Archive - Feb 2015

One bank which dared to go dramatically against the grain is Germany's Berenberg Bank, which earlier today forecast that AAPL's price will crash to $60, a plunge of more than 50%, due to two things: the law of large numbers, and over-reliance on one single product as the iPhone accounts for 85% of AAPL's operating profit. Putting this in perspective, the vast majority of sellside analysts have a price target well over $100, even the bears. .

What in god’s name does Janet Yellen think she is doing? Just a few weeks ago she established the ridiculous Fedspeak convention that “patient” means money market rates will not rise from the zero bound for at least two meetings. Now she has modified that message into “not exactly”.

It's fact-checking time once again. Having questioned the credibility of Dallas Fed's Richard Fisher previously, we thought this morning's comments by St.Louis Fed's Jim Bullard were worth investigating:

*DOLLAR EFFECTS ARE MARGINAL ON U.S. ECONOMY, SHOULDN'T INHIBIT GROWTH, FED'S BULLARD SAYS

Which just seems odd given the rest of the world's competitive devaluation efforts to 'improve' their economies. What we found will not surprise... but do not show this chart to Bullard.

The first anti-government rally in Athens turned ugly as anti-authoritarian protesters started to smash the windows of a pastry shop and two jewelry shops and put two vehicles and several garbage bins on fire. According to latest information, there was no intervention by riot police although squads were standing near by.

While economic indicators make "very poor bedfellows" for managing portfolios, they do provide some indication as to the relative risk of owning assets that are ultimately tied to economic cycles. Despite commentary to the contrary as of late, economic cycles have not been repealed, and the current economy is likely running on borrowed time. It is important to notice, that despite the "hype" of the mainstream media about the economic recovery, activity never rose past previous peaks in this cycle.

The levels of spin and denial are reminiscent of the run-up to the 2007 crisis. We and many others were ignored for highlighting the dangers facing the Irish and global economy then and are being ignored again now.

An evil exists...

Yesterday we provided the initial template for how to trade oil if you are an HFT idiot. Today we move to the next step in the evolution... In a perfect mirror of last week's trading, Oil dumped on API inventories this week, pumped on DOE inventories (both massively more than expected builds) and then dumped it all back the next day on absolutely no news whatsoever - back to a $48 handle. Tomorrow we have 'rig count' data - which by now we know is entirely irrelevent for now to any changes in supply - but last week created a manic meltup into the NYMEX close... trade accordingly.

Stocks are pricing in ECONOMIC PERFECTION and the reality is that the global economy is imploding.

Define irony: after earlier in the week speculators went massively short the 2Y and 5Y, pushing the repo rate "super special" and deep in negative territory on hopes of disappointing auctions, it was the 2 and 5 Year auctions earlier this week which were surprisingly strong forcing yet another round of mistimed short covers. And as fate would have it, it was today's 7 Year "belly" auction that was ignored by most. It was also the 7 Year that just priced in a surprisingly weak auction, coming to life with a yield of 1.834%, stopping well through the 1.826% When Issued. Confirming the weakness was also the Bid to Cover, which at 2.369 was the lowest since November of 2013.

"An open Internet is essential to the American economy, and increasingly to our very way of life," according to President Obama and it appears his perspective on the heavy hand of government regulation inserting itself into the last bastion of freedom and dynamism in the US economy, is how best to achieve "openness." Having pressured FCC's Tom Wheeler, the vote just came down: U.S. FCC APPROVES NET NEUTRALITY INTERNET RULES IN 3-2 VOTE. While potentially good for a consumer's pocketbook, the handing over of "fair-use" decision to the government, as we previously noted, could be the first step on a slippery slope to increased censorship. Welcome to "internet of political things."

Financial markets are upside down.  Financial repression and belief in the “Fed put” pushed investors further and further out the risk curve over the past six years.  Too many asset managers have remained fearful of underperforming peers and benchmarks; a powerful incentive to stay ‘risked-up’.   The psychology of bullish, and faith in Fed abilities, have been too firmly embedded in the investor class. Given that markets don’t seem to want to believe that a June hike looks probable, we expect an outsized market reaction to a hike, lower long yields to accompany it, a flatter curve, wider credit spreads, higher market volatility, and materially lower equity markets.

As soon as tomorrow, the one part of the US government which to many is a manifestation of all that is broken with the current US "big brother" state of pervasive, ubiquitous surveillance and broken immigration policies, the Department of Homeland Security which was created in response to September 11, and which houses the agencies with jurisdiction over immigration law, the U.S. Immigration and Customs Enforcement (ICE), U.S. Citizenship and Immigration Services (USCIS) and U.S. Customs and Border Protection (CBP) may be shut down. Here is what happens next.

The fact that Walmart raised wages in the manner that it did ought to have alerted the Fed that something is going on in the underlying employment dynamics of the labor market that they aren`t addressing with their current ZIRP stance.

In an Onion-esque story almosty too unbelievable to be real, IB Times reports, in a memo obtained by Capital New York, Cuomo officials announced that mass purging of email records is beginning across several state government agencies. The timing of the announcement, which followed through on a 2013 proposal, is worth noting: The large-scale destruction of state documents will be happening in the middle of a sprawling federal investigation of public corruption in Albany.