Archive - Apr 2014

"Record corporate cash"..."Record corporate cash"... "Record corporate cash"

That pretty much covers most of the conversation on prime time financial media and TV stations when discussing corporate balance sheets. There is, however, one big problem with that mantra...

After 'billing' Ukraine this morning, Gazprom must be jubilant this evening as news exudes from Washington that...

• *IMF APPROVES UKRAINE LOAN OF $17 BLN OVER TWO YEARS
• *UKRAINE EXPECTS FIRST TRANCHE OF IMF AID MAY 5-MAY 8: FIN MIN

But,

• *IMF SAYS IMMEDIATE UKRAINE LOAN DISBURSEMENT TO BE $3.2 BLN

So that won't even cover the $3.49bn they already owe to Gazprom? (In fact, $2.2bn is approved for dissemination to Gazprom)

"The fallacy is that this reasoning completely ignores the countless ways in which the state’s own intrusions and engagements in the economic system in effect “break the legs” of private-sector actors by distorting prices (including interest rates), penalizing productive actions, and subsidizing destructive actions."

Over 300 years ago, the South Sea company was created (and successfully IPO'd) "for the purpose of rivaling the East India Company." It had no actual operations as of yet but the buying panic for shares was driven by greedy investors seeing the government's elite doing so well and wanting a part of the prospects of a company with no operations becoming a world leader (or just finding a greater fool). Today, the first IPO of shares on Dubai's main stock market for 5 years was 36 times over-subscribed for a company called Marka (which is a "cash shell" which does not have any current operations). Nope, no bubble here.

probability that Apple will introduce a brand new product category in the near future is incredibly high

The Russell 2000 tumbled to its worst month since May 2012. 30 Year bond yield had the 2nd best month in a year (with the entire bond complex lower and curve flatter for 5th month in a row). Gold rallied for the month as high-yield credit spreads widened for the 2nd month in a row. US economic growth collapsed. But what really matters... what is key for the headline-makers, story-tellers, and asset-gatherers... is that the Dow Jones Industrial touched new record highs. On the day, early equity weakness gave way to exuberant buying as the Fed admitted its forecast for Q1 was shit but everything it says about the future is spot on - stocks urged, the Dow hit new all-time-highs (and green for the year) but once that level was hit, stocks began to fade but were rescued by the always-happy-to-help 330 Ramp which closed us at record highs and green year-to-date. By the close, the day saw Stocks Up, Bonds Up, Gold Unch, USD Down

We can finally close the book on the "mystery" (if there ever was one) behind the Fed's fixed-rate reverse repo operation.

One hour after announcing that the Fed would, as expected, cut its monthly Treasury purchases, aka stock market liquidity injections to $25 billion (and $20 billion in MBS), the NY Fed released its POMO schedule for the month of May. The key highlights:

• "The Desk plans to purchase approximately $24 billion in Treasury securities over the month of May. This amount is approximately $1 billion less than the stated pace of $25 billion per month, given that purchases conducted in April exceeded the target by approximately $1 billion."
• There will be "only" 16 POMO days, down from the usual 18.
• The largest POMO days will be Monday May 12, when the Fed will inject $2.25-$3.0 billion into the market and Thursday, May 29, when another $2.50-$3.25 billion will be allocated to stocks.
• There will be no POMO on Wednesday May 7, Thursday May 15, and Wednesday May 26. Needless to say, for those so inclined, these may be the better shorting entry points.

As the Buddha taught, “This is like this, because that is like that.” Extraordinary long-term market returns come from somewhere. They originate in conditions of undervaluation, as in 1950 and 1982. Dismal long-term returns also come from somewhere – they originate in conditions of severe overvaluation. Today, as in 2000, and as in 2007, we are at a point where “this” is like this. So “that” can be expected to be like that." As Seth Klarman from Baupost Capital recently stated: "Can we say when it will end? No. Can we say that it will end? Yes. And when it ends and the trend reverses, here is what we can say for sure. Few will be ready. Few will be prepared."

In what can only be explained as a massive oil pipeline derailment, because trains are obviously so much safer when transporting flammable commodities, moments ago another train derailed in Lynchburg, Virginia with numerous railcars falling in the river, and a massive fire erupting with flames that are "storeys high" according to ABC13. And moments ago it was also announced that the train belongs to CSX and the burning product is, expectedly, crude oil.

Great news, Q1 was much worse than ourt awesome forecasts expected.. but that was all weather so our forecasts about the future are likely dead correct and that means escape velocity is coming... Stocks are rallying (and gold is fading)... but bonds ain't buying it as they press the low yields of the day... .what is mst worrisom for stocks, is that it's not Tuesday.

In one of his most voracious tomes, The Wall Street Journal's Fed-see-er Jon Hilsenrath prepared 726 words and published them in 5 minutes to explain that the Fed's forecasts for Q1 were dismally wrong, that the future will all be rosy, and their forecasts spot on, and that the Taper is steady..."Fed officials acknowledged the first-quarter slowdown was worse than expected by saying activity "slowed sharply." Previously, they had just said activity merely slowed...Still, officials nodded to signs of a pickup in economic activity in March and April, suggesting they aren't too worried about the winter slowdown."

Everyone who thought today's FOMC statement would, like the Fed's own balance sheet, set a new all time high record in verbosity, has lost. At 811 words, today's Fed message was 66 words shorter than the March one, and the "briefest" since October. It appears we may have passed the point of peak Fed complexity, and it is all downhill from here - so first a reduction in the pace of liquidity injections, then the communication. All that's left is the "rigged, manipulated" market.

Despite dismal data (or the potential for great escape velocity is around the corner data), major event risks, and a Treasury market that just won't buy the dream of recovery that they are selling; the Fed stuck to its tapering guns... with a consensus $10bn taper...

• *FED TAPERS BOND BUYING TO $45 BLN MONTHLY PACE FROM $55 BLN
  
• *FED: ECONOMY PICKED UP, CONSUMER DEMAND RISING `MORE QUICKLY'

Shifting from "the economy slowed due to weather..." to "consumer spending is rising more quickly" the Fed is in full consensus "everything's gonna be alright " mode. This leaves the Fed buying $25bn a month of Treasuries and $20bn of MBS each month and facing the tough reality that their trillions did not generate enough momentum in the US economy to overcome some snow...

Pre-FOMC: S&P Futs 1874, 10Y 2.66%, EURUSD 1.3865, Gold $1295

FOMC May Day warm up...