Archive - Oct 30, 2012 - Story

While every talking-head that is not bailing out their Westchester McMansion is claiming that AAPL's firing of its iOS and Retail division heads is somehow a bullish thing, European traders in AAPL disagree. Given where the European composite price for AAPL (via Deutsche Bourse) is trading, it would appear AAPL is back back under $600 - quick, we need another narrative for why stocks will open up tomorrow!

Because while to ConEd, the bulk of New York south of 34th Street can operate without electricity for days, the stock exchange must.be.online.or.else.the.terrorists.win:

• NYSE TO OPEN FOR NORMAL TRADING OPERATIONS ON WEDNESDAY
  
• NASDAQ STOCK MARKET, OTHER NASDAQ OMX-OWNED EXCHANGES OPEN WED

Why? Just so hedge funds can square away position for month end. In other news, CNN furious trying to figure out how the NYSE TV stuido in downtown Manhattan (because all the trading actually takes place out of a fortress in Mahwah, NJ), can operate under 3 feet of water.

European stocks popped at the open and then generally trod water for the rest of the day. The initial liquid-driven surge had no follow through and in fact European sovereigns bled wider most of the day - with Greek govvies now down almost 10% (in price) in the last week.  Credit markets re-racked along with stocks - with XOver outperforming and Main (investment grade) underperforming (along with financials). The story of the day was yet another 100pip-or-so rampapalooza in EURUSD - the 3rd in 5 days - as we noted earlier, when everything else is shut, EUR is simplest lever to drive markets higher given the correlations (and no Treasury police to keep things under control). Despite today's push, Spain's IBEX remains -0.5% on the week (as its peers are all up around 0.5%) and Italy and Spain bond spreads are up around 15bps on the week. So with EUR up around 0.22% vs USD on the week and fulcrum securities from Spain down, take your pick on where risk is being flushed.

Canada's TSX is now up over 1% from its pre-vertical ramp yesterday afternoon as it is now extremely clear, to all those who take the time to consider why, that as central bank liquidity provision must flow somewhere, so the algos latch on and follow the momentum. We have just had what will likely be the most costly US disaster in history, earnings are anything but robust, BoJ's QE9 failed instantly last night, Greek Government Bonds are fading (now off almost 10% from recent highs) as deals look set to be voted down, and European sovereign bonds are leaking wider; and so - with US equities shut, that PBOC/BoJ liquidity must flow somewhere and the closest proxy is our Canadian brethren. TSX current price implies S&P futures around 1425 and S&P cash at around 1430 - back to Bernanke's starting point for QEtc. We suspect this is just auctioning up to previous resistance but USD weakness is helping modestly (even as commodities slide lower) but of course it is just as likely to be all about slamming the European close.

If one is curious why the EURUSD has been ramping as if no one will ever sell one more euro ever again, the reason is simple: the BIS is desperate to mask the fact that the fragile Greek coalition, whose creation sent Europe to the edge back in June during the Greek re-elections that just barely avoided a Grexit, has just crumbled. And with an illiquid market, the reflexive argument always is a simple one: if someone is buying, the news must be good, so dear momo-chasers - buy along. Only the news isn't good, and in a centrally-planned world, the only buyer left are central banks, who are now solely political, and not market, forces. What the news really is, is that with Greece poised to vote on critical labor reforms (read more layoffs) next week, which must be passed in Parliament with a majority vote in order to get the next Troika bailout tranche, the Samaras-led coalition just lost one of its three members, after the Democratic Left announced it would take its 16 votes and vote against any further austerity. In doing so it has effectively joined Syriza and any other anti-bailout powers, and has made certain that yet another Greek election is imminent, one which will finally see the rise of the "anti-memorandum" forces on top, and finally launch the 3 year overdue departure of the Greek ferryboat from the monetary landmass, with even more dire consequences for the USS EURtanic.

While the massive population of New York City is awfully impacted by Sandy, there is a more populous and even more caustic population that is struggling with the aftermath: Rats! As Forbes notes, the NYC Subway is notorious for its rat population and with all five subway tubes now submerged, one can only imagine where these cute cuddly rabies-wielding devil rodents will make their new homes. "Rats are incredibly good swimmers and they can climb" is hardly the reassuring news lower Manhattan homeowners were looking for, and as the Daily Mail notes, this could bring infectious diseases such as leptospirosis, hantavirus, typhus, salmonella, and even the plague into human contact. On the bright side (well not really), rats don't need to bite a human to transmit its gross payload; rodent feces and urine can spread conditions like hantavirus just as easily - get long hand sanitizer stocks!

Other than some obligatory arrests for disorderly conduct, the Occupy Wall Street movement celebrated its one year anniversary this past September with little fanfare. While the movement seems to have lost momentum, at least temporarily, it did succeed in showcasing the growing sense of unease felt among a large segment of the US population – a group the Occupy movement shrewdly referred to as “the 99%”. The 99% means different things to different people, but to us, the 99% represents the US consumer. It represents the majority of Americans who are neither wealthy nor impoverished and whose spending power makes up approximately 71% of the US economy. It is the purchasing power of this massive, amorphous group that drives the US economy forward. The problem, however, is that four years into a so-called recovery, this group is still being financially squeezed from every possible angle, making it very difficult for them to maintain their standard of living, let alone increase their levels of consumption.

