Archive - Oct 2014

Is the "Conventional Wisdom" All Wrong?

It appears wherever one looks in the markets there are the skidmarks of PIMCO adjusting to life after Bill Gross. First it was MBS (and related derivatives), then CDS indices adjusted as redemption expectations raised risk premia, and now it is the short-end of the Treasury curve. As The FT notes, 3-month Eurodollar futures (instruments enabling traders to bet on the front-end of the yield curve and thus more accurately pinpoint their bets on Fed actions) saw asset managers (cough PIMCO cough) liquidate a record 868,853 contracts in the week to September 30 – the largest one-week change on record (each contract has a notional value of $1m). This dramatic shift suggests both a disagreement with Gross' "new normal" view of rates lower for longer (since liquidation is concentrated around the 2-year maturities) and a need to meet liquidity requirements from redemption requests.

By now it should be clear to everyone that any myth that the Ebola epidemic, which has clearly gone global, is contained is about as real as the S&P 500 at 2000. And if it isn't, the latest confirmation came moments ago from BBC which reports that a Spanish nurse who treated an Ebola victim in Madrid has contracted the virus herself in the first case of contagion outside Africa, health officials say.  What is different about this case is that the nurse contracted the virus in Madrid while she was part of the team that treated Spanish priest Manuel Garcia Viejo, who died of Ebola on 25 September, despite being treated with the same drug regiment that previous is said to have worked on US Ebola patients.  

large explosion took place near a suspected nuclear site in Iran has reportedly killed two people and according to the Washington Free Beacon, prompted speculation of sabotage at a military site long suspected of housing Tehran’s clandestine nuclear activities, according to Iran’s Defense Industries Organization (DIO), which operates under the country’s Ministry of Defense. The Free Beacon, citing Fars New Agency, reports that one explosion rocked a production plant late Sunday night in east Tehran, near the Parchin nuclear site.  The explosion at a facility referred to as a “production plant” caused a fire that killed two workers, according to Fars, which cited information provided by Iran’s DIO. Fars first reported news of the explosion, claiming that it took place at an “explosive material factory” near Parchin. According to Iran opposition sources, the blast killed at least four military personnel.

That's right, Obola Strategy...

Who can feel confident about the tending of things just now? The diminishing returns of the Information Age are about to bite our collective asses. The sum of all that digital magic is a nation completely incapable of telling itself the truth or acting honorably. Unemployment is down without employment being up. Candy Crush is making the world safe for democracy. We have the finest health care system in the world. ISIS is trying to compete with our homegrown videogame industry for supremacy in porno-violence (actually, I thought we already won that) but now we will obliterate all the bad guys in the world by remote control from the drone bunkers of Las Vegas, and that will show them. Thank goodness the long holiday season is almost upon us to juice the so-called economy ever-higher. There has never been a crazier moment in history.

Bitcoin is so last year.  The price of it in dollars made a new low for the year today.  Is the dollar's future as bleak as it looked?

As Martin Armstrong exclaims, Obama is out of control. According to NewZimbabwe.com, Washington has said it will accelerate sanctions imposed against Harare in 2003, due to the Robert Mugabe-led government's closer ties with Russia over the US$3 billion Darwendale platinum project. Herald columnist Nathaniel Manheru (who is thought to be Mugabe's spokesman), reported, Washington explained its expectations on Zimbabwe, namely that Zimbabwe was expected (read required) to support those sanctions by avoiding any association with companies sanctioned by the Americans and their Western allies, or their subsidiaries or affiliates. Manheru said "it was ridiculous for the US to refuse to lift sanctions against Harare and then demand support for its measures against Moscow... This is where I am tempted to tell the American government to go and hang, hang on a banana tree, bums up."

August 26th: "Talk about growth... hey have the sapphire product that is going to go in the iPhone 6 launch... this is the stock I have been recommending!" - $18.88

October 4th: Chapter 11 - $0.97

Having lost billions of dollars for quarter after quarter, The US Postal Service has a cunning plan to cut costs - end door-to-door postal delivery. More than 30 million American homes get door-to-door delivery and another 50 million get their mail dropped at their curbside mailboxes, but as Reuters reports, with the 'entity' buckling under massive financial losses, it sees savings in centralized mail delivery. This is good news for the customer though - apparently - as Postal Service spokeswoman Sue Brennan explains "converting delivery away from door delivery to either curb line or centralized delivery would enable the Postal Service to provide service to more customers in less time."

Venezuela's economic crisis has led to some shocking and surreal price distortions that hit people's buying power dramatically. While the government of President Nicolas Maduro calls the country's minimum wage of Bs. 4,252 the highest in the region when converted to $675 using the official exchange rate, the galloping black market for currency considers it as just $42.50 when converted at the street rate of Bs. 100 per US dollar, the rate which many importers and retail outlets must use to acquire hard currency. From Coke to crayons and carrots and from Tires to TVs, Venezuelan prices offer a glimpse of a modern-day hyperinflation.

The world-renowned newsletter-writer is at it again: "Prices are headed higher and we’ve no choice but to reduce our exposure on the short side via derivatives that shall therefore increase our long exposure... One may wish to join the bearish camp, but one would be wrong."

The algos are loose as GTAT is halted 5 6 7 8   9 times post-Chapter 11 (5 up, 4 Down)... this is how price discovery occurs in a massively overvalued company, with no cash flows, and a record short interest...

• The total balance of auto loans outstanding in August is $924.2 billion, an all-time high and an increase of 10.8% from same time a year ago
• The total number of auto loans outstanding stands at more than 65 million, a record high and an increase of more than 6% from the same time last year;
• The total number of new loans originated year-to-date through June for subprime borrowers, defined as consumers with Equifax Risk Scores of 640 or lower, is 3.9 million, representing 31.2% of all auto loans originated this year.
• Similarly, the total balance of newly originated subprime auto loans is $70.7 billion, an eight-year high and representing 27.8% of the total balance of new auto loans

It's so difficult to spot nowadays...