Archive - Oct 26, 2012 - Story

There have been no major overnight events or surprises, with Europe continuing a war of semantics whether the Spanish bailout is a bailout, and attempting to avoid it as long as possible while reaping the benefits of Spanish bonds which are trading at post-bailout levels for a 3rd months now, as well as whether Greece will receive more Troika money (the WSJ reported that Greece requires €30 billion through 2016 to close its funding gap: a number which will eventually double, then triple), and yet as of moments ago the EURUSD slipped under the psychological 1.2900 support, which also means that 1400 on the SPX cash is in play. Italy did not help after business confidence declined from 88.3 to 87.6 on expectations of a rise to 88.7 What news there has been is largely the realization that reality is here to stay, following misses and guides lower from Amazon and Apple, and no matter what some low-volume algo tries to represent by buying the stock in the after hours session, profitability and cash flow creation for both companies will be lower going forward. In terms of newsflow, the NYT released a report last night that China's Premier may have been hiding billions in "related-party" transactions - imagine that, and one which promptly got the NYT blocked from China's internet. Obviously this is a touchy topic for China days ahead of its internal party vote, and one which will hardly score the US brownie points with the domestic administration. Concurrently, Japan announced a new fiscal "stimulus" for a whopping ... $9.4 billion. That is roughly the amount of money needed to evade deflation for 2-3 hours. More apropos, Bild reports what Bloomberg noted earlier, namely that Merkel has no majority for reported Greek aid, further blowing up the hole that Greek finmin Stournaras dug himself in with his lies earlier this week. So while everyone is once again on edge, with the Shanghai composite sliding 1.7%, and key technical levels either breached or in play, today's session promises to be quite interesting.

S&P futures are being crushed overnight. Currently trading below the levels of September 5th Draghi comments (back under 1400) and -11pts from the close. AUD is weak, Treasuries are modestly bid (as is the USD) and commodities are rolling over. The catalyst? We see four things: 1) Delayed reaction to global supply chain implications of an AAPL outlook cut (and/or overseas holders hedging) as well as some missed earnings in China; 2) Major Aussie quasi-bank Banksia (yes, its really called that!) hitting the skids (a la Northern Rock) bringing fear that Australia is entering 2008-mode USA; 3) a NYT article which could be inferred as a direct attack on the Chinese political faction (exposing Wen Jiabao's hidden billions); and/or 4) a realization that at 14-plus x P/E multiples, the US equity markets are not pricing in anything the kind of possible pain a fiscal cliff scenario (or Romney-ite in the Fed) might bring. Of course, the need for a narrative is irrelevant, the most net long position since 2008 is unwinding (for now) but by the time we wake for New York's morning, things could have reversed once again.