Stunning pictures of the devastation the east coast wakes up to the morning after.

Presented with little comment - for any comment would simply end in ridicule and exasperation - but it seems quite clear that more than a few algos feel the need to keep S&P 500 futures above 1400 into the month-end and OPEX. S&P futures closed at 1411.25 (+3.75 from Friday's close).

While it is too early to estimate the ultimate losses wreaked by Hurricane Sandy in the last 24 hours, we thought it useful to start gauging relative exposures and which companies are the most exposed. As it stands, Hurricane Katrina remains #1 of all US Catastrophes as the most-costly at $46.6bn (2011-equivalents) with 9/11 second at $38.5bn; with the worst MTA disaster in its history and the relative wealth in the areas affected, one can't help but feel like Sandy could be up there. The P&C insurance industry will bear the brunt of personal and corporate losses (as well as federal relief we pre-suppose) and is better capitalized than in the past but as JPM notes, initial estimates of losses tend to be revised upwards. The most exposed insurer is State Farm with an 11.4% share of all potential liability lines in the states impacted, followed by Allstate and Travelers. We finally note that when the P&C industry experiences losses of this magnitude, it typically leads to increased pricing for an extended period of time (as they rebuild capital bases).

As everyone who has been to New York City knows, without its underground arteries - the subway system - the city is if not dead, than certainly in an indefinite coma. By that logic, New York will not get out of the critical ward for many days, because hours ago the head of the New York City’s transit system just called Hurricane Sandy "the most devastating event to the city’s subway system ever." At last check seven subway tunnels under the East River had flooded, as did the Queens Midtown Tunnel—and Metropolitan Transit Authority chairman Joseph Lhota said there is “no firm timeline” for when the system would be back up and running. According to other MTA employees it would take between 14 hours and 4 days just to pump the water out of the subway system. We'll take the over. And as long as there are no subways, there are no clerical and support workers, there is no Wall Street, there is no beating heart to the city.

Equity markets in Europe traded higher today, supported by solid corporate earnings, further monetary policy easing from Japan, as well as what can only be described as “less bad” GDP report from Spain. Also, commodity complex benefited from upward revision to China’s GDP estimate by analysts at Bank of America (Q4 GDP estimate now stands at 7.8% vs. Prev. view of 7.5%). Decent demand for the latest debt issuance saw IT/GE 10s tighten by c.5bps, with SP/GE 10s also seen tighter by 3bps.

• U.S. Super Storm’s Record Flooding Lands Blackout Blow (Bloomberg)
• Sandy Carves a Path of Destruction Across the U.S. East Coast (WSJ)
• Losses May Exceed Those of 2011 Storm (WSJ)
• Hurricane Sandy Threatens $20 Billion in Economic Damage (Bloomberg)
• Huge fire in Sandy's wake destroys dozens of NYC homes (Reuters)
• Possible levee break in New Jersey floods three towns (Reuters)
• Apple Mobile Software Head Forstall Refused to Sign Apology (WSJ)
• Stagflation in Spain (Bloomberg)
• German Oct. Unemployment Rose Twice as Much as Forecast (Bloomberg)
• A declining Japan loses its once-hopeful champions (WaPo)
• Unable to copy it, China tries building own jet engine (Reuters)
• Obama Signs Disaster Declarations for NY, NJ (YNN)

It was only yesterday that we pointed out the ever decreasing halflives of central bank interventions. We are grateful that none other than the biggest intervention basket case of all came out and proved us 100% correct, when the BOJ announced none other than QE 9 just one month after the impact from QE 8 fizzled about 8 hours after it was disclosed. This time around, the destructive "benefit" to the JPY was negative from the first second, resulting in the first instance of monetary easing that.. wasn't. Japan just came up with a brand new New Normal concept: tightening through easing, when its ¥11 trillion intervention proved to be woefully insufficient for a market addicted to ever more liquidity injections.

With the stock markets of the "developed world" in limbo for the second straight day and leaderless as New York is paralyzed, and the US was set to be closed for a second straight day, and with futures tumbling to their lowest level in over 2 months overnight, it was time for the East to step up. And step up it did! First, it was China's turn, which while still refusing to ease outright, conducted a massive 395 billion yuan reverse repo - this operation is the biggest on record, according to Bloomberg data going back to 2004, which in turn sent China's seven-day Repo rate plunging the most since January. And because this whopping injection would prove to be promptly internalized, a few short hours later Japan followed with nothing less than QE9! Just around 2 am eastern, the BOJ announced the 9th installment in its neverending monetary farce, when it said it would proceed to monetize an additional Y11 trillion in assets. From BusinessWeek: "The BOJ expanded its asset-purchase program by 11 trillion yen ($138 billion) to 66 trillion yen, the central bank said after a policy meeting today. The range of forecasts in a Bloomberg survey was from 10 trillion yen to 20 trillion yen." Of course, in this bizarro world in which intervention is the only thing left, the latest Japanese QE had an immediate and opposite effect of that planned, sending the USDJPY lower the second it was announced, as the amount announced was disappointing to most who had expected even more easing, and the halflife was for the first time in recorded monetary intervention history, absolute zero! But at least this failed intervention for Japan, helped America, sending ES from 1393, a full 13 ticks higher, where they are now. And so the epic defense of 1400 (and 1.2900 in EURUSD) continues for a 5th straight day!