Archive - May 2014

One Wall Street strategist who appears to have thrown in the towel on the entire rising wages debate is none other than BofA's chief economist, Ethan Harris, who in a note released on Friday fires the proverbial shot across the David Rosenberg bow regarding rising wage pressures: "Don't hold your breath."

In the big pharma M&A scramble, TEVA has been hosting potential suitors and may become the next acquisition target.

When the business of truth-saying in a civil-war-strafed nation puts a price on your head... you know things are getting out of control...

Upon closer inspection, the report was a total disaster. You wouldn’t know this from the financial media’s coverage, but it was.

The Coppock Curve's message is straightforward: get out of the market and stay out until at least the first quarter of 2015. After five years of upside, the old trading saw comes to mind: bulls make money, bears make money, but pigs get slaughtered.

Over the weekend, Bloomberg had an interesting piece about two of the main reasons why while stocks continue to rise to new all time highs, the expected selling in bonds - because in a normal world, what is good for stocks should be bad for bonds - isn't materializing, and instead earlier this morning the 10 Year tumbled to the lowest since February, while last week the 30 Year retraced 50% of its post-Taper Tantrum slide, or in short a complete disconnect between stocks and bonds.

For 18 years, the Ira Sohn Conference has enabled hedge fund managers to pitch their best long (and short) ideas to the rest of the investing public. This year's speakers include Bill Ackman, David Einhorn, Jeff Gundlach, Jim Grant, and Paul Tudor Jones. Listen carefully, trade accordingly, but bear in mind the following table when judging just how masterful of the universe these guys really are...

The risky borrowing indicators are troubling. They show that we’ve reverted to old habits of borrowing far more than we can fund with non-money savings. At almost 10% of GDP in 2013, risky borrowing is higher than in all but the early 1970s and middle part of the last decade. This tells us that we’re accumulating risk at a rapid clip, although not for as long as in those earlier episodes. (Yet.) Worse still, policymakers and mainstream economists are unperturbed, failing to acknowledge that some types of financing are riskier than others. It’s as if we’re stuck at a 1970s Pepsi Challenge booth, watching people debate cola tastes with no mention of health risks. With ample evidence of these risks, how can this be? One theory is that the current generation of mainstream economists staked their careers on the soda business, filling resumes with research on topics such as sweetness and carbonation, but nothing on health. It’s just too big a step for them to acknowledge that the old research is unhelpful and the resumes hollow. We can only hope that the unpopular, long-term thinkers who are willing to take that step become more influential over time. In the meantime, keep an eye on the sources of financing and, in particular, the three indicators of risky borrowing discussed below.

Whocoulda seen that coming? A market that rips 1% low to high at the open as VIX's late-day collapse on Friday is smashed higher and then ripper lower results in... CBOE breaking!!

*CBOE SAYS SOME COMPLEX RATIO ORDERS MAY NOT EXECUTE (only HFT uses complex orders)
*CBOE: DUE TO C2 ISSUE, GOLG8 (Google Options) CURRENTLY UNAVAILABLE FOR TRADING

Welcome to the unrigged markets...

JPMorgan's global manufacturing PMI tumbled to its lowest level since October 2013 in April with the fastest 2-month drop in almost 2 years. At 51.9, the index is still in expansion (for the 17th month in a row) but the employment sub-index dropped as there is no sign of a post-weather bounce across the world.

While we are tired of seeing various numbers and charts "explaining" the US employment situation as much as the next guy, here is just one final, and decidedly simple chart, summarizing precisely where the US job market stands.

The good news: in April, 118.4 million Americans had a full-time job, the most since November 2008.
The bad news: in April 9.8 million Americans were unemployed, 92 million people were out of the labor force, and 27.3 million people had part-time jobs. A total of 129.1 million, the most since ever.

Just 2 days after the first Ukrainian military helicopter was shot down, Ukraine's defense ministry confirms an Mi-24 chopper was shot down in the eastern region of Donetsk. As the following clip shows, it appears the helicopter came under large-caliber machine gun fire, a flash is seen, and then the chopper falls from view. The Defense Ministry confirms the pilots survived as the chopped crashed into a nearby river. One wonders how many more helicopters (that are in working condition and still have a full gas tank) Kiev, i) has; and ii) can afford to lose to eastern separatists as the Ukraine conflicts becomes an all out civil war?

At 51.3, the employment sub-index of the ISM Services data is at its lowest since May 2013 (ex February's "weather" impacted plunge). But hey - who cares about jobs, the headline improved to 8-month highs and beat expectations so sell JPY and buy stocks... new export orders (and new orders overall) rose to 8 months highs (but we don't need jobs for that?)... As an aside, Prices Paid surged to its highest since October 2012 as cost-push inflation appears to be looming.

While modestly better than expected, Markit's Services PMI fell in April from March's snap-back "we are saved" post-weather bounce.. and that's the good news! While abover "50" and this in expansion mode, job creation slipped to 13-month lows! As Markit summarizes, "the surveys are also signalling an easing in the rate of job creation since the start of the year, pointing to private sector payroll growth in the region of 100k, meaning a substantial slowing compared to the recent average 225k increases signalled by official data over the past three months."

None other than status-quo-hugger Berkshire Hathaway's Charlie Munger took aim at the scourge of HFT this morning; blasting high-frequency traders as "the functional equivalent of letting rats into a granary," and exclaims "it does the rest of civilization no good at all." Buffett reminds that HFT is "not a liquidity provider, " explaining that while it does produce volume, that is not the same as liquidity; and while the Oracle opines (incorrectly) that the small investor has never had it so good, Munger is quick to point out that the money HFT makes does not come from heaven and in fact it is the small investor who is hurt by the fact that large investors (who mostly act on small investors' behalf) are severely impacted. Even the usually abstinent Bill Gates remarks upon HFT as "adding no value.. because when the liquidity is needed, it isn't there." Munger sums it up: "I don't like it."