower showed Yellen as a strong 77% probability favorite with Summers lagging notably behind in the pack. Then comes this morning's comment from the second most powerful man in the world:

• *OBAMA SAYS LARRY SUMMERS BEING UNFAIRLY CRITICIZED: SHERMAN
• *REID SAYS SUMMERS IS A FRIEND, A `COMPETENT' MAN

And Goldman's Jan Hatzius' warnings that Summers is less 'enthusiastic' on using monetary policy than his competitor Yellen. And now - as the image below shows - PaddyPower has removed its betting on the next Fed head. We just wonder who got the tap on the shoulder?

With a number of banks cutting their mortgage departments (Wells Fargo JV and Everbank most recently), it seems the 'weakness' in the housing recovery may be more than transitory. For the 11th week of the last 12, mortgage applications fell for the fastest three-month collapse since June 2009. Mortgage activity is now its lowest in two years with refinancing activity down 57% from its recent peak and new purchases have dropped to their lows of the year (down 13% from the highs) and stand exactly at three-year average levels.

Apple's second largest value driver decline was called with precision, detail and accuracy - as was the very similar call on the iPhone, Apple's primary value driver (also in decline). Where is the buy point?

Just when you believed that the last you were going to hear about Edward Snowden was that he was holed up in the airport in Moscow, living off borscht and blini (obviously topped with caviar) all washed down with the potato drink, the outside world will be gearing itself up to go to the foot of their stairs in exclamations of ‘well, blow me down!’.

While today's GDP revision was largely formulaic and served mostly to generate another algo momentum ignition buy program pushing the DJIA to a new all-time intraday high, there was some much better news hidden deep in the revision. We are delighted to advise Americans everywhere that you are all now making some $300 billion more than you were before the 8:30 AM revision. At least that's what the Bureau of Economic Analysis says: according to the quarterly revision, the revized annualized Disposable Personal Income is really some $300 billion higher compared to the pre-revision number. You are all richer!

It just keeps going form bad to worse for William Ackman. The so-called retail expert tried to diffuse the situation today by announcing a massive $2 billion position in Airgas, only for Herbalife to go right back front and center, following news moments ago from CNBC that none other than George Soros has taken a long stake in Herbalife, and not just any stake but a "top 3" position. We haven't done the math but the float out there must be getting dangerously low for Ackman: low enough to where the Volkswagen scenario we predicted in early January (just as we predicted the imminent epic short squeeze) may finally come in play as there is not enough float to cover Ackman's short, and certainly not when the longs decide to pull all the borrow. If and when the Ackman margin calls hit, we hope that Soros will accept shares of Airgas as deliverable. In the meantime, the stock is up 173% since December, or when we said to go long following Whitney Tilson's "short."

Did another Federal reserve employee 'accidentally' email the right people again?