Archive - Sep 2013

Despite the late-day shenanigans that usually occur on a Friday (especially in light of the end-of-month proximity), the S&P closed red with its worst 6 day run in 5 weeks. The Nasdaq and the Russell managed to cling to unchanged as the Dow, Trannies, and S&P slid 1.3% or so on the week. Treasury yields fell for the 3rd week in a row with 5Y yields plunging 36% in that time - the biggest drop in 25 months. The USD fell 0.2% on the week with GBP and JPY strength the biggest drags. Silver and Copper ended unch after a very volatile week, gold the winner +1% and WTI -2% on the week. VIX was well bid, up 1.5 vols as the term structure cracked to the flattest in 4 months... and JCP is 'Breaking Bad'.

3:30 pm on a Friday, check. 4 days away before a possible government shutdown, check. Epic disagreement in the House over everything and anything, check. A president who can read but not really lead, check ("to you, Mr. Yellen"). So what comes next? The president takes the teleprompted podium, of course, and is about to do what he does best: blame the republicans. The only unknown: will the "middle class" people on the podium behind Obama be representative of the (non) deadbeat class whose credit cards have been cut off too?

In a world in which everyone has become an ultra-short term pathological gambler, and every outcome is a zero-sum prop bet, it was only a matter of time before someone tried to quantify the probability of the event that the market (for some inexplicable reason) is so transfixed on: the government shutdown (inexplicable, because anything more than a few day shutdown risks a full blown mutiny by the tens of millions of government workers). So without further ado, here is Nomura, with its "estimate" of a government shutdown on October 1: 40%.

As the state borrows trillions of dollars to support its Aristocracy and dependents, its debt skyrockets. The political Aristocracy expects the tax donkeys will carry a heavier burden without revolting, and the 60% "tyranny of the majority" who pay little but collect enough to get by will be wary of risking their benefits by resisting the existing political-financial kleptocracy. In terms of democracy, the tax donkeys are trapped; they can't match the tens of millions in political contributions of the top .5%, and the 60% below them will support the status quo out of fear that the alternative could be even worse. Politically, the system is unbreakable. Financially, it is unsustainable.

The perfect analogy.

.QE....

They say "money can't buy happiness" (though it will pay for the search) and it seems despite all their billions, Tesla's Elon Musk and Amazon's Jeff Bezos just can't find a happy middle ground over the control of a historic launch pad at Kennedy Space Center. According to Bloomberg, SpaceX (Musk), and Blue Origin (Bezos) intend to ramp up their launch schedules and "there are a limited number of East Coast established launch sites." Of course, in the new normal we live in, both sides have taken the higher ground and are trying to get Congress' attention, "it doesn’t matter if you’re making buggy whips or rockets, the way to get Congress’ attention is to hire a lobbyist," and sure enough the letters are flying. And after all: what billionaire can be truly satisfied unless they own a rocket launch pad?

Free Market Libertarians and Progressives Agree that If All of the Poker Chips Are Concentrated In One Hand ... The Game Stops

While it is not entirely accurate to blame the ignominious downfall of RIMM BlackBerry on current CEO Thorsten Heins, who only took over from Co-CEOs Mike Lazaridis and Jim Balsille in early 2012 at a time when the company's decline into irrelevance was already in progress, it is safe to say that the amount of stockholder value destruction under Heins' watch has been unprecedented. As such, one would imagine that the compensation for Heins is "equitable" to his value created for the company and its shareholders, i.e. zero. One would be wrong: as it turns out, and as Reuters reports, in the case of an "exit" event, such as the (faux) $4.7 billion LBO by FairFax Holdings at a price that is just shy of it decade (and longer) lows Heins will profit handsomely, and certainly make far more money than anyone who was long BBRY under his watch. Because the golden parachute that awaits the German, is valued at a whopping $55 million: an amount he will pocket no matter how said exit is achieved, and at what price (or rather cost) to shareholders.

Cheers...

Update: Senate Achieves 60 Votes to Advance Stop-Gap Spending Measure

The vote in the Senate to pass a stopgap spending bill/continuing resolution that strips out the Obamacare defunding provision has begun. It will promptly pass and be sent back to the House where the confused wrangling (see "Plan C") among the GOP will resume. Watch it live.

Fingers of Instability

"They’re at it again! US inequality is surging and the Fed has created another house price boom. Does this matter? Well I think so. But who cares what I think. Warren Buffet, Bill Gross and Stanley Druckenmiller think it matters. Clients marvel at how the US profits’ share of GDP remains so high and that labour remains so weak. Marc Faber said recently that in postponing the QE taper, we have merely climbed to a higher diving board. I go further. I see growing inequality draining the swimming pool dry. The crunch, when it comes, will be ugly"...  Investors should make no mistake. The anger of the 99% will ultimately not be bought off by yet another central bank inspired housing bubble, engineered to pacify them and divert their attention as their real incomes fall and inequality continues to grow." - Albert Edwards

European stocks fell for the first week in the last four with financials leading the way (though only down 1% on the week). There was considerable dispersion among the individual nations though with Greece up 4.75% (of course, why not, as Merkel's victory sunk in), Italy down 1.3% and Spain up 0.77%. But in bond land the picture was very different with Spanish and Italian bond risk surging. Italy's 29bps spike pushes the spread to 2 month highs and Spanish risk jumped 23bps on the week. Europe's VIX ended unchanged but saw some of the strangest trading we have ever seen.