Archive - Story

In general when equity prices are rising and credit spreads are tightening, the ratio of gold-to-silver prices falls as 'fear' ebbs away and confidence in a real economy returns as exemplified by the rise of risk assets. Twice before we have seen the anti-correlation of stocks and gold/silver flip to a highly correlated regime, and as Bloomberg's Chart of the Day notes, each time it suggested "stocks were due to snap". It seems a concerted push above and a 50x ratio (for gold-to-silver) tends to exhibit notably risk-off behavior. Currently, the S&P 500 and Gold-to-Silver ratio have been highly correlated since this last rally began in stocks and as HSBC's Charles Morris notes, this suggests a 'snap' in risk assets within six months.

Yesterday we opined on the deteriorating situation surrounding the much anticipated government scramble to collect perfectly legal offshored capital, initially focusing on Apple (which having now entered the focus of the US government will be nothing but an "negative externality" free utility going forward or as long as Uncle Sam wishes it to be) but soon to turn to virtually every other multinational corporation with a hugh cash hoard and a low effective US tax rate. Today, it is Tim Cook's turn to explain why the firm is merely following clearly laid out rules and tax regulations as encoded by none other than the same people who are bringing you today's particular episode of "distract them with witchhunts."

Whether it is algos looking for a better entry point for the inevitable green close, a market reacting to Saks disappointment, or a realization (ahead of Bernanke tomorrow) that the hawkish jawboning recently is an attempt at a soft-landing is unclear. One thing is becoming clear: the Dow Jones track record of being up 19 out of 19 consecutive weekly Tuesdays is suddenly in jeopardy...

We are now used to the daily dispensation of deep twitsight by Pimco's head. Today's installment does not disappoint: in under 140 characters, the bond kind breaks down the now thoroughly dis-proven Efficient Market Hypothesis for the "new normal" in which both alpha and beta are purely functions of virtual central bank printers. However, his view on what happens when said virtual ink runs out (or rather if) is well-known by all at this point. The only question is when.

Gross:Alpha is gr8ly a function of beta &the levered structurs that domin8 credit mkts. No beta? Skinnier alpha ahed 4 unsuspecting investrs

— PIMCO (@PIMCO) May 21, 2013

It's been a wild ride in gold ($60 range) and silver ($2.50 range) in the last 2 days but for now, the precious metals have dropped back to unchanged from Friday's close.

He's back to reprise his role as stoic 'I know nuffin' scapegoat. Former IRS boss Steve Miller faces a second round of truth-seeking, grand-standing, and extended questioning at today's Senate hearing on the IRS debacle. Scheduled to start at 10ET, Miller will be joined by Russell George (the IRS IG - full report here) and former IRS commissioner Doug Shulman. Grab the popcorn...

Back in December, when HLF was trading in the mid-$20s, and long before Icahn's involvement in the situation was even remotely public, we laid out the case for what we thought would be a major short squeeze in the name upon Ackman's public announcement that he had shorted 20 million share of HLF stock. Well, judging by the 20% jump in the stock in the past two days, which has manifested in a nearly $200 million paper loss for Ackman, and which has sent the stock some 100% higher from our base level, has the time finally come for the massive 40% of the float that is short, to start to panic? Judging by the rapid move, we may be approaching that imminent moment when none other than Bill Ackman gets the infamous tap on the shoulder around 3 pm with a polite but firm request that the time to cover has come, leading to yet another crushing victory for the Icahnator.

Reuters reports that following news that the South African gold mining union demands a wage hike up to 60%, "ten striking South African miners were taken to hospital on Tuesday after being hit by rubber bullets, police said, as labor strife swells in mines and factories ahead of mid-year pay negotiations."

Since the BoJ enunciated its actions on April 4th, the world has decided that consuming risk assets (the riskier the better) is the path to salvation. While it makes perfect sense that some level of inspiration for a global recovery makes sense (though hardly) given Japan's actions, it beggars belief that the most broke of broke peripheral European nations would see equity moves of such magnitude. On the 50th anniversary of Chaos Theory (more on this later today), it is perhaps worth remembering its central lesson – that complex interrelated systems create unexpected outcomes from seemingly benign inputs. It appears the complex inter-related world in which we live is becoming more and more chaotically unstable at the margin and this current euphoria does not approximately determine the future.  There are more than enough variables out there – the butterflies flapping away – which can change outcomes in an instant.

