Archive - Oct 18, 2012 - Story

While GOOG is halted, the rest of the world goes on trading - with 165 hedge funds seeking protection somewhere... QQQ is trading lower, implying a $660 price for GOOG or down 12.5% on the day... so far...

Sorry, it's not the Iranian hackers' fault this time:

• GOOGLE SAYS 8K FILED WITHOUT AUTHORIZATION
  
• GOOGLE SAYS RR DONNELLEY FILED DRAFT 8K EARNINGS W/O AUTHORITY

This means Dubya, Europe and the weather are all off the hook. It also means that the press release is accurate (unless of course GOOG decides to implement a last minute Morgan Stanleyesque's DVA "one-time" charge to EPS that is).

Oops... The second most widely held company after AAPL just destroyed the quarter for 165 hedge funds.

Google is down over 8% as it reported earnings early and surprised to the downside...

• GOOGLE 3Q REV. EX TAC $11.33B, EST. $11.83B           
  
• GOOGLE 3Q ADJ. EPS $9.03, EST. $10.65
• Q3 REVENUE EX-TAC $11.33 BLN VS EXP. $11.83 BN
• Q3 NETWORK REVENUE USD 3.13 BLN

Full EDGAR filing below...

The unending efforts of our glorious central-banking planners to raise asset prices and encourage 'animal spirits' through the trickle-down of unicorn-tears via the wealth effect have side-effects. Unintended consequences of 'leaking liquidity' finding its way into hard assets and 'things that have relatively limited supply' have stalled hopes of a stimulus in China (food inflation) and caused refis to mysteriously lag on misplaced future rate expectations in the US (ZIRP). The biggest 'problem' the central-bankers face, however, is energy prices. The liquidity surges directly impact the price of oil (which is already under pressure from the ever-igniting fears of Middle-East flare-ups). Critically, as Goldman notes, once the price of Brent crude reaches $125, global economic growth becomes challenged and ultimately makes QE self-defeating. This means Bernanke and his cohorts are threading an ever-narrowing needle as crude's price range remains high enough to motivate supply, but not so high as to undermine the global economic recovery - and with a tight physical market, any disruption or 'anomaly' will be hard to jawbone us back from (SPR rumors aside).

What few seem willing to acknowledge is the solipsistic, narcissistic nature of this reliance on public display of consumerist fantasy for self-identity. All consumerist fashion is based on superficiality and self-indulgence, of course; but if we look at the energy, money and attention "invested" in fashion lifestyles in Japan, we might conclude it is strong evidence that there is plenty of "money and time to burn" in Japan. While that is certainly true, this reliance on consumerist excess for self-identity and pastime is also evidence of a deeply troubled economy and society. Young people have money and time to burn on outlandish costumes because few earn enough to have their own families or flats. They work part-time for low wages and live at home or in tiny one-room apartments. Few own cars because they 1) don't earn enough to support a car and 2) they're uninterested in acquiring status symbols or prestige signifiers. This is not just a generational shift: it reflects a realistic understanding that opportunities for secure, high-paying employment have diminished over the past 20 years. There are plenty of low-level jobs, but few with the guarantees that their parents took for granted.

Two weeks ago we reported that the first unintended but perfectly expected consequence of the French socialist revolution, was the plunge in Paris luxury real estate prices as in the aftermath of Hollande's plan for a 75% millionaire tax, the wealthy promptly decided it is time to seek greener pastures and have launched a housing firesale, flooding the market with expensive (but getting cheaper by the day) housing. Now, we find that another consequence of Hollande's creeping government-enforced subsidies to uncompetitive sectors (coming soon to an insolvent country near you) may be none other than the French internet, as the world's biggest agregator of content, Google, is threatening to boycott French media websites if France demands it start paying for linked content.

The world is running down a quite slippery slope in its attempt to avoid calamity. The political machines in Europe and the United States and to a real but lesser extent in China have passed the hat to their central banks because either they cannot or will not face up to the severity of their problems. This “faith based initiative” is misplaced, as liquidity and faith are driving the boat and derelict accounting is providing the fuel. The United States, having moved far past the “safety net” that has always been in place, are faced with a very real choice between Socialism and Capitalism. In Europe the problems are also of a fundamental nature as the definition of “More Europe” in Germany is decidedly different than the definition in Spain. But the fantastical belief that the Central Bank will wave it magic wand and make everything all good again is the stuff of Mommy kissing the boo-boo and everything will be just fine.

