Archive - Sep 16, 2013

This weekend has launched a new level of the bull-ghey, as we have our second example this month of the market rallying not on something that happened, but on something that didn't. Thus, I humbly offer more good reasons that the bulls could conjure up to propel us to yet new record highs, because God knows, if there's one industrial powerhouse that we need to safely usher into a successful IPO, it's Twitter. So here we go:

If Vladimir Putin and Barack Obama can get through their tiff over Bachar al-Assad and stop pulling the covers to their own side of the geopolitical bed, then the Russian leader may just up sticks and move into the US where he will be able to spend his money rather than making out that he is a poverty-stricken in Moscow to the Russian people.

Just over a year ago, in "Presenting the most shorted stocks" we showed a simple chart highlighting the most hated/shorted Russell 2000 names with an even simpler expectation: in a market in which all the risk is being onboarded by the Federal Reserve, there is simply no more idiosyncratic risk, and as a result for those so inclined, and preferably running other people's money, a clear "alpha-generation" strategy in which hedging risk is no longer a concern, was to go long the most hated named. Since then the most shorted names have massively outperformed the broader stock market as day after day, week after week, those "hedging" long positions with hedge fund hotel shorts, got blown out of the water and were forced to cover shorts leading to the only significant "alpha" generating strategy available in this broken, centrall-planned market.

The White House has issued a statement regarding the dismal situation in Washington:

The President has been briefed several times about the unfolding situation at the Washington Navy Yard by Assistant to the President for Homeland Security and Counterterrorism Lisa Monaco and Deputy Chief of Staff Alyssa Mastromanaco. The President directed his team to stay in touch with our federal partners, including the Navy and FBI, as well as the local officials.  We urge citizens to listen to the authorities and follow directions from the first responders on site.

The latest news is that:

• *AT LEAST 12 SHOT - MULTIPLE FATALITIES REPORTED AT DC NAVY YARD SHOOTING**
• *SIX SCHOOLS IN WASH. DC ON LOCKDOWN ON SHOOTING, WJLA REPORTS

It is tough to see the exact catalyst for the collapse in AAPL's share price in recent days (though it is clear that no China Mobile news is not good news) - but then aside from Carl Icahn's tweets it was hard to see what the exuberance in August was. Now a month later, AAPL has retraced all Icahn's gains and then some and is trading at 5 week lows. Today's weakness - in the face of a surging broad market - is being pinned on talk of Chinese telecoms firms cutting subsidies - not exactly strategically in line with AAPL's growth goals. Add toi that Wal_mart is already slashing prices on the iPhone 5C - considerably earlier than normal - and it suggest more of the same from AAPL is not beingmet by exuberant demand.

When the tracking of potential Ben replacement candidates for Fed Chairman by Irish bookmaker Paddy Power, and InTrade prop bet replacement, started it had Janet Yellen as a solid favorite. Shortly thereafter, as news leaked that Obama's favorite was Larry Summers, and as the president made it quite clear Yellen's candidacy was certainly not on the front Burner with the "Mr. Yellen" Freudian slip, Summer's odds soared and hit a contract high of 85% last week. Over the weekend, anyone who had put money on Summers, was Harvarded and lost all capital at risk, and now, it is Yellen who is once again firmly in the lead with her odds soaring right back to just why of 90%, and well-ahead of second placed Don Kohn at 17%. Ironically, while the market never actually corrected for the "market negative" that Larry Summers' candidacy is now spun to be, it is surely uncorrecting now that he is out.

...the right of the people to keep and bear Arms, shall not be infringed.

...except in New York, Washington, D.C., Chicago, Colorado, California, etc.? 

It had become clear that the President's own political base in the Senate were not going to support Mr. Summer's ascendancy. The eye of the Press will now turn to Mr. Kohn, Ms. Yellen, who does not seem to have the support of Mr. Obama, and the long, though interesting shot, of Stanley Fischer. Mr. Obama appears to be easing into a lame duck presidency far earlier than once thought and the reality of Obamacare will hit Main Street on October 1 which may tip the scales further out of his control. It may not be either the best of times or the worst of times but very volatile times that mark this week.

