Archive - Jul 2013

Think Goldman would take accusations that it is, gasp, manipulating the RMBS, HFT, crude commodities market sitting down? Think again. Like every mollusc in self-preservation mode, here is Goldman's just released ink, pardon, press release saying all accusations about it are nothing but sheer rampant confusion. After all - Goldman simply makes markets. Move along.

Gross: Nominal GDP growing at 3.5% last 12 months. #Fed wants/needs 5%. So they #taper/tighten? Low odds. Buy 5’s.

— PIMCO (@PIMCO) July 23, 2013

Dow Jones industrial staple Caterpillar, better known as CAT, has made these pages quite often in the past few months for all the wrong reasons: be it due to operational weakness ("CAT Misses Across The Board, Slashes Sales And Profit Outlook"), weak top line growth ("Collapse In Caterpillar North American Sales Not Helping Bernanke's "Recovery") or simply gross management negligence ("Caterpillar Punked By Chinese Fraud, To Write Off Half Of Q4 Earnings"). It got so bad that none other than China permabear Jim Chanos declared Caterpillar his "best short idea" last week. However, CAT's troubles are far more than just China related as today's June dealer retail sales showed, which which posting a modest 'increase' in North American sales (from -16% to -10%), the weakness has returned to Asia where sales resumed sliding from -14% to -21%, in Latin America where growth plunged from 22% to 9%, in the ROW where sales dropped from -2% to -8%, all of it resulting in yet another downward inflection point in world sales from -7% (which had been a four month high) to -8%. But why bore with words when one picture should suffice. So what is the future for CAT? According to a new report released by @VolSlinger, things may get far worse in the coming months. So bad, in fact, that based on his analysis, which has a price target of $28 for the stock, there is some 67% upside to a short position.

Over 99% of “analysts” are missing this, but it is a fact. If you ignore the ridiculous GDP numbers (which even China’s Premiere has admitted are a joke in the past) and look at more accurate metrics, it’s clear China is collapsing at an alarming rate. Case in point, Electrical consumption rose by just 2.9% in the first quarter of this year.

Thanks to a total and utter collapse in new order volume (from +9 to -15 - worst in 2 years) and order backlog (-1 to -24), the Richmond Fed manufacturing survey just printed at -11 (against expectations of an exuberant +8). This is the biggest miss since May 2006. Wages plunged; the average work-week plunged; capacity utlization plunged; but on the bright-side, the number of employees was flat (at 0). Perhaps more concerning is the outlook that sees prices paid rising notably more than prices received and capacity ultization dropping notably.

No really, that is the actual name of the hearing that the Senate Committee on Banking, Housing and Urban Affairs will hold today in order to "clarify" why banks like Goldman are currently the owners of the largest aluminum warehouse in the US, or why Goldman, JPM and BlackRock are set to control 80% of all copper stores. The hearing's official name: "Examining Financial Holding Companies: Should Banks Control Power Plants, Warehouses, and Oil Refineries?"

Gold surged over 3% yesterday due to what appears to be have been significant short covering due to concerns about gold backwardation and the continual haemorrhaging of gold inventories from the COMEX.

Concerns about a default on the COMEX, once the preserve of a few observant market watchers, are becoming more widespread  as we appear to be witnessing a run on the highly leveraged bullion banking system.

Very robust physical demand from the Middle East, Asia and particularly China and a decline in the dollar also helped prices log their biggest one-day gain in over a year and their first close above $1,300 an ounce in nearly five weeks.

Gains in silver futures, meanwhile, outpaced gold’s rise, with silver surging 5%.

In December we asked if a "short squeeze was imminent as Tilson jumps aboard the Herbalife bandwagon" at $26. The answer is yes and following a nearly 150% jump off the lows, with much comedy ensuing (if not for the shorts), Dan Loeb has a special message for those still waiting for the Ackman "thesis" to materialize...

A report just out by Coutts (the private wealth-management bank) has pointed the wagging finger at British rich and famous, the millionaire’s club for not protecting their wealth enough.

Surplus capital used to be the understood as the primary challenge, but this fell out of favor.  This essay seeks to return it to the center of the narrative.  

