Archive - Nov 2012 - Story

Curious why stocks suddenly took on extra water in the past few minutes? This:

• SAC CAPITAL SAID TO PLAN INVESTOR CONFERENCE CALL TOMORROW - BBG
  

As a reminder, SAC is and has been for the past 10 years arguably the largest buyside market maker, and the firm which now that it has no more Expert Networks to lead to "excess alpha" is forced to slam stops in the market, primarily to the upside, and crush all shorts during times of peak shorting. Should SAC be forced to scale its operations lower, one thing is certain: the farce formerly known as the market will look very different than it does now.

Lately it seems that the entire world has become a complete basket case of economic data and market manipulation. On one hand, as we reminded yesterday, the disconnect between US economic fundamentals and the market has hit levels that imply the S&P is rich by 200 points. On the other, this morning the Chinese stock index, the Shanghai Composite, closed at a level of 1991: this was the first sub-2000 close since 2009 so early one can make it 2008. Yet the punchline in today's data is the report from the People's Daily, that in the first ten months of the year, a total of 11.2 million urban jobs have been created, or about 1.1 million per month on average (in context, the US has a problem with creating 150K jobs/month). Ignoring for a fact that this data is total manipulated garbage, is it now safe to say that no news has any impact whatsoever on the global monetary policy playing field once known as stock markets?

No funds are going to be distributed now. Perhaps some of you missed this but this is exactly what Ms. Lagarde stated. Before any distribution the Eurozone has to “fulfill its commitments” and the Private Sector bond buyback plan must be completed. Consider this; Europe is putting up all of the money currently and the IMF has declined to participate. Oh yes, it is couched in political mishmash and tucked neatly under the rug but there it is; no money from the IMF for now.

While the just released Durable Goods orders report for October came in modestly better than expected (which many thought would be a decline due to Hurricane Sandy), the primary driver of this continues to be record durable good inventory accumulation. Excluding the noise, and focusing only on real, non-noisy economic strength metrics such as New Capital Goods Orders (technically defined as the year over year change in Non-Defense Capital Goods Excluding Aircraft), a very different and far uglier picture emerges. In fact, the October Y/Y Plunge of -8.1% in this major indicator was the biggest drop since 2009.

With most pundits expecting a weak Durable Goods report today from the month of October, it was only logical that the final print would come better than expected. Sure enough, the October headline durable goods printed at 0.0%, on expectations of a -0.7% decline from a downward revised September 9.2%. It was in the non-volatile Ex-Transportation index that saw a pick up of 1.5%, missing modestly the expectations of a 2.0% print, and down from 1.7% last month. From an investment standpoint,  Capital Goods Orders nondefense ex-aircraft rose 1.7% on expectations of a drop to -0.5%, up from a downward revised -0.4%. One wonders just what seasonal adjustment factors were used in this particular data set which saw the NSA data drop from $63.1 billion last month to $61.8 billion currently. Needless to say, inventories of manufactured durable goods, having increased 33 of the past 34 month, just hit an all time high of $374.4 billion, rising 0.4% in the month, following a 0.2% increase in the month ago.

USDJPY has rallied 3.5% in 2 weeks on wide expectations that Abe will come into office on Dec 16 and force BOJ into aggressive monetary easing (target 2% inflation). Market as a result has seen one way demand for USDJPY higher options driving skew sharply higher to recent highs. The desk believes that there is significant risk in USDJPY in the next month given event risk (most notably Japan elections/BOJ meeting and US fiscal cliff), but the desk feel that with positions relatively stretched, holiday season looming and the long side of the equation almost solely dominated by short term spec guy that the PAIN TRADE is now likely USDJPY lower from here, at least much more so than what the vol curve currently indicates.

Because Hermes scarves can only be appreciated up close and personal. Just keep a close eye on your pockets: never know who is lurking behind you.

CME Group declared a force majeure at one of its New York precious metals depositories yesterday, run by bullion dealer and major coin dealer Manfra, Tordella and Brooks (MTB), due to “operational limitations” posed by Hurricane Sandy. MTB has “operational limitations” following Hurricane Sandy and can’t load gold bullion, platinum bullion or palladium bullion, CME Group Inc., the parent of the Comex and New York Mercantile Exchange, said today in a statement. MTB must provide holders with metal at Brinks Inc. in New York to meet current outstanding warrants in relevant delivery periods with compensation for costs, Chicago-based CME said. The CME said that MTB will not be able to deliver metal as the lower Manhattan company deals with "operational limitations" almost a month after the arrival of Hurricane Sandy. MTB is one of five depositories licensed to deliver gold against CME's benchmark 100-troy ounce gold contract, held 29,276 troy ounces of gold and 33,000 troy ounces of palladium as of Nov. 23, according to data from CME subsidiary Comex. In a notice to customers on Monday, CME declared force majeure for the facility, a contract clause that frees parties from liability due to an event outside of their control.

