October 5th, 2011
Art Cashin On Bernanke Quoting Shakespeare In Swahili, And Everything Else In Yesterday's Surreal Trading DaySubmitted by Tyler Durden on 10/05/2011 10:22 -0400
To some, yesterday's ridiculous 400 point move in the DJIA in just over 30 minutes on nothing but yet another denied FT rumor, is still mindboggling. Make that to most. Although making things far easier would be to finally accept that the market is completely broken. It is. But in the meantime, here is one way of enjoying it, courtesy of the perspective of the Fermentation Chairman who summarizes all that happened though his veteran eyes.
Slight Beat In Services ISM Ignored Due To Weakest Employment Index Since March 2010; Respondents Uniformly BearishSubmitted by Tyler Durden on 10/05/2011 10:13 -0400
With everyone focusing on the jobs number this Friday, following today's two contrasting data pieces from the abysmal Challenger layoffs report and the better than expected ADP report, one can see why the just released September Non-Manufacturing ISM, which came in modestly better than expected, in fact brings less than great news. While the overall NMI came at 53, a drop from 53.3, but better than expected 52.8, it is the Employment index that is attracting everyone's attention, printing at 48.7, down from 51.6: the lowest from March 2010, which has offset an improvement in both New Orders and Business Activity. And the kicker, all the responses in the survey were negative across the board with this one taking first prize: "It appears everyone is waiting to see what happens next. No trust in the economy or the federal government to do what is needed."Q.E.D.
There are only two ways for Apple to proceed (as) successfully in the medium term: 1) cut prices or 2) raise the technological bar. Either way, margins get hit. This is the first time Apple has released a smart product to boos from expectations set by the Android camp!!!
In the interests of sanity and reality, we thought it worthwhile to note the wild and whacky rumors and statements emanating from Europe this morning. These range from agreeing that banks need recaps (ut not in 'our' country), if there was a problem we'd help (but by 'us' we mean all 17 EU states agreeing), banks are not insolvent or illiquid (but we may need stress tests again), and while Greece is going well we may need more PSI...it is incredible that we actually expect anything from these disparate states, let alone rally on non-news.
From Goldman, October 5, 2011: "Our thesis was that, given time, Dexia’s legacy assets should run down, its unrealized loss pull to par (independently of credit spreads), in turn boosting equity growth and reducing funding requirements. The opposite took place: a deepening sovereign crisis increased the riskiness of these assets, resulting in a wider AFS negative reserve and forcing higher losses on disposal as well as higher than anticipated funding requirements. The headroom to progressively delever is therefore taken away and forced immediate action, as announced by the bank on October 4." From Zero Hedge, May 25, 2011: "Is Belgium's Dexia About To Be The First Greek Casualty?"
The start of the endgame? Soon we will know.
...but it is hardly necessary.
What do MS CDS and S&P Futures have in common? Everything AND Nothing. MS CDS and ES (E-mini S&P Futures) are clearly correlated. As MS CDS tightens, S&P futures rally, and vice versa. That is pretty clear. They are also the two most talked about things all day long lately. That is where the differences become blatantly obvious. I have to admit that I am sick of listening to talk about MS CDS when so much of the conversation addresses issues like volumes, liquidity, transparency, depth, counterparty risk, etc., when all of those issues could be, and should have been, addressed by regulators. The focus should be on whether or not there is value in MS credit at these prices/spreads not whether the prices/spreads are merely an illusion. I suspect that if we had all the same transparency that exists for stocks, MS CDS and bond spreads would be exactly the same as they are now, but at least we could be focused on the real problems and issues at MS.
And now it's time to look at the ADP September Private Employment Report which over the past year has had roughly a zero correlation with NFP. Apparently, despite all signs to the contrary, the private sector created 91,000 jobs in September: a month in which stocks and confidence plunged, up 2000 from August, and better than the 75,000 expected. The bulk of job creation supposedly was at the Small Business sector which added 60,000 jobs, 36,000 added to Medium, and Large business dropped 5,000. From the report: "“Like August, this month’s jobs report continues to show modest job creation,” said Gary C. Butler, Chief Executive Officer of ADP. “The number of jobs added to the private sector in August and September were virtually identical. Once again, the small business services-sector led the way, contributing almost two-thirds of all new jobs. Small businesses overall showed positive growth for the 22nd straight month and averaged 73,000 jobs a month for the past 12 months. Professional business services, education and healthcare, and leisure services led all other sectors in new jobs added.” According to Joel Prakken, Chairman of Macroeconomic Advisers, LLC, “Today’s ADP National Employment Report suggests that employment grew moderately in September. The recent trend in private employment, as indicated by the ADP National Employment Report, remains moderate, and probably is below a pace consistent with a stable unemployment rate. Moderate growth in employment is consistent with the recent deceleration of GDP.”
