Archive - Oct 2012 - Story

Update: It appears that following this post, Mr. Henry decided to take down his photo from his LinkedIn profile. We are unsure why because Mr. Henry has supposedly done nothing wrong, and we merely brought attention to information he had previously disclosed to the public domain.

With everyone at the Fed on early Halloween vacation, the nation's hopeful (and confident, if slightly less than expected, according to today's UofMich survey of the employees at 200 West) eyes turn to Kevin Henry: the only green-lit (i.e. active) senior trader/analyst and cross-market monitor at the world's largest and most profitable hedge fund located at Liberty 33, elsewhere known as Federal Reserve Deep Offshore Fund LLC.

Define headline heaven? Any time you can gratuitoulsy insert the names Art Cashin, Becky Quick and Paul Krugman in the same title. Like in this case. HERE'S WHAT YOU NEED TO KNOW.

It's AAPL? It's GDP? It's Europe? It's the fiscal cliff? The real answer to why the market/AAPL is down today is clearly laid out in the table below. A stunning 30 of the 40 Fed employees on Bloomberg (that's 75% for the Keynesians) is red - or out of the office today. The PPT is OOTO! Good to know all that taxpayer money covering these terminals is going to good use! Also keep an eye on Kevin Henry's dot turning yellow from green and vice versa. The NY Fed trader's presence, or absence, at his desk may be the only risk on/risk off signal left in today's market.

AAPL tested down to its 200DMA last night after-hours, only to get 'algo'd up to VWAP to maintain some credibility for all the analysts of the world who choose to ignore guidance (rightly or wrongly). Amid heavy volume this morning, now that options are open and put-overlays can be lifted (as we noted last night - and VIX futures are unavailable on IB) so early VWAP orders have given way to more broad-based selling pressure as AAPL's stock has broken back to a 5-handle for the first time since July.

Thanks to some early ebulience in the US session, European stocks and bonds managed to crawl back to unchanged on the day capping the worst week in a month for most risk assets amid ever-decreasing macro data. Spanish and Italian equities are down 4 to 4.5% over the last 6 days and 2Y Spanish bonds had their worst week in 6 weeks (though remain relatively range-bound). 10Y Spanish spreads ended back above 400bps (up 28bps on the week) as Portugal saw the most weakness - wider by almost 60bps. EURUSD round-tripped to unch today amid Schaeuble's comments this morning - but ended the week down around 80 pips or 0.7%. The post-Draghi up-trend is over - range-bound is no the norm, but it seems Europe has reconnected with US-beta...

While bank CEOs are welcomed on to business media everywhere with their ever-sanguine views of the recovery in everything from bayonets to housing, the true state of the financial sector is nowhere more evident than in the growth of Bloomberg Terminals. The long-term contractual lock-up and relatively expensive nature of the must-have-terminal-if-you-are-serious information provider means it is not an easy decision and when push comes to shove, it seems, Wall Street is not as confident in its future as it perhaps portrays. As the NYPost reports, Bloomberg Chairman Peter Grauer conceded that the company grew its terminal business by a mere 1000 units in the first nine months of 2012 - compared to 13,763 in 2011 (which was itself short of the 15,000 goal). The company remains highly profitable but it would appear to us that between the job cuts we noted last night, CEO expectations of economic outlooks, and now this much more specific data point on Wall Street, that the future is far less rosy than the ebulient consumer seems to believe.

It's not a good day for Citigroup tech analyst Mark Mahaney. Moments ago the WSJ reported that the former "star Internet analyst" was fired from Citi for disclosing non-public information about Facebook ahead of the IPO (surely he was the only Wall Street sellside who did this). To wit: "Mr. Mahaney, a top-ranked Internet analyst, was terminated Friday morning, according to a person familiar with the matter. The state also said the senior Citi analyst covering technology had given unpublished information about YouTube revenue estimates to a reporter for a French business magazine. "In an email to a Citi employee who questioned him on the communication, he responded 'this could get me in trouble. Shoot,'" the state said." Oh well: surely one of the hedge funds that did not invest in the FB IPO as a result of Mark's leaks will find him some mid-level analyst position as gratitude. Where it gets seriously ironic is when one looks back at Mark's career and stumbles upon this other WSJ pearl: "Mr. Mahaney, age 46, spent the original dot-com bubble of the late '90s at Morgan Stanley as MS -0.82% a junior analyst working with Mary Meeker, then a star Internet analyst. He then did a stint at hedge fund Galleon Group, whose founder was imprisoned after an insider-trading conviction. One person familiar with the matter says Mr. Mahaney was fired from Galleon for "not getting enough edge" on stocks." In other words, first Maheney was fired for not abusing inside information, then he is fired for... abusing inside information. If it is not too much to ask, could Mark's bosses please make up their minds already?

