Archive - Oct 2015

It's crunch time for Wal-Mart as the iconic retail behemoth struggles to cope with the fallout from a move to spend billions on wage hikes for its meagerly compensated hourly employees. In order to avoid passing on rising labor costs to customers, the company has set its sights on the supply chain where some smaller vendors now say they're being driven out of business entirely.

At $43.96 (for the Dec contract), WTI is trading at its lowest level since August 28th (in the middle of the month-end massacre). The WTI-Brent  spread is at its widest in over 2 weeks "stressing the need for U.S. output to drop to get rid of the oversupply," warns Commerzbank commodity strategist Carsten Fritsch. Even more worrisome (for future hope), is the plunge in prompt contango (1st month - 2nd month) which has collapsed to 5-month lows.

Having soared 175 pips in two days, on the back of ECB and PBOC actions, USDJPY is rolling over this morning as a senior adviser to Japanese PM Shinzo Abe tells Reuters that The Bank of Japan "can wait a while" before easing more. This follows another adviser's comments on Friday that "further easing wasn't necessary." With a trail of broken markets (bonds first and now stocks), and broken promises (only 25% of Japanese now believe Abenomics will boost the economy), Abe faces an uphill battle in winning the fight against the "deflationary mindset" that officials have been so adamant they have already won.

Can the stock market completely ignore these five key changes and keep powering higher on the fumes of Mario Draghi's promises?

• European shares slip as easing expectations fade (Reuters)
• Valeant and Pharmacy More Intertwined Than Thought (WSJ)
• The Pawn Isolated: Valeant, Philidor and the Annals of Fraud (WSJ)
• Strongest Afghan Quake Since 1949 Triggers Search for Survivors (BBG)
• EU Agrees To Tighten Border Controls And Slow Migrant Arrival (AP)
• Volkswagen Suspends More Employees (WSJ)
• Volkswagen Loses Global Sales Lead to Toyota Amid Diesel Scandal (BBG)

If Valeant had hoped today's previously announced 8:00 am conference call, which is supposed to explain its relationship with Philidor and its network of pharmacies in general or, as the company put it, "to lay out the facts including allegations made against our company regarding our relationship with Philidor and R&O, our accounting practices, and channel stuffing that contain numerous errors, unsupported speculation and incorrect interpretations of facts and circumstances", would come and go and the price of VRX stock would promptly surge right back to $200, it was due for a very rude awakening when not one but two pieces came out once again slamming the company's business practices, and leading to even more questions about potential fraud at the increasingly more Tyco-esque roll-up.

In our Chinese stock market wrap following Friday's unexpected rate cut, which saw the Shanghai Composite storm out of the gate, we said that "we would not be surprised to see China's stocks sliding back into the red very shortly as "sell the news" concerns return, and as the increasingly more addicted "markets" demand even more liquidity from central banks just to stay unchanged, let alone rise to new all time highs." Sure enough, with just minutes to go before the close, the SHCOMP wiped out all its daily gains and was set for a red close had it not been for the "national team" miraculous last minute intervention which was inevitable after Friday's PBOC rate cut, and which lifted the composite 0.5% into the green as the euphoria was rapidly evaporating.

European leaders talk about two things these days; preserving European values by taking in Muslim migrants and integrating Muslim migrants into Europe by getting them to adopt European values. It does not occur to them that their plan to save European values depends on killing European values.

"It could simply be 1998/99 all over again. After all, a “speculative blow-off” in asset prices is one logical conclusion to a world dominated by central bank liquidity, technological disruption & wealth inequality. What worked back then? What rose from the rubble of 1998? How would one position for one final melt-up on Wall Street..."

Eurodollar curve captures the mechanics of Fed expectations in a simple way. Away from the very front end, the curve dynamics is displays a rather rigid structure where a single risk premium parameter explains bulk of the spreads movement in different sectors of the curve. Typically, in anticipation of Fed hikes or cuts, the market makes up its mind about the terminal Fed funds (Greens) and begins to price in the rates path around that. The more aggressive the initial hikes are, the less they will have to do later

China's key index, the Shanghai Composite, was is up over 1%, or 40 points in early, to just under 3,500 - the highest in 2 months, a gain which however is well below Friday's pre-rate cut gain and if prior rate cut history is any indication, not to mention the weak reaction by commodities on Friday (continuing into today, where WTI turned green by the smallest of margins just seconds ago we would not be surprised to see China's stocks sliding back into the red very shortly as "sell the news" concerns return, and as the increasingly more addicted "markets" demand even more liquidity from central banks just to stay unchanged, let alone rise to new all time highs.

A majority of Americans live in a fake world created by propaganda. They are disconnected from reality.

Brirriant!