Archive - Oct 2012 - Story

If Apple needed the best possible cover to announce that both mini-Steve Jobs and its head of retail strategy are leaving the firm, it got it courtesy of Frankenstorm and a market that will be closed for at least another 24 hours. We are looking forward to the analyst spin on this. As the head of the firm's iOS development (Scott Forstall) and the head of the firm's retail division (John Browett - a 5-month veteran!) have left the firm. Full bullish statement on the bright future of the company below but one can't help but feel like the guy responsible for the Maps fiasco just got thrown under the bus; and if the stores are doing so well, why is the head of retail out on his ear? Apple was already trading down around 0.65% in European trading this morning pre-announcement- this surely cannot help.

Presented with no comment... because what is there to say really!!!

As meteorologists have been repeating all day, the biggest threat for NYC is not so much the rain, or even the wind, dangling cranes hundreds of feet above ground notwithstanding, but the storm surge. The threat here is that Hurricane Sandy will hit land just as the tide comes in, resulting in a double whammy which Wunderground has called a "gigantic bulge of water that will raise waters levels to the highest storm tides ever seen in over a century of record keeping." Add to this the impact of the full moon, which means that high tide will be 5% higher than average for the month, and Wunderground's conclusion is inevitable: "This is a higher destructive potential than any hurricane observed since 1969, including Category 5 storms like Katrina, Rita, Wilma, Camille, and Andrew." How high are we talking: Sandy's storm surge will be capable of overtopping the flood walls in Manhattan, which are only five feet above mean sea level... According to the latest storm surge forecast for NYC from NHC, Sandy's storm surge is expected to be 10 - 12' above MLLW. Since a storm tide of 10.5' is needed to flood the subway system, it appears likely that portions of the NYC subway system will flood." Luckily for all, the NY Fed's tungsten gold, which is 50 feet below sea level (and 80 feet below the surface) and is in the Zone C flood evacuation area, will be perfectly "safe." And after all tungsten gold will never just float away.

With equity cash and futures markets closed, we thought it useful to gauge where equities might have closed if they were trading. As so many need month-end marks for reporting and OPEX-based hedgers are likely anxious, we thought getting some perspective from what the machines are seeing would be useful. With Kevin Henry gone gray as Treasuries closed, risk-assets slipped modestly on the day - with a late day push to the lows on the back of Merkel's 'nein' on euro-bonds. To wit, based on the dependence with FX and commodity markets, S&P 500 futures would be trading under the critical 1400 level. - and based on the Toronto Stock Exchange, S&P 500 cash would be trading around 1404 (down around 8pts on the day). S&P futures are set to re-open at 1700ET 1800ET (and based on CME's site will close again at 0915ET tomorrow).

Through a wider looking glass, apart from Gold, commodity prices remain mostly driven by economic cycles rather than central bank actions. The correlation of Gold with Central Bank balance sheets remains the dominant theme as it grows in substance as a true global currency and a hedge against money debauchment. Since September’s coordinated easing from central banks, commodities have turned in mixed performances (-5% for oil, -3% for metals). The direct impact of monetary policy on industrial commodity prices appears very limited today (contrary to the situation during QE2 period), given the bleak global economic outlook and the absence of aggressive easing from China.

UPDATE: New York City officials order evacuation of upper floors of several buildings near site of partially collapsed crane.

While we are still hours away from "Peak Storm", the structural casualties are already adding up.  FDNY reports a 2nd alarm alert at the soon-to-be tallest residential building in Manhattan - 157 West 57th Street (aka One57, where recently a record price was paid for a duplex apartment) entailing a dangling crane. The area is being evacuated - to somewhere we assume that does not have cranes (good luck finding that). The critical question for Steve Liesman remains - how much more is a 'broken crane' worth to GDP than a 'broken window'? Live stream embedded below...

The actions of the world's central banks, from driving rates to the limit or beyond ZIRP into the unconventional moeny-printing (or more acquiescent QE), there is little doubt that the currency wars are under way. As SocGen notes, the spillovers from advanced economies' actions (exporting inflation) into EM currency appreciation create subsequent needs for EM bank actions at times when inflationary concerns remain high. With the Yuan at 19 year highs and suffering from outflows, the potential for QE-based inflows this time could be welcome by the CCP.

