Archive - May 27, 2014

This will end well. President Obama is, according to WSJ, close to authorizing the US military to train "moderate" Syrian rebels. The move - clearly expanding Washington's role in the conflict and a subtle side-swipe at Putin - is aimed at providing a seemingly arbitrary group of rebels with weapons training to fight against both Bashar al-Assad's regime's army as well as Al-Qaeda-linked groups. One quick question - how will Obama determine who is 'moderate' and who is full Al-Qaeda-tard?

It was just last Friday when we updated our list of the most hated, i.e., most shorted, stocks which are so critical in the New Normal because as we have reported constantly since 2012, going long the most shorted names remains the best alpha-generating strategy, outperforming the broader market by orders of magnitude. Today, it is Bloomberg's turn to recap just how broken the market is with an article that highlights the "balance sheet bombs" rallying by 94%. The lede: "In the U.S. equity market, the worse a company’s finances, the better it’s doing." Because there is nothing like rewarding failure and capital misallocation to promote economic growth and employment recovery.

With all eyes firmly focused on housing data that is adjusted beyond belief and a confidence print that merely met expectations, both the Richmond and Dallas Fed just missed expectations with some very concerning data under the hood. In no particular order - Dallas Fed outlook plunged from 14.5 to 11.8; Dallas employees plunged from 13.9 to 2.8 (and the workweek collapsed); New Orders and production also slumped as any post-weather bounce is buggered. For Richmond, new order volume plunged from 10 to 3 and capacity utilization dropped back below 0; and the outlook for shipments also slid to 3 month lows with employees expected to drop. In short - a total disaster...

With the housing purchase market for everyone but the wealthiest stagnating (confirmed by today's sliding "plans to buy a home" indicator), forcing Americans to scramble for rental properties and pushing residential asking rents to fresh record high quarter after quarter, the same can not be said for the commercial sector. In fact quite the opposite: according to the WSJ the owners of the towering 3.1 million square foot One World Trade Center, which at last check was 55% leased, have been forced to cut asking rents by 10% from 75% to $69. Why? "The market's not there," said Mr. Durst, whose Durst Organization bought a stake in the tower from the Port Authority in mid-2011. "When we started in 2011, everybody expected the economy to take off, and obviously that hasn't happened."

With China's push for an international physical exchange, physical demand will begin to have a stronger influence, thereby ending gold manipulation. This will allow gold to rise to a more appropriate price given the scale of macroeconomic, systemic, geo-political and monetary risks of today.

Following last month's drop and missed expectations - just when a post-weather bounce was hoped for - May's 83.0 print (in line with expectations) is disappointing to those seeing all-time highs in stocks. As  reminder, the US consumer decided they were most confident in March - amid the shitty weather and stumbling stock market - and now with warm weather and record highs, things are less exuberant. Looking forward, plans to buy an appliance dropped as did plans to buy a home (even as rates drop).

Markit's US Services PMI soared to 58.4 in April - blowing away the expectations of 55 - just shy of the record high 58.5 seen in March 2012 and early 2010. All sub-indices rose providing just enough comfirmation that all is well in the world.. but one has to ask whether the fastest rise in new work orders in 3 years is sustainable or simply a post-weather bounce. Input prices are up once again though even as output charges dropped - so much for the dream of ever-expanding margins. Is good news bad?

Bonds are unchanged from Friday... and VIX is surging higher (11.7)... but it's Tuesday so stocks are higher... The S&P 500 cash index is at new record intraday highs... but for how long?

If you said San Francisco, you are very wrong (as recently shown in "Bizarro Housing Bubble Spills Over Into "Overbid Madness"). No, according to the latest Case Shiller data, the one city (out of 20) where home prices dropped in March, somewhat inexplicably considering the ridiculous flipping of houses taking place in the ultra-luxury segment, was New York.

Following the fourth consecutive decline in home prices as reported by Case Shiller (remember, it was the weather), it was inevitable that in the last month of Q1, when the weather warmed up and when Americans went on a spending spree that took their savings rate to the lowest since 2009, home prices, those tracked by the Case Shiller index, would post a rebound. Which they did: According to the just released Top 20 City Composite Index, home prices bounced by 0.88%, higher than expected, with the composite printing at 166.80, more than the 166.23 forecast, following fourth consecutive sequential declines. This represented a better than expected 12.37% annual price increase, even if the pace of annual price increases appears to be slowing: this was the lowest annual price increase since August.

Another month, another indication that the spike in "harsh unweathering" took place in the last month of Q1 and momentum slowed down entering the balmy Q2.

It's that time again... like clockwork, as 8amET rolls around gold and silver become the object of derision for some entirely unrigged decision-maker at a bank... pressing gold prices down to 3 month lows. The question is will the selling prompt buying like on Friday or beget more selling because it is after all a Tuesday... With $450 million notional flushed through futures contracts, someone was in a hurry after seeing Europe's extreme left and right uprising to unload any protection against an ECB capable of only one trick to save the world.

The Ukraine conflict continues to simmer, with the conclusive presidential election perceived as a positive even as the fighting in the eastern part of the nation intensifies, but it is NATO member Lithuania where today's action was, where according to the Lithuanian Defense Ministry, NATO sent two fighter jets from Estonia after Lithuania said Russian vessel disturbed civilian shipping in Baltic Sea, and two Russian warplanes flew over Lithuanian airspace.

A week ago, in retaliation to the inane charges lobbed by the US accusing 5 Chinese army officials of spying on US companies (when the NSA spying scandal on, well, everyone refuses to leave the front pages), China announced it would ban the use of Windows 8 on government computers (considering the quality of Windows 8, this is likely a decision government computers would have taken on their own regardless). Today, China has expanded its list of sanctioned companies from Microsoft to include IBM as well, following a Bloomberg report that the Chinese government is pushing domestic banks to "remove high-end servers made by International Business Machines Corp. and replace them with a local brand."

• Vietnam, China trade accusations after Vietnamese fishing boat sinks (Reuters)
• SEC Set to Spur Exchange Trading (WSJ)
• Bank of Japan quietly eyes stimulus exit (Reuters)
• Japan Risks Low Growth Even as Easing Spurs Inflation (BBG)
• Hello Japan: Bond Market Message to Fed: Your 4% Rate Outlook Is Too High (BBG)
• Malaysia, UK firm release satellite data on missing MH370 flight (Reuters)
• Fighting rages in eastern Ukraine city, dozens dead (Reuters)
• Bad Credit No Problem as Balance-Sheet Bombs Rally 94%  (BBG)
• Draghi’s Asset-Backed Drive Rouses Academic Skeptics (BBG)
• For-Profit Colleges Face Test From State, Federal Officials (WSJ)