A reversal will come. The odds on this are 100%. You cannot have every asset class on the planet in a bubble forever. The world does not operate this way. The disconnect between economic fundamentals and the markets continues but the odds on it continuing forever is Zero. The creation of all of this money also has another effect. It causes stupidity. It is quite true that we do not know the "what and the when" of it but a prediction that lacks any "If" will prove to be true. There is no longer an "If." The disparity now is just too great. Play the game as long as you can. It has gone on to date right in line with the increase in the money and in the lies. Play the game. However if you are smart you will have an exit strategy and a defense lined up well in advance before the man with the scythe shows up and takes a swipe at you. We stand on a precipice. There is an avalanche of lies, distortions and currency that has been created and is tumbling all around us. It cannot be dodged forever.

"Our positive 2013 outlook for S&P 500 has played out much faster than we expected." That is how the latest equity update from Goldman Sachs, which until today had an S&P target of 1625 for the year end S&P, begins. And, logically, the only option for Goldman is to hike its outlook even more, because not even the Squid apparently could anticipate how quickly the policy it forced down the throats of central banks around the world, levitated markets to surpass its old price targets. The result is David Kostin (who until December had foreseen 1250 on the S&P for the end of 2012) and company were forced to goalseek even higher targets based on tried and true excel model fudging exercises, and such "value" creation as multiple expansion and dividend payments. To wit: "Our earnings estimates remain unchanged but we raise our dividend estimates and index return forecasts for 2013 through 2015. We expect S&P 500 will rise by 5% to 1750 by year-end 2013, advance by 9% to 1900 in 2014, and climb by 10% to 2100 in 2015. Our 2013 return implies a year-end P/E of 15.0x, a one multiple point premium to our fair-value estimate. We forecast dividends will rise by 30% during next two years. Dividend yield is likely to stay around 2%, in line with the 20-year average." For the record, Goldman had previously seen 1,900 in 2015. And now it sees another 200 points of value due to the magic of multiple expansion. That anyone can even pretend to forecast what happens three years into the future at a time when the central banks are injecting $160 billion (and soon $200 billion), and most likely will have to slowdown and halt such liquidity injection resulting in untold stock market carnage, is so beyond commentary we will leave it hanging for the ridiculous statement it is.

• IMF Tells Central Europe to Spend More (WSJ)
• Tornadoes Blast Oklahoma (WSJ)
• Frenetic search for survivors as 91 feared dead in tornado-hit Oklahoma (Reuters)
• JPMorgan investors on edge over vote on Dimon; what if they win? (Reuters)
• Wealthy bank depositors to suffer losses in EU law (Reuters)
• Yen Slips as Amari Backtracks (BBG)
• Japan Ready for More Yen Weakness Despite Recent Comments (WSJ)
• IRS officials back on Capitol Hill hot seat over targeting (Reuters)
• Li Keqiang pledges China boost to India trade (FT)
• Europe's Recession Sparks Grass-Roots Political Push (WSJ)
• Obama and Xi to meet in effort to calm growing US-China rivalry (FT)
• Berlin plans to streamline EU but avoid wholesale treaty change (FT)
• France must reform or face punitive measures - EU's Oettinger (Reuters)

Another event-free day in which the only major economic data point was the release of UK CPI, which joined the rest of the world in telegraphing price deflation, despite bubbles in the real estate and stock markets, printing 2.0% Y/Y on expectations of a 2.3% increase, the lowest since November 2009 and giving Mark Carney carte blanche to print as soon as he arrives on deck. In an amusing twist of European deja-vuness, last night Japan's economy minister who made waves over the weekend when he said that the Yen has dropped low enough to where people's lives may be getting complicated (i.e., inflation), refuted everything he said as having been lost in translation, and the result was a prompt move higher in the USDJPY, quickly filling the entire Sunday night gap. That said, and as has been made very clear in recent years, data is irrelevant, and the only thing that matters, at least so far in 2013, is whether it is Tuesday: the day that has seen 18 out of 18 consecutive rises in the DJIA so far in 2013, and whether there is a POMO scheduled. We are happy to answer yes to both, so sit back, and wait for the no-volume levitation to wash over ever. The US docket is empty except for Dudley and Bullard speaking, but more importantly, the fate of Jamie Dimon may be determined today when the vote on the Chairman/CEO title is due, while Tim Cook will testify in D.C. on the company's tax strategy and overseas profits.