Archive - Oct 2013 - Story

Over a year ago, in addition to the money-laundering aspect (confirmed previously) and the REO-To-Rent scramble by PE firms and hedge funds (which is now over as PE become active sellers of apartment rental properties), we highlighted the third implicit subsidy to the housing non-recovery: Foreclosure stuffing. We explained this scheme by banks to limit the amount of available for sale inventory as follows: "since the properties not entering the foreclosure pipeline are effectively kept out of inventory, even shadow inventory, and thus the distressed end market, the monthly drop in foreclosures has acted as a form of subsidy to the housing market, as month after month less inventory than otherwise should, enters the market.... What this has resulted in is a logical increase in prices of the properties that are on the market." Today, the mainstream has finally caught on, and courtesy of RealtyTrac has come up with its own name for this subsidy: Vampire REOs.

It would appear that Warren Buffett's reassurance this morning that crossing the debt ceiling won't be so bad (trumpeted by any and all equity pitch men since) is being entirely ignored by the bond market. 1-month Treasury bill yields are soaring this morning - up 5bps at 12.5bps now (having touched 16bps - the highest yield in almost 3 years and notably higher than during the 2011 debt ceiling debacle). 1Y USA CDS are also up 3bps at 38.5bps this morning - notably inverted still. Of course, equity markets are surging back to open green for retail investors ignoring Obama's warning last night and Lew's "default has potential to be catastrophic" note this morning. In the meantime, the 1M1Y flattener trade we suggested goes from strength to strength as an indicator of market stress.

A growing number of House Republicans are voicing support for a clean CR and as Bloomberg reports with House Democrats, the 17 Republicans would have enough to votes to pass such a bill. As Politico notes, the fear appears to be that Congressional Republicans are in danger of morphing into the anti-Obamacare party rather than one devoted to fiscal conservatism and cutting out-of-control federal spending. The 'angle' appears to be, confirmed by Rep. Peter King (NY), Mario Diaz-Balart (FL), and Richard Hanna (NY), that “the CR is about spending. It’s the spending, stupid. We actually won 100 percent there," rather than obscure victory with an Obamacare focus. So far Boehner has shown no willingness to bring such a 'clean' bill to the floor.

While all other government data releases are halted, the DOL has been kind enough to keep its Initial Claims random number generator running, and this week, following several weeks of "computer system update" distortions, reported the fifth consecutive week of expectations beats with a print of 308K, below the 315K expected, but above the upward revised 307K from last week. Alas, the number is once again completely meaningless as the DOL said Federal furloughs will not show up in claims data, which means that all of the up to 800,000 newly filing government workers will remain completely under the radar, and forcing even more people to wonder just what is the utility of any government data, even when the government is generous enough to not be shut down. Equities did not move at all on the news but gold and bonds are rallying.

The electric car dream may be ending, one flaming Lithium Ion battery pack a time (no matter how Borgified the cult following of the carmaker may be), but when it comes to combustible engines, some have never had it better. Such as Mercedes. According to Reuters "Daimler's luxury brand Mercedes-Benz sold the most cars in one month in its history in September, German paper Bild reported on Thursday. The carmaker sold over 142,000 cars last month, a rise of 15.9 percent, driven by demand in China and the United States, the paper said in an advance copy of an article to be published on Thursday." So who again says the wealth effect does not trickle down... If mostly to the Mercedes-Benz and the 0.01%-ers bottom line that is.

In what can hardly be encouraging news to all the cult members holding the priced to immaculate conception Tesla stock, the unverified YouTube video clip posted yesterday showing the Tesla Model S aka "the safest car in America" (how is that kickbacks-for-awards thing at NHTSA going anyway?) engulfed in a flaming inferno, has just been authenticated by Tesla, and what's worse not only was there indeed a fire but it originated in the worst possible place: the battery pack. Where it goes from worse to worst is that once on fire (the car, not the stock) "water seemed to intensify the fire." It remains to be seen if the new and free car option: "Spontaneous Combustion" will have a similar effect on the company's stock.

