Archive - Oct 20, 2014

yes, I know it feels soooo good. Hint: China is the dealer

If only stock indices only included stocks that were green... IBM's 80-point weight on the Dow disappointed some but that was no problem for the index-pushers who needed the S&P 500 to tap its 200DMA. The only thing that mattered to stocks today was EURJPY... and that managed to get the S&P 500 'almost' to its 200DMA (but noit quite) and ensure a green close for the Dow. The USDollar slipped lower all day (-0.4%) led by EUR and GBP strength. Gold ($1245) and silver gained on the day but even with a weak USD, oil and copper dropped (with oil very volatile). US Treasury yields drifted lower by 1-2bps (thin trading) decoupling from the post-European close exuberance in stocks. HY credit decoupled from stocks initially (post-Europe) but as stocks ramped so did spreads and VIX continues to run ahead of stocks (under 19 today) as it appears hedges are being lifted. Of course, AAPL was a big help, up over 2% pushing back towards its magical $100 ahead of this evening's results. S&P futures volume was dismally low.

Based on quarterly 13F filings and estimated short positions of the equity holdings of 909 funds, BofAML calculates that hedge funds raised net exposure to a new record high of $683bn at the beginning of 3Q 2014, while reducing cash holdings to a record low of 3.5%. Gross exposure rose to 190%, or 207% if ETF positioning is considered, which is back to the 2007 peak... In other words, hedge funds have never been more bullishly positioned (just as large speculators had never been so bearishly positioned into last week's bond-short capitulation).

The problem for a city like Houston (or many others like it), with deep ties to the production and oil, is a "shock" from a supply/demand reversion could bring the economic "boom" quickly to an end. We are certainly not saying that the "wheels are about to come off of the cart." However, we do suggest that there is a potential for a very negative shock in the energy space given the extreme complacency that current exists. History suggests that true "miracles" are few and far between as most tend to just "illusions of hope."

Yesterday, Obama made a rare campaign trail appearance in Maryland where he spoke in support of Democratic candidate for governor, Anthony Brown, proceeded with his usual bulletin of reading fabricated economic data off the teleprompter in which he highlighted improvements in US unemployment (if not the 46.5 million people on foodstamps or the 93 million Americans out of the labor force), a rebounding housing market (just as the bouncing dead cat is once again dead), the benefits of health insurance (if no mention of the disaster for small businesses that Obamacare now definitively is) a resurgent manufacturing sector (just don't look at this chart) even if he did point out the unfairness of families having "two folks working", and... a mass audience exodus followed.

Squeezed between steering wheel, handbrake, door and dashboard, Katerina reads in her history book, takes notes for school. Next to her, on the driver’s seat, cat Eddy stares right in the camera lens. It may look like a cute snapshot on a sunny day, if it wasn’t for a sad detail: a withering spring stuck in a roll of toilet paper.  A distinctive memory of a former normal life that turned into a grim reality for a family of four.

"Did a few loose strands of Ebola seep into the organs and tissues of global finance last week? The US equity markets sure enough puked, the Nikkei bled out through its eyeballs, all the collagen melted out of Greek bonds, and treasuries bloated up grotesquely on a putrid stream of terrified “liquidity” that led two Federal Reserve proctologists to maunder about the possibility of a QE-4 laxative, out of which, in due time, will surely gush explosive bloody fluxes of deeper financial sickness."

"I’ll be honest: These speeches get more and more enjoyable as time goes by because the economic outlook keeps getting better and better. Instead of gloom and doom with a scattering of hopeful notes, things are now pretty upbeat, with only a couple of standard economist’s caveats thrown in....  So the message is that things are getting better. We’re on track to end our asset purchases and we’re preparing for the time the economy can sustain an end to accommodation. We’ll want to see improvements in unemployment, wages, and inflation, and we’ll be driven by the data. But all in all, it’s good news—with just a few of those requisite caveats thrown in."

This is the net result of commoditization: there's no premium for commoditized capital, labor, goods, services or content.

Umm... No!

Sadly for China's social instability, Chinese growth is going not only to 3.9% but much, much lower. The reason? Quietly, over the past 5 years, China raked up an epic debt load, which by 2015 is expected to hit a whopping 252% of GDP, or a 100% of GDP increase in debt, just to keep its growth dynamo running. A dynamo which has now fizzled, as can be seen best in the Chinese housing bubble which as we have reported previously, has now burst, and China is desperate to keep imminent hard landing, as controlled as possible. Here is Exhibit A...

For the first time in the 600-year history of Michelangelo's masterpiece, Pope Francis has decided to rent out the Sistine Chapel for an $8000-per-head Porsche Travel Club concert. What makes this unprecedented action even more 'interesting' is the fact that The Vatican - in all its omnipotent wisdom - also made an announcement that it will be limiting the number of vistors (read 'common folk') allowed inside the chapel and as IBTimes reports, demanding vistors must be silent and cannot take photographs. So much for Pope Francis' "poor Church of the poor."

Janet Yellen is a career academic. This is not necessarily a bad thing. However, unlike most career academics, Janet Yellen is in charge of the US economy. In this light, one has to ask aloud, “why would you put someone with absolutely zero experience in creating jobs, growing a business, lending money, hiring, firing, etc. in

"...the underlying cause of a crash will be found in the preceding months or years, in the progressively increasing build-up of market cooperativity, or effective interactions between investors, often translating into accelerating ascent of the market price (the bubble). According to this ‘critical’ point of view, the specific manner by which prices collapsed is not the most important problem: a crash occurs because the market has entered an unstable phase and any small disturbance or process may have triggered the instability."