Archive - Apr 10, 2014

Today, as we plumb the depths of the US economic food-chain in that last bastion for the improverished US consumer, dollar stores, we find that that staple for low-cost "everything" Family Dollar, which operates 8,100 stores around the country, will be shutting down 370 stores "as it tries to reverse sagging sales and earnings." It was not clear immediately how many thousands of workers would be affected by the store shuttering. We assume "many to quite many." And what do they say? Why, that "the US economic recovery is obviously stronger than ever" of course!

Let's call the strategy of picking all the low-hanging fruit in an economy Plan A: you know, expanding credit, lowering interest rates, building infrastructure, fueling speculative frenzies, all the good stuff that fans the flames of "growth." Now that the central banks and political leadership of the U.S. and China have plucked all the low-hanging fruit, they have no Plan B.

But the pretty people on TV said the Fed Minutes proved they were the most dovish ever and initial claims hit recovery lows... What a total disaster - Equity markets peaked within a few minutes of the open and never looked back - yesterday's "Fed Cat Bounce" gave way to Really Red Thursday... with the Nasdaq and Russell 6.5% from their recent highs (and the S&P 3.5% off), we suspect a "markets in turmoil" special on business media any moment...

With mere weeks to go until millions descend on the Carnivalic streets of Rio for The World Cup, it seems the term "to get a brazilian" has a new meaning. As this poor woman discovered, while being interviewed live on Brazilian TV, while complaining in the clip about the lack of police presence near the station, a would-be mugger approaches her from behind and rips off what appears to be a gold necklace. Welcome to the safe streets of Brazil, world...

One of the phrases which we have done our best to bury over the last few years has been the absolutely idiotic statement "money on the sidelines" (and right behind it "more sellers|buyers than buyers|sellers"). Sadly a group of persistent, if clueless bobble-headed automatons still insist on using it. So be it. Today, however, we will focus on yet another absolutely idiotic phrase: "a stock picker's market." Leaving aside the linguistic stupidity of this expert "assessment" (because nothing says fundamental equity analysis like picking non-stocks), the mere facts flat out refute any suggestion that there is any material, or frankly, any dispersion, i.e., the proverbial stockpickeryness. But don't take our word. Here is Goldman's.

Someone was in a hurry - paging Waddell & Reed? The volume surge occurred right as VIX broke above 16 and the Biotech Index (-6.25% today) has hit bear market territory. The Nasdaq is getting slayed- down over 3% and all but Trannies are red YTD.

"I think it's very likely that we're seeing, in the next 12 months, an '87-type of crash," warns a somewhat excited sounding Marc Faber, adding that he thinks "it will be worse." The pain is just getting started as Faber notes that "the market is slowly waking up to the fact that the Federal Reserve is a clueless organization." Internet and Biotech sectors (growth stocks) are "highly vulnerable because they're in cuckoo land in terms of valuations," and fully expects the selling to spread as The Fed "have no idea what they're doing. And so the confidence level of investors is diminishing," and that means we will see a major decline.

It was less than a month ago that we reported on the surprise resignation of Canada's finance minister which while officially attributed to a wish to begin "another chapter" in his life, we said "there is rife speculation that it was indeed his health that was the reason for this unexpected resignation." Sadly, today it was proven that it was indeed Flaherty's health that had forced this surprising decision, following news that the former finance minister has passed away.

Last night's devastating trade data from China had the bad-news-is-good-news crowd chomping at the bit over the next massive stimulus that 'surely China will unleash...because they've got so much in reserves'. However, as we have explained previously, Chinese premier Li Keqiang destroyed those expectations last night when he ruled out major stimulus to fight short-term dips in growth. Unlike his 'desperate for a short-term fix' colleagues in the west, Li stated more thoughtfully (and perhaps more knowingly given his country's pending credit bubble crash), "we will instead focus more on medium- to long-term healthy development."

The problem is now readily apparent: without any gates to prevent HFT (ab)users from positioning themselves anywhere they wish in the constructiveness/profitabilty spectrum, it goes without saying that everyone will immediately flock to the most profitable, and hence, least constructive and most predatory, HFT strategies.

Yesterday's "best day in a year" was the ultimate Fed cat bounce as Nadaq Biotech stocks are collapsing today - approaching the crucial 20% bear market drop. With a loss of over 5.5%, this is the biggest drop since August 2011 and has the index very close to the critical 200-day moving-average support. The Biotechs are now down 2% year-to-date at new 4-month lows.

With tensions rising ever faster in eastern Ukraine, the anti-government (pro-Russia) movement in Donetsk has taken dramatic steps to bolster itself by creating a "people's army," or National Army of Donetsk. As RT reports, masked men, who are mostly civil volunteers, but also police and army defectors, say they “defend their motherland from the fascist army that’s going to kill them.” They also demand “a referendum to be independent from Kiev” and are in favor of “being with Russia.” The importance of this move is the pro-Russian local forces are now organized to repel any Ukraine (government) attempts to re-take government buildings - and conjures ugly memories of the hell that Kiev suffered for multiple weeks.

Yesterday's 10 Year auction may have been surprisingly weak, perhaps concerned about what the subsequent FOMC minutes would reveal (as it turned out the minutes couldn't have been more dovish - just as everyone knew would be the case - and sent 10Y yields sliding) but today's 30 Year reopening (Cusip: RE0) auction was quite brisk, with the high yield of 2.535% stopping through the When Issued of 2.537% by 0.2 bps. And for those who have been living under a rock and unfamiliar with the epic flattening in the yield curve, today's 30 Year was the tightest pricing since the 3.36% yield last seen in the auction from June 2013.

It appears yesterday's "Fed Cat Bounce" was exactly that. While the momos are making headlines, selling pressure is broad-based now and the S&P has just joined the Russell, Nasdaq, and Dow in the red year-to-date... "Growth" stocks are at the lows of the year relative to "Value"

Correlation is not causation but...