• Mounting Wall Street fears of US default (FT)
• This is what the US government does when it is "shut down" - CIA ramping up covert training program for moderate Syrian rebels (WaPo)
• SEC Weighs Overhaul of Exchanges’ Self-Regulatory System (WSJ) - just let Goldman and JPM do all the policing; not like anyone cares anymore
• Reid Sets Tone for Democrats in Shutdown Fight (WSJ)
• No Movement in Shutdown Standoff (WSJ)
• Shutdown will not slow Fed nomination, says Obama (FT)
• Syrian Regime Chokes Off Food to Town That Was Gassed (WSJ)
• Tesla Says Car Fire Began in Battery (AP)
• China Services Index Increases in Sign of Sustained Rebound (BBG) or sustained data manipulation

Despite the president's tongue-in-cheek warning to Wall Street that this time it's different, and it that "it should be concerned", that same Wall Street continues to roundly mock his attempts to talk it lower on the third day of America's "shutdown", knowing very well that if things ever turn bad, Mr. Chairman, aka the S&P chief risk officer, will get to work, and rescue everyone from that pesky thing known as losses. Whether the offsetting optimism was driven by made up China non-manufacturing PMI rising from 53.9 to 55.4, the highest in six months, or just as made up non-core European PMI data which also beat expectations despite Germany Services PMI continuing to telegraph a weakness, dropping from 54.4 to 53.7, is unknown and once again not important. So while futures are modestly lower if only until such time as the daily 3:58pm VIX slam takes place just before market close, do not expect any major moves in stocks until either the GOP finally folds and lets Obama have his way, or bundles all shutdown legislation into the debt ceiling negotiation, and careens the US right into the debt ceiling deadline on October 17 without any legislation in place.

1. presstitute
A member of the media who will alter their story and reporting based on financial interests or other ties with usually partisan individuals or groups.

It has become abundantly clear in recent years that the mainstream media can not be identified as anything other that a collective of mediocre, corporate/government ass-kissing presstitutes. CNBC has a special position in the presstitute media hierarchy.

It just keeps getting worse and worse for Bill Ackman. A few weeks after the epic humiliation, not to mention even more epic losses, he suffered on his now defunct JCP long position (despite ample warnings by the likes of Zero Hedge who said long ago JCP is merely a melting icecube and fast-track Chapter 11/7 candidate) all those who predicted (such as Zero Hedge back in January) that an epic HLF short squeeze would result in the aftermath of Ackman's Herbalife short announcement leading to Ackman's ultimate capitulation, have been proven correct. Moments ago, in a letter to investors, Bill Ackman just announced that he has covered over 40% of his Herbalife short position, with his forced buy-in explaining the endless move higher in Herbalife stock in recent weeks. The explanation of being forced out of nearly half of his position is amusing: "we minimize the risk of so-called short squeezes or other technical attempts by market manipulators to force us to cover our position." So Ackman is forced out by his Prime Brokers so as not to be forced out by market manipulators? That's an interesting explanation for what is a far simple situation: booking your paper losses.

Just two weeks ago we explained how when there is only one driving factor for market performance and "too-many coat-tail clinging asset managers chasing too few real alpha opportunities" then problems can arise. Critically, we showed the correlation between the S&P 500 and hedge fund returns has never been higher and is approaching 1. So it is refreshing that the Treasury Department agrees in a recent report that this "herding into popular assets" by asset managers could pose a threat to the US financial system.

Hopefully Great Britain doesn't get the idea of finally reclaiming its rebellious colonies lost over two hundred years ago, because the US certainly is making it easy. As part of the numerous non-essential services shut down in the current government funding crisis, Foreign Policy reports that the Air Force's Air Combat Command (ACC) - home to the service's fighter jets, B-1 bombers and most of its drones and spyplanes -- has grounded squadrons that are not set to deploy abroad after January. "...Only fighters based at Mountain Home flying this fall are the F-15SGs of the Singaporean air force that are permanently stationed there. Interestingly, German and Canadian air force jets are also flying out of the Idaho base on training deployments of their own.

For a "sick" nation, it seems laughter may just be the best medicine... especially as they say "a day without laughter is a furlough day wasted."

Nancy Pelosi tried hard this evening (in the post WH meeting presser) to position the Democrats in order to disavow the inevitable but now Bloomberg is reporting that:

*HOUSE REPUBLICAN PLAN WOULD LINK SHUTDOWN, DEBT-LIMIT FIGHTS

House Republican leaders plan to bring up a measure to raise the U.S. debt-limit as soon as next week as part of a new attempt to force President Barack Obama to negotiate on the budget by merging the disputes over ending the government shutdown and raising the debt ceiling into one fiscal fight. This is not what most sell-side strategists expected as a base-case; in fact it is close to a worst-case for many - especially given Obama's apparent unwillingness to negotiate.