Archive - Aug 9, 2013

For the 7th time in the last day or so, the S&P 500 has tested up to the magical 1,700 level and failed. With JPY once against strengthening as carry unwinds re-escalate, we wait breathless for a deja deja deja vu repeat of the last 3 days post-European close rampfest...

France is the odd duck on the Continent. It is neither a petulant member of the Southern European financial disasters nor a member of the Northern European banner of austerity nations. France, as we discussed here and here, is the swing country in Europe. It waives about with the wind depending upon the subject. The bonds of France trade just behind those of Germany. While we are sure the portfolio managers on the Continent require diversification. Where the market is pricing French bonds now may turn out to be a rather serious mistake in judgment.

"We have documented significant fiscal losses caused by preferential treatment of bank creditors of gone concern banks..."

It is well-known that as part of the S&P500's ascent to new records, investor margin debt has also surged to all time highs, surpassing for the past three months previous records set during both prior, the dot com and the housing, stock market bubbles. And as more attention has shifted to the topic of speculator leverage once more, inquiries into the correlation between bets upon bets and stock performance are popping up once more, in this case in a study by Deutsche Bank titled "Red Flag! - The curious case of NYSE margin debt." Of particular note here is a historical comparison of margin-debt warnings that have recurred throughout history but especially just before major stock bubble crashes, such as in the period 1999/2000, 2007/2008 and of course today, which have time and again been ignored. Here is what was said then, what is being said now, and what is ignored always.

While we have previously exposed the less than exuberant perspective of many Egyptians towards the US, it now seems the torrent of anti-US hostility has reached such large proportions that the mainstream media is forced to admit report it. As the WSJ reports, a headline in a major Egyptian state newspaper this week referred to the proposed U.S. envoy to Egypt as the "Ambassador of Death." Posters in Cairo's Tahrir Square, a center of pro-government rallies, depict President Barack Obama with a beard and turban, exclaiming his "support for terrorism." The moves, WSJ adds, highlight the depth of public distrust of U.S. policies, and draw from a "reservoir of anti-Americanism and conspiratorial theories". Of course, after yesterday's revelation of the staged Muslim Brotherhood riots, nobody really knows just where US-Egyptian sentiment really lays but it seems fair to say that it is not improving.

After BTFATH in June, and being rotated into by the professionals in early July, it would appear that the apparent 'greater fools' are heading for the exits now. As we noted here, the 'retail' buyer of what the institutions were selling suggested things were getting a little too exuberant but as TD Ameritrade's Investor Movement Index shows that the retail investor is now a net seller of equities. Their proprietary index is now at its lowest level for 2013 and the last few days in stocks suggest the institutional sellers have run out of willing 'at any cost' great rotating equity buying 'greater-fools' (despite the mainstream media's call for moar BTFATH). Between Monday's record-breaking 'quote spam' and the JPY carry unwind occurring, we await the next call for Mr. Bernanke (or Kuroda) to get back to work.

Back in May 2011, together with forecasting Japan's most epic case of quantitative easing ever unleashed, we presented the absurd, if inevitable, thought experiment of a country that would soon cross into the twilight zone of total sovereign debt numbers that no longer even fit on a simple pocket calculator. The country of course is Japan, and the debt number is one quadrillion. As of last night, the absurd has become real as Japan has officially announced its total government debt rose by 1.7% to ¥1,008,600,000,000,000.00.

• JPMorgan Nears Settlement With SEC on London Whale Loss (BBG)
• Without even a wristslap: Iksil to face no U.S. charges in 'Whale' probe (Reuters)
• China’s Credit Expansion Slows as Li Curbs Shadow Banking (BBG)
• China slowdown shows signs of abating (FT), even as...
• Australia central bank Lowers Growth Outlook as Economy Transitions From Mining (BBG)
• SAC Business Plan Goes to Judge, Plan Would Allow Firm to Maintain Business Operations but Restrict Its Ability to Move Assets (WSJ)
• Another buyer of Herbalife? - Norway’s oil fund plans to turn active (FT)
• Mark Carney plays down scepticism over interest rate policy (FT)
• Orders Evaporate for Celebrity Perfumes (WSJ)

The good, if fake, Chinese "data" releases continued for a second day in row, dominating the overnight headlines with a barrage that included CPI, PPI, retail sales, industrial production, fixed investment, money growth, car sales, and much more (summary recap below). Needless to say, all the data was just "good enough" or better than expected. Yet judging by both the Chinese market (which is barely up, following the drop on yesterday's "surge" in made up trade data) and the US futures, not even algos are dumb enough to fall for the goalseek function in China_economy.xls. Either that, or traders are taking the "rebound" in the Chinese economy as a further indication that the Taper (which will  take place in September), will take place in September. And since global risk sentiment continues to be driven by the USDJPY, the Yen pushing to overnight highs is not helping the "China is bullish" narrative.

When it was suggested it was considered in the blazing battles of the bail-outs and the scraping of the bottom of the drawers for extra cash as the God-sent answer to all EU woes and worries.