Archive - Sep 4, 2014

Draghi did it (or didn't), blame him... From record intraday highs (on vapid volume) to 5-day lows in the S&P 500 as Mario Draghi cut rates even negative-er and promised to do more QEing. EURUSD collapsed over 2 big figures to 14-month lows below 1.2950. The implicit USD strength sparked selling in everything else. Treasuries pushed notably higher in yield (30Y +13bps on the week, 5Y +8bps) and held their yield highs as stocks started to collapse after Europe closed. The standard late-day machine-driven VWAP ramp lifted stocks off the lows, but S&P 2,000 remained elusive. Gold, silver, and oil all pushed lower as USD jerked higher. High-yield spreads jumped most in 6 weeks to 3-week wides and provided a warning to stocks all day. Bottom line - USD up, everything else down... (except Trannies).

It has been a while since Tepper warned of "nervous time" and told his hedge fund pals "don't be too freakin' long." Since then the manipulated equity market bubble has gone straight up with every single dip bought massively by the algos, in the process surely eliminating any nervous thoughts Tepper may have had. So in a world starved for pundit philosophy, Bloomberg just reported that the bond market bubble is about to pop, at least according to the folicularly challenged billionaire. The reason, paradoxically enough, the ECB's decision to monetize private assets and cut rates.

Who could have seen this coming? Well, credit markets for one. US equity markets have slipped into the red for the week, catching down to High-Yield credit's early warnings. The S&P 500 cash index is back at the magical 2,000 (so expect a magic bid). Treasury yields remain at the highs of the week (+12bps) but are beginning to limp lower. EURUSD is holding near its lows under 1.2950.

Encouraging and supporting asset bubbles is essentially the only force remaining to keep the system intact as we know it.

Since the inception of Obamacare, Humana up more than 440% because just as cereal manufacturers decrease their costs by putting less cereal in the same box, health insurers have raised the deductibles and co-insurance.

"when we look at wages for the 25th percentile of college graduates, the picture is not quite so rosy. In fact, there is almost no difference in the wages for this percentile ranking of college graduates and the median wage for high school graduates throughout the entire period. This means that the wages for a sizable share of college graduates below the 25th percentile are actually less than the wages earned by a typical worker with a high school diploma. While we can’t be sure that the wages of this group wouldn’t have been lower if they had never gone to college, this pattern strongly suggests that the economic benefit of a college education is relatively small for at least a quarter of those graduating with a bachelor’s degree."

A recent Fed paper reports that the Fed's wild money printing orgy has failed to produce much CPI inflation because “consumers are hoarding money”. It is said that this explains why so-called "money velocity" is low. Sadly, they are misinformed: In short, “hoarding” cannot possibly harm the economy. The same, alas and alack, cannot be said of money printing.

It seems like it was only yesterday when Goldman was predicting either two-thirds chance of a 10% correction in stocks, said that the S&P is either 30% or 45% overvalued relative to its historical value, or warned about a market slide when it downgraded the S&P500 "to neutral over 3 months as a sell-off in bonds could lead to a temporary sell-off in equities." Alas, that was the old Goldman: the one which still considered the impact of fundamentals in a centrally-planned world. The new one is far more pragmatic for the New Normal times, and overnight David Kostin, who has consistently fluctuated on either his year end S&P500 price target in 2014, or the justification for getting there (first higher bonds yields, then lower), came out with his latest thesis why now is the time to own stocks. Naturally, his catalysts have nothing to do with actual fundamentals, and instead all focus on the three only relevant metrics of the new normal: beta, momentum and career risk, which can be summarizes as follows: buy stocks because Hedge Funds suck.

Last week, many woke up to news that the UK had raised its terror threat level from “substantial” to “severe.” Considering the competence and trustworthiness of the nation’s Joint Terrorism Analysis Centre, there must be some specific threat they’re concerned about to justify instilling fear in a population of 65 million. Nope. Although the new threat level rates the risk of an attack on the UK to “highly likely,” Home Secretary Theresa May stated that “there was no evidence to suggest one was imminent.” Well then. It makes you wonder if the the change in threat level is being used in part to justify the extraordinary $80 million sum spent on building a fortress around the Newport and Cardiff city centers in Wales, which many are describing as “similar to the Berlin Wall,” or a “zoo,” in an unprecedented display of protection for many of the world’s most corrupt politicians.

Shelling is reported to have started on the eastern outskirts of Mariupol, Ukraine, according to local reporters on social media. This crucial city, due to its standing as the last major city standing in the way of a land connection to Crimea (from Russia) across the Southern border. Furthermore, Mariupol's strategic importance as a port and major industrial city is crucial to Kiev who are reinforcing the city after losing Novoazovsk last week, with the Ukrainian army on full alert. NATO has been actively sabre-rattling this morning, pulling a full Draghi by threatening to do "whatever it takes" to defend ourselves and our allies, and offering training and support for Ukraine (as they report over 3,000 Russian troops in Ukraine). Escalation?

U.S. District Judge Carl Barbier in New Orleans ruled today that BP was "grossly negligent" in the 2010 Deepwater Horizon rig explosion and may face up to $18 billion in civil penalties, according to The WSJ. In addition, Transocean and Halliburton were found 'negligent' - a lessor offense - (fines up to $1,100 per barrel for 'negligence', $4,300 for 'gross negligence'). This result comes 2 years after BP agreed to accept criminal responsibility for the disaster and to pay $4.5 billion in fines and restitution. BP quickly issued a statement that it will appeal the decision and believes the findings "are not supported by evidence at trial."

Bank of England plans to make bondholders and depositors bear the cost of bailing out failing banks has led Moody’s to downgrade its outlook on the UK banking sector.

Various US Senators applauded French President Hollande's decision to suspend the Mistral warship delivery to Russia yesterday. However, they may be disappointed today as, having clearly been reminded of the huge potential penalties that his nation would face (let alone lost revenue/rebates) if it were to cancel the delivery of 2 Mistral warships to Russia, Hollande "explained" today that the contract for the Mistral sale to Russia "is not broken or suspended" but will instead depend on events in the coming weeks. Ironically, the Russians may actually be pleased if the deal is canceled as they avoid overpaying for the ships and benefit from France's weakening.

Draghi quasi-delivered and, so far, no nuclear weapons have been dropped in Ukraine... must be time to BTFATH in stocks... so why are investors bidding up protection costs in equity and credit markets so aggressivley this morning?

Moments ago, the Institute for Supply Management, reported some blistering numbers in the August Non-Manufacturing Report, whose headline print rose once again, this time to 59.6, or the highest since August 2005. Not only that, but the all-important employment component, ahead of tomorrow's NFP report, which also rose to 57.1, printed at what, at least on the surface, was the highest number since February 2006!  Superficially, this is great news. And yet, remember: this is the seasonal-adjustment challenged ISM, the same ISM which for some inexplicable reason believes that survey responses (not hard, or soft data), have to be seasonally adjusted. So what happens when one looks below the seasonally-adjusted surface. Well, then things get uglier.