Archive - Apr 24, 2014

You just can’t make this stuff up. A few days ago the President of the United States signed into public law bill S. 2195, now known as Pub.L. 113-100. The law aims to “deny admission to the United States to any representative to the United Nations who has been found to have been engaged in espionage activities or a terrorist activity against the United States and poses a threat to United States national security interests.” In other words, if the US government thinks that if you have been spying on the United States, then they won’t let you in the country. Gee, let’s think for a moment - who has been engaging in espionage against the United States? Anyone? Ah, right. The US government. Mr. Obama himself.

Six charts or six thousand words? We know which we'd pick.

 “On the way in, there’s insatiable demand.” Alas, “it’s going to be a disaster on the way out.”

Euphoria over Apple channel-stuffing and non-GAAP magic for Facebook quickly turned into the HFT-liqudity-providers nightmare as rumors of an emergency Putin press conference sent USDJPY tumbling lower (and therefore US equities). Once the rumor passed - and despite all the facts on the escalation - stocks bounced (especially Nasdaq) to close mixed. S&P and Dow unchish, Nasdaq +0.5%, Russell -0.5%. VIX was in charge in general once the ramp was under-way but even that went into crazy mode as algos lost the plot. Credit markets are "deniers" of the exuberance as are long-end Treasuries which rallied another 2bps and near 10-month lows. Gold was monkey-0hammered early but rallied on Putin's comments and closed unchanged for the week above $1290. Copper rallied notbaly eback above its 50DMA and Oil limped higher as the USD flatlined.

In the last few months, the yield curve spread between 5Y Treasuries and 30Y has collapsed almost 80bps - this is the fastest relative drop since February 2007. The yield curve is down further today - at its flattest since September 2009. As BofAML's Macneil Curry warns, the flattenin trend is ongoing and sees medium-term targets down to 143bps (over 30bps below current levels) which would raise a number of eyebrows among the excuberant equity crowd (and the Spanish bond-buyers).

In an SEC filing today, GM, it appears, has been forced to admit that:

• *GM SAYS FACING RECALL INQUIRES FROM MULTIPLE GOV'T AGENCIES

As WSJ reports,  government filing that it is under investigation by federal prosecutors, the Securities and Exchange Commission, a state attorney general, Congress and the National Highway Traffic Safety Administration for its handling of a recent rash of recalls. And furthermore,

• *60 PUTATIVE CLASS ACTIONS SUITS FILED OVER SWITCH RECALL

The company says in the filing it isn't currently able to estimate the potential costs of lawsuits or investigations tied to the ignition recall, but adds resolving the probes could have a "material adverse impact" on the company's finances.

With the "truce deal" laying torn asunder by un-de-escalation by each and every side in this dangerous game of chicken, it now seems even diplomacy is off the table. The Russian foreign ministry reports that the planned on April 23 and 24 telephone conversations between, Minister of Foreign Affairs of the Russian Federation Sergey Lavrov and U.S. Secretary of State John Kerry , unfortunately did not take place for reasons beyond Moscow's control, adding that

• *UKRAINE GETTING DEEPER AND DEEPER INTO CRISIS: RUSSIA
• *U.S. MUST FORCE UKRAINE TO STOP MILITARY PUSH IN EAST: RUSSIA

Ukraine's 48-hour red-line is getting closer and with the UN warning that "the situation could quickly spin out of control with unpredictable consequences," it is perhaps time to derisk a little.

Since 2012, almost every economist has predicted that the housing recovery would continue into each coming year and would be a key driver of economic growth. That was again the plan for 2014, but with the housing recovery now on the ropes those same economists are perplexed as to why. Yet, "hope" remains that the recent slowdown is just a "weather related" casualty. The slowdown in housing is not due to the "weather." It began prior to the onset of the recent winter blasts. Nor will reduced distressed sales, delinquencies, negative equity or rising inventories salvage the predictions. These are all indicators "OF" the housing market, but not what "DRIVES" the housing market. The real answer to the slowdown in housing is not so difficult to comprehend...

Presented with no comment...

The similarities between 2007 and 2014 continue to pile up. And you know what they say - if we do not learn from history we are doomed to repeat it.  Just like seven years ago, the stock market has soared to all-time high after all-time high.  Just like seven years ago, the authorities are telling us that there is nothing to worry about.  Unfortunately, just like seven years ago, a housing bubble is imploding and another great economic crisis is rapidly approaching.

The "v"-shaped recovery in US equity indices is largely being ignored by bonds, JPY, and credit for now as VIX is in charge of the ramping efforts for now... until the last few minutes when it all went a bit pear-shaped...

Ukraine's foreign ministry has given Russia a 48-hour ultimatum to explain its military exercises near the nation's border; or, as foreign minister Andriy Deshschytisa warns "we will now fight with Russia troops."

... The HFTs are providing so much liquidity they are literally making it rain.

Back in August of last year, we first reported data that not even believed at first, but has since been proven correct using existing home sales data, namely that a whopping 60% of all home purchases are "cash only." However, not even that data could prepare us for what we learned today courtesy of CoreLogic, which narrowed down the range from the broader "housing" segment just to the most appetizing (especially for investors and flippers) condo market. What it found was stunning: not less than 80% of all condos in key markets such as Florida, Nevada And New York are all cash.

The PBOC's willingness to a) enter the global currency war (beggar thy neighbor), and b) 'allow' the Yuan to weaken and thus crush carry traders and leveraged 'hedgers' is about to get serious. The total size of the carry trades and hedges is hard to estimate but Deutsche believes it is around $500bn and as Morgan Stanley notes the ongoing weakness means things can get ugly fast as USDCNY crosses the crucial 6.25 level where losses from hedge products begin to surge. This is a critical level as it pre-dates Fed QE3 and BoJ QQE levels and these are pure levered derivative MtM losses - not a "well they will just rotate to US equities" loss - which means major tightening on credit conditions...