Forget the day-to-day images of riots and protests, the truth on the ground in Greece is far harsher. Just as we warned numerous times, social unrest is escalating rapidly and the extremists are gaining strength and power. One of Greece's neo-nazi Golden Dawn party MPs says "there is already civil war, and Greek society is ready - even though no-one likes this - to have a fight." The BBC's Paul Mason reports on recent demonstrations surrounding the performance of a controversial play as tensions escalated and the Golden Dawn party "de-arresting" demonstrators - pulling them from police detention, as the police do nothing. The somewhat shocking clip below points out the incredible reality that is occurring on the streets of Greece - even as EU leaders claim Greece was not a topic at the EU Summit. The people ask "if we are in a democracy or a dictatorship?" and Golden Dawn (which has 18 seats in parliament) proclaims "On the one side there will be nationalists like us, and Greeks who want our country to be as it used to be; and on the other side illegal immigrants, anarchists and all those who have destroyed Athens several times." As Mason concludes: the social and political outcome of the IMF and EU austerity program, and of the implosion of mainstream politics in Greece, looks like a catastrophe for democracy. "Europe must do something if they don't want a revival of the Third Reich again"

The ridiculous economic data continues. Those looking at the headline Philly Fed, which jumped from -1.9 to 5.7, trouncing expectations of 1.0, such as the NY Fed's Simon Potter are pushing buy buttons left and right. And yet anyone who takes the 2 minutes to look at the internals, such as the collapse in the Number of Employees Sub-Index, which tumbled from -7.3 to -10.7 (the lowest since September 2009), the decline in the Average Employee Workweek, or the surge in Prices Paid from 8 to 19, double the change in Prices Received which means plunging corporate profits, or the ever critical New Orders which declined from 1.0 to -0.6, and one can see why this is a report only an Econ Ph.D-cum-Central Planner can love. Finally adding insult to injury, is the 6 month forecast, which unlike all other regional Fed diffusion indices, collapsed by half, from 41.2 to 21.6, as the Hopium at least in the city of brotherly mugging appears to be running out. Stocks kneejerk in every possible direction hoping the Fed will provide a direction.

On this day (+1) in 1987 (that's 25 years ago, if you are burdened with a graduate degree), the NYSE had one of its most dramatic trading days in its 220 year history.  It suffered its largest single day percentage loss (22%) and its largest one day point loss up until that day (508 points). No one who was on the floor that day will ever forget it. While it was an unforgettable single day, there were months of events that went intoits making. The first two-thirds of 1987 were nothing other than spectacular on Wall Street. From New Year to shortly before Labor Day, the Dow rallied a rather stunning 43%.  Fear seemed to disappear. Junior traders laughed at their cautious elders and told each other to "buy strength" rather than sell it, as each rally leg was soon followed by another. One thing that also helped banish fear was a new process called "portfolio insurance". It involved use of the newly expanded S&P futures. Somewhat counterintuitively, it involved selling when prices turned down.

Translation: Goldman is now buying Brent from its clients, aka Goldman 101.

Homework favors the wealthy. This is the position that the increasingly imbecilic President of France is taking in proposing a ban on homework as part of a series of educational reforms. As ABC reports, Hollande sees "education as a priority" but work should be done during school hours rather than at home "in order to establish equal opportunities." But before the children of France rejoice, Hollande is unlikely to garner their future votes, as his proposal also looks to extend the French school week to nine half-days a week to be spread over four, five, or six days (as opposed to the current four days a week with Wednesdays off). Though we may sneer at this oh-so-socialist ideal of 'sharing' the homework load into the school-day, it is perhaps noteworthy that the US still lags France in Math (US 31st in the world vs France 22nd).

So much for last week's aberration initial claims print of 339K (revised higher of course to 342K). With expectations of an increase to 365K, the DOL just came out with a whopper of a miss, the largest in three months, at 388K, an increase of 46K in one week, which was also the highest print in three months. Remember: this number will be revised to 391K next week. So much for single print indicative of a recovery. As the chart below shows, the rate of change was a 13.45% from last week: the highest in five years! So far, there has been no explanation from the BLS or DOL for last week's outlier print. And no, last week's print was not due to  California, which the DOL reported just decreased by 4,979 in the week ended Oct 6, not the required 49K. What is however worse, is that it is becoming increasingly clear that nobody at the DOL knows what is actually going on following a statement by the Labor Dept that "it appeared that state-level administrative issues were distorting the data", and numbers are simply picked out of thin air. Finally, in truly amusing news, those on Extended Benefits have once again started to rise, after dropping to virtually 0 following expiration of state benefits. 

It just refuses to get any better in Spain, whose banks are now aggressively marking down real estate to something resembling fair value. Last month we reported that Spanish bad loans jumped by the most ever, rising by over 1% to just under 10%. Today, last month's number was revised even higher to 10.1%. But the worst news is that the August bad loan total just hit a fresh record of €178.6 billion, or 10.5% of the total €1,698.7 billion in bank loans. Making things worse is that the primary bank funding lifeline - deposits - continues to flow out. That both Spain, and its banking sector are utterly insolvent, is clear to anyone but Oliver Wyman and those who have bought SPGBs (although granted the latter are merely hoping for a quick flip). And the ECB of course. Indicatively, as a % of GDP, this would be equivalent to roughly $2.7 trillion in US bank loans going sour (for more on the collapse of Spanish banking, and the laughable stress test whose worst case has already become the baseline, read here). The chart summarizing this staggering statistic is below.