Archive - Jul 2013

Despite terrible negative-to-positive pre-announcements, global earnings revisions fading fast, and plunging analyst' earnings downgrades, according to Bloomberg data, S&P 500 Earnings are expected to grow over 8% in Q2 2013 as we head into this season with top-line revenues growing almost 5% (with Consumer Discretionary expected to deliver around 10% growth). With Alcoa kicking us off this evening and likely being extrapolated for at least one trading day (although it is the lowest market cap name in the Dow by far), we note the top-down and bottom-up fundamental trends that 'support' this market. With only 20 names reporting this week, it is relatively quiet, though Friday may have some fireworks when JPM and WFC report their realized losses and loan-loss-reserve-subsidized gains.

60 years ago today...

The EUR is fading fast (-0.3% on the day) as Draghi re-iterated his commitment to lower, longer, forever, he promises... Germany's DAX was the best performer across the region today as there was a sea of green in European stocks. Even with a late-day drop, the DAX gained 2.3% - its best run in 10 weeks - as Bunds underperformed Treasuries by over 5bps on the day even as exports and production data collapsed. Spanish and Italian stocks rallied but bond yields rose (and Spanish bond spreads rose around 5bps). Portuguese bonds improved around 18bps - marginally positive compared to the collapse in the last week or two - as it seems the market is not convinced that all is fixed again.

When mistakes are made, lawsuits happen and lawyers, and guys with capital make money.

EU-US trade talks: they were said to have died a slow and painful death (by surveillance) just a few weeks ago when it was revealed by the National security Agency whistleblower (Edward Snowden)

With spot gold prices down 28% year-to-date, it appears John Paulson's Gold Fund has managed to create some epic high-beta losses. In a letter to investors, Paulson explains his fund fell 23% in June, is down 65% in 2013; but do not fear - as he concludes time and time again, the gold fund will "produce outsized returns in the long-run".

Think the $90 million sale of the penthouse duplex at the still unfinished One57 to an undisclosed buyer is a milestone for New York real estate? Then you haven't looked at the asking price for Steve Cohen's duplex on the 51st story of the Bloomberg building aka One Beacon Court. At $115 million, if sold, this will represent the most expensive New york real estate transaction in history.

One of the most widely accepted truisms in what passes for our financial media is that the dollar and gold are correlated: when the dollar weakens, gold rises, and when gold rises, the dollar declines... except this vaunted correlation isn't remotely visible in the charts. There is no correlation between gold and the U.S. dollar index. Not even close. The two move independently; any apparent correlation is semi-random signal noise. They are not on a simplistic see-saw, but instead their co-movements reflect the complex dynamics at work in pricing gold and the U.S. dollar independently.

There was some confusion yesterday when news hit that the SecState's wife, Theresa Heinz Kerry, was hospitalized. This came shortly after yet another fiasco involving Kerry who was caught in a rejection, then admission snafu, that while Egypt was burning he was on his yacht not one but two days in a row. We now get some clarity as to the affliction affecting the billionaire heiress:

HEINZ KERRY SAID TO HAVE BEEN HOSPITALIZED AFTER SEIZURE SIGNS
HEINZ KERRY'S DOCTORS HAVEN'T MADE EXACT DIAGNOSIS, PERSON SAYS
HEINZ KERRY'S CONDITION DISCUSSED BY PERSON CLOSE TO FAMILY

Japanese investors are not simply selling foreign assets. They are selling US assets.

Wondering how the blow out in interest rates is impacting commercial banks, which just happen to have substantial duration exposure in the form of various Treasury and MBS securities, not to mention loans, structured products and of course, trillions in IR swap, derivatives and futures? Wonder no more: the Fed's weekly H.8 statement, and specifically the "Net unrealized gains (losses) on available-for-sale securities" of commercial banks in the US gives a glimpse into the pounding that banks are currently experiencing. In short: a bloodbath.

Just when the jawboning from Europe is reaching its climax that Portugal is fixed again, Greece is fixed, and the core is showing green shoots from the near-depression, Germany (the corest of the core) comes out with its worst exports data since 2009. While imports remained stable - suggesting domestic demand is sustained for now - YoY export growth collapsed 3.2%, the worst tumble since November 2009 "illustrating that Germany's economy still has difficulties shifting into higher gear." The details are a horror-story. Exports to the euro-zone, where 40% of Germany's exports are sent, fell by a stunning 9.6% (while exports to the rest of the world dropped 1.6%). To add to the misery for the 'things are getting better' crowd, Germany's industrial production data missed expectations are dropped back into the negative YoY following the 'hope' inspiring positive YoY print in April that signaled all-is-well. Of course, none of that matters, the DAX is up a stunning 2.4% today on the back of this dismal-is-great data. So much for those green shoots...

a simple trend line approach may be the best option for navigating a market that has lots of cross currents

It seems that US investors has become so institutionalized in the new normal world of government bailouts and handouts that when the central planners make a decision that is not instantly accretive to the equity shareholders' bottom-line, the first instinct is to sue them. Following the conservatorship that was forced upon FNM/FRE in 2008, which required the companies to pay a quarterly dividend of 10% on the government's near-80% stake (and obviously implicitly benefited the tag-along bailout riders), the decision in 2012 to change the bailout terms to instead hand over most of their profits to the government (since they moved into profitability - thanks to a Fed-sponsored MBS market). This action "impaired shareholder value" according to Perry Capital - who, Reuters reports, is suing the government, noting "investors had every right to expect these rules to be followed." Indeed, just as the 'rules' have been followed in every bailout that has occurred since 2007.