Con Ed's SVP John Miksad just hosted a call with some relatively ominous comments. As they expect record outages from wind and rain damage, it is the tides and the flooding that is of most concern as the executive noted that they may cut power to Brooklyn and Lower Manhattan if tides reach forecast ranges:

*CON ED EXPECTING `RECORD' OUTAGES FROM WIND, RAIN DAMAGE :ED US
*CON ED MAY SHUT DOWN LOWER MANHATTAN SYSTEM DUE TO HIGH TIDES
*CON ED: `NOT OKAY' IF TIDES REACH FORECAST 10-12 FOOT LEVEL
*CON ED: 6,500 NYC BUILDINGS, 2800 BROOKLYN CUSTOMERS AFFECTED

Flood surge map and power outage links below...

Hurricane Sandy will negatively impact traffic and retail sales in the retail calendar’s November Week 1. Week 1 is historically ~22.4% of Nov’s sales and Citi's Retail analysts estimate traffic could be down ~40% for the week in negatively impacted areas. They calculate that Sandy could negatively impact November monthly comps by 2-3% based on 22% (Wk 1 mix of month) * -40% (Citi traffic/comp headwind assumption) * 24% mix (average mix of stores impacted). A negative impact of 2-3% in November would yield a negative quarterly impact of ~1-2%.

The Fed sees the need to reduce interest rates as it takes over the US Treasury and MBS markets; but the ECB's actions are more aimed at reducing divergences between peripheral nations and the core. As SocGen notes, it remains unclear how and when the Fed would exit this situation and in Europe, bond market volatility remains notably elevated relative to the US and Japan as policy action absent a political, fiscal, and banking union remains considerably less potent.

The details of the Spanish bad bank are being released and it is ugly - far uglier than many had expected. And while the Spanish government expects priovate interest to take some of this massively discounted 'crap' off their hands, we have three words: 'deleveraging' and 'no bid!'.

• *RESTOY SAYS BAD BANK AIMS TO BE PROFITABLE
• *SPAIN BAD BANK TO DISCOUNT LOANS AVG 46%; FORECLOSED ASSETS 63%
• *SPAIN AIMS FOR BAD BANK NOT TO COUNT TOWARDS PUBLIC ACCOUNTS
• *SPAIN TO DISCUSS BAD BANK WITH INVESTORS IN COMING DAYS
• *SPAIN BAD BANK TO INCLUDE FORECLOSED ASSETS, LOANS, STAKES

The Spanish government remain in a world of their own with this level of self-delusion. Discunt details below...

Will the president preannounce the epic surge that Sandy will bring to Q4 GDP as America fails upward to achieve the Keynesian utopia through an infinity of broken windows - a hurricane that CNBC's Jim Cramer called a "GDP event", or merely an opportunity to take more shots... Find out below.

Follow this simple chronology of events...

UPDATE: Apologies - Europe clocks went back so we have another hour of trading (and stocks are surging!)

European equity markets are all closing down today with Spain leading the laggards down over 1% on the day. This is the seventh down day of the last eight for Europe's equity markets. Spanish bond spreads are wider for the sixth day of the last seven and now almost 60bps off their post-Draghi tights as once again the fast-money front-runners step away leaving a truer picture of the state of Europe. Interestingly, Italy underperformed Spain (in bond-land) today - something we haven't seen in weeks - which appears to be Italian bonds reverting their exuberance back to Italian stock levels. Notably, just as in the US, broad European stocks pushed a little higher into the close (after US early close) while credit markets bled weaker - closing near their worst levels of the day. EURUSD was down 30 pips or so (with an 80 pip hi-lo swing) - hovering around 1.29 - until it decided to zoom into the last few minutes, which pinged stocks a little.

Fed 'credibility' has boosted stocks from the start of its actions; the ECB, however, only since OMT. But as SocGen's cross-asset class research group notes, poor performance of the S&P 500 since QE3 announcement (-1.6%) may well be an initial sign of a loss of impact from the Fed’s policy, and US equity volatility is rising - catching up to Europe's.