Archive - Nov 2013 - Story

People think they’re living in some kind of democratic republic. But the politicians they elect have zero control.

Across the 50 states, the Bloomberg Muni team has collected the government financial statistics and adjudged the most (and least) under-funded pension plans. Wisconsin is least under-funded with a 99.91% funding ratio (beaten by the District of Columbia's 'over-funding' at 106.92%) with Illinois the most under-funded at a measly 40.37% funding ratio... It seems only one choice is left for those far from retirement in Illinois... move!

While attention was focused on the #winning (TWTR) and #failing (NASDAQ and TSLA and so on)... the fact is that the S&P 500 futures market saw its largest collapse from high to low intraday since June 24th. While the told-you-so dance seems so inappropriate, equity markets' dump - seemingly triggered by more than one levered JPY carry trader getting a tap on the shoulder after Draghi's surprise - merely catches down to credit market's lack of exberance for the last 2 weeks (though there is still more room to drop). Stocks are at 12-day lows by the close with very litle BFTATH'ers stepping in as VIX broke back above 14.00% (highest close in over 3 weeks). FX markets were insanely volatile with early USD strength obliterated by JPY and EUR strength in the afternoon. Commodities slid lower on the day and bonds rallied - with 30Y outperformance unwinding some of the week's steepening. Stocks closed on their lows with the best volume in a month.

Draghi introduced still-more-easing into Europe this morning as his surprise cut created turmoil in markets. What this means today, tomorrow, or next week is anyone's guess. What it means in a larger context is not...

The chart that puts it all in perspective, is the following, which shows the breakdown of total credit issued in the past year broken down between revolving (credit cards) and non-revolving (car and student loans). The latter amounts for 99% of all loans taken out in the past 12 months. It needs no additional commentary.

Because it's not about valuations.. and it's not about rational expectations... we present the only metric necessary to project TWTR's price into the oh-so-predictable future...

Endo Health Solutions just announced a big acquisition. The company’s rationale is to take advantage of a stunning tax loop hole. There are a couple of implications to highlight: 1. Endo’s shareholders are the clear winners; and 2. The USA is the big loser. Extrapolating beyond Endo, if one accepts the premise that companies are obligated to use legal means to minimize tax costs, and if one then takes this precedent to the logical conclusion, this transaction could/should be a road map for other companies to follow.  Is Congress paying attention?

Goldman's (and NY Fed's) Bill Dudley: "I am not yet convinced that breaking up large, complex firms is the right approach.  In particular, these firms presumably exist, in large part, because there are scale or network effects that allow these firms to offer certain types of services that have value to their global clients.  These benefits might be lost or diminished if such firms were broken up.  In addition, the costs incurred in breaking up such firms need to be considered.  Finally, the breakup of such firms would not necessarily result in a significant reduction in overall systemic risk if the resulting component firms were still, collectively, systemic. "

No one has any good answers but it seems carry is being unwound in a hurry as US momos are hammered. Whether Draghi's move shocked EURJPY riders enough to spark some major anxiety is unclear but Japanese stocks are now down over 440 points from early highs (to one month lows), US equities at their lows, and USDJPY blown back below 98.00.

We previously discussed what happened the last time that IPOs were outperforming the broad market by as much as they are now but thanks to the exuberance of the last month, it seems we have broken another 'record'. Year-over-year absolute gains in Bloomberg's IPO index have only been higher once in history - in 1999; and current levels have been notable resistance for the exuberant spurts of the last 6 years...

As we reported previously, for the third quarter in a row, Obama's favorite punching bag bank - JPMorgan - reported a statistically impossible zero trading day losses. Some suggested that since in the New Normal market in which it is virtually impossible to lose money this was to be expected; either that or just because banks work purely to satisfy client flow and have little principal risk, there is little reason for them to actually lose money trading. Both these ideas got blown out earlier today when Goldman reported that in the third quarter, the FDIC-insured hedge fund's trading loss days soared to a total of 15 days: a whopping 23.4% of the total 64 trading days in the quarter.

Presented with no comment...

On Thursday, November 7, 2013, the Financial Industry Regulatory Authority, Inc. (“FINRA”) halted trading in all OTC Equity Securities pursuant to FINRA Rule 6440(a)(3). FINRA determined to impose a temporary halt because of a lack of current quotation information. Therefore, FINRA has determined that halting quoting and trading in all OTC Equity Securities is appropriate to protect investors and ensure a fair and orderly marketplace. The trading and quotation halt began on Thursday, November 7, 2013, at 11:25:00 a.m. E.T. FINRA will notify the market when trading may resume.

For a few brief minutes this morning, the world celebrated Mario Draghi's 'surprise' rate cut as just the medicine that an all-time high stock market needs to go even higher. European stocks popped champagne-like (with Italy and Spain jumping 2 to 2.5% on the news), EUR collapsing, and peripheral bond spreads dropping notably. However, as he began to speak and it was clear that growth is not there, deflation is a real risk, and - most importantly - there will be no LTRO anytime soon, market reversed and did not look back. It seems, as JPM warns, an LTRO is no longer likely early next year, and the market appears to be disappointed by that. Of course a few more down 2% days (4% drop from highs) and we are sure Draghi will find a way to unleash more...

Having now tripled since August, Bitcoin's break above $300 ($324 highs) raises an important thought experiment - can a digital currency act as a global reserve currency?