Archive - May 5, 2015

Americans might be quite surprised to know that even with all the U.S. Government sanctions and threats of war with Russia, America still imports a significant amount of petroleum from the former communist country. How much petroleum does the United States import from Russia? Actually, a lot more when we focus on net imports...

For the first time in 4 years, Appaloosa Management's David Tepper is not the highest-earning hedge fund manager in the world. Plunging from No.1 to tied-for-11th (with a mere $400 million earned last year) Tepper appears to have suddenly found investing difficult now that The Fed has stopped printing money (up just 2.2%). What is more ironic, perhaps, is that the other alleged beneficiary of Fed largesse (and recent hirer or blogger Ben Bernanke) - Citadel tops the list with Ken Griffin making $1.3 billion last year.

No one stays on top forever, and to be sure, when Bill Gross' long reign at the top of the fixed income universe finally came to a sudden and rather unceremonious end last October, the race to lay claim to the inevitable outflows from PIMCO's Total Return Fund was on. Now, a winner has emerged — and it's not Jeff Gundlach.

We can officially confirm that the gold redemptions from the world's (allegedly) largest gold vault have continued, and another 10 tons of gold was put on a ship (or plane) in March in an unknown direction. Since Germany and the Netherlands started repatriating a portion of their gold held in Manhattan, some 217 tons of gold has been redeemed starting in February 2014 and just under 200 tons in the past 12 months.

On the heels of Monday's news that the IMF may demand a write-off of Greek debt by European creditors before the organization will disburse its portion of a €7.2 billion aid tranche to Athens, it now appears the situation has deteriorated further with unnamed Greek officials reporting "serious disagreements" between the IMF and the EU which may make a compromise "impossible" by the critical May 12 deadline.

Despite a good start, since early March when The ECB began its bond-buying bonanza, things have not been going the way Mario Draghi had hoped. While inflation data inflected modestly higher (cough oil cough), European bond yields (and peripheral bond spreads) have widened notably. Whether this is "sell the news" trading, Gross-Gundlach-driven unwinds, or Greek "serious disappointment" contagion (Greek 10Y bond yields are up over 200bps from the announcement in January of ECB QE) is unclear... but what is clear is that if ECB bond-buying is not pressuring yields lower then how can they hope to contain real Grexit contagion?

This morning's collapse in the trade balance combined with weak export orders in the survey data suggests the decoupling meme is blowing up. However, it seems investors are losing faith in The Fed as there is broad-based selling in stocks, bonds, and the dollar (with commodities bid). Stocks are now in the red post-FOMC.

That escalated quickly...

The hope-strewn bounce in Services PMI over the last 3 months (despite collapsing macro data) has ended. Markit Services PMI dropped in April to 57.4, weakening notably from preliminary expectations of 57.8. Markit remains convinced that their survey implies 3% GDP growth and all is well in the world. ISM Services however smashed expectations, printing 57.8 vs 56.2, its highest since November - despite a plunge in new export orders into contraction.

Einhorn just found his next target: U.S. onshore E&Ps or the oil fracking companies.

Hope springs eternal. The S&P Energy sector is surging once again this morning as crude prices top $60 with stocks now back at Nov 2014 levels (up 12% in the last month). What most do not realize as they blindly follow the momentum, excited that 'something is working' is that the valuations - based on analysts' forward earnings projections - have only been marginally higher than this once... right at the peak in 1999. The S&P Energy sector trades at a 28x Fwd P/E!

After the Saudis allegedly halted their air campaign against Yemen's Houthi rebels on April 21 (allegedly because it promptly resumed the very next day to almost no public announcement), the Yemen civil war and the "skirmishes" by Houthi rebels along the border with the world's biggest oil exporter were quickly forgotten. Until this morning, when the Saudi press and social media has been overrun with reports that the Saudi city of Najran was shelled by Houthi mortars, an attack which Saudi advisor to the armed forces Ahmed Asiri said "will not pass without a response".

There is little advantage to be gained by being aggressively allocated during the summer months. However, in reality, there are few individuals that can maintain a strict discipline of only investing during seasonally strong periods consistently. Also, time frames of when you start and when you need your capital for retirement make HUGE differences in actual performance. However, a willful disregard of "risk" will inherently lead to the destruction of the two most precious and finite assets that all investors possess – capital and time.

As we first reported on Monday, ISIS has indeed claimed responsibility for the attack on a security guard in Garland, Texas on Sunday evening. In a statement, the group warns of further attacks that it promises will be "worse and more bitter" and may be "just around the corner."