Archive - Sep 2013

We just can't wait to hear about the different colors, the camera, the screen size, the cheapness, and everything else that has been rumored to make this Apple announcement as un-evolutionary as many of the previous ones. Of course, there could be 'just one more thing', but we suspect not... (and it seems the market agrees with 'sell the news' for now).

Spot the outlier...

"Traditional risk controls and safeguards - that relied on human judgment and speeds - must be reevaluated in light of new markrt structures," are the initial findings from the CFTC regarding the prevalance of high-frequency trading in futures markets. As USA Today reports, efforts to reduce trading order-processing times could "lead to a competitive race to the bottom" where positions outpace risk systems and potentially lead to systemic threats. All the signals are that the top US financial regulator may impose new restrictions to halt breakdowns and to avoid high-speed trading which "could provide opportunities for information advantage." Of course, we've heard this before and with trading volumes at 15-year lows, we suspect the 'industry' will be lobbying hard; but this is a positive step (only 3 years after the CFTC started to look at HFT).

Incredibly, the question being asked this past weekend throughout the US media had been: will Americans’ representatives in Congress vote to support the president’s wish to punish Bashar al-Assad (Syria, really!), or will their votes follow their constituents’ wishes at home against armed intervention?  Asking this question seems embarrassingly obscene, to both morality and democracy, and most of us cringe at the thought of these pusillanimous representatives and senators we have in Congress making such a decision. Now a diplomatic solution is floating in the air which may be Russia’s greatest gift to both Obama – one of saving face – and the United States – an unquestionable saving of blood and treasure.  Yes, let’s get Syria’s chemical weapons under international control... to hell with McCain and the demonic hawkish streak of politicians we harbor in the United States of America.  Thank you, Russia… we love you back!

1453ET: EMERGENCY U.N. SECURITY COUNCIL MEETING ON SYRIA CANCELED AFTER RUSSIA WITHDRAWS REQUEST - COUNCIL PRESIDENT

1440ET: Kerry says any Syria weapons deal must be struck in bind UN Security Council resolution (Which Russia now opposes)

From the need to teach Syria (and all global chemical weapons using despots) a lesson they won't forget to losing 'allies' to bluffing Russia to deal-or-no-deal, strike request or no strike request, the bluster from the US administration has now devolved into total chaos. As the following headlines from the last week attest to - it seems no one knows what is really occurring. So do we want the ability to strike but but not use it? We have to strike to teach them a lesson but a political solution is preferable? We would like congressional approval but don't need it. Everything has changed and yet nothing has changed?

One reason why the US has been able to extend its true "drop dead" cash exhaustion date has been due to an increase in tax revenues due to the payroll tax cut as well as cash inflows from the GSEs (which are set to reverse and become outflows once the latest housing dead cat bounce reverses), and cash remittances from the Fed. However, the capacity under this extended "revolver" is rapidly running out, and as of August 31, 2013, approximately $108 billion in extraordinary measures remained available for use. In a report released today, the Bipartisan Policy Center has released another analysis of just when the US will hit the "X Date" or the date on which the Treasury will not have sufficient cash to pay all of its bills in full and on time. Should there be still no deal on the debt ceiling by this date, the Treasury will be forced to prioritize payments to avoid a debt default. According to this estimate, the X Date falls anywhere between November 5 to as recently as October 18, or just over a month from now (and there has been zero real discussion in Congress over the debt ceiling hike with all the excitement over Syria).

It seems the rhetoric has not backed off one little bit... as John Kerry exclaims: "...our inaction is guaranteed to bring worse circumstances...the permissiveness of not acting now will give Assad free will to act again"

*KERRY SAYS 'WHAT ASSAD HAS DONE DIRECTLY EFFECTS' U.S. SECURITY
*KERRY SAYS OBAMA'S FIRST PRIORITY IS DIPLOMACY ON SYRIA
*KERRY SAYS 'WE NEED YOU, THE CONGRESS' TO SEND MESSAGE TO SYRIA

The fear-mongery is strong with this one...

Grab your popcorn...

