Archive - Oct 7, 2014

You can mess with Greece with only modest repercussions, but, as Bloomberg reports, mess with Libya and trouble comes fast. In a strangely familiar case of deja vu, Libya’s sovereign wealth fund (LIA) sued Goldman Sachs over money-losing investments made in 2008, saying the bank exploited the LIA’s inexperience to sell risky derivatives. An LIA executive cursed at the Goldman bankers that they had "screwed" him and threatened "get out of my country," according to witness statements, adding that "he would come after their families."

It’s not supposed to be like this. We’ve all been told earnings are great, corporate profits are great, analysts estimates have been rising. As a matter of fact, if one dared to question any of these metrics we were referred to as “idiots.” (And that is an actual quote.) Today as we enter this earnings cycle we have a new phrase that I’m sure will enter the lexicon of the lay person in reference to stocks, but will send shivers down actual Wall Street’ers as they have to defend, argue, or give a smoke and mirrors story that will have a chance of being believed. That phrase will be “a trap door event.”

Just a month ago, Goldman Sachs' head progonsticator David Kostin went full bulltard, telling clients to buy high-beta, high-momentum stocks because (paraphrasing) "hedge funds suck" and will need to play catch-up. Today, his tune has changed. The "dash-for-trash" meme has outperformed dramatically in the last few years as Fed experimentation breathed life into the zombie-est weak-balance-sheet companies and traders rode that artificial wave. However,as Kostin notes, tightening financial conditions have the greatest impact on firms with high leverage and weak balance sheets; and thus, with the Fed more biased towards tightening than loosening (and the market discounting that), the "dash-for-trash" is over (as we noted in July).

Just hours after President Obama dined at a $10,000-per-plate fundraiser in Washington, former Obama administration CIA Director and Defense Secretary Leon Panetta lamented with MSNBC's Andrea Mitchell how "there is a feeling that the president has given up on the big issues facing this country." The problem, Panetta explains, is Obama "approaches things like a law professor," when he should be "rolling up his sleeves." With allies like that, who needs ISIS?

Stocks close not "off the lows"

Just hours after the World Health Organization warned "It is quite unavoidable, that [Ebola] incidents will happen in the future because of the extensive travel both from Europe to the affected countries and the other way around," CDC Director Tom Frieden announced that:

U.S. TO ANNOUNCE FURTHER TRAVEL MEASURES VS EBOLA IN DAYS: CDC

This merely confirms all suspicions and our earlier note that 'air traffic is the driver' of global contagion.

The summer rebound is well and truly over, and the latest nail in the short-lived rebound came moments ago when the Fed reported that in August, consumer credit rose by only $13.5 billion: only because it was far below the $20 billion expected and a plunge from the $26 billion surge in July, since revised far lower to $21.6 billion. Worse, revolving credit actually declined in the month by just over $200 million, its first decline since February. But don't worry: while US consumers put their credit cards on ice, they had no problems continuing to borrow like drunken sailor when it comes to car and student loans, which rose to a new record high of $2.366 trillion, an increase of $13.7 billion, which still was the lowest monthly increase since January.

“I’m Not Going To Sit Here And Say That If A Person Who [Has Ebola] Were To Sneeze Or Cough Right In The Face Of Somebody Who Wasn’t Protected, That We Wouldn’t Have A Transmission”

Just over a month ago, business media went manic when none other than David Tepper announced that it was "the beginning of the end of the bond market rally." His word is truth and thus the world bid stocks, offered bonds and all was well in the world of status quo believers for a day or two... but then reality hit again and macro fundamentals, and collateral shortages, and so on... and now Treasury yields have broken below the Tepper-yield lows (with the 30Y -16bps from the 'end' of the bond bubble)... perhaps the hedge fund momentum master should stick to stocks - at least they are risk-free... oh wait.

Confused by the most recent collapse in Emerging Markets, which if it hasn't approached the tumble experienced in the first Taper Tantrum, will do so soon enough? Don't be. The following two charts should put everything in perspective and yes, it has nothing to do with the soaring US Dollar (because said surge will end soon enough once everyone grasps that Fed QE is coming right back) and everything to do with the slowdown in Chinese credit creation.

That these comparisons to January 2009 are suddenly cropping up is unnerving. Stocks are rolling over.

Absent fiscal policy or other "animal spirit"-boosting initiatives, there is very little left for the central bank than to push yields and the currency lower. QE in Europe will be ineffective, but it will happen anyway - it is the only tool the ECB has to protect its mandate.

How it is done in Siberia...

With boots-on-the-ground heading to Liberia to help 'manage' the anarchic dystopia that a frightened nation has become, General David Rodriguez (Commander, US Africa Command) held a briefing today to explain US troops' role:

QUESTION: Will they be in contact with individuals or just specimens? - RODRIGUEZ: They come in contact with the individuals.

Of course this was followed by a stream of qualifiers that all protection possible will be taken (just like the nurses in Madrid?)

Moments before today's first of the week auction of $27 billion in 3 Year paper concluded, the yield on the 30 Year was sliding, breaching the lows of 2014. Which obviously led most to suspect that demand for the 3 Year would be blistery. And sure enough, it was, with the yield on the paper pricing a whopping 0.9 bps through the 1.003% When Issued at 0.994%, and printing under 1% once again, after surpassing 1% in September which was also the highest yield since May 2011. The internals were very strong as well, with the Bid to Cover of 3.423 jumping from September's 3.171, the highest since February's 3.450. Indirects took down 35.5% of the auction despite China's holiday, which left 47% for dealers and 17.4% for Directs, just modestly below the 18.8% TTM average.