Archive - Sep 2013

So much for the revised US plans, now revealed to have been about overthrowing Assad all along, to be derailed by the Syrian attempt to appease the aggressor.

• REID SAYS SENATE WILL HOLD PROCEDURAL VOTE ON SYRIA WEDNESDAY

More importantly, DE Shaw's headline algo now appears to have been finally recalibrated to respond to "moar woar" flashing red headlines as bullish for confidence, represented as always in the New Normal, by the S&P as stocks just hit new intraday highs on the news.

There is a wall of support for the $VIX between a value of 12 and 13.  This is where selling in equities has taken place in 2013.

Today's equity market exuberance is being pitched as due to to Asian strength... We hate to burst that bubble but... The Nikkei 225 actually fell after GDP was released; JGBs rallied (well that doesn't fit with the meme of Japanese growth); Japanese GDP missed expectations (oops); Japanese trade balance was the 3rd worst on record; Chinese imports missed expectations (as copper demand fell since liquidity has eased and less need for cash-for-copper deals). So what is the catalyst for today's S&P 500 rally... behold the EURJPY cross rate...

While Carl Icahn admits 'modest' defeat on the Dell deal, he remains neck deep in Herbalife, and as we illustrated back in February, and warned earlier in January, it seems someone is betting right alongside him on a massive short-squeeze - a la Volkswagen. It would appear, someone decided that today was the day to buy 1000 lots (100,000 shares) of Jan 2014 $105 calls (implying an expectation of a 65% surge in price from here) and funded that by selling 1000 lots of the Jan 2014 $95 calls. Whether this is a hedge for Ackman (fearing the worst) or someone betting on an 'event' across the one-year anniversary of Ackman's big bet is unclear. One thing is for sure, if this pays off, we will see more tweets from the man himself...

Instead of bitching about the man, educate yourself on how the NSA does what it does. It's biggest weapon, the ignorance of the mass media consuming tech enduser.

Rice: "Our overarching goal is to end the underlying conflict through a negotiated, political transition in which Assad leaves power" #Syria

— White House Live (@WHLive) September 9, 2013

Today we got yet another indication that the smartest money was not lying when it said to "sell now" and is eyeing the rapidly shutting window on public equity investment exits, when news broke that TPG and Warburg Pincus, the firms who LBOed Neiman Marcus in October 2005, have decided to pull the luxury retailer's IPO filed in June, and instead will sell the company in yet another LBO, this time to Ares and the Canadian Pension Plan Investment Board. This is a hit to Neiman's proposed valuation: according to JBN it had been reported that the equity funds could price, or rather thought they could price, the retailer at $8 billion. Instead they will opt for a cash check of $6 billion, or a solid 25% reduction in expected return. Still don't cry for the PE giants: as the back of the envelope analysis below shows, net of the sponsor equity investment of $1.2 billion, and adding the $435 million dividend from March 2012, assuming the return to sponsors is $3.4 billion ($6 billion price less $2.6 billion in net debt), the generated XIRR over the 8 years holding is a decent 15.6% XIRR.

The number 10. From time immemorial it has been a fascination for people around the world, in every culture and in every civilization.

The USD is getting pummeled once again today. Along with Friday's drop, this is the biggest plunge in the greenback in 2 months. This is not an exodus to JPY (for once JPY is very stable) but appears to be very much a European issue as EUR, SEK, and CHF are all surging against the USD. Treasuries are bid once again (with 5Y 16bps lower in yield from Friday's highs) and stocks are bid on negligible volume. The S&P just regained the mythical 50DMA (and the Dow 15,000) leaving stocks with the best 7-day run in 2 months (sure why not?).

Concerns about inflation and weakening currencies are leading the Chinese middle classes and wealthy to again use gold jewellery, coins and bars as a hedge and store of value.

Store of wealth buyers in China today were paying a $18 per ounce premium or 1.3% premium over COMEX gold (see table below). In recent weeks they have been willing to pay as much $30 per ounce extra for gold. 

The Chinese people are concerned that the same massive inflation that is affecting India, Indonesia, Brazil and other emerging markets may eventually reach China. 

"I state that the Syrian Arab Republic welcomes the Russian initiative, motivated by the Syrian leadership's concern for the lives of our citizens and the security of our country, and also motivated by our confidence in the wisdom of the Russian leadership, which is attempting to prevent American aggression against our people"- Syrian Foreign Minister Walid al-Moualem

The 2013 German federal elections may bring about pretty complicated results. With Merkel's junior coalition partner's (FDP) support dropping below the mandated 5% to enter parliament (according to polls), as Deutsche Bank notes, there is no point in working through the numerous possible coalition scenarios and options. In that case, the task of governing Germany and providing joint leadership in European affairs will become much more complicated than it used to be in normal times of a clear-cut victory for one camp. All inter-camp coalitions may well have a built-in tendency towards paralysis and require special political tricks that allow the partners to show their true colors in clearly circumscribed policy issues while not rocking the boat. A few years from now, September 22, 2013, might be remembered as the day when German politics finally became normally complicated, as in other countries, too. There are two major political narratives that appear dominant currently.

San Francisco Fed head John Williams - known for his extremely dovish views on monetary policy (and support of record accomodation)  - appears to have taken some uncomfortable truth serum this morning. In a speech reminiscent of previous "froth" discussions and "irrational exuberance" admissions, Williams explained:

• *WILLIAMS SAYS POLICY MAY YIELD ASSET BUBBLES, UNINTENDED RESULT
• *WILLIAMS: ASSET-PRICE BUBBLES AND CRASHES 'ARE HERE TO STAY'
• *WILLIAMS: ASSET-PRICE BUBBLES ARE 'CONSEQUENCE OF HUMAN NATURE'

His words appear to reflect heavily on the Fed's Advisory Letter (from the banks) from 3 months ago - warning of exactly this "unintended consequence." This, on the heels of Plosser's recent admission that the Fed was responsible for the last housing bubble, suggests with the black-out period before September's FOMC about to begin, the Fed is sending us a message that Taper is coming - as we know they are cornered for four reasons (sentiment, deficits, technicals, and international resentment).

It's difficult to have a meaningful national debate about economic policy when "headline numbers" are juiced to make things appear rosier than reality. Since unemployment statistics are either suspect or blatantly bogus, we must look for other less manipulated statistics for some modicum of truth. Key statistics of employment, income and production are vital propaganda tools for the status quo, and the temptation to adjust them to manage perceptions is apparently irresistible. The con being played here is the assumption that more jobs means more wages which means things are getting better and better in every way, every day. If payroll withholding taxes are declining, and wages/salaries are flatlined, things are not getting better and better in terms of earned income flowing into household bank accounts, purses and wallets.

I guess this means we can quote him on it...