While Spain brims with hope, amid dismal real data, as we noted earlier, Italy - despite its PMI 'proving' things are great - just missed its GDP growth expectations for the 9th of the last 10 quarters. Add in a prinkling of Berlusconi bafflement and 'the oldest bank in the world' about to be nationalized and the risks in Italian government bonds have pushed yields above their European neighbor for the first time in 18 months. The last time this huge debt-loaded nation's risk topped Spain's was in the run up to the peak in the European crisis in Q4 2011. But, of course, we have OMT now which will save us all...

#Assad: Once Western countries stop supporting terrorists&pressure puppets like Saudi Arabia&Turkey, problem in Syria will be solved easily.

— Syrian Presidency (@Presidency_Sy) September 10, 2013

A COMEX default on delivery of precious metals and specifically of gold bullion bars remains a risk. It is of significant importance and that is why we have covered its possibility since 2011. A COMEX default would have serious ramifications not just for precious metals markets but for the wider commodity markets, for the U.S. dollar and all fiat currencies and our modern  monetary system.

No, that is not a typo, at least not according to the blog of traffic counting website Compete.com, which notes that with 7.1 million unique visitors, the website of the newspaper that broke the Edward Snowden scandal and has been covering the NSA's spying scandal has seen an unprecedented increase in traffic. Granted the Y/Y number is an aberation due to the switchover from Guardian.co.uk to an impartial dot com address, but either way, as Compete notes, just "Guardian.co.uk over the recent months also shows that the news outlet had their best month for unique visitors (UVs) in two years."

The last 2 days market reaction has been one of war-premium reversion for all asset classes. Oil has tumbled back this mnorning to around $106.50 (its pre-Kerry level) also in line with the USD which has fallen back to unchanged from that initial warmongery. European stocks remain the big winner - up 3.5% since Kerry started but today's rise in stocks lifts the S&P to +1.5% from 6/27 (so no war and we don't care about Taper). It seems, however, that the safe-havens are having the war premium sucked out and reality of a SepTaper pricing back in. 10Y Treasury yields are back above 2.96% (with 30Y bonds -2% in price from Kerry) and Gold and Silver are tumbling (-3.5% and 5.9% respectively from Kerry's initial ravings). Now, should we worry about crossing 3.00% again (and the surging cost of capital that will crimp consumer spending and corporate buyback abilities)? Or does that not matter now that war is off the table for 10 minutes?

The talking-heads remain stuck in repeat mode over European PMIs and how that means the hot-money should be buying peripheral stocks with both hands and feet; but as we discussed in detail here, relying the "rough" survey-based PMI data as an indicator of future economic strength is a mistake. With transmission mechanisms gummed up, hope is not enabled to translate into activity and overnight we got confirmation of that sad new reality from Italy (which saw its GDP miss expectations, shrinking by more than expected), and France (which saw Industrial Production miss expectations topping the worst 3 month slide in 10 months). It seems once again that faith does not triumph over reality and Europe is indeed stuck in the quagmire that unemployment rates, loan delinquencies, and credit creation would suggest. Of course, we are sure we'll be told to wait just another quarter for the hope to filter into reality... just keep waiting, and hoping.

In what has become an unspoken tradition for the Dow Jones, which maintains its upward bias by kicking out underperformers and replacing them with the investor darlings du jour, we just learned that as part of its next three-for-three rebalancing, the first since 2004, the DJIA will kick out such recent losers as Alcoa, Hewlett Packard and Bank of America, and will be replaced with Goldman, Nike and Visa:

• ALCOA, BANK OF AMERICA, HEWLETT-PACKARD TO LEAVE DJIA
• GOLDMAN SACHS, VISA, NIKE TO JOIN DJ INDUSTRIAL AVERAGE
• CHANGES WERE PROMPTED BY THE LOW STOCK PRICE OF THE THREE COMPANIES SLATED FOR REMOVAL

What, no inclusion of Apple, Tesla or Netflix? Also, for those keeping track, there are now 10 "industrials" in the 30 company index that make, well, nothing. And how soon until the entire DJIA becomes one daily rebalanced ETF, which has as constituents only stocks that have traded up 5% or higher on the prior trading day?