*NAVY OFFICIALS SAY AT LEAST 6 DEAD IN NAVY YARD SHOOTING: AP
*TWO 'POTENTIAL OTHER SHOOTERS' ON THE LOSE, DC POLICE CHIEF
*DC POLICE: POSSIBLE BLACK MALE SHOOTER MAY BE CARRYING LONG GUN
*ONE SHOOTER MAY BE WHITE MALE IN KHAKI UNIFORM, DC CHIEF SAYS

While hardly reminiscent of Chicago during peak shooting hour on a weekend, news of occasional shootings in the US is becoming increasingly more prevalent, the most recent report coming from a Washington Navy Yard, where the police reports at least three people were shot by an active shooter. As WaPo reports, "D.C. police are looking for a suspect they say shot at least three people at the Washington Navy Yard on Monday morning. According to a police spokesman, there is an “active shooter” on the grounds of the Navy Yard in Southeast Washington."

While headlines, we are sure, will crow of industrial production's best gain in six months, the sad fact is that the market was expecting more. At +0.4% - against an expectation of +0.5% - this is the 5th month in a row of missed expectations for this significant indicator of economic health. Capacity utilization rose but also missed expectations. It seems manufacturing and mining got a modest boost (the former bounced more than expected but only thanks to a notable prior revision downward) and Utilities dragged the headline index down - so we await the "it's the weather's fault" remarks.

With so many candidates dropping out of the race, one has to wonder why the attraction of the 'most-powerful' job in the world is fading. Perhaps it is not wanting to stuck between the rock of the 'broken-market-diminishing-returns' of moar QE and the hard place of an economy/market that is sputtering and needs moar. As Bloomberg's Rich Yamarone notes, There’s a little known rule of thumb in the economics world: when the annual growth rate of key U.S. indicators falls below 2 percent, the economy slides into recession in the next 12 months... and more than one of them is flashing red.

For the second month in a row, the Empire Fed has fallen and missed expectations. At 6.29 (vs 9.1 exp), this is the lowest since May as the average workweek (down from 4.81 to 1.08) and number of employees (down from 10.84 to 7.53)  subindices fall notably. In general the index was not worse because of the effect of the six-months-outlook views (which soared 3pts to 40.6 - its highest since early 2012) when, as usual, current conditions deteriorate but offset by hopium that eventually things will get better, but even there employment (number of employees outlook down from 8.43 to 4.30) was seen as weaker.

A flurry of headlines suggesting the Syrian situation may not be contained, after Turkish media report a Syrian jet crashed 400 meters away from the Syrian-Turkey border.

• MILITARY JET SAID TO CRASH ON SYRIA BORDER: TURKEY’S DHA

It also appears the crash was not self-inflicted. Moments ago, Turkey's Today's Zaman adds that "Turkish army has downed a Syrian fighter jet in Hatay on the Syrian border." Has Turkey, which has been spoiling for regime change in Syria (just think of all the fringe benefits if and when the Qatari pipeline finally crosses Syria and enters Turkey), grown tired of waiting for a decisive false flag, and decided to take matters into its own hands?

The most important event of the "coming" week was unexpected, and did not even take place during the week, but the weekend. So with Summers unexpectedly, and uncharacteristically out, here is what else is in store.

• Summers Quit Fed Quest After Democrats Spurned Obama Favorite (BBG)
• Geithner Still Not Interested in Fed Chair Slot (WSJ)
• Gross’s Trade Sours as Bonds Lose Faith in Fed Guidance (BBG)
• Bob Diamond calls for bank rules shake-up (FT)
• Russia says may be time to force Assad's foes to talk peace (Reuters)
• Iran Dials Up Syria Presence (WSJ)
• Kerry Seeks to Sell Syria Deal (WSJ)
• Shutdown of Japan’s Last Nuclear Reactor Raises Power Concerns (BBG)
• Emerging Stocks Rise to 3-Month High as Bonds Gain on Fed (BBG)
• Bernanke’s Maradona swerve hits bonds (FT)