Archive - May 2014

When it comes to stocks - "everyone" knows the "Tuesday effect". When it comes to volatility - "everyone" knows the "just sell you idiot" effect. But, as Citigroup's Richard Cochinos explains (and Bloomberg annotates in charts so simple a 5th grader can get it), there is now an FX trade for dummies...

It has been over two months since Malaysian flight MH-370 disappeared and still not a single credible trace of its final resting place has been found. Since then, there have been absolutely no actionable leads, and it increasingly appears as if the plane fell off the face of the earth.  In short: "nobody knows." Or so the conventional wisdom goes. One person, however, who thinks someone may know more than they are letting on is none other than the man who was the Prime Minister of Malaysia from 1981 to 2003, Mahathir Mohamad, and who in a blog post earlier today has some rather provocative questions and thoughts. His conclusion, after noting that "planes like MH370 "don't just disappear" is that CIA and Boeing may be hiding information about missing MH370.

As expected and discussed earlier in the day, Credit Suisse appears has become the first major bank to admit to doing anything wrong (though obviously unrelated directly to the financial crisis):

• U.S. FILES CRIMINAL CASE AGAINST CREDIT SUISSE IN FEDERAL COURT
• CREDIT SUISSE AGREES TO PLEAD GUILTY IN TAX CASE SAYS U.S
• CREDIT SUISSE PLEA WOULD END THREE YEAR U.S. INVESTIGATION
• U.S. ALLEGES CREDIT SUISSE AIDED U.S. CITIZENS IN TAX EVASION

Expectations are for a $2.6 billion settlement ($1.9bn to DoJ & $0.7bn to NY) - notably more than the ~$475 million CS has reserved for the settlement - but Eric Holder's due to speak at a press conference at 6pmET to cover the details (but will anyone go to jail?)

The clip-on camera company has filed for its IPO. GoPro, which will list on NASDAQ under the symbol GPRO, would, however, probably prefer you not focus too closely on its financials... sshh - EBIDTA -30% YoY for comparable quarter?

Having dramatically exposed the dismal state of JCPenney stores and the sad dismantling of Sears, Belus Capital Advisors' Brian Sozzi has gone north and found his another sad retail spectacle... in Target Canada.

The economic system in which we live today is a crony capitalist system or, we might say, a system of money socialism. And that’s Piketty’s greatest error: to blame capitalism for the negative effects of crony capitalism and money socialism. But perhaps it is no error. Perhaps, he only wants to be loved by politicians and the IMF. I think they love him already, though.

Last week we highlighted just how "rigged" the casino really is (real casinos - as opposed to the equity markets) and while that was shocking, the USA can be proud of another exceptionalism... As The Economist notes, at $119 billion in 2013, the United States was the biggest gambling loser in the world. However, on a per capita basis, Australia and Singapore top the list.

Equity volumes were abysmal today... (NYSE lowest in 2014) which means only one thing... a VIX-driven levitation. Bonds sold off at the long-end (30Y +4bps) but the short-end remained bid (5Y -1bp) but did get 5s30s back to 5 week steeps. USDJPY bounced off  its 200DMA (~101.25) but did not really support stocks higher. Credit markets did not buy the exuberance in stocks either. What today's ramp appears to have been was a gap-fill for VIX from Friday's dislocation on a day with no macro data to upset the algo stop-run procession. Gold and silver (along with all commodities) overnight but once the US day session opened, the selling began and PMs closed unch. The USD ended down 0.1% led by modest EUR strength (despite ECB jawboning) and AUD weakness (rumors of downgrades). "Most shorted" stocks rallied almost 3% from Friday's lows (when S&P bounced off its 50DMA) as once again a squeeze manufactures broad index pick-ups.

Forget international capital flows, forget central banks (even though the world's reaction to the ECB enacting such an extreme policy - QE- this far down the 'recovery' raises questions about the entire false state of the world), and forget positioning... Rick Santelli - stunned at the disconnect between stocks and bonds off the February lows... says there is only one number that matters for lower rates - Nasdaq 3996.

First there was "long social-media", then "short bonds", and now - as Credit Suisse notes - the next "pain trade" appears to be building in USDJPY (which is very worrisome for broad risk assets in general).

After little more than a year of legitimate revaluation of equities following the 2007-2009 credit crisis, and more than three years of what will likely turn out to be wholly impermanent – if dazzling – Fed-induced speculation, investors have again pushed the stone to the top of the mountain. Despite the devastating losses of half the market’s value in 2000-2002 and 2007-2009, investors experience no fear – no suffering as a result of present market extremes. There is no suffering because at every step, as Camus might have observed, “the hope of succeeding” upholds them. As we discussed several months ago, that hope of succeeding rests on what economist J.K. Galbraith called “the extreme brevity of the financial memory.” Part of that brevity rests on ignoring the forest for the trees, and failing to consider movements further up the mountain in the context of how far the stone typically falls once it gets loose. The charts below display various journeys of Sisyphus - a chronicle of multi-year, increasingly speculative market advances that terminated in the same set of conditions that we presently observe.

Ironically, the Fed does have a point: rates do impact existing home sales. The only problem is that according to actual, historical data, not some Fed model projection based on ridiculous assumptions, they impact it exactly in the opposite way of what the Fed proposes!

At $250,000 per speech, this better be worth it...

• *BERNANKE SAYS QE WASN'T A PANACEA BUT `AVOIDED DEFLATION'
• *BERNANKE SAYS EQUITIES HAVE RISEN BECAUSE ECONOMY IS STRONGER
• *BERNANKE SAYS FED BALANCE SHEET COULD BE KEPT LARGE IF NEEDED

It appears not...