Archive - Oct 20, 2011 - Story

We take advantage of this brief lull in the European panic headline blasting for a comic interlude, presented without comment.

Valueinvestorclub.com: the Gotham Capital controlled pseudo-secret portal where hedge fund managers everywhere would sell both their kidneys  to be members of, as pitched ideas tend to move markets on a regular basis, and never to be confused with Whitney Tilson's pale immitation, has just released a new thesis on Bank of America, which is oddly comparable to ideas suggested by Zero Hedge over the years. The thesis summary is rather self-explanatory: "Bank Of America equity is worthless. CFC-related litigation is going from bad to worse, it can lead to violent erosion of shareholders' equity which. Combined with the run on the bank that has slowly begun, the $53 trillion in derivatives, the lack of sustainable competitive advantages and the depleting political influence, I believe this is a terminal short." The rest is rather self-explanatory as well. Now: how many hedge fund managers will use this herd aggregation signal and pile in on the short side?

After intervening for 3 days out of 3, Italian bonds have just taken out all recent lows and threaten to drag the entire Italian, and thus European market with them. We expect an ECB intervention any second or else the bottom is about to fall out of the market. Highlighted are all previous ECB (money losing) interventions.

Headline time:

• German ruling coalition sources say EU summit will not reach a decision on EFSF leveraging
• And since the catering has already been paid for, "German ruling coalition sources says EU summit to go ahead on Sunday" even though no decision will come out of it.

Now...spin? Or another headline in 10 minutes refuting this one. Stay tuned and don't touch that dial while we break for commercial.

We had a feeling it will be a headline driven day... Sure enough, from MNI, "Germany Lawmaker: No Decision On EFSF Guidelines In Parliament Today." And judging by the EURUSD's response, the market is not too happy with this latest delays, this time as the people realize they can actually stall their respective despots fasttracked tyrranical decisions. From Market News: "The budget committee of Germany’s lower house of parliament, the Bundestag, is unlikely to decide on Thursday anymore about the guidelines for the European Financial Stability Facility (EFSF), a senior lawmaker from Chancellor Angela Merkel’s CDU/CSU-FDP coalition said today." Fear not, however, Cramer has certainly not heard of Market News, which means it is time to shoot the messenger.

And the Department of Insanity takes over with today's 6 Sigma event, after the Philly Fed surges from -17.5 to 8.7, the biggest jump since October 1980, and 6 standard deviations above the Wall Street consensus. The index which was at -30 a few months ago, has now retraced back to April 2011 levels to supposedly confirm that Operation Twist is working even despite a massive plunge in Refinancing Applications reported yesterday. And confirming that we are now all supposed to be taking crazy pills, the Shipments index jumped from -22.8 to 13.6: the largest jump ever! Just who is receiving these shipments? From the report: "The survey’s broadest measure of manufacturing conditions, the diffusion index of current activity, increased from ?17.5 in September to 8.7, the first positive reading in three months (see Chart). The current new orders index paralleled the rise in the general activity index, increasing 19 points and returning to positive territory. The shipments index also recorded a positive reading, increasing from ?22.8 in September to 13.6 this month. Labor market conditions improved only slightly this month. Nearly 18 percent of the firms reported an increase in employment, but 17 percent reported a decrease. The current employment index remained slightly positive but decreased 4 points from its reading in September. The average workweek index increased notably from ?13.7 to 3.1. However, the percentage of firms reporting a longer workweek (15 percent) was only slightly greater than  he percentage reporting a shorter one (12 percent)." And needless to say, not one Wall Street analyst expected a number this high. In fact, just one person thought the Philly Fed would print positive.

Someone forgot to tell the US Consumer that "Europe is fixed" and that "nobody has heard of Die Welt" according to Jim Cramer, who incidentally said back in May 2008 "how anyone can think housing will get worse from here is beyond me." Because according to the only non-biased and hence non-market moving consumer confidence poll, that of Bloomberg, October Economic Expectations dropped to -45 after -34. Not much to explain here: this was the lowest print since February 2009. As Bloomberg economist Brusuelas says, "Consumer confidence may be better predictor of direction of economy than spending."

