Archive - May 2014

It seems that no market tops until the bag has been fully passed to retail muppets, and we appear to be in the process of that happening right now. The retail investor is getting back into the stock market and is seemingly focused on the riskiest types of shares; unlisted penny stocks. They aren’t just dipping their toes in either, the pace exceeds that of the tech boom of the late 1990?s and has just hit the highest amount on record.

Yes, U.S. capital markets have officially gone "Full Seinfeld"; As ConvergEX's Nick Colas notes, Tuesday’s selloff over “Nothing” reversed higher Wednesday throuygh Friday for similarly non-specific reasons. So, today we will go a little further afield and talk about words and what they tell us about shifting societal priorities and norms. Wonder what the most commonly searched word might be on the Merriam-Webster website?  It is “Pragmatic”... which seems incredibly ironic given the total lack of pragmatism that appears to be shown in world markets.

"Artificial, credit-stained activity will never be more than a fleeting substitute for fundamental demand. And when the artificiality inevitably subsides, what is left is far worse than not having entertained it at the start. That too is a testament against the illicit concept of neutrality. We may all be dead in the long run, but it used to be nice to enjoy the fruits of free economic expansion whilst awaiting the unavoidable."

It was almost inevitable: a week after we wrote "From Rothschild To Koch Industries: Meet The People Who "Fix" The Price Of Gold" and days after "Barclays' Head Of Gold Trading, And Gold "Fixer", Is Leaving The Bank", earlier today the UK Financial Conduct Authority finally formalized what most in the "tin-foil" hat community had known for years, when it announced that it fined Barclays £26 million for manipulating "the setting of the price of gold in order to avoid paying out on a client order." Furthermore, the FCA confirmed that those inexplicable gold raids which come as if out of nowhere, and slam gold with a vicious force so strong sometime they halt the entire market, had a very specific source: Barclays, whose trader Daniel James Plunkett, born 1976, "sent out a burst of orders aimed at moving the price of the yellow metal."

As we noted in the pre-open this morning, with the weekend just around the corner, it was virtually assured that the S&P would close at an all time high today - after all the people need to be confident when they go shopping at malls with money they don't have (but delighted by paper profits they haven't booked) so they boost the US non-GAAP GDP (at least before the BEA too, like Italy, changes the definition of GDP to include cocaine and hookers). Finally, assuring a (likely record) low-volume levitation today is the early closure of the bond pit ahead of Memorial Day holiday which also means only a skeleton crew of algos will be frontrunning each other to push the S&P over 1,900. Summing it all up perfectly - VIX closed at 15-month lows, Russell 2000 had its best week in 3 months, and Treasury yields are 13bps lower than when the S&P was last here... un-rigged.

Vladimir Putin has concluded his lengthy interview having covered everything from "the end of the unipolar model of the world" - i.e. de-dollarization - to US and Europe's responsibility for Ukraine's "full-scale civil war." The Russian leader noted that he's "trying to help Ukraine" but following the loans from the IMF asks "where's our money?" and warned that US sanctions have had little effect on the Russian economy but will have a boomerang effect. The following distills his 120 minute discussion... Putin "expects common sense to prevail."

Below, for the third year running, we present the 50 most shorted (and most convex) Russell 2000 names, which are sufficiently small and illiquid, that even the tiniest rumor or upgrade by a contrarian research shop is able to send into a short covering frenzy. They are sorted by short interest as a % of the float in declining order, which means that the absolutely most hated stocks are at the top.

A year ago it was the US which first "boosted" America's GDP by $500 billion - literally out of thin air - when it arbitrarily decided to include "intangibles" to the components that 'make up' GDP (in the process cutting over 5% from the US Debt/GDP ratio). Then Spain joined the fray. Then Greece. Then the UK. Then Nigeria, which showed those deveoped Keynesian basket cases how it is really done, when it doubled the size of its GDP overnight when it decided to change the base year of its GDP calculations. Now it is Italy's turn, and like everything else Italy does, this latest "revision" of the definition of GDP easily wins in the style points category. As Bloomberg reports, "Italy will include prostitution and illegal drug sales in the gross domestic product calculation this year." Yup: blow and hookers. And that, ladies and gents, how it's done.

"Words speak louder than actions until words stop working then we promise some actions... or more talk about actions." That appears to be the communication method-of-choice for the world's central bankers and The Bank Of Japan's Kuroda stepped into the breach today with his own demands. As Citi's Steven Englander translates, Kuroda is telling investors not to buy JPY just because the BoJ is being very reticent on policy ease (do as we say, not as we do). However, there is an important second message which is intended to be delivered to the Japanese bureaucracy - "Mr. Kuroda also acknowledged limits to what the BOJ can do to generate long-term growth."

The Secretary will be too busy with critical engagements and "Major Major never sees anyone in his office while he's in his office."--Catch 22

We have discussed the "costs" associated with US sanctions on Russia previously and while economic growth expectations have slowed - just as they have slowed for the entire world - despite the common knowledge meme being propogandzied across the mainstream media, as Bloomberg notes, the Russian Ruble is now notably stronger than before the sanctions and for those who ignored US sanctions and bought Russian stocks - the MSCI Russia Index has gained $90 billion since Jay Carney said "sell" as the sanctions hit.

Once again we get confirmation that this administration is the most transparent in history. The State Department's Marie Harf explained that John Kerry will not be attending the Select Committee hearing on Benghazi and must postpone his testimony to the House Oversight committee due "critical diplomatic work" he is undertaking. As the full letter below explains:

*HARF SAYS KERRY 'WILL APPEAR ONCE ON BENGHAZI'; SAYS NO NEED FOR KERRY TO GO BEFORE TWO COMMITTEES
*KERRY HAS 'CRITICAL DIPLOMATIC WORK' ON SUBPOENA DAY OF MAY 29

Furthermore, the State Department adds, "we believe there are witnesses better suited to answer questions regarding the Department’s response to Congressional investigations of the Benghazi attacks."

With hedge funds the most aggregate short since the peaks in 2007/8 and any long/short fund struggling to eke out anything but losses, this week's epic surge in the prices of the "most shorted" stocks confirms once again that the "dash for trash" is alive and well. Buying the "most shorted" stocks has been a massively outperforming strategy for well over a year, and as we noted here, the trend of major outperformance of 'weak balance sheet' firms over 'strong balance sheet' firms continues. The results... "most shorted" stocks +5.1% from last week's lows - more than doubling the S&P's 2% gains...

Three weeks after the formation of his company which "plans to" (as opposed to "is doing") "buy underdeveloped land and rill shale wells," 27-year-old Mark Hiduke raised $100 million from a local private equity firm. Makes perfect sense of course - especially after Dubai's 31x over-subscribed IPO for a firm with no operations - but perhaps the following sums it all up... "These guys are going to be the poster children of self-made oil and gas tycoons... or they could be the poster children of how too much money is chasing deals." Indeed...

Many of you remember Total Recall; but what about TotaL ReBulB?