Archive - Dec 8, 2014

As the just concluded Q3 earnings seasons confirms, what went down, promptly soared right back up, with stock repurchases in Q3 surging by 30% following the 30% drop in Q2, and nearly offsetting all the lost "corporate wealth creation" in the second quarter, with the total amount of stock repurchases by S&P 500 companies jumping from $112 billion to $145 billion, just shy of the Q1 record, and the second highest single quarter repurhcase tally going back to 2007, and before.

"There is virtually no 'bullish' argument that will currently withstand real scrutiny. Yield analysis is flawed because of the artificial interest rate suppression. It is the same for equity risk premium analysis. Valuations are not cheap, and rising interest rates will slow economic growth. However, because optimistic analysis supports our underlying psychological 'greed,' all real scrutiny to the contrary tends to be dismissed. Unfortunately, it is this 'willful blindness' that eventually leads to a dislocation in the markets."

In a particularly vicious alleged chemical attack, thousands of MidWest FurFest "Furries" - the term for people who dress up in expensive animal costumes and role-play (sometimes sexually) as anthropomorphic critters - were evacuated when chlorine gas was released in the Chicago Hyatt hotel in which they were nesting. As AP reports, authorities are investigating the release of a gas that sent 19 "people dressed like dogs and foxes," as a criminal matter - as someone apparently intentionally left chlorine powder in a ninth-floor hotel stairway, causing the gas to spread. Does give one paws for thought though, eh?

Both short-term and long-term, the large liquid US stock market indices have become massively decoupled from the bond and credit markets. Since the former is supposed to discount a combination of the latter (macro growth/de-growth from bonds and micro business-risk/cash-flow-sustainability from credit), one has to wonder which reality will come to pass...

Not long ago, we wrote Ten Reasons Why High Oil Prices are a Problem. If high oil prices can be a problem, how can low oil prices also be a problem? In particular, how can the steep drop in oil prices we have recently been experiencing also be a problem? In our view, a rapid drop in oil prices is likely a symptom that we are approaching a debt-related collapse. Underlying this debt-related collapse is the fact that we seem to be reaching the limits of a finite world. There is a growing mismatch between what workers in oil importing countries can afford, and the rising real costs of extraction, including associated governmental costs. This has been covered up to date by rising debt, but at some point, it will not be possible to keep increasing the debt sufficiently. At some point the debt situation will eventually reach a breaking point.

Stocks were modestly weak overnight amid poor Japanese, Chinese, and European data, but as soon as the US cash markets opened, stocks surged higher algorithmically testing up to unchanged briefly for the S&P 500 and squeezing small-cap shorts (as usual).. until Europe closed. Stock started to lose steam but once Nasdaq and Russell broke red, programs slammed stocks lower and despite a late-day bounce, stocks gave up all the gains from Friday's "awesome jobs data" and then some with Trannies and Small Caps worst. Momo names all suffered - most notably TWTR & TSLA. VIX broke above 14.5 briefly, closing up 2.4 at 14.2. Treasury yields plunged 5-7bps at the long-end (1-2bps at the short-end) flattening significantly. Credit markets were clubbed - with HYG taking the brunt and ending at Bullard lows. Gold and silver gained solidly (as USD slipped 0.3% led by JPY strength) as copper fell 0.5% and oil price crashed again. Markets turmoiled notably into the oil pit close (margin calls) and stabilized modestly after... but the S&P 500 still closed below its 5DMA.

As investors we are all trapped within a horrifying bubble. We must play the hand we’ve been dealt, however bad it is. But there are now growing signs of end-of-bubble instability. The system does not appear remotely sound. You can be for gold, or you can be for paper, but you cannot possibly be for both. It may soon be time to take a stand. Beware appearances in an unhinged financial system, because they can be dangerously deceptive.

"Fed talk is losing its luster. Data is irrelevant unless it’s extremely weak or extremely strong,” says Todd Colvin, senior vice president at Ambrosino Brothers, a futures and options execution firm. "This is the year the Fed is going to lose credibility when it gets to March or June and they announce why they’re not moving."

"It is, of course, possible to draw comfort from recent events. Those who do so stress the speed of the rebound. At the same time, a more sobering interpretation is also possible. To my mind, these events underline the fragility - dare I say growing fragility? - hidden beneath the markets' buoyancy. Small pieces of news can generate outsize effects. This, in turn, can amplify mood swings. And it would be imprudent to ignore that markets did not fully stabilise by themselves. Once again, on the heels of the turbulence, major central banks made soothing statements, suggesting that they might delay normalisation in light of evolving macroeconomic conditions. Recent events, if anything, have highlighted once more the degree to which markets are relying on central banks: the markets' buoyancy hinges on central banks' every word and deed." BIS

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Things just went a little bit turbo in the world financial markets.

• Germans can’t get their gold reserves. Do how did the Dutch get their 122 tonnes of gold?

• Is Germany being prevented from holding gold to prevent independent foreign policy action?

Lower oil prices have killed off major plans for liquefied natural gas exports from Canada’s west coast. Although low oil prices may have been the icing on the cake, Canadian LNG projects were facing serious obstacles before oil prices plummeted.

Social Security Disability Insurance (SSDI) is no small program, costing taxpayers more than the combined cost of federal welfare payments, housing subsidies, food stamps and school lunches. Attorneys receive taxpayer-funded fees each time they successfully place a client in the program, which incentivizes them to encourage clients to file disability claims. The fees are capped at 25 percent of the successful client’s SSDI award, or $6,000, whichever is less. Attorneys took in $1.2 billion in such fees in 2013, up from just $425 billion in 2011.