Archive - Apr 28, 2014

While Apple's earnings report last week left little to be desired, one of the more notable observations was that the company's cash hoard, relentlessly rising until now, had seen its first quarterly dip since Lehman, declining by $8 billion from $158.8 billion to $150.6 billion. Which was to be expected: since the technological company has not had much success with "growthy" innovation since the arrival of Tim Cook, it has been forced to become an activist investor's favorite piggybank, buying back and dividending record amounts of cash. In fact, perhaps the most notable feature of its earnings release was that AAPL would boost its buyback plan by 50% to $90 billion. One small problem: as everyone knows, when it comes to shareholder friendly actions, Apple can only rely on its domestic cash hoard. What this simply means is that after making the history books with the biggest ever, $17 billion bond offering 12 months ago, Apple is about to issue a whole lot more of debt.

A few weeks ago, after Gartman got "scared" of the market and "got out of stocks" only to see a sharp reversal, Gartman turned "pleasantly bullish"... only to see stocks close the week red. Overnight, Gartman may have set the market direction once again with the following update: "We turned “pleasantly” bullish of shares several weeks ago when the S&P tested 1805-1810 and it has rushed higher since, although global shares have not followed the US higher with the same sense of urgency. Now, however, 1875-1885 has proven to be formidable resistance and our bullish enthusiasm has to be reduced once again." And sure enough, stocks surge. In HFT momentum chasing algo terms.

The Dallas Fed manufacturing survey beat expectations by the most since September 2013 and rose to near its highest since Feb 2012. Most of the 'current' sub-indices rose thogh prices paid tumbled (oddly to its lowest since August) and wages stagnated (as new orders surged to their 2nd highest since 2006 - entirely sustainable!!) What is probably more worrisome is the plunge in the employment expectations index - which dropped to its lowest since Dec 2013 (but but but the weather).

The almost ubiquitous overnight levitation (thanks to JPY - bouncing off 102.00 overnight; and more Pharma M&A exuberance) gave way very quickly to more of the same from Friday as the high-growth, high-hope, high-hype, high-beta stocks get slammed. The dump of US equity indices at the open was then met with a "well, it's Tuesday tomorrow... oh and FOMC" mad panic buying scramble... Then the 'great' news that pendong home sales dropped YoY for the 6th month in a row confirmed the momo spike and sent bond yields spiking and gold prices tumbling because one data point MoM is all that we need to spark the algos into action... If you want to know why this idiocy is happening - look no further than USDJPY...

Pending Home Sales provided some hope for the serial extrapolators this morning as month over month saw a 3.4% gain (against expectations of a 1% pop) for the first sequential rise in 7 months (led by the South and West - which were largelty unaffected by the weather). NAR appears happy to state that there are no more weather factors and it's business as usual. This is the 6th month in a row of negative year over year comps for pending home sales.

Russia's Deputy Foreign Minister Sergei Ryabkov as come out swinging after US issued a new round of sanctions against citizens and companies of the nation:

• RUSSIA WON'T LET SANCTIONS GO UNANSWERED: INTERFAX
• RUSSIAN DEPUTY FOREIGN MINISTER RYABKOV VOICES "DISGUST" AT WHITE HOUSE STATEMENT ON NEW U.S. SANCTIONS -INTERFAX

As we await the European Union's reaction (which the US has said is imminent... hopefully) it is the blowback from Russia that is most importance - despite constant protestation by talking-heads on mainstream media channels that any sanctions on Russia will have no impact on US business...

While Jay Carney and the White House continue to press their "sell" recommendation on Russian assets, it appears the market is buying the news (after selling the rumor). Russian stocks are ripping higher on "better than expected" sanctions and the Ruble is strengthening notably... So given that the market is signaling these sanctions are clearly weaker than expected,  we should certainly not expect any Russia de-escalation soon.

Yesterday we reported that among today's expanded sanctioned individuals would be the heads of Rosneft and Gazprom. Moments ago, we got confirmation that at least one of those two will indeed be "sanctioned" - that someone is Igor Sechin, head of Rosneft which also happens to be Russia's largest oil extractor and refiner:

U.S. SANCTIONS LIST INCLUDES OAO ROSNEFT'S CEO SECHIN

However, it appears we were only half right - Gazprom CEO Alexey Miller appears to have been spared for now. And now, as usual, the ball is in Putin's court.

Just weeks after the Fed signed off on CCAR and ackowledged how great the US banking system is, Bank of America (after being slapped with another $13bn RMBS suit demand) has ackowledged things are not quite as risy as they appeared.