The government may have been instrumental to the US economy growing in the third quarter (did we say may: generating over 30% of the annualized 2.0% "growth" in Q3 probably qualifies as was absolutely instrumental in this impartial, apolitical datapoint), but the bottom line is that there was a cost. There is always cost. And a number: the number is $15.776 trillion, which was the absolute GDP number as of September 30, 2012 (to be revised lower in one month). This means we can now calculate what total US Debt-GDP was as of 3 weeks ago. And with the DTS reporting that debt was $16.16 trillion as of the day the third quarter ended (net of the SSN funding adjustment, which of course is always reported the first day of the next quarter for window dressing purposes), it means that total US Debt-to-GDP was 102.4%. And obviously rising much faster as since the Second Great Depression it takes well over $2 in debt for every $1 increase in GDP. Because there never is such a thing as a free lunch, especially when the government is operating the soup kitchens...

Even if we were able to squeeze some additional taxes out of the parasitic Elites, their income stream is dwarfed by the Federal spending that looms ahead. The top 1/10th of 1% cannot pay the rapidly expanding Federal benefits of the 99.9%, even if we confiscated every dollar of their incomes. How can tax revenues increase when household incomes are declining? Transfer more of the national income to taxes and that leaves less for savings, investment and consumption. The economy contracts, reducing the workforce and wages further. If that isn't a death spiral, it is a close approximation of one.

"What's different about Hurricane Sandy and why should we be afraid?" is the anxious question that Bloombergs' Tom Keene poses in the clip below. The answer - it's the size! The wind-field is considerably larger than normal with tropical storm strength winds (as the chart below indicates) extending over a very large area. As we warned yesterday, the storm surge in low-lying areas is the most threatening and the clarity of the problem is highlighted by the graphic below as Sandy approaches the Atlantic coast Monday or Tuesday. With the Atlantic unusually warm (meaning more fuel for the hurricane) and the new moon, the title of the Bloomberg clip says it all: "This is how scared you should be of Hurricane Sandy".

It seems Berlusconi's recent comments on not running for office were very prescient as he has just been slapped with a four year jail sentence for tax fraud and banned from politics for five years:

*EX-PREMIER BERLUSCONI GUILTY OF TAX FRAUD IN TV RIGHTS TRIAL
*ITALY EX-PREMIER BERLUSCONI SENTENCED 4 YEARS BY MILAN COURT
*MILAN COURT BARS BERLUSCONI FROM POLITICS FOR 5 YEARS    :MS IM

Bunga Bugga? We do note the farce of all this as DPA notes: Berlusconi will not serve his sentence if he appeals against the first instance judgement.

In a stunning development, and likely the result of the University of Michigan no longer calling solely various number at the (212) 902-XXXX extension, one data point has come below expectations and this is with less than 2 weeks until the election: because whereas GDP was a comfortable beat courtesy of the government spending to make itself look better, today's UMichigan confidence print came at 82.6 on expectations of a 83.0 print, and just barely down from 83.1 last month. What was surprising too, is that hopium consumption, which has been off the charts recently, also moderated, with not only conditions declining modestly from 88.6 to 88.1, but expectations also down from 79.5 to 79.0. That said, and for popular media consumption, the headline will be that the final expectations print (not prelim) has been the highest since 2007. And in a sign that there is at least some coordination between the various departments of truth, 5 year inflation expectations finally rose from 2.6% to 2.7%. Recall that the whole premise behind the "improvement" in the economy is due to QEtc, which in turn implies a surge in inflation. Which explicitly means one can feel good about today, but one has to expect spiking inflation in the future. One can't have both. Today uMich finally got the memo.

"No matter where you stand, no matter how far or how fast you flee, when it hits the fan, as much as possible will be propelled in your direction, and you will not possess a towel large enough to wipe all of it off."

You thought it was tough; it is going to get tougher. You thought that Europe would not affect America and that we lived in some sort of bubble over here; think again. You thought that the liquidity provided by the world’s major central banks would carry us across the divide and intact; keep dreaming. We are at the cross roads...

Credit-rating cuts were made on more than $200 billion of municipal securities in the first nine months of this year, exceeding the total for 2011, and there’s no end in sight. Bloomberg Brief also notes that it is not just the weaker Californian cities (such as Fresno) but even Los Gatos (an affluent town about 50 miles south of San Francisco, where Apple's Steve Wozniak lives) is facing possible rating downgrades. Moody’s is concerned that cities might skip debt payments in a cash crunch to preserve services and meet payroll. The decisions to seek bankruptcy “provide some indication that willingness to pay debt obligations may be eroding in the U.S. municipal market,” according to the Moody’s report, especially since California municipalities have limited ability to boost revenue. They can’t impose higher sales taxes without going to voters. Meanwhile Chapter 9 Muni petitions are now above 2011's YTD equivalent as California’s Mendocino Coast Health Care District became the 12th Chapter 9 petition filed year to date and the fourth from that state - up from just 5 Chapter 9s in 2010. Paging Ms. Whitney...