Archive - Jun 6, 2014

We recently noted that the average Russell 2000 stock is down over 22% and the majority of the broad equity market is well into correction territory as the rally is supported by fewer and fewer names (cough AAPL cough). However, as FBN's JC O'Hara notes, looking at the percent of stocks above their 200 day moving average in the S&P 500 vs the percent of stocks above their 200 day moving average for the Russell 2000, we find the spread is at its widest point in the history of our database. While we find breadth is not a proper market timing tool, a heightened reading often forewarned of troubles ahead. It was more common to alleviate a wide spread by the S&P pulling back to the Russell rather than the Russell playing catch up.

A month ago we pointed out that with April US consumer savings plunging to levels not seen since Lehman, the only place where the tapped out consumer could find some purchasing power is by maxing out their credit cards. This is precisely what happened: moments ago the Fed released its April consumer credit report and it was a doozy: expected to print at $15.00 billion, down from a pre-revision $17.5 billion, the April total instead exploded to a whopping $26.85 billion. This was the fifth biggest surge in history, and was only surpassed by the 2010 "cash for clunkers" record, as well as previous one time outliers in 1998, 2001, and 2006.

We can neither confirm nor deny that this is our first tweet.

— CIA (@CIA) June 6, 2014

Rejoice: the second cold war appears to be over (after Russia skillfully annexed Crimea). How do we know? The following clip of Obama and Putin chatting has been released, by the official account of the French president no less. No blows were exchanged. Surely this in itself is enough to push the VIX to the upper (or middle, or lower) single digits and send the S&P to just about 20x 2014 GAAP P/E...

For many months we have discussed the massive outperformance that buying the "most shorted" stocks has created. The 'alpha' generated fro buying the weakest balance sheet companies in preference of the stronger has enabled the dash-for-trash strategy (just as we saw yesterday when Tepper unleashed hell) to be the new meme. And so it is, like anything that is popular, ETFTrends reports that ETFis - a turnkey ETF provider - has filed with the SEC to launch an actively managed short squeeze fund...

While the Fed's presidents are scratching their heads at the quandary that consolidated cross-asset volatility continues to tumble to never before seen levels, the NY Fed's trading desk, clearly rushing to get to the Hamptons, just sold enough VIX futs to push VIX not only 6% lower for the day, but to the lowest print since 2011. Next up: single digit VIX and the disappearance of all risk.

If corporate profits decline (as they did in Q1), what will hold up the market's lofty valuations other than the tapering flood of liquidity from the Federal Reserve? Answer: nothing. Complacent punters will discover to their great dismay that liquidity is only one dynamic of many.

With the weight of the world on his shoulders, President Obama took time out to lunge and lift at a hotel in Warsaw, Poland. The grimacing golfer was caught in action getting pumped up before meeting Ukraine's Poroshenko...

One after another pundit has tried to explain the relentless bid for US Treasurys, and failed. First it was the March geopolitical shock, and the "capital outflows" from Russia that were supposedly entering the "safety" of US paper. Well, today Russian stocks just hit a bull market from the recent sell off (despite, or perhaps in spite of, Draghi's idiotic "estimate" of €160 billion in Russian capital outflows), however without a comparable move lower in the 10 Year, meaning it was not Russian capital reallocation that was pushing US Treasurys higher. Then, a new theory appeared, namely that pension funds, seeking to lock up equity upside, will "reverse rotate" out of stocks and into bonds. Judging by where US stocks are trading, they certainly did not rotate nearly enough, and now courtesy of Bank of America which parsed the latest Flow of Funds report, we learn that the in fact "buying of bonds by pension funds slowed down significantly in 1Q."

In case you were wondering why US equities are charging higer yet again today on mediocre news (while bonds shrug), we offer another potential reason... Russian stocks are now in bull market territory off the mid-March "sanctions" lows... not exactly the "costs" that the US had in mind and thus even more curcial that S equities are lifted (by any nunber of visible and invisible hands) to show just how powerful the status quo of the West still is (the S&P is up 5% in the same period). Perhaps even more importantly, this refutes any thesis that bonds are higher only due to Russian capital outflow (i.e. flight to safety).

As #MarginCompression creeps into one the fastest growing industries of the millenium...

As we noted in the pre-open, the "BTFATH mentality" will be alive in well' and sure enough Goldman Sachs' S&P 500 Target for June 2015 was 1950, we just reached it 11 months early (1949.25 highs to be exact). Their corresponding target for 10Y yields at that level of S&P is 3.50% (so we are 90bps lower) and earnings expectations to support that price was $120 per share (dramatically higher than the current level). Goldman's 2014 Target is 3% lower than the current level. Nothing to see here, move along...

D-Day 2014