Archive - May 2014

It seems Goldman Sachs is willing to do pretty much anything when it comes to maintaining SAC Capital (now Point72) Steve Cohen's liquidity. On the heels of last year's "stand by your man" moment in the midst of the insider-trading scandal, Goldman has kindly offered to provide Cohen another lifeline of liquidity - this time backed by his $1 billion art collection. As Bloomberg reports, Cohen pledged “certain items of fine art” under a security agreement which didn’t specify how much money was borrowed. As one art "investor" noted, this is not unusual, "hedge fund guys who manage their money wisely... look to put their art collections to work... If you can get liquidity out of your collection and pay only 250 basis points...it just makes sense." Sense, indeed!

There may have been some concern about demand coming into today's 3 Year auction, however that promptly dissipated moments ago when the latest issuance of $29 billion in 3 Year paper priced at a yield of 0.928%, 0.3 bps though the 0.931% when issued, and a Bid to Cover of 3.401, the highest since February. Still, following recent concerns about the short-end of the Treasury market (recall the "dots"), this was the highest primary yield on 3 Year paper since May 2011, which has been creeping higher in recent months, surpassing the latest Taper Tantrum highs of September 2013. Dealers took down 47.4% of the auction, below the 49.4% TTM average, leaving 28.1% to Indirects and 24.5% to Directs, well above the TTM average of 16.6%.

Presented with little comment aside to remind those momentum junkies about to pile in to this surely-fundamental-driven rally (and best-performing stock market in the world in 2014) that a "blank check" Dubai IPO was recently oversubscribed by 36x.

Because we’ve reached a point in time at which $1 trillion no longer sounds like a lot of money, we thought we’d go through the exercise of assessing just what the Fed could have done with this money besides give it to Wall Street.

When it comes to returns, 2013 will be best remembered as the fifth consecutive year in which the S&P 500, lead by Chief Risk Officer and Portfolio Manager Ben Bernanke (replaced by Janet Yellen in 2014 following a bumper 30%+ year), outperformed about 90% of all hedge funds, which as the recent beta blow up has shown, have virtually no original "alpha" ideas, and all merely piggyback on the same high beta "greater fool", hedge fund hotel trades and/or lever on beta as much as their Prime Broker will allow them (in many cases quite a lot). And yet, hedge fund investors were perfectly happy to keep handing over 20% of their upside and paying a 2% management fee when they could have generated the same returns for free by simply buying the SPY ETF. How happy? According to a just released ranking by Institutional Investor magazine, The 25 top earners of 2013 raked in a total of $21.15 billion.

Fascism Inc...

As Fiat unveils its grand five-year plan, it is clear where the car maker sees the real growth in the world...

• *MASERATI TARGETS 75,000 SALES IN 2018 FROM 15,400 IN 2013
• *MASERATI TARGETS EU6B REVENUE IN 2018 FROM EU1.7B IN 2013

Now that is growth!! Welcome to the new normal (or more likely the most massive mis-signaled mal-investment boom ever created) Extrapolating recent growth in Maserati sales would make even Birinyi proud.

So much for the post-cold-weather, pent-up demand stoked spending spree as human beings emerge from hibernation and buy-buy-buy all the food/iPads/clothes/cars they did not buy during the stormy first quarter... First, Goldman confirms that retail sales actually fell 2%, and then, more broadly, Gallup confirms that Americans' reports of daily spending in April averaged $88, virtually the same as in March ($87) and February ($87). Keep praying to the god of hockey-sticks that the now grossly revised down GDP for Q1 is merely setting the US up for the mother of all v-shaped recoveries (or not)...

Following the Ukraine government's most recent retaliatory escalation, which saw the death of some 50 people in Odessa on Friday, everyone has been waiting to see how the Kremlin would respond. For now while Putin appears to be merely biding his time until the various referendum votes take place in east Ukraine, quite confident they will have the same outcome as the Crimean vote to join Russia, thus giving him a legitimate basis to annex further Ukraine regions, some "independent" military units, according to local press, appear to be making their way into Ukraine: Cossacks, that roving group of militants (and sometimes mercenaries) who have been so instrumental in shaping the history of both Ukraine and Russia.

Many are perplexed by the 'strength' in Treasuries as yields collapse despite a headline payroll print propagandized (choosing to be non-believers in the bond-market's all-knowing eye). As Deutsche Bank notes, for well established reasons, a multi-decade Pavlovian response to much stronger than expected US data has been higher Treasury yields, which usually provides some USD lift. Last Friday, this plainly did not work, which proved extremely costly for many in the trading community. At a minimum Pavlov’s dog choked, but is Pavlov’s dog dead? The short answer is no, but Pavlov’s dog may have taken off the summer.

Update: JPM just jumped on the bandwagon and cut Q1 GDP to -0.8% from -0.4%. Don't worry: it snowed.

The US "recovery" is starting to feel more and more recessionary by the day. As we warned after we reported the trade deficit, it was only a matter of time before the Q1 GDP cuts came. And come they did, first from Barclays, and now from Goldman, which just doubled its GDP forecast loss for the past quarter from -0.3% to -0.6%.

With Syria (and its Al Qaeda-funded "rebels") having taken a back seat in geopolitical developments, some wondered what are all those heavily armed mercenaries doing. The answer emerged moments ago when Saudi Arabia’s Interior Ministry said Tuesday it had thwarted a major plot by a militant group with links to extremist elements in Syria and Yemen, arresting 62 suspected members.

Spanish (and now Italian - for the first time) bond yields are below 3% as Japanese investors pile into any and everything non-Japanese, dragging US Treasury yields lower - and thus US equities lower. JPY strength, however, has dragged USDJPY down towards 101.50 which means US equity futures have lost all of yesterday's gains. Of course, this weakness is merely proming the pump for another run at 102, igniting momentum for moar all-time-high dip buying and an 8th green Tuesday close in a row... (or not this time?) Gold is flat but silver and oil are moving higher.

Despite being told for weeks that the always efficient US equity market had "priced in" the end of Twitter's lock-up period, it seems (surprise) that it hadn't. Yesterday, some Twitter insiders were promising they would hang on to their stock now that the selling lock up has been lifted. Judging by today's price action, where TWTR is down another 7%, and is down over 50% from its all time high hit in late December, they lied.

A month ago, it was alleged, that Ukraine - under cover of night - loaded its gold reserves onto a plane and shipped them off (for safekeeping) in the US, as the potential price of 'liberation'. So how ironic that, given the massive gas debts that Ukraine owes to Russia (and prepayments pending), and sizable bond maturities pending, the first thing that Ukraine's National Bank governor will be buying with his freshly minted loan from the IMF is... buy a billion dollars of gold.