Archive - Oct 2014

We CAN Stop the Ebola Epidemic ... But ONLY If We Understand How It’s Spread

From a 40%-plus year-over-year in late Dec 2013, the Russell 2000 small-caps index has just passed a crucial milestone to trade negative year-over-year. This is the first time since mid-2012 that small-caps have been under-water year-over-year and what saved them then was the promise of QE4EVA...

After ticking just above 110.00, USDJPY has been a one-way street lower and that means only one thing... Japanese stocks are cratering. From Friday's highs, The Nikkei 225 has crashed over 1000 points (despite Abe's promises yet again of more pension reform buying of stocks). Of note, perhaps, is that, Japanese investors bought a net $3.6 billion of foreign stocks last week - the most since January 2009 - perfectly top-ticking global equities... Well played Mrs. Watanabe.

What one can not exclude is that Blackrock, having worked with the ECB for an indefinite period of time, is intimately familiar with the long-term strategy of the biggest jawboning back in the world: Mario Draghi's ECB. Because while Draghi will say anything, as he started two years ago with his infamous "Whatever it takes" speech, his actual policy options are painfully limited. It is in this context that all those betting that public, US-style, QE will inevitably follow the private QE which is set to last at least two years, may want to sit down and read the following note from Reuters, which warns "investors loading up on some of the euro zone's riskiest government bonds on expectations that the European Central Bank will buy them are making a mistake" according to none other than BlackRock's head of European and global bonds said on Wednesday.

Broad European stocks plunged into the red for 2014 today as a rattled Mario Draghi disappointed a hungry-for-more risk market. Bloomberg's BE500 index dropped its most since June 2013 to 2-month lows led by weakness in Italian banks. UK stocks underperformed (-3.6%) but Spain, Italy, and Portugal all tumbled 2-3%. The selling pressure interestingly stayed in stocks as bond spreads rose only modestly and EURUSD roundtripped to only a small rise from pre-ECB. Notably, US equities are cratering as they are so used to the pre-EU-close pump that did not happen.

That is all...

The decline followed reports of one confirmed ebola case in Texas. That case has started to make people nervous; additional reports of Ebola cases could create an environment where the travel and hospitality industries would once again see weaker performance.

It "all depends on Draghi," warned UBS' Art Cashin early this morning... and Draghi disappointed. Historically October 2nd, Cashin notes, usually sees a rebound but payrolls may complicate that pattern (and rumors that ISIS is consolidating west of Baghdad). Stick with the drill, he advises – "stay wary, alert and very, very nimble," as the 120-day moving average (1945 on Cash S&P) is critical...

While the Obama administration is furiously scratching its head how to write off the debt of a few hundred million Americans, so they can once again load up on debt from scratch, spend like drunken sailors, and blow up the system once more, others are already a few steps ahead, such as UK's largest payday lender, the Wonga Group Ltd., which we learn today has written off the debt of 330,000 customers after British regulators introduced tougher rules to "protect consumers" such as Master Elliot Gomme, 20, who admits he lied to get a loan: "the 20-year-old admitted lying on his application and told Newsbeat it was "too easy" to be accepted."

The 2008 crisis was just a warm-up.

UPDATE: TEXAS HEALTH OFFICIALS INCREASE NUMBER OF POSSIBLE CONTACTS OF EBOLA VICTIM TO 100

Despite promises by all asunder that any Ebola epidemic in America will be "contained" the dreadful news this morning appears to confirm this is not the case. From one patient, Eric Duncan, just 2 days ago, to 4 schools and 18 people yesterday (according to Texas Governor Rick Perry) to today where NBC News has confirmed with the Dallas county health and human services that 80 people came into contact with the Dallas Ebola patient or his family (including 12-18 direct). The ambulance workers are also under close watch after Duncan vomited on the ground outside an apartment complex as he was bundled into an ambulance. In addition, CBS is reporting one possible Ebola patient in isolation in Hawaii. Contained? Perhaps it is time to rethink the ethics of disease control once again.

Surprised? Following last month's 10.5% record rise in Factory Orders, August just printed -10.1% MoM - the biggest drop on record. While some give-back was excpected this is notably worse than the expected drop of -9.5% (the biggest miss since January 2014). Worse still durables orders cratered 18.4% (and non-durables dropped 0.4%) MoM and ex-transports dropped 0.1% - the 3rd drop in the last 4 months. So - in summary - last month saw a $56 billion rise and this month saw a $55.8 billion drop - 'economic growth' roundtripped... as inventories rose 0.1% and shipments fell 1%.

• Programmes will last at least two years
• Will enhance transmission of monetary policy, support provision of credit to the euro area economy and, as a result, provide further monetary policy accommodation
• Eurosystem collateral framework is guiding principle for eligibility of assets for purchase
• Asset purchases to start in fourth quarter 2014, starting with covered bonds in second-half of October

Extending current programs (i.e. no imminent Sovereign QE)... may not spend the entire EUR1 trillion on current programs... no rate change... Markets are not happy. EUR is surging, European stocks are dropping, European peripheral bond risk is rising. Treasuries are bid and US equities have dropped to yesterday's lows.