Archive - Feb 7, 2014

Get a load of those commodities...

It would appear hell hath no fury like a menstruating Japanese woman scorned... As The Daily Star reports, women in Tokyo are threatening a sex boycott against any man who votes for the front-runner in this weekend's critical Abenomics-vote-of-confidence gubernatorial election. The reason? Yoichi Masuzoe, a 65-year-old former political scientist, stated that it would not be proper to have women at the highest level of government because their menstrual cycle makes them irrational. All 16 candidates in the poll are men, with many of them aged in their 60s or older. But Masuzoe's comments about women, as well as other controversial remarks on taxing the elderly, have triggered a backlash.

Despite the short-term memory-losing recency-biased perspective that a 2-day rally in stocks has seemingly set in investors' minds, Citi's FX Technicals group remains concerned that the S&P 500 is stretched by historical standards. At this point, they add, the S&P is more stretched than in 2007 and a bit less stretched than 2000 with the line in the sand around 1,700.

While The White House's Jason Furman glistened in the after-glow of a falling unemployment rate this morning (and a very modestly improving labor-force-participation rate) despite dismal real job creation (which must be due to the weather - but is not!), we thought it perhaps of note that a very large segment of American - White men aged over 20 saw their labor force participation rate drop to a new record low.

Following our post yesterday which included the occasional F-bomb, the reaction was sharp and severe. So severe in fact that less than 24 hours later, Blythe Master has withdrawn from the CFTC. The culprit for Masters' resignation in just 24 hours? A very angry Twitter.

In his State of the Union address, the President of the United States laid the groundwork for a new government program he calls “MyRA” - allowing US taxpayers the ability to loan their retirement savings to the federal government (which, according to POTUS, carries ZERO risk). The President then hit the road, touting his one-of-a-kind program. The Treasury Secretary hit the newspapers, encouraging Americans to enroll. We can see this unfolding like a War Bonds campaign, appealing to Americans’ love of country to get them to loan their money to the government at sub-inflation yields. Meanwhile, the IRS is doing its part.

Today, under the disguise of a promise of physical security, governments treat each of us as if we were suspected criminals and not free citizens with rights: they record our conversations, intercept our mails, take our fingerprints and as many pictures as they deem necessary, do body searches and leave us half naked when we travel as if it were business as usual, and ruthlessly hunt down as traitors those who uncover these practices. We must understand once and forever more that security is not only liberty’s enemy, but an impediment to prosperity. In fact, security and prosperity are antonyms.

As an increasing number of FX traders are disappearing from bulge bracket banks (for "entirely unrelated to the FX probe" reasons), the WSJ reports that European and US regulators are expanding the scope of the manipulation probe. In the course of sifting through mountains of documentation, banks have found an array of apparent misconduct, according to people involved with the investigations and now the FX options market has come under scrutiny. "It's the banks saying, 'oh God, look what we've uncovered, there's a whole lot of issues'," a person familiar with the investigation said.

Shadow banks in China come in a variety of forms and guises. The term is applied to everything from trust companies and wealth management products to pawnshops and underground lenders. What surprising is that China’s biggest shadow bank is actually a creation of the central government and receives billions in financing directly from the banks.  Even more interesting, this shadow bank recently pulled off a successful international IPO where it raised billions of dollars...

U.S. Government Labels Dissent As Terrorism

1. Inside advice, legal in those days, from friends in the company is a particularly dangerous basis for decisions; you know little how limited their knowledge really is and you are overexposed to sustained enthusiasm;
2. Always diversify, particularly for your pension fund;
3. Fraud, near-fraud, or colossal incompetence can always strike;
4. Don’t buy stocks yourself if you’re an amateur: invest with a relatively rare expert or in a low-cost index;
5. Investing when young will start your brain turning on things financial;
6. Painful errors teach you more than success does;
7. Luck helps; and finally,
8. Have a convenient mother to be the fall guy.

Over the last year, investors have been lulled to sleep wrapped in the warmth of complacency as the Federal Reserve stoked the fires of the market with $85 billion a month in liquidity injections.  I have written many times in the past that investors were likely to be rudely awakened by an unexpected event of which was likely not even on the majority of mainstream analysts radars.  That occurred this past week as a revulsion in emerging markets sent the "carry trade" running in reverse. What we will need to ponder this weekend is whether the current correction is simply just a dip within an ongoing uptrend OR have the "bears" finally awakened from their winter hibernation?

The ugly rash of financial services executive suicides appears to have spread once again. Following the jumping deaths of 2 London bankers and a former-Fed economist in the US, The Denver Post reports Richard Talley, founder and CEO of American Title, was found dead in his home from self-inflicted wounds - from a nail-gun. Talley's company was under investigation from insurance regulators.

As everyone knows, AAPL is still a cash cow, and in the last quarter following the release of its latest iPhone and iPad, it generated a bumper $12 billion in cash. The only problem is that this is global cash, and as the company's 10-Q indicates, $13.1 billion of this cash was generated and held offshore, which means that AAPL's domestic cash declined by $1.1 billion. In fact, as the chart below shows, this was the 4th consecutive quarter in which AAPL's domestic cash has declined offset by a massive cash build offshore. And a reminder, "Amounts held by foreign subsidiaries are generally subject to U.S. income taxation on repatriation to the U.S." This also means that unless AAPL repatriates some of its offshore cash, and unless it issues even more debt, its stock buybacks and dividends are limited to the declining cash amounts held in the US. So if one were to extrapolate AAPL's Q1 domestic cash simply by subtracting the reported $14 billion used in the stock buyback from its December 31 US cash holdings, as of today, all else equal, AAPL now has "only" $20.4 billion in cash held domestically - an amount that matches its domestic cash holdings last seen in September 2010.

Following the 2nd dismal jobs print in a row, it would appear the market's new "common knowledge" is that the Fed will be forced to un-taper - despite Hilsenrath's "Fed stays the course" perspective. Everything is up today (apart from the USD). The disconnects from recent correlations were extreme as stocks lost the plot against FX carry, commodities, and bonds. The best 2 days in a row for stocks in 4 months sent most indices to critical technical levels and dragged all but Trannies and the Russell back into the green on the week. Oil prices surged back above $100. Bonds rallied (and bull steepened). Gold, silver, and copper all gained notably (with silver's best week in 6 months). Buy, buy it all... apart from VIX which was monkey-hammered back to 15% (down over 2 vols). So with FX carry left in the dust, what was the ammunition for the move? a 6.3% rip squeeze in the "most shorted" stocks.