Archive - Nov 20, 2013 - Story

It seems, despite the Fed's efforts to unscamble the treasury complex's eggs, that the rate shock of a taper/no-taper decision has become sticky in the housing market. With the fast money exiting, existing home sales missed expectations for the 4th month in a row - dropping to the lowest annualized number since June (very much against the trend in recent years). This is the biggest month-over-month drop in existing home sales since June 2012 but, of course, NAR has an excuse... "low inventory is holding back sales." So, in other words, they could sell loads more houses if only there were more available for sale (or prices were lower...)...

Well that escalated quickly. Just a week ago we noted that President Obama's approval rating trajectory was following an increasingly Dubya-esque route and sur eneough, today, a CBS poll shows that a mere 37% "approve" of the job Obama is doing. This is the same poor approval rating as Bush II's second term at this time and perhaps more ironically comes only a month or so after he crowed of the Republicans' collapsing polling results during the debt-ceiling debacle. In aggregate, as RealClearPolitics shows, Obama's approval rating has collapsed to the lowest on record (and likewise his disapproval rating has soared). We await the next 'distraction' from the administration's dismal state of affairs...

All "recovery watchers" are urged to look somewhere else than the just released monthly Caterpillar dealer retail sales. Because while in September there was some hope that North American industrial demand may finally be picking up when retail sales on the continent posted the first two month sequential increase since 2012 even as the rest of the world was stuck deep in negative territory, that hope too was just been dashed with October North American retail sales posting the first decline of -2% since July. And unfortunately while North American sales just rejected any glimmer of a localized recovery, the rest of the world just keeps getting worse and worse, with negative sales prints across the board for every region - the first time this has happened since February 2010. The only difference is that then the trend was higher. Now, well, it isn't.

Talking-heads and commission-takers have momentum-chased clients' hard-earned money into Europe's 'what works now' markets - on the basis of what has now proved to be entirely fallacious macro- and micro-fundamental improvement (as we noted here and here). But, while "whatever it takes" has smashed bond spreads lower and has blown stock prices higher; most critically, the 'confidence' has seen the EUR rise almost 15% against the USD from its July 2012 "whatever It Takes" lows. The effect of this EUR strength is to collapse earnings growth expectations as European competitiveness is crushed (core or periphery). Of course, bulls can rest assured, as the following chart shows, 2014 is expected to hockey-stock back to record EPS growth (just like 2013 was supposed to?).

Following several months of disappointing retail sales, and two months of missed expectations, October finally saw the best beat in headline expectations since April, with retail sales rising 0.4% vs 0.1% expected. However, as has been the case in all of 2013, the bulk of this beat was driven by car sales, which rose by 1.3%, leaving sales ex autos beating by the tiniest of fractions at 0.2% vs 0.1% expected, and ex autos and gas +0.3%, vs 0.2% expected. Looking at the components, following month after month of clothing store sales misses, this category finally posted a modest 1.4% rebound, together with an increase in Electronic and Sporting goods sales, amounting to 1.4% and 1.6%, respecitvely. This was offset by the traditionally strong Building materials sales which declined by 1.9% in October.

Moments ago JCP announced results for Q3 which were atrocious, with Q3 earnings of -$1.81 coming in worse than already numerously lowered expectations of -$1.74. Comp store sales declined 4.8% with total revenues of $2.779 billion in the quarter, even as margins continued contracting, and dipped to 29.5%. The margin chart below says it all: Q3 margins have followed the following path: 2011- 37.4%, 2012 - 32.%5; 2013 - 29.5%... one can figure out what comes next. But most notably, in Q3 the company once again ignited its cash burn afterburners, with total free cash flow of $898 million, bringing the total cash burn for 2013 to a whopping $3 billion! Luckily for the company, in 2013 it has been able to fund all of this cash burn through a combination of cash and stock, amounting to $3.2 billion YTD. At October 31, the company had $1.2 billion in total cash which should allow it to enter 2014 without filing for bankruptcy, although with a total debt load of $5.6 billion compared to $3 billion a year ago, only very foolish people can possibly see how this story has anything but a very unhappy ending.

• JPMorgan $13 Billion Mortgage Deal Seen as Lawsuit Shield (BBG)
• J.P. Morgan Is Haunted by a 2006 Decision on Mortgages (WSJ)
• World powers, Iran in new attempt to reach nuclear deal (Reuters)
• Keystone Foes Seek to Thwart Oil Sands Exports by Rail (BBG) - mostly Warren Buffet?
• How Would Fed Deal With Debt Ceiling Crisis? Look to Minutes for Clues  (Hilsenrath)
• Anything to prevent the loss of prop trading: 'Volcker Rule' Faces New Hurdles (WSJ)
• BOE Sees Case for Keeping Record-Low Rate Beyond 7% Jobless (BBG)
• Obama Backs Piecemeal Immigration Overhaul (WSJ)
• Abenomics Seen Cutting Japan Bad-Loan Costs to 2006 Low (BBG)

What do the following dates have in common: September 12, October 11 and now, November 20? These are all days in which there was a forced gold slamdown so furious, it triggered a "stop logic" event on the CME resulting in a trading halt of the precious commodity. In today's case gold trading was halted for a whopping 20 seconds as the market tried to "reliquify" itself following what was a clear attempt to reprice the gold (and silver) complex lower. Needless to say, there was absolutely no news once again to drive the move. Ironically, this comes just as the London regulator is launching an investigation into London gold benchmark manipulation - we are, however, confident that all these glaringly obvious manipulative events that take places just around the London AM fix will be routinely ignored. After all it is perfectly normal for someone to dump 1500 GC contracts in one trade and suck up all the liquidity from the market with zero regard slippage costs, or getting the best execution price possible. Well, it's normal if that someone is the Bank of International Settlements.

After the DJIA and S&P briefly crossed the key resistance levels of 16000 and 1800, the upper bound on the markets has been looking increasingly more distant and this morning's lack of an overnight ramp only makes it more so. Perhaps the biggest concern, however, is that with both Yellen and Bernanke on the tape yesterday, the S&P still was unable to close green. This follows on Monday's double POMO day when the S&P once again closed... red. Not helping things was the overnight announcement by the Japanese government pension fund, the GPIF, in which the fund announced it would lower its bond allocation further however the new law to reform the GPIF could be written by spring 2015. This was hardly as exciting as the market had expected, and as a result both the USDJPY and the ES-moving EURJPY find themselves at overnight lows. Will the EURJPY engage in its usual post 8 am ramp - keep a close eye, especially since the usual morning gold and silver slam down just took place.