Archive - Jan 29, 2014

What is the difference between GAAP and Non-GAAP Net Income? Only about 109% if you are Facebook.

Don’t you just hate the smuggish guys that sit behind desks and that say ‘I told you so’? There’s probably only one thing you hate more and that’s the racers that are running to predict the end of the world. Doom and gloom. 

Asset-gatherers and talking-heads are in full panic mode. Stocks tumbled ince again today and there was very little "off the lows" talk. The "turmoil" panic in the hearts and minds of every Wall Street strategist palpable as the Fed failed to save us from another down day. Trannies, Russell, and the Dow are down around 5.5% from their highs; the S&P down around 4%; and the Nasdaq around 4.5% from its multi-year highs last week. Today's plunge of over 35 points the S&P futures from the "where are all the sellers, EM is fixed" post-Turkey highs at 1801 is a very sizable outside range day. Of course it was all about the ongoing unwind of levered JPY carry trades as 102 becomes crucial to any bounce in stocks. VIX rose 1.7 vols to 17.5%; credit spreads popped notably wider post FOMC; EM FX turmoiled considerably lower and while the USD was stable (there was plenty of puking in AUD and JPY). Treasury yields tumbled to fresh 10 week lows (10Y -8bps at 2.66% at the lows). Gold and silver rallied post-FOMC and recovered yesterday's monkey-hammering losses.

Some perspective on the two "alternative currencies" - bullion and bitcoin -from the man who has run a hedge fund for 37 years and currently manages $23.3 billion, Elliott's Paul Singer:" If you are looking for an alternative currency, look into gold. It has stood the test of thousands of years as a medium of exchange and a store of value. Better yet, it is not just a computer entry out in the ether somewhere, and it was last seen available at a good price. Bitcoin and its relatives speak to understandable impulses (against big government, in favor of freedom and modernity), but we do not see this particular experiment lasting. At least you have to work really hard to dig gold out of the ground."

When Jon Favreau (no, not the actor) left the White House last year, 33-year-old (high-school football-playing, pirate-costume-wearing, Harvard grad and Ted Kennedy intern) Cody Keenan took over the reins of chief spechwriter for President Obama. As Reuters reports, Keenan's speechwriting career took off after he crafted the impassioned speech that Obama delivered at a memorial service for victims of a 2011 shooting spree in Tucson, Arizona, where former Representative Gabrielle Giffords was seriously injured. A former professor noted "he doesn't take himself too serious," and we suspect, given last night's SOTU, the rest of the world now knows that.

From Citi: From the viewpoint of domestic US economic conditions the Statement is completely anodyne. From the point of view of EM, the Fed has just said "hasta la vista, baby"

We have an old acquaintance named Sam who has a hell of a deal for you.

Sam is actually a pretty famous guy with a big reputation. Unfortunately he has been a bit down and out on his luck lately... but he’s trying to make a comeback. And Sam is prepared to float you a really great investment opportunity.

Here’s the deal he’s offering: you give Sam your hard-earned retirement savings. Sam will invest your funds, and pay you a rate of return.

Natural Gas futures prics are exploding higher... By now everyone is quite aware of the US climatic conditions so whatever squeeze just took place has nothing to do with fundamentals, and everything to do with someone being Amaranth'd. The only question is who, and who is their counterparty (especially if it is a public company).

Emerging Market FX is tumbling post FOMC; IG and HY credit market spreads are knocking wider; Treasury bond yields are plunging (after a knee-jerk higher); and the USD is rising. However, JPY is outpacing the USD move and with its break below 102 critical support, US equities are plumbing new pre-December-Taper lows... S&P futures are now down over 35 points from the morning "EM is fixed; where are all the sellers" highs...

It took Hilsenrath 2 minutes after the FOMC announcement to release the following 729 word analysis of what Bernanke just did. The punchline: "Overall, the Fed changed very little in its statement from the previous month. Neither a disappointing December jobs report nor recent turmoil in emerging markets was enough to diminish their positive outlook for the U.S. economy. The Fed reiterated their view that "risks to the outlook for the economy and the labor market as having become more balanced," language they added to the statement for the first time in December.... The Fed repeated its message that they will likely keep rates at that low level "well past" the unemployment rate reaching 6.5%."

This should be good - President Obama sets out to explain how his new "MyRA" plan is for your own good...

Consensus that the Fed would extend its $10bn taper from December with a further $10 bn taper today (reducing the monthly flow to a 'mere' $65 billion per month - $30bn MBS, $35bn TSY) was spot on. We suspect the view, despite the clear interconnectedness of markets (and flows), of the FOMC is that "it's not our problem, mate" when it comes to EM turmoil.

• *FED TAPERS BOND BUYING TO $65 BLN MONTHLY PACE FROM $75 BLN
• *FED SAYS LABOR MARKET `MIXED,' `SHOWED FURTHER IMPROVEMENT'
• *FED REITERATES LOW RATES UNTIL JOBLESS RATE `WELL PAST' 6.5%

Of course, "communication" was heavy with forward guidance on lower for longer stressed. We'll see if the market buys the dichotomy of hawkish real tapering and dovish promises...remember "tapering is not tightening."

Pre-FOMC: S&P Futs 1775, Gold $1267, 10Y 2.71%, 2Y 35.5bps, USDJPY 102, EM FX 85.67, WTI $97.35, IG 72bps, HY $106.35

The FOMC will probably reduce the pace of its asset purchase program by another $10 billion at its meeting today as it continues to move towards using forward guidance as the primary policy tool. However, as we noted in the case of the Bank of England's Mark Carney, New Fed vice-chair Stan Fischer's skepticism, and even Ben Bernanke, forward guidance is losing its luster (as it works in theory but not in practice). Bloomberg's Joseph Brusuelas warns that given the probable direction of the unemployment rate amid a structurally damaged labor market and disinflation, the Fed faces a dilemma in that the status quo is untenable and may soon be challenged by traders and investors eager to move back toward interest rate and policy normalization. Just as Carney lost his credibility, the Fed risks a lot by reversing its taper today.

The end of sanity...

While the world may be reeling in the aftermath of a horrible week for markets, which following today's largely expected $10 billion additional taper announcement, is only set to get worse (because, oops, the global economy turned out to not be in escape velocity mode as everyone simply confused the artificial level of the S&P 500 with economic output, as usual), one entity is delighted by the recent surge in volatility and market uncertainty: CNBC.