BOFA HAD INCORRECT ADJUSTMENT ON TREATMENT OF SOME NOTES; BOFA SUSPENDS CAPITAL ACTION PLAN ON CHANGE IN CAPITAL RATIOS
BAC SEES REVISED CAPITAL ACTIONS LESS THAN PREVIOUSLY ANNOUNCED; BAC WILL ENGAGE THIRD PARTY TO REVIEW PROCESSES

So no buyback boost... no dividend boost... The question now is - how do we (or The Fed) trust any of the numbers?

U.S. sanctions, to be announced today, will target Russian individuals and companies involved in financial, energy, infrastructure sectors, congressional official familiar with White House plan tells Bloomberg’s Jonathan Allen.

• *U.S. SAID TO SANCTION 7 RUSSIANS, 17 COMPANIES IN NEW ACTIONS
• *PERSON ON CAPITOL HILL DISCUSSES NEW U.S. SANCTIONS ON RUSSIA

As we already noted it appears Rosneft and Gazprom (and Gazprombank) will be among the companies but the one to watch is for a direct sanction against Vladimir Putin himself. Full list to follow... and then the blowback.

The coming week will be busy in terms of data releases in the US; highlights include an improvement in consumer confidence, anemic 1Q GDP growth, and solid non-farm payrolls (consensus expects 215K). Wednesday brings advanced 1Q GDP - consensus expected a pathetic 1.1% qoq, on the back of what Goldman scapegoats as "weather distortions and an inventory investment drag", personal consumption (consensus 1.9%), and FOMC (the meeting is not associated with economic projections or a press conference). Thursday brings PCE Core (consensus 0.20%). Friday brings non-farm payrolls (consensus of 215K) and unemployment (6.6%). Other indicators for the week include pending home sales, S&P/Case Shiller home price index, Chicago PMI, ADP employment, personal income/spending, and hourly earnings.

• U.S. Plans to Hit Putin Inner Circle With New Sanctions (BBG)
• Russian Billions Scattered Abroad Show Trail to Putin Circle (BBG)
• GE’s Alstom Bid Gains Steam as Hollande Said Not Opposed (BBG)
• Russia-West tensions pressure stocks, buoy oil prices (Reuters)
• Toyota Said to Plan to Move U.S. Sales Office to Texas (BBG)
• Egyptian court seeks death sentence for Brotherhood leader, 682 supporters (Reuters)
• Greece warned of 14.9 billion euro financing gap (FT)
• Comcast to shed 3.9 million subscribers to ease cable deal (Reuters)
• Big U.S. Banks Make Swaps a Foreign Affair (WSJ)

The early session risk on trade, which materialized after the Pfizer confirmation it was seeking to buy AstraZeneca, and which sent the GBPUSD to its highest level since 2009, and also sent the EURUSD and EURJPY soaring in the process lifting US equity futures, has started to fizzle on the most recent news out of Ukraine, where the pro-Russian mayor of Ukraine's second largest city of Kharkiv was shot in the back in an apparent assassination attempt, which happened hours before the US is set to announce more sanctions against the Kremlin and its closest financial oligarchs.  As a result, futures have pared gaisn modestly, especially since AstraZeneca made it clear with its initial reponse it has no interest in Pfizer's offer in its current format.

On the day in which Barack Obama announced earlier he would unveil another round of sanctions against Russia (most likely involving the heads of both Gazprom and Rosneft), moments ago the already tense situation took another turn for the worse when Interfax blasted news out of East Ukraine that the pro-Russian mayor of Kharkiv, the second largest city in Ukraine, Gennady Kernes, has been shot in the back and is currently undergoing an operation. Kyiv Post reports that Kernes was an avid supporter of former President Viktor Yanukovych and spoke out against the EuroMaidan Revolution that forced the ex-head of state to flee the country. Since then, Kernes has flip-flopped under pressure from EuroMaidan activists and the new Kyiv government in order to remain in office. 

While the news that Pfizer has been sniffing around AstraZeneca has been around for a while, it is the confirmation this morning from Pfizer that it is considering a cash and stock offer for AZN that has been the catalyst to push futures off their early trading levels, on yet another instance of the Pharma M&A bubble which we have been chronicling here in recent weeks. Needless to say, a Pfizer-AstraZeneca combination valued at roughly $100 billion would create the largest healthcare company by revenue and likely serve as the pharma bubble "peak "indicator very much like the Blackstone IPO marked the financial top in 2007.