Archive - Nov 4, 2013 - Story

Following Jimmy Kimmel's infamous kids roundtable where the solution proferred by one young chap was to "kill all the Chinese people" since they are the ones we owe money to, the Chinese people decided enough was enough and put together this brief tutorial on China, and how many 'peoples' have tried to kill them in the past... meet "The Undying Chinese"

This morning's announcement of the 25% rise in the IPO price of Twitter raised a few eyebrows across Wall and Main Street. Most will argue that investors have all learned many lessons in the 18 months since Facebook IPO'd to a clarion call for retail money large and small from every form of media that exists... The following headlines from the pre-IPO suggest, unfortunately, that we learned absolutely nothing...

The Dow Transports continue their entirely sensible march to infinity as they have no risen over 11% in the last 19 days with only 4 marginally lower days in that period. The S&P tested lower around the open but that 'dip' was mandatorily bid and lifted the index back towards the highs (with a 330 Ramp off VWAP for good measure). Volumes in futures, options, and stocks were absolutely abysmal (S&P futures lowest non-holiday in a couple years). The USD decided to limp lower (led by EUR strength), gold and oil ended unch (silver and copper -1%), Treasury yields very modestly lower, and VIX was banged back under 13%. Credit remains un-impressed (though rallied modestly in the day).

Moments ago the Treasury released its marketable borrowing estimates for Fiscal Q1 and Q2: it revealed that funding needs for the October-December quarter declined from $230 billion to $204 billion, while the Q1 funding needs set at $356 billion, in line with last year's number. And yet, the Treasury also announced that despite a lower funding need in the current quarter, it would proceed with issuing $32 billion more in net Treasurys, or $266 billion, than previously estimated. Why? To push the quarter end cash balance from $80 billion to $140 billion at December 31, 2013. This is the highest quarter-ending cash balance since 2010. Why is the Treasury scrambling to build up cash ahead of calendar 2014? Simple: as is well-known, the debt ceiling drama comes back with a vengeance in late January and early February, and this one promises to be just as theatrical and protracted as all prior ones.

As we recently exclaimed, European macro data is deteriorating rapidly (even as talking-head after talking-head simply ignore this 'fact' and steer investors into EU stocks because, well, they are going up). That "Europe is recovering" meme appears an unarguable truth - except when you look at the truth of the following charts.

The financial markets continue higher, and the excesses of the status quo continue expanding with little ill effect (so far). Why is it so difficult to predict the timing of crisis/collapse? The question is equally valid for both bears and bulls; how could all the boosters of housing be so wrong in 2008 when they asserted that "housing is not a bubble"? Here are ten possible factors in why it's so difficult to predict crisis/reset.

The last time we looked at Thorsten Heins' potential "golden parachute" farewell gift from Blackberry for, well, completing the destruction of the company started by former Co-CEOs Mike Lazaridis and Jim Balsille when he took over in early 2002, the amount could have been as gargantuan as $55 million. This number has subsequently been revised modestly lower, and while nobody is precisely sure just what Heins is entitled to, according to the Globe and Mail's latest calculation, the golden parachute in question could be as large as $16 million. Then again, considering RIMM stock back then was $18/share and by the time Heins left BBRY will be just over $6, one wonders if instead of any bonus Heins shouldn't instead be paying the company's long suffering shareholders for virtually destroying what was once the world's dominant smartphone brand.

Via an emailed statement, the soon to be jailed SAC logo (since nobody else is actually going to jail) proudly proclaims: ""We take responsibility for the handful of men who pleaded guilty and whose conduct gave rise to SAC’s liability.The tiny fraction of wrongdoers does not represent the 3,000 honest men and women who have worked at the firm during the past 21 years."... aka the textbook definition of "just us" justice.

It's been three months since we discussed in depth the 'problems' that CAT faces. Recent earnings were a disaster and the CEO offered little to no hope for short-term recovery. Today, things got a little worse...

*CATERPILLAR TO CLOSE UNDERGROUND-MINING EQUIPMENT PLANT
*CATERPILLAR SAYS DECISION AFFECTS ABOUT 40 PEOPLE

Of course, the irony is not lost on us as we rhetorically ask, who said the following: "You Can Measure America's Bottom Line By Looking At Caterpillar's Bottom Line." Let's hope not for the nation's sake.

Having discussed the "unprecedented" scale of their law-breaking previously, we expect Bharara to bring a little gloat with the SAC press conference today...

Obesity rates have increased at least slightly so far in 2013 across almost all major demographic and socioeconomic groups, according to Gallup's latest study. The largest upticks between 2012 and 2013 were among those aged 45 to 64 and those who earn between $30,000 and $74,999 annually - which 'coincidentally' is perfectly in the cohort that is 'disincentized' to work by the growing shadow of bought votes and entitlements. So, the question then becomes, is the considerable spike in 2013 that is so evident below the "peak" in obesity rates as the government is forced to introduce more haircuts on its foodstamp program? Time will tell...

'Another week, another high for equities' is the resigned way JPMorgan's Jan Loeys begins his discussion of "bubbles" this week - the massive gains in equity markets, in a month and a year of lower economic growth and earnings expectations, are raising a warning flag for many investors that easy money and liquidity are creating serious asset bubbles that threaten future growth and investment returns. Simply put, "a bubble view is a view that the Fed will stay easy for too long" and will then have to stamp on the brakes when growth and inflation suddenly react to easy money; and "a sudden spurt in growth is the biggest risk to asset reflation."

It is only fitting that promptly following the third worst bear market of all time resulting from the bursting of the biggest, until that point, credit bubble that as a result of over $10 trillion in global fungible central bank balance sheet expansion, and a new and improve and bigger than ever credit bubble, one which includes the sovereigns too, the S&P is now 162% higher from its March 9 2009 lows of 676.53, making this the fourth biggest bull market in US history. The next logical question: what would make this relentless Fed balance sheet tracking "bull market" become the 3rd biggest bull market in history, or 2nd biggest... or biggest of all time. Here are the S&P500 breakevens for those particular thresholds...

In what is the biggest black eye for Bill Gross and the largest bond manager in the world, moments ago Bloomberg reported that the title of the world's largest mutual fund has just changed hands:

• PIMCO TOTAL RETURN LOSES LARGEST MUTUAL FUND TITLE TO VANGUARD
• GROSS'S PIMCO TOTAL RETURN BECAME LARGEST MUTUAL FUND IN 2008
• PIMCO TOTAL RETURN HAD $247.9 BILLION IN ASSETS AS OF OCT. 31

This comes on the heels of what Reuters reports is the sixth consecutive month of outflows for the TRF, with $4.4 billion withdrawn in October, while on the other side Vanguard, now at $251 billion, has more than tripled in size since the end of 2008 as the scramble for equities in Bernanke's new normal has become the only game in town.

While we are sure many will proclamin 'this is just a witch-hunt' - and all the hangers-on will be defending Stevie's decision... the fact is that:

• *SAC AGREES TO PLEAD GUILTY TO END U.S. INSIDER-TRADING CASE
• *SAC WILL PLEAD GUILTY TO EVERY COUNT IN INDICTMENT, U.S. SAYS
• *U.S. SAYS SAC AGREEMENT PROVIDES `NO IMMUNITY' FOR  INDIVIDUALS

Seems pretty cut-and-dried to us... As part of the deal, Reuters notes that SAC will terminate its investment advisory business.