Archive - Sep 2015

Paying a premium for a pet rock?

Home building is a miserable business. First you borrow to buy land, then borrow some more to develop land, then more to build, while paying out exorbitant executive compensation all along. Years later, you finally sell the finished product, maybe for a profit, maybe at a loss. Builders have been buying more land at much higher prices in hope for a continuation of optimal conditions. Lucrative margins can turn into large losses, much like 2006-07. Unless the Yellen Fed comes up with a big surprise, shorting rallies will be the way to go.

Despite saying that press reports of the CEO leaving were "utterly ridiculous", he just did:

*VW CEO WINTERKORN STEPPING DOWN OVER WIDENING DIESEL SCANDAL
*VW'S WINTERKORN SAYS UNAWARE OF ANY WRONGDOING ON MY PART

One can only wonder what his "retirement" package will be.

Burn baby burn!

The BRL is plunging anew, puntuating the largest five day drop in four years and hitting fresh record lows agains the dollar.

Following API's bigger than expected inventory draw, DOE confirmed a 1.925mm draw (more than expected) but the bigger story is likely that crude production rose 0.21% - the first rise in 8 weeks. Crude's initial reaction was dip but algos have morphed that into a rip now above $47.

The US government’s ongoing drone strikes in Yemen are little-known to the general American public, but, according to a U.N. report published last week, U.S. drone strikes have killed roughly 40 Yemeni civilians in the past year. The figure is 60% greater than the number of civilians killed by al Qaeda in that same period (al Qaeda is reportedly responsible for 24 civilian deaths).

The FBI has recovered the personal and work-related e-mails from the private computer server used by Hillary Clinton during her time as secretary of state, and which had allegedly been wiped clea. The FBI obtained Clinton’s server from the Colorado-based company managing it. The Federal Bureau of Investigation’s success at salvaging personal e-mails that Clinton said had been deleted raises the possibility that the Democratic presidential candidate’s correspondence eventually could become public. The disclosure of such e-mails would likely fan the controversy over Clinton’s use of a private e-mail system for official business.

On the heels of dismal China manufacturing data (worst PMI since March 2009) and mixed-to-weaker European data, US Manufacturing PMI printed a September preliminary 53.0 (flat from 53.0 in August and modestly better than expectations of 52.8). This is the equal lowest print since Oct 2013. Underlying components are mixed (factory prices dropped for first time in 3 years and new orders and employment slowed), but, confirming what Yellen told us last week (that the US economys is to fragile to handle a 25bps rate hike), Markit notes, "the sluggish growth, weaker forward-looking indicators and downturn in price pressures all point to the Fed holding off with rate hikes until next year."

Hope, once again, did not triumph over reality...

Our freedom and prosperity ends when we adopt the counterparty theft of central bank’s monopoly money.

From Novotny, Coeure, and Jazbec, the leaks this morning have been clearly angled towards "do not expect any more Q€ anytime soon," so one wonders if, having seen the reaction in EUR weakness still whether Mario Draghi will try and talk these 'hawkish' comments back?

The fallout from the emissions scandal that triggered a harrowing plunge in Volkswagen's shares and now threatens to derail the German economy continues as Detusche Bank delivers a sobering assessment, the Green party blames Berlin, BaFin lanches an investigation, and the town of Wolfsburg panics.

While investors (or more likely, traders) often agonize over each and every tick of a market, there are undoubtedly some junctures that are more critical than others. European equities appear to be at such a juncture presently.

"Mainstream America with their 401Ks are in a similar pickle. Expecting 8-10% to pay for education, healthcare, retirement or simply taking an accustomed vacation, they won’t be doing much of it as long as short term yields are at zero. They are not so much in a pickle barrel as they are on a revolving spit, being slowly cooked alive while central bankers focus on their Taylor models and fight non-existent inflation."