Archive - Aug 2014

Any day, week, month, year now... Japan's adjusted trade balance missed expectations by the most since October 2013 (back over a JPY1 trillion deficit) as the QQE-ing, j-curve-any-minute-now nation awaits the arrival of the competitive pickup for the 40th month in a row. Exports beat expectations (which we are sure will be the headline crowed about by all) but imports surged by 2.3% (against expectations of a 1.5% drop). It appears you single-handedly devalue yourself to prosperity in an interconnected world after all - whocouldanode? As we said before, "Monetary debasement does NOT result in an economic recovery, because no nation can force another to pay for its recovery."

In the past, the president has been quick to weigh in on issues regarding race. Waiting until all the facts of a case are confirmed may be a better approach.

The world’s central bankers have given companies the urge to merge. Merger and Acquisition (M&A) activity has already reached $2.2 trillion this year according to Thomson Reuters Deals Intelligence, up 70% from this time a year ago. The deals are big, with eight acquisitions, each over $5 billion, being announced in just a single week in July. However CEO buying sprees do not create new jobs and new products that make our lives better, but are instead just wasteful malinvestments that destroy capital. The cost of capital is integral to making these assumptions. The lower the assumed interest rate or cost of capital, the higher the price for the acquisition that the models will justify. Once interest rates go up, these valuation models will be blown to pieces.

This is what 5 years of golf courses gets you...

As they say, you're the average of the five people you spend the most time with...

Presented with little comment... because if this doesn't wake people up to the unreality of the stock 'market', nothing will. Hertz has ripped higher 8 days in a row, surging over 18% in that period as analysts and talking heads piled on proclaiming how wonderful it is.. and then:

*HERTZ HAS DECIDED TO WITHDRAW 2014 FINANCIAL GUIDANCE
*HERTZ EXPECTS TO BE WELL BELOW LOW END OF 2014 GUIDANCE

Must be a one-off idiosyncratic issue right?

The FOMC has used experimental tools for so long to keep the accelerator pressed that it fears what happens when the car stops. Therefore, the FOMC believes they have little choice other than to keep the car going forward, which works until it doesn’t. The risk/reward tradeoff continues to skew unfavorably. The farther markets move into the right-tail side of the distribution curve, the deeper they will eventually more into the left-tail. Vrooom...Crash.

"At a time when so much may seem uncertain, the people of Ferguson can have confidence that the Justice Department intends to learn - in a fair and thorough manner - exactly what happened... In order to begin the healing process, however, we must first see an end to the acts of violence in the streets of Ferguson."

The angry mobs have assembled early today, with KTVI reporting that moments ago the Justice Center in Clayton, MO has been put on lockdown. The reason: a flash mob has just appeared outside. We understand their anger, but what we don't get is why don't they just buy stocks instead: wouldn't the protesters rather be wealthy than furious and screaming? Plus, it's not as if there is any risk in buying stocks.

Nobody really believes the official narrative that the "recovery" is powering the remarkable strength of U.S. stocks, bonds and real estate. The real Main Street economy is quite obviously struggling, outside the energy and Federal government sectors, and so many see the Federal Reserve's free money for financiers (a.k.a. quantitative easing) bond and mortgage-buying programs as the real reason bond yields have declined and stocks have soared. This leads us to wonder if capital inflows into the U.S. aren't a largely overlooked driver of rising U.S. markets.

S&P futures traded the lowest volume of the year today (for a non-holiday trading day) and volume has slid consistently lower as this rally of the last 8 days. The S&P outperformed today (up over 0.5%) as yesterday's oil-is-falling-so-buy-Trannies meme reversed into oil-is-falling-so-sell-Trannies which ended the day almost unchanged. The Nasdaq made new 14-year highs, up 5 days in a row. Treasury yields dropped notably early on then surged higher as US stocks opened (30Y +8bps on the week). The USD index also surged today (up 0.55% on the week) to new 11-month highs as EUR and CHF weakened notably. Commodities in general were clubbed like baby seals with copper, silver, and WTI hammered (but not Brent) after the inflation/housing data leaving oil under $95 - its lowest in 7 months. Gold fell much more modestly (but ended below $1300). AAPL closes at all-time high. VIX and HY Credit diverge notably from stocks after Europe closed.

If you like your blissful ignorance, you can keep it...

Good thing the Federal Reserve isn`t worried about inflation, another 2% rise is just noise.  But  when the Fed does start worrying about inflation, not only is it too late, it is 1970s too late!

On the bright side, Nigeria claims it is "cautiously optimistic" about the spread of Ebola in Lagos; however, 3 more cases reported and the fact that Cameroon has decided to block all borders with Nigeria because "it is better to act preventively rather than have to heal" suggests things are anything but under control. The 17 quarantined Ebola-symptomatic patients that escaped from a Liberia clininc have been found and put back into quarantine in another clinic. The WHO reports the rate of cases and deaths are accelerating further with 1,229 deaths and 2,240 reported cases with Austria the most recent nation to get a scare as APA reports two cases found.