There was a time when the US housing market was not "driven" by hedge funds armed with government-subsidized, "REO-to-Rent" loans loading up on distressed properties, by banks refusing to release foreclosed properties into the market (thus creating a market subsidy) or by foreigners eager to park their "tax-evaded" wealth with the Anti Money-Laundering exempt National Association of Realtors. Instead, the main driver of US housing were first-time home buyers, "typically couples in their late 20s or early 30s" who historically have accounted for about 40% of home sales. Alas, last year, and all throughout the New Normal, this number has been about 25% lower, or representing just 30% of all sales (except for a brief spike to 50% in 2009 courtesy of recession-era tax credits). Then again, what 30 year old needs a home when one can now get an E-trade terminal under the bridge to generate "the wealth effect"?

With yet another promise about to go up in smoke (that of PM Rajoy's claim that Spain will be out of recession this quarter), we thought it worth a brief reflection on just what a disaster the nation is and how much it is weighing on the entire EU. Spain has been in recession for seven quarters in a row and survey indicators suggest it will extend to eight. House prices continue to collapse. Government revenue to GDP is among the worst in the union. But unemployment is where Spain has its peers beat - at 6.2 million unemployed, Spain accounts for almost one-third of the entire unemployed population of Europe. With expectations that the unemployment rate will break above 28% next year and a government embroiled in scandal, Rajoy's planned address to discuss the politicial and economic situation to his nation in August may just be the catalyst for the social unrest that has laid relatively dormant for so long. Is Spain the new Detroit?

The name Robert Khuzami is well-known to Zero Hedge readers: the former top SEC enforcer is perhaps best known not for what he did (judging by how many Wall Street bank executives ended up in jail following the Great Financial Crisis, very little), but for what he didn't - namely pursue any action against his former employer, Deutsche Bank, where he was a general counsel and where under his watch Greg Lippmann was "shorting your house." The reason, among others, extensive deferred comp linked to DB stock as we reported all the way back in May 2010. But Bob didn't care about what he did, or didn't do at the SEC - he was much more interested in what he would do after he left the regulator, which he did in January of this year. Because Bob, courtesy of his DB days, realized the massive paycheck potential of a revolving door job at the head of the government's enforcement unit. Sure enough, as the NYT reports, he has capitalized on just that following a $5 million a year contract (with a 2 year guarantee) with legal behemoth Kirkland & Ellis where he will be a partner and "will represent some of the same corporations that the S.E.C. oversees."

• Biggest Banks Face Fed Restoring Barriers in Commodities (BBG)
• SAC to Employees: Cohen Didn't Read Dell Email at Heart of SEC's Case (WSJ)
• Second (and Third) liens are back, and so is 2005: As Banks Retreat, Hedge Funds Smell Profit (WSJ)
• Singapore funds benefit from Asian wealth (FT)
• 2 years later the lies haven't changed one bit - Tepco hit over slow admission of radioactive leak (FT)
• How big tech stays offline on tax (Reuters)
• Hilton Leads Rush to Africa in Fastest Boom (BBG)
• U.S. and UK fine high-speed trader for manipulation (Reuters)
• Key witness takes stand in SEC case against Goldman's Tourre (Reuters)
• Boomer Sex With Dementia Foreshadowed in Nursing Home (BBG)
• Bentley SUV gives £800m boost to UK car industry (FT)

In a day in which there was and will be virtually no A-list macro data (later we get the FHFA and Richmond Fed B-listers), the inevitable low volume centrally-planned levitation was attributed to news out of China, namely that Likonomics has set a hard (landing) floor of 7% for the GDP, and that just like other flourishing economies (Spain, Italy, California) China would invest in "monorails" to get rid of excess capacity, as well as a smattering of European M&A activity involving Telefonica Deutscheland and KPN. In Japan, the government upgraded its economic view for the 3rd straight month and also raised its view on capex for the 1st time in 4 months: who says the (negative Sharpe ratio) PenNikkeistock market is not the economy? All this led to a 2% rise in the Shanghai Composite - the most in 2 weeks - and the risk on sentiment also resulted into tighter credit spreads in Europe, with the iTraxx Crossover index falling 4bps and sr. financial also declining by around 4bps, with 5y CDS rates on Spanish lenders down by over 10bps. Naturally, US futures wouldn't be left far behind and took today's first major revenue miss of the day, that of DuPont, which beat EPS and naturally missed revenue estimates, as bullish and a signal to BTFATH (all time high). On the earnings side, in addition to Apple, other notable companies reporting include Lockheed Martin, Altria, AT&T and UPS.