Archive - Sep 24, 2013

Markets, risk assets in particular, do not like political dis-unity. The FOMC seem dis-unified; delivery differing messages.  Comments by Dudley and Fisher were not just marginally different, but rather stark contrasts.   Trust in the Fed and in its’ communication strategy have been tarnished.   Markets are now confused as to when, why, and how the Fed will be able to change course. When the taper is in full-swing that equities and bonds will drift to lower prices.  However, the immediate trade may require paring risk, and rebalancing portfolios, i.e. stocks down, bonds drifting higher in price (risk off).

Following UMich confidence's biggest miss on record, the Conference Board misses expectations printing at its lowest since May 2013 as the last data was revsied higher. This is the largest MoM drop since March. Crucially, the headline index was saved by a surge in the "present situation" as expectations for the future plunged. As a reminder, Consumer Confidence has an awkward 4 year 4 month pattern of dysphoria to euphoria (though at progressively lower levels) and today's data merely confirms that the cycle of exuberance may have been broken.

This should be fun. With Rouhani in the house, Nobel-Peace-Prize-winner President Obama will address the oh-so-supportive-of-his-wars United Nations this morning. As AP reports, seeking to build on "diplomatic opportunities" is expected to signal his openness to discussions with Iran (even a wink in his direction would work since there has been no face-to-face contact in 30 years). Also high on Obama's agenda at the U.N. was rallying Security Council support for a resolution that would establish consequences for Syrian President Bashar Assad's regime if it failed to adhere to a U.S-Russian plan to turn over its chemical weapons. And we wonder if he'll mention them nasty Republicans wanting to shut his government down?

If anyone had reservations about the monthly Case-Shiller report, or at least the logic in the methodology used by the S&P data collectors, we present Exhibit A, which should solidify any such doubts. Below we show Detroit "home prices", which according to the just announced July NSA data, soared even higher, to level of 90.8, which just happens to be a 17% increase Y/Y, and the highest print since August 2008. Bankruptcy? Pfft - who cares when the government is funding Blackstone REO-to-Rent made-to-flip purchases.

There was something for everyone in the just released July Case-Shiller house price index. On one hand, on a year over year basis, the NSA Composite 20 city index rose 12.39% in July, up from 12.07% in June, and in line with expectations of a 12.40% increase. This was the highest annual price increase since the start of the great financial crisis. On the other hand, the same Composite-20 Index increased by just 0.62% in July on a SA M/M basis, missing expectations of a 0.80% increase, and down from the 0.88% increase in June. This was the third consecutive miss on a M/M basis, and while the Case-Shiller index continues to still rise, the momentum as can be seen in the chart below, is starting to fade, with the monthly increase posting at the lowest rate since September of 2012 when the rise was 0.52%.

Whether or not AAPL's reported sales are accurate or merely the latest manifestation of channel stuffing is irrelevant: what matters to the sellside is that upside momentum, at least for a few days, seems to be back in the biggest tech stock and the immediate result is quite predictable - the sellside resumes piling in and selling their axed exposure to clients. In other words, they are coming out with increased price targets on the stock, most notable this morning from Goldman which just hiked its AAPL target from $530 to $560.

In a move that clearly seeks to distance the second largest Swiss bank from potentially "risky" or just not that profitable (read "rich or super rich") accounts, Credit Suisse announced today that it plans to close some clients' accounts as it focuses on high-value customers in some countries and pulls out of others altogether. The development is somewhat ironic: while banks around the world scramble to obtain ultra cheap funding, of which deposits are currently the cheapest alternative, Credit Suisse is saying to people, thanks but no thanks, we don't want your money. Then again, perhaps this is an admirable stance by the bank. It certainly is preferable to CS eagerly accepting every last Swiss Franc only to pull a Cyprus in a few months (indicatively speaking) and "bailing in" said money. It does however pose the question: has CS found an alternative method of funding its assets now that it is actively deleveraging, and if so what, and who is the source?

A few minutes ago headlines hit that as a result of a strong earthquake, buildings shook in Delhi, India. Moments later, the USGS confirmed that a major 7.8 magnitude earthquake with an epicenter 9 miles below the Awaran/Balochistan region in Pakistan had struck, some 43 miles NNE of Awaran, and close to the India border. It is unclear yet if the two quakes were the same although it seems likely. Reuters had this preliminary report: "An strong earthquake struck remote western Pakistan on Tuesday and was felt in the Indian capital of New Delhi where buildings shook. The United States Geological Survey said that a 7.8 magnitude quake struck 145 miles southeast of Dalbandin, in Pakistan's western province of Balochistan."

"As an anecdotal aside it was interesting that Apple yesterday reported above consensus iPhone sales on the first weekend of the new launches. When I upgraded in a phone shop on Friday there was no queue, a load left in stock and a number of extra staff put on who were standing around doing nothing. They said they all arrived early to handle the queues, only to find that their first customer didn't arrive until 30mins after opening. So my experience seemed to be different from the rest of the world as Apple climbed +4.97% yesterday after the impressive sales numbers and also guidance at the top of the range from the company on revenues and gross margins." - Deutsche Bank's Jim Reid

• Iran Icebreaker Set at U.N.  (WSJ)
• Chrysler Feud Triggers IPO Filing  (WSJ)
• JPMorgan Chase, 12 More Banks Said to Be Sued Over Libor (BBG)
• Regulator sues Morgan Stanley, eight others over faulty securities (Reuters)
• Monte Paschi Seen Boosting Cost Goals to Meet EU Demands (BBG)
• Here we go again - "not enough funds": CFTC chair Gary Gensler warns on fund cuts to police derivatives (FT)
• Congress Fuels Private Jails Detaining 34,000 Immigrants (BBG)
• KKR, Sycamore looking to buy Jones Group this week (NYPost) - take with lots of salt
• Fiat rethinks alliance with Chrysler after IPO filing (Reuters)
• Young Invincibles Caught in Crossfire Over Obamacare Cost (BBG)
• Mayfair Office Squeeze Spawns New London Real Estate Hubs (BBG)

Everything was proceeding according to central-plan with a gradual rise in risk and a decline in the USD until 4 am Eastern, when the German IFO Business Climate data was released and missed across the board (107.7 vs Exp. 108.0; Current assessment 111.4 vs Exp. 112.5; Expectations 104.2 Exp.104.0), reminding everyone now that Merkel is cemented for the near future, the immediate prerogative for Europe is to get the EUR lower, one way or another. A returning bid to the dollar also has pushed 10 Year yields under 2.70%, while once again sending various EM currencies sliding, and bringing back cross asset volatility to a world whose Sharpe ratio over the past several months has plummeted into negative territory. Increasing concerns about a government shutdown (misplaced) will likely prevent a solid bid from developing under markets.

This one's for you Mom...