Sentiment in Europe has been supported by continued focus on the FT article from late last night regarding the informal discussions on bank recapitalisations which had reportedly taken place at yesterday’s EcoFin meeting, with the markets shaking off the Italian triple notch downgrade. Equity markets have traded in positive territory straight from open with banks in particular being supported. The French banks have outperformed with ECB’s Noyer stating that France’s ‘AAA’ rating is not threatened by the state guaranteeing Dexia. There was a brief period of risk aversion following the release of the Euro-area Services PMI’s which were weaker across the board, especially the German PMI which surprised by being lower than 50. Nevertheless markets have continued to follow a risk-on trend with Bund futures weighed by a successful Schatz auction which sold with a record low yield and continued reports of the SMP buying Eurozone secondary market debt with the Spanish and Italian spreads over Bunds tightening markedly. Moving into the US session focus will be on the ADP Employment Change data ahead of non-farm payrolls on Friday with the ISM Non-Manufacturing Composite to follow. Out of the Eurozone will be release of the consolidated financial statement of the Eurosystem.
the "Europe finally gets it" camp is happy again. They are seeing co-ordinated effort, stepped up rhetoric, and more money being thrown at the problem. It seems to me, that the more senior you are in the banking world, or more senior you were, the more likely you are to be in this camp. The crowd that is wondering who will foot the bill remains dubious. Economic conditions continue to deteriorate globally. There is less willingness and less ability of the "rich" nations to fund the "poor" ones. There is even less willingness to fund the banks. It is great that Europe finally sees the problem, but they have waited too long. There is no group of countries left that is strong enough to support the banks and weak nations without getting dragged down themselves. It seems this camp is filled with lower level credit guys and some distressed debt people who just don't see how the circularity can work. Anyways, we are back to rallying on headlines and sound-bites and hopes that "Europe Finally Gets It" Maybe this time the details won't disappoint. Actually, maybe this time we will get to the details, since so many of the last few rallies were based on rumors or plans that never even made it to the detail stage. In the meantime I will try and figure out how Italy providing money to EFSF so the EFSF can buy their bonds, how Italy contributing to the ECB which buys its bonds, how Italy providing money to the IMF to buy Italian bonds, and Italy working on plans to save Italian banks whose exposure to Italy is a part of their problem, fixes anything.
On the docket: ADP employment and the non-manufacturing ISM index. Off the docket, but far more important: another relentless onslaught of rumors, lies and videotape.
Layoff Plans Soar By 126% In September To 115,730, 212% Higher Than Year Ago, Highest Since April 2009Submitted by Tyler Durden on 10/05/2011 07:42 -0400
Still bullish on the Friday NFP number? According to Challenger we just went through a "sea-change" event as "Employers announced plans to shed 115,730 workers from their payrolls in September, making it the worst jobcut month in over two years. Heavy reductions planned by the military accounted for a large portion of September job cuts, signaling what may lie ahead as the federal government seeks across-the-board cuts in spending. September job cuts were 126 percent higher than the 51,114 announced in August, according to the latest Challenger report. They were 212 percent higher than September 2010, when employers announced just 37,151 job cuts. Last month’s total is the highest since April 2009, when 132,590 job cuts were announced." Yet this is good news, considering that the biggest source of cuts was the bloated government and the insolvent Bank of America: "One-third of the layoffs announced this year came from government employers. It is, by far, the largest job-cutting sector, with 159,588 announced job cuts to date. This figure includes 54,182 government-sector cuts in September, 50,000 of which are the result of a five-year troop reduction plan announced by the United States Army. The second largest job-cutting sector to date is the financial sector, which announced 54,013 planned layoffs between January 1 and the end of September. That is up 177 percent from the 19,474 job cuts recorded over the first three quarters of 2010. Of the 54,013 financial job cuts this year, 31,167 occurred in September, with 30,000 resulting from Bank of America’s multi-year workforce reduction plan aimed at saving the struggling bank $5 billion per year." That said, while there is no correlation to coincident NFP data, this will be very ugly news down the line.
- Merkel Says Euro Bonds no Endgame for EU Woes (Bloomberg)
- China on Course to Squeeze Property Bubble (China Daily)
- Moody’s Sees More European Downgrades (Bloomberg)
- Athens Able to Pay Public Sector Wages (FT)
- Ireland Still Faces Bailout Challenges (WSJ)
- Death of Euro Seen Exaggerated Amid Non-Pimco Political Will (Bloomberg)
- Buchanan: With High-Speed Trading, Market Cannot Hold (Bloomberg)
- China to Subsidize Sales of Building Materials (China Daily)
Remember when yesterday we ridiculed the FT's third attempt at resuscitating the euro and the f(l)ailing continent (attempts one and two crashed and burned previously) and the stock market's lemming-like pursuit of this innuendo once again? Looks like we were correct. According to flashing Bloomberg headlines, "EU Says No Concrete Bank Recapitalization Plan Right Now" and continues: "EU Economic and Monetary Commissioner Olli Rehn “doesn’t speak of a concrete plan in hand,” his spokesman, Amadeu Altafaj, told reporters in Brussels today. "He speaks of an initiative, of discussions in progress and he pleads for a European approach." In other words, when the IMF rumor wears out in a few minutes, expect Liesman to be true to his name some time around EOD when markets are desperate for a lie. Any lie.