They couldn't wait until 3pm. This was code red.

• Senior EU sources say unaware of any plan to postpone Sunday's EU leaders' summit
• Austria finance minister says dates of weekend EU summit fixed, unaware of any postponement

Since EU sources are usually unaware of the simplest things, such as math 101, we really would not put it past them...

Full leaked Summit statement draft on the EFSF via the Telegraph. Assuming, of course, there is a Euro Summit. And assuming of course this is not just another plant.

And the latest:

• GERMAN GOVERNMENT DOESN'T EXCLUDE POSTPONING SUMMIT, WELT SAYS
  
• WELT CITES PEOPLE CLOSE TO THE GERMAN COALITION, GOVERNMENT

If true, epic collapse coming as it means market shock and awe will be required to get everyone on the same page. On the other hand, when the news is reversed at 3:00 pm by the FT, expect the futures to soar by about 100 points.

Finally some details of the mythical revised and most certainly Dead on Arrival EFSF program, to be fully announced on Friday, emerge with Retuers bringing the scoop. Here are the preliminary bullets:

• EFSF to be able to grant two types of precautionary credit lines, normal and enhanced, based on IMF instruments.
• Typical size of both types of EFSF precautionary credit lines for Euro-zone sovereigns could be between 2 and 10 % of GDP according to a document
• To be eligible for EFSF precautionary credit lines Euro-zone sovereign must respect EU budget rules, have sustainable debt, external position, no bank solvency problem and seek to reduce macroeconomic imbalances according to a document
• Both types of EFSF precautionary credit lines would be for 1 year, renewable for 6 months twice
• IMF involvement in design and implementation of EFSF precautionary credit lines will be sought in all cases according to guidelines

Of course, if bullet point 3 is actually enforced, nobody would be eligible. Which means the whole framework is a joke. Yet nothing here changes the fact that with €100 billion set aside for bank recaps, a woefully low number and one which will do nothing to assure investors that banks have sufficient capital, there is still not enough cash to "guarantee" all future issuance, as was described in great detail previously. Lastly, it is too late to do much if anything except spike the EURUSD by a few hundreds pips for a day or two.

When we discussed last week's intiial claims number we said, "In today's weekly dose of BS from the BLS, we get the previous week's massive beat of 401K revised to 405K, cutting the 410K estimate beat in half. But what is important is that the expectation for this week of 405K was once again "massively beaten" by a whopping 1K at 404K. Of course, next week this number will be revised to 408K meaning the consensus was  missed but no robots will care." Sure enough, last week's beat was enough for 5 ES points. And even surer enough, we were spot on: last week's 404K "beat" was just revised to a 409K "miss." As for this week's soon to be revised upward number, it came at 403K, missing expectations of 400K, but sure enough, suddenly a "much better" number than last week's revised 409K. Just how dumb does the BLS think everyone is? The bottom line is that claims continue to be persistently higher than 400K, now something like 25 out of 26 weeks in a row, which means there is no hope for any NFP improvements in the future.What is curious is that there was a pronounced deterioration in Texas, New York and California, which all saw a spike in layoffs, by 4,644; 8,568 and 13,882 respectively, due to layoffs in the manufacturing, service, retail and transportation industries. Said otherwise, the recession continues. In other news, continuing claims printed at a soon to be upwardly revised 3,719K, up from an upwardly revised 3,694K and worse than expectations of 3,690K. Last, and as everyone knows by now, the cliff issue is hurting ever more people, with about 68K people dropping off EUCs and Extended Benefits, down 1.6 million from a year ago.

As much as the current round of negotiations are being framed as “France vs Germany” there is more to the story than that. The battle is forming up along the lines of those who are trying to show some restraint and prudence and are willing to deal with the consequences of that decision against those who want to do everything possible, giving the highest chance of “success” with absolutely no downside protection.

Watch it while you still can: very soon the EU will ban any "tendentious" TV originating from bailed out countries.