Archive - Apr 10, 2014

As one well-known trader noted - referring to the current move in the US Treasury complex - "rubber, meet road."With the death cross (50DMA crossing below the 200DMA) for bond yields and a crucial trendline having been tested now numerous times (building up its importance), it seems we are about to find out just how much "growth" stocks really do reflect the reality of 'ungrowth' in bonds and vice versa. A break of 2.64% in 10Y yield could be a critical floodgate the Fed does not want opened. As BofAML's Macneil Curry warns, 10Y Treasury bears beware, a break below this level opens up a drop to 2.399%.

Today it was NATO's turn to retaliate once more to the Russian arms build up aclong the border. only this time both with words and with actions, and by explicitly confirming that Lavrov was absolutely correct when he accused NATO of building up weapons around Russia and thus forcing Russia on the defensive, when US destroyer Donald Cook crossed the Bosphorus overnight and entered the Black Sea. Why? To "show America's commitment to the region."

The EU agreement on a common rulebook for handling bank failures, including bail-ins, is in danger of unravelling over the fine print restricting when a state can intervene to rescue a struggling bank. It is important to realise that not just the EU, but also the UK, the U.S., Canada, Australia, New Zealand and most G20 nations have plans for depositor bail-ins ...

Why a stranger on Facebook is not a source of a good deal flow?

Well that didn't take long. At yesterday's close, every talking head was proclaiming the growth sell off over and "see" the Fed is as easy as we said... however, this morning (after dismal data out of Japan and China) US equities have been a one-way street lower. If the world is relying on a post-cold-weather rebounding US economy to be the engine of growth... is it any wonder they are selling "growth" and buying bonds... Only the Dow is holding post-FOMC-Minutes gains and Momos and Biotechs are being monkey-hammered...

*RASMUSSEN SAYS RUSSIA NOW HAS 40,000 TROOPS ON UKRAINE BORDERS

It's not quite YouTube clips, but NATO has released satellite image-based proof that confirms the dramatic build up of Russian military forces along its borders. The images showing tanks, attack helicopters, and war planes, according to NATIO general Breedlove provide support for counter-moves by allies to safeguard their partners. Russia, for its part, has denied it has any plans to invade Ukraine and suggests that NATO is "using the crisis in Ukraine to rally its ranks in the face of an imaginary external threat to strengthen demand for the alliance ... in the 21st century."

European partners have left Russia with "no alternative" but to halt supplies of gas to Ukraine and Europe, according to a letter from Russian president Putin to European leaders. The remarks, as Reuters reports, were the strongest sign yet that Russia could curtail supplies of gas to (and through) Ukraine affecting supplies of gas to Europe (as they fear Ukraine will siphon off Russian gas meant for Europe). Russia is getting angry, and an angry Russia can simply turn the gas switch to the "Off" position and hibernate for a bit.

So from MF Global's "vaporized" commingled client assets to Basel's "evaporated" toughened derivatives rules, the banks are indeed "very happy." And now back to perpetuation the illusion that the system is stable.

Begging, borrowing or other means. Whatever it takes the US is prepared to get what it wants. Unable to get it any other way because of real clout, the US has resorted to begging these days.

When one thinks of the bailout-taking, London-Whale-suffering, regulatory-fine-paying, pay-rise-taking CEO of JPMorgan, the first analogy is not the philosophical similarities between Jamie Dimon and Martin Luther King. But, according to Dimon's letter to shareholders below, he feels injustice has been done and quotes MLK on the future ahead. "The arc of the moral universe is long, but it bends toward justice" Progress, sometimes painful and slow, has been happening all around us all the time, and the optimist in me believes that it will continue." What a year... he begins.

Another day, another 'failed' IPO. Ally Financial - aka GMAC - that bastion of subprime auto loans and risk management, IPO'd at $25 last night (at the very bottom of the $25 to $28 range) but investors seem to prefer to sell their allocations than pile into this 'bank'. Enabling the Treasury to exit more of its losing proposition (raisng $2.38 billion), ALLY opened well below its IPO price... at $24.25. As a gentle reminder, ALLY filed to go public in March 2011.

Companies will have to increase profit margins to all-time records in order to meet estimates, is the message of utter hope embedded in the forward expectations for earnings and sales growth. As Bloomberg reports, Oppenheimer's Andrew Burkly warns this is "a scenario we view with ongoing skepticism." As the chart below shows, the gap between growth in sales (top-line) and earnings (bottom-line) is set to explode in the next few quarters as even the most exuberant analsyst struggle to upgrade their GDP-riddled sales forecasts and are thus forced to make up whatever margins they need to reflect extrapolated buy-and-hold targets for their stocks.

It was about 5 years ago, roughly the same time we launched our crusade against HFT, that we also first made the accusation that as a result of QE and the Fed's central planning, the forward-looking, discounting mechanism formerly known as the "market" no longer exists, and instead has been replaced with a policy vehicle designed to create a "wealth effect" if only for those already wealthy. In other words, while HFT may have rigged the market, it was the Fed that has openly broken it. Today, none other than the WSJ is the latest to confirm this.

From a revised 332k last week, initial claims collapsed 32k to 300k (smashing expectations of 320k) and dropping to the lowest of the recovery. This is the lowest initial claims print since May 2007. Rather stunningly, given the real employment situation in America, this claims data is nearing the best levels since 2000 (and certainly does nothing for the un-taper case so many are hoping for). This is the biggest weekly drop since January 2006. Continuing claims also dropped to new cycle lows back to Jan 2008 lows. Mission Accomplished?

In the interests of transparency and on the heels of Mary Barra's suggestion that some of those involved in the ignition switch problem are still employed at the firm, she has decided to place 2 employees on paid leave...

• *GM BARRA CONFIRMED 2 ENGINEERS PLACED ON PAID LEAVE
• *GM SAID TO PLACE DEGIORGIO, ALTMAN ON PAID LEAVE
• *GM CREATES SPEAK UP FOR SAFETY PROGRAM FOR EMPLOYEES

To distract from the main headlines, GM has created a "speak up for safety" spy-on-your-neighbor plan as part of her safety-first strategy.