Archive - Jul 2013

Presented with little comment aside to note that Egypt's 2020 bond yields are up 42bps today to a record 10.65%, the 5Y CDS has surged to 925bps and yet the last few days have seen egyptian equity markets jump almost 10%. Is the thinly-traded local market being driven by US ETF-driven news-algo flows or is it all going to be ok after all?

Baffle with BS continues: just as the June Mfg. ISM predictably beat two days ago, so today's Non-mfg ISM missed, printing at 52.2 below expectations of a 54.0 and down from 53.7. This was the lowest print since February 2010, and the biggest miss to expectations since April 2010. The New Order components was absolutely destroyed printing at 50.8, down from 56.0, and the lowest since July 2009. Furthermore, Business Activity tumbled from 56.5 to 51.7, far below consensus of 56.8, and the lowest since November 2009. The only good indicator on the face of this absolute devastation was the Employment index which mysteriously rose by 4.6 to 54.7, the highest since February: those part-time jobs must sure be accretive to businesses.

And now for something completely different. Citi's Willem Buiter is best known for his exhaustive, often times fatalistic outlook on Europe (he will ultimately be right about the Grexit, and Spexit, and ultimately Dexit, the only problem is so will Meredith Whitney about the state of the US municipals - eventually). It appears there may have been a reason for his dour outlook on life: a sexy stalker as it turns out. A sexy, but very demented stalker.

With just a few short hours to go until the military-coup-deadline, the situation is rapidly moving from bad to worse in Egypt. Following Reuters reporting that the Muslim Brotherhood's refusal to meet with army officials - "We do not go to invitations (meetings) with anyone. We have a president and that is it," Sky News Arabiya reports that the Egyptian army now completely controls the State TV building. The miltary will make a statement at 5pm local (10amET).

Those expecting a massive, epic miss in Initial Claims to keep the critical Baffle with Bullshit narrative going into NFP, did not get it, with Initial Claims printing at 343K, in line with expectations of a 345K print, following the obligatory upward revision in last week's print from 346K to 348K. Continuing claims dropped from an upward revised 2987K to 2933K, below expectations of a 2958K number. And as has been the case for the past year, Americans collecting Emergency and extended claims continue to drop, with 1 million less Americans on EUCs now, at 1.66 million, compared to the 2.62 million a year ago. These are all people who ultimately drop out of the labor force and lead to a "better" unemployment rate. And while ADP and Claims were better than expected, it was the trade deficit that offset the good news, soaring 12% from a revised $40.1 billion to a whopping $45 billion, far above expectations of $40.1 billion, the worst miss in 7 months, and dragging all Q2 GDP forecasts lower with it. This was driven by a drop in exports of $0.5 billion offset by an increase in imports by $4.4 billion. The total May imports were $232 billion - the highest since March of 2012.

Now that good economic news is horrible news for the market, the last thing stocks needed today, with Europe and Egypt imploding fast, was a strong harbinger of Friday's NFP number. And in the first part of today's jobs preview duo, the ADP report, it got just that, with the ADP private payrolls rising to 188K from 134K in May, and modestly above expectations of a 160K print. Will this transform into a 200K+ print on Friday sending the market into a tailspin, or will the initial claims due in minutes fix everything by missing horribly, we will find out shortly.

The algos could have a problem getting out of this one. From Mrs.Watanabe (JPY -170pips, NKY -500 points from highs) getting hammered (and the Hang Seng -5%) to European sovereign bond spreads exploding (Portugal +170bps - biggest spike in 2 years to 8 month highs) and financial stocks collapsing (-4%), safe-havens are heavily bid from gold and silver (+3% from lows) to US Treasuries (10Y dropped 8bps) and global equity markets are taking it on the chin. Not pretty...

The power of the HegeBanana State...

It appears that all it took for Spain to finally grant Bolivian president Evo Morales a green light to fly in its airspace was a thorough Austrian check of its cargo hold, a la Millennium Falcon, to make sure it does not hide Barack Obama's public enemy number 1. Sure enough, the plane has left Vienna and at last check was about to fly over Madrid in a few short minutes.

• Portuguese bond yields soar amid political turmoil (FT)
• Portugal Resignation Rocks European Markets (WSJ)
• Portugal, Greece risk reawakening euro zone beast (Reuters)
• Egypt’s military chiefs hold crisis meeting as Mursi snubs ultimatum (Al Arabiya)
• Egypt Crisis Deepens as Mursi Refuses to Step Down (BBG)
• Hidden microphone found in London embassy: Ecuador (AFP)
• Health Law Penalties Delayed (WSJ)
• Rise in mortgage rates cut into homebuyer demand last week (Reuters)
• Bolivia angered by search of president's plane, no sign of Snowden (Reuters)
• Olympus ex-chairman gets suspended sentence (FT)

Presented with little comment aside to note that with all eyes squarely focused on this Friday's payroll data (and today's ADP and claims), it is worth reminiscing of the hope that we felt in 2006 and 2007 when it was "different this time" and the divergence between a plummeting ISM employment index and non-farm-payrolls meant nothing...

And just like that things are going bump in the night once more. First, as previously reported, the $100+ WTI surge continues on fears over how the Egyptian coup will unfold, now that Mursi has a few short hours left until his army-given ultimatum runs out. But it is Europe where things are crashing fast and furious, with the EURUSD tumbling to under 1.2925 overnight and stocks sliding on renewed political risk, with particular underperformance observed over in Portugal, closely followed by its Iberian neighbor Spain, amid concerns that developments in Portugal, where according to some media reports all CDS-PP ministers will resign forcing early elections, will undermine country's ability to continue implementing the agreed bailout measures. As a result, Portuguese bond yields have spiked higher and the 10y bond yield spread are wider by over a whopping 100bps as austerity's "poster child" has rapidly become Europe's forgotten "dunce." The portu-litical crisis has finally arrived.

A wicked web of deceit, with just a good measure of theft and forgery thrown in for old time’s sake! Most of the time when we read about history, the biggest this or the fastest that related to the stock exchange it’s (so we are told) so that we don’t make the same mistakes twice and then some bull gets spun about how we need to learn from our mistakes

Barry Ritholtz is convinced that once the current short-term bounce is over with, the recent cyclical bear market in gold will resume. The reality is of course that neither Mr. Ritholtz, nor anyone else actually knows the future. Therefore, he cannot know whether the bear market is or isn't over. However, judging from the remainder of his post, he actually seems to think that the secular bull market in gold is over. In our opinion there is no evidence for that, and we will explain below why we think that he and others in the  long term bear camp are wrong. Further below is the evidence marshaled by Mr. Ritholtz (actually, apart from the technical analysis he provides, it isn't really evidence at all – it reads like an unsupported opinion). Sure enough, gold has no yield, no conference calls, and no income statements (paraphrasing Jim Grant). That is actually the beauty of it. But that does not mean it 'has no fundamentals', nor does it means that it 'cannot be an investment'. We comment on his article (and its errors) further below.