Archive - Apr 2014

Not much to add to this total and utter disaster... Markit's Japan Manufacturing PMI plunged from 53.9 to 49.4 - it's first contractionary print since Feb 2013 and its biggest MoM drop on record. Under the surface the picture is just as bad with output falling at the fastest pace since December 2012 and New orders also down. The blame for all this - the tax hike... hhm (well, it's better than the weather we guess). Both prices charged and input prices rose in April with some panellists attributing inflation to an increase in raw material prices (stunned?). And if you think this terrible news is great news (because more QQE), forget it - Kuroda already say no and inflation is near the BoJ's target.

Speaking on the House of Representatives floor on September 17, 1997, then-Rep. Ron Paul warned of the “massive buildup of a virtual army of armed regulators.” We saw the United States government’s armed agents in action recently at the Bundy ranch in Nevada. We also saw them back off, at least for now, when confronted by armed protestors. Paul’s concluding sentences of his 1997 speech seem apropos: "The gun in the hands of law-abiding citizens serves to hold in check arrogant and aggressive government. Guns in the hands of the bureaucrats do the opposite. The founders of this country fully understood this fact."

On a closing price basis, the trading range for the US 10 year note since January 24th has been 22 basis points which is the narrowest in that length of time in over 30 years. Often times, narrow trading ranges act like coiled springs.  The longer markets stay in those ranges the greater the pressure builds.  Tight ranges over longer time periods cause ever-more-powerful movements once the ranges break. Over the next two weeks, there are multitudes of events and economic data which could set the tone of trading for the next several months and potentially provide the catalyst necessary for markets to break out of ranges.

Whoever is looking for the flashpoint, that lethal moment when the war of words and diplomatic lies turns into full-blown physical conflict between the East and the West, they will find it relatively soon if we are to believe the markets and how they are reacting this morning.

When times are tough - for example when this quarter's revenue is the lowest for IBM since the first quarter of... 2009, it seems Big Blue has decided no job is too small and no job unworthy of utilizing the brain... presenting - with little comment - the key to IBM's Q2 revenues...

The G-8 may be no more as the G-7 throws every possible case of harsh language known to man at the Kremlin, which obstinately refuses to back down, while re-escalating sanctions against a Russia which merely has done what the US does every single time its national interest abroad is threatened, but one thing is becoming ever clearer: while the west isolates Russia with ever stricter measures, Russia has decided to make some new friends.

Citadel's head of Execution Services (cough HFT cough) Jamil Nazarali, proclaimed Monday that small investors have never been so fortunate and said, with regard to Michael Lewis' now infamous book Flash Boys, "The most important thing that the market can do is stop... pointing fingers at everyone else." Citadel, who allegedly provides the NY Fed's VIX trading capabilities, are among the very largest high-frequency traders in the market (and the most levered), so one would surely expect that Citadel would like us all to stop pointing fingers at them. As Bloomberg reports, Nazarali said yesterday during a panel discussion at the Milken Institute Global Conference in Beverly Hills, California, "things are much better today than they were 10 to 15 years ago." For him, yeah.

Silver is undervalued when compared with gold, platinum, palladium, base metals including copper, oil, stocks (S&P, DJIA, Nasdaq etc) bonds and the U.S. dollar ... There are very few, if any assets that remain at the same price levels that they were more than 30 years ago ...

The numbers were not bad. It is what was in the earnings slidedeck charts that is spooking the investors...

Despite the Dow's price-weighted index of just 30 stocks pushing comfortably into the green for the 7th Tuesday in a row (on dismal volume), things were not as exuberant anywhere else in stock-land. Amid a very narrow range day, completely divergent from the rest of the risk-asset complex, sustained only by the life-giving blood of Fed-sponsored VIX-selling into the FOMC event risk, performance today was internally weak with Russell 2000 closing red for the week (as the S&P and Dow managed to regain green for April but the Dow still could not make it green for 2014). Away from stocks, Credit markets were weak, Treasuries rallied (with yields lcosing 1-2bps lower on the day despite equity strength), Gold closed marginally higher and oil up 0.5% on the week. The USD closed up for the day but unch on the week as JPY strength dislocated from stocks.

The only question we have about the following list of 6,932 busted option trades comprising 34,484 call and put (mostly call of course) contracts on the NYSE ARCA Options which took place this morning at the market open until just 13 minutes later "due to an internal system issue", is whether Goldman is the party that somehow benefited from the DKing of these millions of trades as it did back in August of 2013.

Having been quiet all day, Vladimir Putin chose just before 330 on a Tuesday to respond to US and EU sanctions:

*PUTIN: U.S., EU SEEKING TO BLAME RUSSIA FOR UKRAINE CRISIS
*PUTIN SAYS HE CAN'T UNDERSTAND MOTIVATION FOR SANCTIONS
*PUTIN SAYS NO CAUSE-EFFECT BEHIND SANCTIONS

And while he said he sees no need for counter-sanctions currently, he did warn that Russia may reconsider participation of Western companies in egenergy projects if sanctions continue.

It appears the only thing holding stocks up this afternoon (as volume dries up entirely) is the fact that it's Tuesday...

Earlier today the EBA published its common methodology and scenario for the 2014 EUwide bank stress test. The adverse scenario covers the period 2014 to 2016 and at least on the surface is generally tougher than the adverse scenarios in previous similar exercises, resulting in a severe negative deviation of EU GDP growth of 7% from its baseline level by 2016. So far so good. But where the whole thing disintegrates into yet another sham spectacle confirming just how insolvent European banking truly is, is one simple observation: not even under the adverse scenario does the ECB contemplate the possibility of deflation!