Archive - Dec 21, 2012 - Story

What percentage of this press conference will be assigned to Kerry's nomination and what percentage to the Clash (Cliff-Crash)? Stay tuned...

26-year-old Hu Bin is China's most popular online market commentator - just four years after starting his blog. As Bloomberg BusinessWeek notes, his success started when Premier Wen Jiabao announced a 4 trillion renminbi rescue plan and as 'Commander in Chief of the Stock Market Army' Hu says "I knew I just needed to be clever and use this chance of high liquidity in the market to make myself famous." The brash, eccentric, and outspoken blogger is among the Top 10 most influential people on the Chinese stock market (though under his alias 'Yerongtian' - though preferring the nickname 'Batman') and notes that "any eccentric behavior would attract people's attention. If you understood this vital point, you could control  people's minds." Hu says he is not a financial rabble-rouser adding that "the stock market in the US is managed by regulations; the Chinese market is managed by humans. The 72 million 'retail' Chinese investors aren't as mature as American investors, and I write to meet their immediate needs." While recognizing the irresistible pull of stocks, he understands he's giving advice to people he knows probably shouldn’t be in the market but are going to invest anyway.  What's Chinese for BooYaa?

Facing reality is positive. That's the upside to the fiscal cliff. The last decade's fantasy that we could borrow our way to prosperity while lowering taxes on upper-income earners (because it's so cheap to borrow trillions at near-zero interest rates) is finally running into reality-based resistance.

First gun sales soared, then Wal-Mart ran out of guns, then parents, stunned by the popular response in the aftermath of the Newtown mass murder which saw the White House threaten to curb the Second Amendment and lead to an even more unprecedented scramble for guns and ammo, and seeing nothing but confusion (but lots of bickering meant to extract nothing but political brownie points) out of the government instead of any hope of actual protection, decided it was time for some vigilante protection. The end result: sales of bulletproof backpacks have soared, with sales exploding as much as 500% since Friday. And since the white line from a defensive to an offensive posture is very thin, it is likely only a matter of time before we get the first media report of a 6 year old armed with a 44 caliber during recess.

While Italian and Spanish sovereign bonds weakened notably today, the equity markets across Europe decided that the limit-down move in US futures was a storm in a teacup and ignored it. EURUSD has broken its inexorable 10-day linear ramp leaving the USD almost perfectly unchanged on the week. Italy and Spain equity indices are up 2.6% and 3% respectively while Italian and Spanish bond spreads are around 16bps tighter. Rather like what we witnessed this week in the US, Europe's VIX exploded today (biggest jump since July) as protection was sought in a hurry but the underlying indices did not drop as (just like over here) they are simply too illiquid to cope with the kind of selling that is desired. This leads to the game-theoretical first-mover dilemma - and the preference was to hedge via bonds, FX, and options as Europe closed - because think of the optics if Spanish stocks were to fall? Spot The Odd Market Out!

Steve Jobs' EUR150mm yacht has been confiscated by a court in Amsterdam following Jobs' heirs decision not to pay the designer of the boat. As Holland's Nu.nl reports, the famous designer Philippe Starck had an 'agreement' with Steve Jobs that he would receive 6% of the price (or EUR9mm) of creating the yacht as his payment for designing the epic 80-meter, 27-iMac-controlled behemoth. Unfortunately, the 'agreement' was not on paper as the two men were 'friends' and so the heirs to Steve Jobs fortune have decided that the EUR6mm that Starck has received is quite enough. The yacht remains moored in the Port of Amsterdam under bailiff control. Must be a tough life eh?

"Interconnections serve as shock-ampliers, not dampeners, as losses cascade. The system acts not as a mutual insurance device but as a mutual incendiary device." - Andrew Haldane

As all the rumors predicted:

OBAMA SAID TO NOMINATE KERRY AS SECRETARY OF STATE TODAY

Time to salute Kerry, John "Swiftboat" Kerry.

We noted the VIX divergence (and most importantly the 14-month flatness of the term-structure - which is following the 'debt ceiling' path perfectly!) yesterday and pointed out how illiquid markets were. Critically, those that could were selling into strength and those that couldn't (due to size and illiquidity) bought protection. Overnight the flash crash recoupled S&P to VIX but this morning has seen more protecction buyers step in, driving VIX towards 20% (5 month highs). Given the recent correlations (and managers knowing full well they can't unwind their exposure into the cash market as the avalanche will be too large), VIX implies the S&P at around 1370. Interestingly, this level of S&P is also approximately what a 2% rally in the USD would imply (the FX implication we suggested yesterday of a failed cliff resolution in the short-term).

After theatrically soaring to a 5 year high in November, when the UMich confidence final print rose above the 82 level, the final UMich consumer confidence number just tumbled by a whopping 10 point down to 72.9, well below the expected 75.0 print, and below the preliminary read of 74.5. This was the biggest percentage slide since February 2007. So much for the great pick up in confidence, driven by the foreclosure stuffed subsidized "recovering" housing market. Perhaps it's time to get a seasonally adjusted confidence number?

This should be good. Part apology, part job interview, part finger-pointing; Speaker Boehner is set to speak at 10ET to explain how this is all going to be ok... or not...

If you were wondering why the Argentinian leadership were unwilling to pay off a few 'annoying' hedge funds with a few billion dollars (and were pissed about losing one yacht), then perhaps this report from the BBC will enlighten. Argentina authorities have sent hundreds of troops to the southern city of Bariloche after a spate of looting. Critically, Bariloche is not some shanty-town, it is one of the nation's most popular ski resorts and 'relatively' affluent. The following clip sums up the dangerous situation the nation finds itself in, despite the government's assurances that this is a "false picture of social and political collapse." Looks real to us?

The Leuthold Group constructs their Risk Aversion Index (RAI) with a combination of market based indicators,  including credit and swap spreads, implied vol, currency moves, and commodity prices. No doubt quantitative easing is repressing market fear. They also note that periods of low risk aversion tend to run longer than streaks of elevated risk aversion. How long this time? We don’t know but we’re going to think long and hard over the holiday about the potential macro swans in 2013. Here are eight starting thoughts we will be contemplating...

Fiscal cliff, fiscal cliff;
     Politics in play!
The only thing they have in mind;
     Is the next election day! Hey!
Fiscal cliff, fiscal cliff;
     Isn’t politics great?
They've left us now in such a mess;
     We’ve no choice but to inflate.