Archive - Dec 2014

Earlier today, in a stunning announcement, Putin revealed that the South Stream project is now finished. As the WSJ reports, "Putin said Moscow will stop pursuing Gazprom’s South Stream pipeline project that would supply natural gas to Europe with an underwater link to Bulgaria, blaming the European Union for scuttling the project." Putin is right: Europe - Austria excluded - had seen rising resistance to the South Stream in recent months. The EU is concerned that the project would cement Russia’s position as Europe’s dominant supplier of natural gas. Russia already meets around 30% of Europe’s annual needs. So what does Putin do? He signs a strategic alliance with NATO member Turkey, the only country in Europe that is anything but European and which lately has been increasingly anti-Western, to build a new mega-pipeline to Turkey instead. And the exclamation point:

TURKEY, RUSSIA AGREE TO USE LOCAL CURRENCIES IN TRADE: TRT

Or, as Obama would put it, Russia just got even more "isolated."

With a market capitalization of around $16 trillion, the NYSE Composite Index is a massively broad equity indicator less affected by the day to day gyrations of AAPL, TSLA, BABA, or NFLX. As NewEdge's Brad Wishak remarks, the world's largest market cap equity index is painting a very different picture than that of the Dow or S&P 500...

Goldman Sachs' 2015 global equity views and themes note is out and its title "The Long Grind Higher Continues" says it all... it's muppet slaughtering time...

As noted previously, total US debt is now over $18 trillion. Here is where it gets even more surreal: debt held by the public on January 20, 2009, Obama's inauguration day, was $6.3 trillion. It is now $12.9 trillion, a 105% increase. And here, for your viewing pleasure, is Senator Barack Obama saying on July 3, 2008, that the $4 trillion in debt added by Bush was "irresponsible and unpatriotic"...

“... I am a hard working taxpayer who is getting pretty fed up with having my savings earning no interest and possibly being devalued (see Japan) and of not being able to find any sensible place to invest my hard earned due to central bank policies making it impossible to make any return anywhere without taking crazy risks.”

"When a social construct (gold as money) survives for 6,000 years I would expect curious people to inquire as to whether it is tied to some immutable underlying law... [instead], our court economists prefer to write this off as a 6,000 year old delusion. That says a lot about the sorry state of the economics discipline today.”

For 29 days - off the Bullard lows - the S&P 500 closed above its 5-day moving average. As MKM's Jonathan Krinsky noted last week, this is the longest streak of sustained equity momentum higher in the history of US markets (surpassing the previous record 27 days from 1928). Today (well techncially Friday's early close) saw that streak come to an abrupt end...

Some very significant volatility intraday today. The Dow Transports lost around 2.7% today - the most since early January - as Airlines slipped (though held half of Friday's panic-buying gains). The Dow outperformed - but closed red - thanks to strength in Chevron and Exxon (adding 35 Dow points alone). All major US equity indices are red from pre-Thanksgiving's meltup exuberant close with Trannies and Small Caps worst. Momo names were hit, as was AAPL. All of this was driven, it appears, by a somewhat staggering (dead cat or not) bounce in commodity markets off overnight flush lows. Gold and silver screamed higher and oil gained 7% off its lows to close up 4.8% from Friday. Treasury yields also turned around notably intraday from down 1-2bps to closing up around 6bps at the long-end (after ISM beat). VIX briefly tested below 14 but the 330RAMP went the wrong way with VIX rising and stocks closing not off the lows.

"These idiots cannot grasp that this is reversing the US economy into isolationism and is paving the road for China to take the lead. It is time to turn off the lights."

While we have focused on the decoupling between US equity markets and their high-yield credit and US Treasury yield peers, today is perhaps most notably for the widening seen in investment-grade credit markets - the most in 2 months - as oil-complex concerns squeeze liquidity across all credits.

It is no wonder Venezuela is suffering... Venezuelan bond prices have collapsed around 51 - the lowest close in at least 5 years as yields surge to around 21% yield. The market is pricing in extremely high probability of default (around 63% over 2Y, and 80% based on 5Y CDS) which, as Bloomberg reports, is surging as "every $1 drop in oil is around $770 million of lost revenue, so their ability to pay has taken a big hit."

Earlier today, just after the market open, the one company that everyone had once again piled into, and which as of September 30 was the most held company by the hedge fund community with at least 175 "smart money" institutional fans based on expectations that with every other stock and asset becoming increasingly illiquid, at least this one would preserve its liquidity come hell or high water, flash crashed. The company is Apple, So what happend? Between 9:49:54 and 9:50:43 Eastern, AAPL plunged from nearly 6%, from $117.69 to $111.27, a moved which wiped out one Transcanada (or one Travelers, or one Lukoil, or one Carnival, or one Christian Dior, or one Hyundai Motor Company, or one Takeda, or one State Street) in market cap.

Today the Euro is on the cusp of breaking critical support. Draghi will likely see this as a success (he wants inflation). More likely, it will bring in another round of the EU Crisis (the same line was hit when Greece imploded in 2010 and when Spain imploded in 2012).