Archive - Aug 14, 2013

Don't be alarmed. These crabs only inflict superficial flesh wounds.

A low cost of capital is the underpinning of much of the exuberance that shareholders are showing for stocks as management are able to lever-up (in the face of deteriorating fundamentals) to reward shareholders (via buybacks or state-sponsored dividends). With rates surging in the last few days, a critical question is how much will it take to accelerate outflows from bond funds and lead to significantly wider credit spreads for corporations? As BofAML notes, the consensus is now that a 3.5% 10Y rate is enough to trigger a disorderly rotation by which institutional investors are unwilling (based on risk expectations) to bid for the yieldier credit market debt as retail flows out. This is crucial since if the credit markets sell-off, firms will be unable to fund the expectations priced into equity markets and lead to a shift back to the sidelines from risk-assets in general.

For the 12th week of the last 14, mortgage applications in the US fell this week. Despite the ongoing (though quietening) exclamation that the housing 'recovery' will continue, it is hard for even the most ardent 'believer' to still think that a rise in interest rates will have no effect on housing when mortgage actvity has collapsed by ove 50% in the last 3 months. At the lowest level since April 2011, back well below the lowest levels of the 2000s boom with home purchase and refis plunging, we suspect a few 'investors' will be rethining their theses (or finding another pillar to base their 'buys' on).

The country "without a military coup" is progressing nicely on the way to democratic, CIA-supported utopia.

• EGYPT PRESIDENCY ANNOUNCES STATE OF EMERGENCY ACROSS THE COUNTRY STARTING AT 4 P.M. (1400 GMT)
• EGYPT STATE OF EMERGENCY TO LAST FOR ONE MONTH - STATEMENT
• EGYPT PRESIDENCY ORDERS ARMY TO SUPPORT INTERIOR MINISTRY IN IMPOSING SECURITY-STATEMENT
• EGYPT PRESIDENCY AUTHORIZES THE ARMED FORCES TO AUGMENT EGYPTIAN POLICE IN IMPOSING STATE OF EMERGENCY

In other news, John Kerry is currently contemplating if the upcoming civil war will be best characterized as a "mere scratch", or at worst, a street skirmish.

As expected, the scapewhaling of (former) JPMorgan marine wildlife has begun

South Africa supplies almost 60% of the world's platinum (including secondary supply) and 30% of the world's palladium (including secondary supply).

According to Johnson Matthey, platinum production fell almost 16% in 2012 while palladium production declined 10% last year alone.

With prices well below their recent highs, looming production cuts will leave markets tight supporting prices and likely leading to higher prices.

A record deficit in platinum supplies is set to push prices higher and demand is boosted by the new exchange traded fund (ETF).

A CNBC anchor's friendly hint (to keep monitoring twitter) and a well-timed (SEC reg pre-empted) tweet is all one needs to generate a 'healthy' 7900% gain 'trading' stocks in the US markets. Courtesy of the much-hyped expectations that @Carl_C_Icahn would tweet his next big idea, when the activist dropped the buy signal heard around the world yesterday, the lucky holders of the $480 AAPL Aug Calls saw their position appreciate from a cheap bet at $0.20 to a magnificent $16.00... not a bad return for 140 characters work...

Over the past several years, alongside the increasingly more "hedonically" doctored government inflation data, the Producer Price report has slowly but surely lost its significance. Today's report was no different: according to the BLS' seasonal adjustments, July PPI data was unchanged, dropping from the 0.8% increase in June and missing expectations of a 0.3% increase. This was driven by a -0.2% drop in energy finished good prices after a surge of 2.9% and 1.3% in energy prices in June and May, with food prices unchanged on the month. Core PPI excluding food and energy was also virtually unchanged at 0.1% on expectations of a 0.2% increase. And while the tapering in PPI inflation will likely be concerning to the Fed, the reality is that the unadjusted Y/Y increase was 2.1%, or in line with where it should be. Of course, we use the term "reality" loosely: anyone who thinks prices have increased only 2% over the past year, doesn't drive, eat or rent.

Once upon a time there was a Twitter-based, pump-and-dumping daytrading bucket shop posing as a "successful hedge fund manager" also known as Davian Letter/Davian Capital Advisors run by an Ohio gentleman known as Anthony Davian, which for reasons unknown even managed to run outside capital (somehow raking up to $1.5 million in idiot AUM), and which didn't like Zero Hedge much.  That's ok because the feeling was mutual - we had advised the SEC in late 2009 that the Davian operation was nothing but a ponzi scheme. A few years later, said outside capital is gone, and moments ago, following a four year delay since our notice, the SEC finally acted on our suggestion and charged Anthony Davian with fraud.

As we noted in the previous post discussing the inevitable pre-civil war crack down on pro-Mrusi protesters, the only thing that matters, at least to the "developed" West, is how the overnight events in Cairo impact risk, i.e., markets and stocks. Moments ago we got the first take, courtesy of Noah Capital Markets. The conclusion: Sell Egypt.

• Vocal billionaire activist IRR - 150x: Icahn bought $1 billion of AAPL stock, seeks $150 billion buyback (BBG)
• BlackBerry Said to Have Sought Buyers Since 2012 (BBG) - for a phone or the entire company?
• IPhone Fingerprint Reader Talk Boosting Biometric Stocks (BBG) - also, the NSA will need to grow its Utah data center
• UPS Jet Crashes in Birmingham, Ala. (WSJ)
• America's Farm-Labor Pool Is Graying (WSJ)
• Hong Kong Lowers Storm Signal as Typhoon Closes on China (BBG)
• Indian submarine explodes in Mumbai port (FT)
• BofA Banker Sued by Regulator Later Joined Fannie Mae (BBG)
• Software that hijacks visits to YouTube uncovered (FT)
• Chinese Billionaire Huang Readies Iceland Bid on Power Shift (BBG)
• China to launch fresh pharmaceutical bribery probe (Reuters)
• Defeat at J.C. Penney Hurts Ackman as Performance Trails (BBG)

The amusing news overnight was that following slightly better than expected Q2 GDP data out of Germany (0.7% vs 0.6% expected and up from 0.0%) and France (0.5% vs 0.2% expected and up from -0.2%), driven by consumer spending and industrial output, although investment dropped again, which meant that the Eurozone which posted a 0.3% growth in the quarter has "emerged" from its double dip recession. The most amusing thing is that on an annualized basis both Germany and France grew faster than the US in Q2. And they didn't even need to add iTunes song sales and underfunded liabilities to their GDP calculation - truly a miracle! Or perhaps to grow faster the US just needs higher taxes after all? Of course, with the all important loan creation to the private sector still at a record low, and with the ECB not injecting unsterilized credit, the European depression continues and this is merely an exercise in optics and an attempt to boost consumer confidence.

As was reported over the weekend, it was only a matter of time before the Egyptian police began its violent crackdown on protesting pro-Mursi supporters across Egypt. But after the specified ETA came and went on Monday morning, most thought that this was yet another false alarm. It appears it was only delayed until Wednesday. Overnight, depending on the source one reads, Egyptian security forces killed anywhere between 43 and hundreds people when they cleared a camp of Cairo protesters who were demanding the reinstatement of the deposed Mohamed Mursi. There was no official confirmation of the deaths at Rabaa al-Adawiya, in northeast Cairo, where thousands of Mursi supporters awoke to police helicopters circling over the site. A second camp near Cairo University was swiftly cleared in the early morning. So is this the final step that will ultimately catalyze what has been an almost preordained civil war, with or without but most likely with America's blessing (after all the deficit spending surge so needed for the untaper won't happen on its own)?  The answer should be appearing promptly.

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