Archive - Oct 2013 - Story

When Jeremy Stein warned in February of "froth" in the credit markets, it was much discussed but little action'ed. However, today we start to see some actions:

• *FED SAID TO ISSUE WARNING ON LAX LEVERAGED LOAN UNDERWRITING

With cov-lite issuance at all-time record highs (as we explained here most recently and Moody's tried to ignore), Stein's bubble is even bigger and whether or not the Fed 'tapers' it is clear now by this signal that their concerns over bubbles are growing day by day.

With the Dow Transports leading the way (now up for the 10th of the last 11 days and 9.7% off its debt-ceiling-debacle lows), US equity markets are engorged on the euphoria of this "can't lose" scenario that offers free lunches (and ponies) for everyone. On the heels of SocGen's call (eerily reminiscent of Schiff's and Faber's prophecy of rising QE no matter what), it's 315pm, have you greatly rotated your money on the sidelines to BTFATH yet?

And so, one by one, the crazy pills theories start rolling out. Yesterday, as we first pointed out, Deutsche Bank made waves when it became the first "serious" organization to suggest that the Fed has now missed its tapering window, and will plough on thorough until the next downturn without ever lowering the pace of Flow (of course the reflexive paradox that the economy would be in an out of control depression without QE in the first place somehow does not figure in that calculation). And while this has not been a novel idea (we first predicted that once perpetual QE starts it will never taper, long before QE 3, aka QE^ternity was even publicly announced last summer)  today, all the penguin "pundit" copycats have jumped aboard this theory. Well, not all. SocGen has decided to make waves of its own with an even crazier pills idea: instead of no taper... ever... the Fed, that glorious redistributor of wealth from the middle class to the 1%, while happy to adhere to that old saying: "a funded welfare program a day, keeps the guillotines away" will not only not announce a Taper in next week's FOMC meeting but will in fact hike QE!

Economics isn't a science. It is a mistake to think it would be so. Science does not have schools. Only philosophies have schools. The difference between a science and a philosophy is the difference between seeking truth while honestly admitting you don't know it and declaring that truth is something you define. The distinction between science and philosophy with respect to economics is important because economists have an annoying ability to set policy - policy that affects the quality of your lives.

There are reports of at least two people who have been shot in Millington. Emergency crews are responding to 5650 Attu which is listed as the Army National Guard recruiting center. We are told the shooter is in custody. A shelter in place order has been given on the base. Multiple ambulances are on the scene.

While the recent track record for Muddy Waters has been uninspiring, their "strong sell" report on NQ Mobile this morning has garnered attention since it has halved the stock's market cap in minutes. NQ is now down 50% on the day having been halted numerous times. Still, if you feel like catching this knife, a full 5 out of 5 analysts that cover the stock have 'buy' recommendations with Topeka's Fred Ziegel topping the list at $33.50 (a 200% rise from current levels). Full report below...

"Inherent in the nature of government itself is the fact that it is incapable of effectively providing services," Biderman blasts, noting that "by 'effective', he means dollars and hours." The TrimTabs CEO is breathless in his beration of "the biggest of the big lies," that continues to be believed by most of America ("given their re-election of Barack Obama" he adds), that government can effectively provide services. The reality is "governments are not capable of getting anything done cost-effectively," and Biderman, focused on Obamacare as a recent example, concludes "its all FUBAR."

A reduction in retirees' disposable income coupled with a global rise in the price of oil could crimp the assumptions underpinning RV Nation.

When France released its August Jobseekers data in August, and it beat expectations dramatically reversing the trend of ongoing malaise with little to no supporting evidence of 'why', we were skeptical. Fast forward one month and we are almost speechless in that not only are European PMIs rolling over just as we warned but the French jobs data is totally screwed up as yet another technical glitch meant 20,000 'text' messages that went unreplied were responsible for the entire improvement. French Labor Minister Michel Sapin is back tracking fast, admitting pre-emptively that "September's data won't be good... due to the 'statistical incident'." The 50k drop last month has been was bettered by a 60k rise to a new record high for French unemployment.

Just last week we noted that the cryptocurrency was quietly surging towards record highs once again as the debacle in Washington, China's comments on the USD, and Baidu's acceptance of Bitcoins all interplayed to disrupt what many called he end of Bitcoin following the shuttering of Silk Road. Just yesterday, Bitcoin rose to almost USD235, within touching distance of April's record high... but then this morning, it collapsed to under $175 (as its liquidity reflected NFLX not global FX). The last couple of hours have seen the price bounce back to $210, but if you like high-beta vol, then Bitcoin is the new TSLA...

As the Congressional hearing, to apportion blame for the farce that Obamacare has already become, gathers steam the overwhelming theme from the four witnesses is "it's not our fault," and as much as the Congressmen dive deeply into the process, the more it is clear that the left hand had no idea what the right hand was doing in yet another government-funded SNAFU. The entire discussion can be summed up by CGI's comments that "our portion of the application worked as designed." Indeed, all of the contractors point the finger back at the government's Centers for Medicare and Medicaid as responsible for "end to end testing," and ultimately the #fail.

The risk of a more meaningful reversion is rising. It is unknown, unexpected and unanticipated events that strike the crucial blow that begins the market rout.  Unfortunately, due to the increased impact of high frequency and program trading, reversions are likely to occur faster than most can adequately respond to.  This is the danger that exists today. Are we in the third phase of a bull market?  Most who read this article will immediately say "no."  However, those were the utterances made at the peak of every previous bull market cycle.  The reality is that, as investors, we should consider the possibility, evaluate the risk and manage accordingly. With the current bull market now stretching into its fifth year; it seems appropriate to review the three very distinct phases of historical bull market cycles.  While the current bull market cycle may not be set to end tomorrow; it seems sensible to take a pause to question mainstream beliefs.

Having seen his "unconditional surrender or default" strategy work over the debt ceiling, we wonder what 'ultimatum' President Obama has up his sleeve to get the Immigration Bill passed...

In a tougher-than-expected proposal, the Fed has decided that "internationally active banks" raise their minimum liquidity standards (more than some expected, it would seem by the reaction in stocks).

• *FED PROPOSAL CALLS FOR BANKS TO HOLD 30 DAYS OF READY ASSETS
• *FED: US BANKS ROUGHLY $200 BILLION SHORT OF PROPOSED LIQUIDITY REQUIREMENT.
• *BERNANKE SAYS LIQUIDITY RULE WILL MAKE FINANCIAL SYSTEM `SAFER'

The Fed seeks comments on this proposal over the next 90 days - which we presume will involve much hand-wringing and jawboning until the shortfall disappears magically with transformed collateral... but for now, it is yet another 'tightening' stance in global policy that will impact 'trading' banks considerably more than 'deposit-taking' banks.