• OECD slashes 2013 growth forecast (FT)
• Fiscal Cliff Compromise Elusive as Congress Returns (Bloomberg)
• China’s PBOC Chief Search Spurs Focus on Finance Regulators (Bloomberg)
• Elected, but Still Campaigning (WSJ)
• Pentagon Readies Options for Afghanistan Force After 2014 (Bloomberg)
• Greece Wins Easier Debt Terms as EU Hails Rescue Formula (Bloomberg)
• Monti presses Cameron for EU referendum (FT)
• Welcome, Mr Carney – Britain needs you (FT)
• Argentina seeks halt to $1.3bn debt order (FT)
• Asean chief warns on South China Sea disputes (FT)
• South Korea Tightens FX Rules to Temper Won Surge (WSJ)

It wouldn't be Europe if the insolvent continent did not announce, to much pomp and circumstance, another final rescue for a broke country which was nothing but a short-termist can kicking exercise. It also wouldn't be Europe if the leaders did not do much if any math when coming up with said "rescue", and it certainly wouldn't be Europe if the initial EURphoria following such an announcement was not promptly faded. Sure enough, all three have now occurred with the EURUSD soaring to over 1.3000 in the moments after last night's soon to be obsolete announcement, only to see a gradual and consistent sell off over the next several hours, dropping to a week low of just under 1.2940 as details emerged that... there were not details. To wit, as Market News reported:

• EU COMMISSION: FUNDING FOR GREECE DEBT BUYBACK NOT WORKED OUT YET

In other words, the use of funds for the third Greek bailout has been more than detailed. The only tiny outstanding issue - the source of funds.

It took the charming three tries for Greece to get its third "bailout", which incidentally does not bail out anyone except the hedge funds who went long GGBs because the only actual winners resulting from yesterday's transaction - those benefiting from Europe's AAA club fund flows are hedge funds as explained previously. As for Greece, what the "deal" did was buy it more time to get its hockeystick GDP forecast in order as the only thing that may win the country some future debt forgiveness is hitting an unbelievable 4%+ current account surplus and GDP growth of a ridiculous 4.5% per year. That said, of the cash proceeds going to Greece, to be released in three tranches, totaling €43.7 billion, only a de minimis €10.6bn for budgetary financing, i.e., the Greek population (read government corruption) and €23.8bn in EFSF bonds for bank recapitalisation, read keeping German and French banks solvent. Once the €10.6 billion runs out in a few months, the strikes will resume. So what does this third, latest, greatest and certainly not last can kicking exercise mean? Simple: in the words of SocGen, a short-term reprieve has been hard bought, nothing has been fixed, and "more will be likely."

Those with vested interests in the Status Quo tout data that supports the claim the "recovery" is now "self-sustaining," meaning that the economy is now expanding fast enough to fuel new growth. Those looking at fundamentals such as household income/debt and sales see more of a Mind Trick being played on the weak-minded. So the task of the Status Quo shifts from actually expanding the economy to persuading us the economy is expanding. With debt levels still high and income sagging, where is the higher income needed to support higher debt and spending? Lowering the interest rate has enabled higher debt, but now that interest rates are negative (below the rate of inflation),they can't go any lower: the Status Quo has run out of "stimulus" and now must rely on manipulation and artifice--Mind Tricks--to persuade people a stumbling, stagnant economy is growing robustly enough that they should risk their future prosperity on debt-based consumption in the present.

Watching Barack Obama and Mitt Romney duel in the presidential campaign should have convinced the spectators that we live in an age of illusionists. Few of the assertions and conjectures thrown around have been subjected to what the political chattering classes deem to be the indignity of factual verification. This brings us to the sharp pencil people in the Obama administration, specifically the OMB. They claim to know what the relative size of the federal government will be in 2016, at the end of President Obama’s term. According to the OMB’s plans, the federal government, as a percent of GDP should be 22.5%. That’s a 1.8 percentage point drop from the current level. Given that President Obama’s first term recorded a record growth in the relative size of the federal government, and that the President campaigned on a platform of more big government, it is doubtful that he will come close to meeting his own OMB forecasts, in his second term. Yes, the illusionists, not the President’s sharp pencil people, will probably carry the day. What will make the President’s task even more onerous is money – as in the money supply. Thanks to Basel III, the U.S. money supply isn’t the only one creating growth headwinds. Europe faces significant money supply deficiencies. Will Asia continue to be the world’s locomotive? We will have to wait and see. At present, though, one thing is certain – an age of illusionists has arrived.

Not surprisingly, in the weeks since the historical hurricane made landfall, new attention is being paid to the mounting costs that coastal world megacities may face. Intriguingly, however, this new conversation about climate, energy policy, and America’s reliance on fossil fuels comes after a five-year period in which the U.S. has dramatically lowered its consumption of oil and seen an equally dramatic upturn in the growth of renewable energy. The combination of declining oil use and a greater reliance on the global powergrid is going to shape energy and climate policy. Especially at a time when the concerns of climate change – or, rather, rising seas and the greenhouse dangers of fossil fuel dependency – are being increasingly raised. This will make for a rather muddled and complex array of diverging policy initiatives. Moreover, as new oil supplies emerge from domestic American sources, the dream of resurrecting this cheap oil era will no doubt come back around several more times. But none of these new resource plays will change the trajectory of global oil supply much, nor will they lower the price of oil. So far, new oil supply mostly offsets declines elsewhere – but at substantially higher marginal cost. This should now be clear.