Archive - Oct 20, 2015

After yesterday's 110% gain, one could have been forgiven for thinking some profit-taking was in order... or a pause. Nope... WTW is up another 30% today as the 57% short interest is about to be Volkswagen'd...

The second tech bubble, one which has seen nearly 200 tech "unicorns" rising out of the ZIRP ashes in the past few years and promptly attaining valuations of over $1 billion, is bursting. WSJ reports that investment bankers cautioned Dropbox that the San Francisco company might be unable to go public at its latest private round "valuation" of $10 billion.

"In the West, they talk about ‘moderate opposition,’ but we so far haven’t seen any in Syria. Any person who takes up arms and fights the legal authorities, how moderate can he be?"

It's been quite a wild ride for The Dow over the last 24 hours. Panic-buying into last night's cash close was eviscerated by IBM. Then, following reports of a 15% cut in components orders according to the China Times, AAPL has lost ground, also weighing the Dow down.

Have no fear America, because General Nagata is about to take a "senior" counterterrorism position which means the country will be protected from extremism by the kind of "creative thinking" that sent 60 undertrained fighters into the most dangerous place on earth "ill-prepared for an enemy attack" with "no support from the local population" and "poor intelligence about their foes."

Current oil prices are simply not low enough to stop over-production. Unless external investment capital is curtailed and producers learn to live within cash flow, a production surplus and low oil prices will persist for years.

"Even though I had expected Q4 to contain lots of two-way volatility my expectation was generally for another risk-off quarter, and I felt that my S&P stop loss (weekly close above 2020 on the cash index) would afford me a prudent degree of cushion and comfort to absorb this expected two-way volatility. I did not expect such a strong risk-on move in response to such bad data!"

The current detachment between the financial markets and the real economy continues. The Federal Reserve's continued accommodative stance continues to support asset prices despite a decline in profit margins, an increase in deflationary pressures and a weak economic backdrop. So, while jobless claims and job openings may be touted as signs of an improving job market, the data suggests that we have likely seen the peak for this current economic cycle.

Having missed for the last 2 months, Housing Starts bounced 6.5% in September back to cycle highs (which previously occurred right before the last recession). The South and West regions both saw housing completions drop notably (as The Midwest soared as housing starts slid in that region). However, the more forward-looking Building Permits remains well off the June pre-reg change spike highs. Despite soaring homebuilder sentiment, permits plunged to 1.103mm SAAR - the lowest in 7 months - thanks to a collapse in multi-family permits to the lowest since 2014.

Investors are too complacent (the Minsky-Moment).  Too many are still trying to profit from the Fed subsidy of past stimulus. Investors remain loaded in risk assets, incentivized by the need to beat peers and benchmarks and comforted into complacency by the Fed ‘put’. The true level of risk is being ignored. The pervasive mentality of seeking maximum risk has become a terrible risk/reward trade for two main reasons...

The weaker US dollar, the probability of near-zero interest rates for the remainder of the year and a seasonal increase in demand is underpinning the positive potential for gold.

• Canada's Trudeau topples PM Harper in shock election win (Reuters)
• Where Canada’s Harper Hit Hurdles (WSJ)
• Pugnacious Trudeau Steps Out of Father's Shadow and Into Power (BBG)
• European Stocks Decline, Euro Rallies as ECB QE Optimism Fades (BBG)
• Valeant, Under Pressure About Price Increases, Plans Changes (WSJ)
• Syrian rebels say they receive more weapons for Aleppo battle (Reuters)

When just days after Yum! Brands saw its biggest earnings disappointment in years sending its shares cratering following Chinese results which cames orders of magnitude below expectations and leading to a major guidance cut, it appointed Icahn protege, activist investor Keith Meister to its board, many speculated that some major spin-off, or split of the company's China facing assets, was just a matter of time. And so it was, less than a week to be precise. Moments ago Yum! Brands announced its intention to split into two companies creating a publicly traded Yum! China or ("Bad Yum") which will contain the ongoing Chinese weakness, while keepping legacy Yum! Brands.

After yesterday's closing ramp "prudently" just ahead of an abysmal IBM earnings report with the lowest revenues since 2002, and the latest rally in capital markets which sent European stocks to their highest level since August on the back of a barrage of global bad data which has unleashed the Pavlovian liquidity dogs screaming for moar central bank bailouts, this morning has seen a modest decline in the Stoxx 600 driven by energy names, while S&P500 futures are set to open lower on IBM's disappointment at least until the latest massive BOJ USDJPY buying spree sends the pair to 120 and the S&P solidly in the green. The biggest political event overnight was the Canadian election, where Trudeau's liberals swept PM Harper from power, capping the biggest political comeback in the country's history; the Canadian dollar is largely unchanged after initially weakening then rising.

In the early 2000’s, I began to advise friends and associates that much of the world would likely be entering a depression before the decade was out.