Archive - Aug 13, 2013

While we congratulate Carl Icahn (or is that iCahn) for once again taking over the spotlight in what has otherwise been a newsflow empty summer doldrum week, and like everyone else, are surprised by his most recent activist target, the country's on-again, off-again most valuable by market cap company, Apple, we do, as we did before when David Einhorn proposed virtually the same activist play, have some questions. Chief among them: how will AAPL fund any proposed expanded buyback or increased dividend using domestic cash?

Every failing organization, from empires to school districts, responds to its embarrassingly visible failure by proclaiming one reform after another. To take but a few from a long list, China is "reforming" its hopelessly corrupt, debt-based central-planning economy, President Obama is "reforming" the Global Surveillance State (into a presumably kinder, gentler machine gun hand?), The European Union is "reforming" its banking sector and the overly complex U.S. Sickcare system is being reformed with 2,300 pages of additional complexity under the Orwellian title of Affordable Care Act (ACA), a.k.a. ObamaCare. The one dynamic that matters is of course left unsaid: the inability of the Status Quo to reform itself, i.e. undertake fundamental, systemic reforms. This inability has many facets but only one root: political sclerosis caused by entrenched, vested interests seeking to protect their perquisites and power. This is as true of local school districts as it is of entire states.

Regardless of what I (or you) do throughout the day we're tracked, logged, profiled and otherwise "identified" in a hundred different ways.

Frisk and Sink...

We currently have a large position in APPLE. We believe the company to be extremely undervalued. Spoke to Tim Cook today. More to come.

— Carl Icahn (@Carl_C_Icahn) August 13, 2013

Favoring “Friends” ... Harassing “Enemies” ... Propaganda ... Cyber-Warfare ... Track ‘Em and Whack ‘Em

The last 3 weeks have seen the S&P go practically nowhere but for the majority of those days there has been one 'pattern' that seems mostly predicated on the opening of the US day session and closure of the European day session...

Because diluting the paper currency through endless global central-bank printing is obviously not enough to boost corporate top and bottom lines, next up on the dilution wagon are the corporate "rewards programs" which have decided to join the fray and are kind enough to advise honored clients their point purchasing power is about to be diluted by "a modest" 10%-15%. First on deck: Hertz. To wit: "in light of rising costs, we find it necessary to implement our first reward redemption point increase since 2008. Beginning October 1, 2013, point redemption levels for Rewards will increase a modest 10-15% in the United States, Canada, Puerto Rico and U.S.V.1."

With calls for a European renaissance and a general belief in stability through the German elections, it is perhaps worth a reminder of the structural problems that the supposedly bottoming union is facing. Nowhere is that single monetary policy-facing dilemma more evident than in the massive economic growth divergences across the EU nations and the current huge gap in unemployment rates from Greece to Austria and beyond. It seems the world is waiting for Merkel's re-election and fold on austerity (seemingly confirmed by the leaked BuBa report recently) but EU stress test transparency may remove the symbiotic safety net of bank bond buying sooner than many believe. With monetary policy somewhat euthanized across the EU, what's left for the fragmented transmission channels but more promises as pension funds and banks are stuffed to the gills with their own domestic bonds.

Since Europe closed, US equities have been on a tear - all on their own... Bonds, FX, and credit markets have shrugged as short-term VIX has been hammered lower dragging stocks to the high of the day. It seems the exuberance anticipated 'non-voting member' Lockhart's more dovish comments:

*LOCKHART EXPECTS U.S. ECONOMY TO PICK UP IN 2013 SECOND HALF
*LOCKHART SAYS ANY QE CHANGE SHOULD BE 'CAUTIOUS FIRST STEP'
*LOCKHART SAYS QE TAPER POSSIBLE AT ANY OF NEXT THREE MEETINGS

His main comment that "I don't expect to have enough data to be sure of my outlook next month" seems to have triggered the last little leg higher. And if a non-voting meber can do this - do all these talking heads still think the market is 'pricing-in' a taper?

With the market still stuck in the summer doldrums, where it will be until the Taper announcement and the German election, the dominant topic of water cooler conversation today is Elon Musk's hyperloop idea. While the feasibility, and not to mention profitability, of this concept remains to be determined, it got us thinking: what are some of the other more ridiculous patent ideas conceived in history - a topic particularly germane now that the Obama himself has decided to become the anti-patent troll-in-chief (at least on behalf of those who tend to spend generously for lobbying and other favor-inducing purposes). Below, courtesy of BusinessWeek, we list what may be some of the most absurd, bizarre, humorous and outright idiotic inventions and patent ideas awarded over the years.

It is perhaps too soon to tell if the market is beginning a topping process or just pausing during the current advance.  The bulls will argue valuations, Fed interventions and low interest rates.  They could be right for a while longer but not for the reasons expressed as much as the continued push of panic buying driven by current price momentum.  However, given the current set of circumstances, most investors fail to realize about the current market environment is that with stocks already stretched to extremes, trading driven by computerized programs and near record levels of leverage - a break in the market could lead to a very fast, unprecedented and unanticipated plunge in asset prices... "Still, we know that the same strenuously overvalued, overbought, over bullish syndrome observed in 1972, 1987, 2000, 2007 and even 1929 (on imputed sentiment data) is already in place here, and that the losses from such extremes have been spectacular."

Traders and investors do not respond to sea changes instantly. The smart ones take note and begin adjusting their portfolios and hedging their bets. This doesn’t result in massive market moves as these investors are sophisticated enough to move out of old positions and into new ones without drawing too much attention

Peripheral bond spreads have rallied for 10 of the last 11 days. At a mere 269bps, Spanish bond spreads are the lowest in 2 years; Italian spreads (at 240bps) are the lowest since July 2011, and even Portugues bond spreads compressed 15bps today to near 2-month-lows. Since mid-July, it is clear that hot-money flows are charging into peripheral European bonds and not into US equities. European stocks (mostnotably the worst economically) have also risen (Greece +21%, Spain/Italy/Portugal +11.5%) but most recently it is the bonds that have seen the major flows.

Instead of fighting for 30-second soundbites on mainstream media news outlets, Ron Paul has created his own TV channel. Now live-streaming exclusive content, the following brief clip gives us a glimpse into the studio from which the libertarian will send forth his message.