Archive - Aug 19, 2013

SEC SAYS FALCONE CONSENTS TO BAN FROM ASSOCIATION WITH ANY BROKER, DEALER, INVESTMENT ADVISER, OTHER ENTITIES, WITH RIGHT TO REAPPLY AFTER FIVE YEARS

First They Came …

The equity rally that began in 2009 has pushed valuations higher, but has received little support from earnings. Indeed, as Morgan Stanley notes, since June 2012 the equity market rally was entirely driven by valuation and not earnings. While there have been cases when better economic conditions pushed up earnings, providing equity market support, there have also been occasions when valuation driven equity market rallies translated into weakness, as witnessed in October 1987. The equity market rally which began in 1986 and peaked in the summer of 1987 falls into this category.

In case Ben Affleck was looking for his next Oscar-winning CIA-o-mentary, the Central Intelligence Agency (which alas in a time of NSA permasnooping has become a bit of an anachronism) may have just provided the script, with the first official admission that the flipflops on the ground orchestrated at least one Iranian coup and is ostesnibly behind all other global coups (and non-coups coughegyptcough) in the past 50 years, but until they are confirmed they will remain merely "conspiracy theories."

As is well-known by now, one of the main reasons why the Fed's hands are tied when it comes to the future of QE, is the dramatic drop in the US budget deficit which cuts down on the amount of monetizable gross issuance (read Treasurys) and for which a big reason is that the GSEs have shifted from net uses of government cash to net sources. So in what may be the best news for Bernanke, and/or his successor, we learn that according to a report written by the Federal Housing Finance Agency (FHFA) inspector general and reviewed by Reuters, "Fannie Mae and Freddie Mac are masking billions of dollars losses because of the level of delinquent home loans they carry."

Presented with little comment (over our earlier detail) but just to note that around the world there are significant events occurring (even as the US equity market slumbers). So much for the gold coin ban - gold now trades at 4 month highs in Rupee terms.

Life is is a f*cking cabaret my friends...

The daily presidential-tracking poll shows that on Sunday August 18th 51% of US citizens disapprove of what President Obama is doing in the country.

In East Africa, the major water resource is the Nile river, the world’s longest, at 4,130 miles, referred to by Egypt since antiquity as the country’s heart. Instability, poor governance, lack of finances and the availability of other water sources left the issue largely dormant until the 1990s, when Nilotic governments seriously started to consider using their Nile Basin waters to generate energy and irrigate crops. But now, most African countries (expecting growth), where only about 25% of the population is connected to electricity grids, are seeking any and all electric power sources; guaranteeing an ongoing and increasingly fractious source of tension for Nilotic states. With the current political turmoil roiling Egypt, Cairo’s ability to influence upstream states is currently constrained, which until the dust settles may well provide Egypt with a number of aquatic fait accomplits. If Kampala and Addis Ababa press forward with their (Chinese-sponsored) hydroelectric projects in the interim, then they will probably eventually face some “frank and candid” diplomatic discussions with Egypt, which, after all, has a 4,000 year old history of Nile concerns.  Not a happy scenario.

The “cloud” in China is corporate nirvana: a high-growth tech sector in a high-growth country. Or was. And it’s showing up in the numbers.

Earlier today we learned that while some executives at Forever 21 were previously confused by Obamacare, subsequently they appear to have rectified their confusion... and full-time staffing levels. Of course, there would have been no confusion had Forever 21 known what it was getting with Obamacare. So for the benefit of all their executives, and for all others who may still be confused by America's new healthcare system, here, once again, is the chart that should explain everything.

For the 5th day in the last 6, US Treasuries are selling off notably. While equity volumes remain lack-luster and liquidity still thin in bonds, the weakness is most pronounced in the 7Y belly (even though selling is across the board). 10Y rates tagged 2.89% and 30Y 3.90% all pushing back to the pre-US-downgrade (debt-ceiling) levels of summer 2011. The 10Y yield has just joined the 30Y trading wider than they did when stocks hit their lows in March 2009.

CBS' White House correspondent Mark Knoller noted earlier:

Meeting with POTUS tomorrow are heads of the CFPB, FHFA, the Fed, CFTC, FDIC, NCUA, the SEC & Comptroller of the Currency.

— Mark Knoller (@markknoller) August 19, 2013

And while correlation is not causation (but suggests you are on the right path), remember what happened the last time the President, somewhat unexpectedly, met with the CEOs of all the big banks.

The EuroStoxx 50 (Europe's 'Dow') fell over 1% today - not 'huge' but this is the largest drop in over 6 weeks in the key index. While much has been made of the recent (good) performance of peripheral nation stocks and bonds (and Japanese buyers dominate) today marked a notable shift. Record bad debt in Spanish banks, political uncertainty in Italy, and a rise in fringe German political parties weighed on peripheral banks and sovereign bonds (which by now have become one and the same symbiotically) - Spain -2%, Italy -2.5% (biggest drop in 2 months). Greek stocks and bonds also slid notably (ASE -3% and GGBs down most in 6 weeks) as they deal with their own political drama. It appears the ongoing US Treasury sell-off and capital reduction from around the world is weighing on even the most momo assets now. Credit markets are broadly under-performing with financials leading the way.