Archive - Dec 16, 2013 - Story

"Priced In" appears to be the meme of the day but the overnight collapse in S&P 500 futures - perfectly tagging the 50DMA - was met with a slowly building avalanche of BTFATH-ers unable to resist missing out of the December Triple Witching seasonality. While stocks are screaming higher, the USD is practically unchanged, gold and silver have rallied back to unchanged, and Treasuries are modestly lower in yield.

Stocks are un-surging on the "good" news in the headline beats for Industrial Production (biggest jump and biggest beat in 13 months) and Capacity Utilization (best since June 08). However, as is always the case, the underlying data hides some less than positive signs. The bulk of the gains in production were from Utilities (+3.9%) as colder-than-expected temperatures boosted demand (the same temps that retailers are crying about). Manufacturing output remains 3.6% below its pre-recession peak (though gains were broad-based).

Alert: Unconfirmed reports of explosives at four sites on campus: Science Center, Thayer, Sever, and Emerson. Evacuate those buildings now.

— Harvard University (@Harvard) December 16, 2013

Five months ago, we highlighted yet another in the inglorious roll of momentum-ignited stop-blasting manipulations of the US "stock market". In most cases, the furore dies down after a day or two as the algos find fresh meat... but in the case of USEC, it would appear the "berserker" algo we highlighted merely removed every willing buyer (i.e. forced short-cover-er) and was exhibiting the death throes of yet another micro-cap as the company has announced it is entering a pre-pack Chapter 11 bankruptcy - with existing stockholders receiving 5% of the new common stock.

After posting a surprising drop in November to -2.21, or only its first negative print since a freak first half of 2013 aberration, the spin was quick to explain away the drop with the government shutdown, which surprisingly affected precisely nothing else in the economy but just a few diffusion indices (and led to epic surges in various PMI prints). Moments ago, the December Empire Fed PMI print came out, and it was once again a dud, printing at 0.98 on expectations of a rise to 5.00 which also was the fifth consecutive miss to expectations in a row. The decline was driven by ongoing weakness in New Orders, which remained negative at -3.54, while Unfilled Orders tumbled deep into the red, from -17.11 to -24.10, while inventories supposedly cratered from -1.32 to -21.69. We say supposedly because other recent surveys have shown that the surge in inventory accumulation from Q3 into Q4 has continued.

"If secular stagnation concerns are relevant to our current economic situation, there are obviously profound policy implications... Some have suggested that a belief in secular stagnation implies the desirability of bubbles to support demand. This idea confuses prediction with recommendation. It is, of course, better to support demand by supporting productive investment or highly valued consumption than by artificially inflating bubbles. On the other hand, it is only rational to recognize that low interest rates raise asset values and drive investors to take greater risks, making bubbles more likely. So the risk of financial instability provides yet another reason why preempting structural stagnation is so profoundly important."

While cash flows may be an anachronism in a time when the return of the dot com bubble means only future corporate prospects of growth matter, and the lower the actual profits or earnings the greater the upside stock potential due to ridiculous future PE multiples (flashing back to the year 2000), for some the lifeblood of success is still dependent on cash flow. Or the lack thereof. Such as Greece, where a brief episode known as the "Grecovery" driven by a recent export surge was put on indefinite hiatus where as Kathimerini says "exports run out of steam due to cash flow problems." It explains: "The rise of Greek exports sadly proved short-lived, as the momentum observed in the last couple of years has all but vanished. Exporters estimate that 2013 will end with a rise of 3 to 4 percent. But that figure includes fuel products, and when they are taken out of the equation it turns into an annual drop of 2 to 3 percent."

• Tough Question for Fed: Time to Act? (Hilsenrath )
• Merkel Begins Third Term Strengthened by SPD Partner Backing (BBG)
• Wary of Roma, Europe cold-shoulders its new eastern workmates (Reuters)
• New Medicines Emerge, but Few Blockbusters (WSJ)
• SIP in the crosshairs: U.S. Exchanges Near Deal for Infrastructure Upgrade (WSJ)
• Secret Inside BofA Office of CEO Stymied Needy Homeowners (BBG)
• AIG Said to Near Sale of Plane Unit to AerCap (BBG)
• Inside the Saudi 9/11 coverup (NYPost)
• Russian Bank Chief Weighs Firings as Costs Absorb Revenue (BBG)
• Video Boom Forces Verizon to Upgrade Network (WSJ)
• Chinese Manufacturing Slows (AP)

Following last night's freak central-planning accident (previously in history known as "selling") in the S&P futures, we said that "we expect Overnight Ramp Capital to arrive promptly or else confidence in central-planning may take a hit ahead of the Wednesday Taperish FOMC, and Thursday's double POMO." A few hours later, even we were surprised by how high the low volume tape managed to drag ES, which staged a dramatic 20 point comeback, on the back of a sharp reversal in FX driven higher by both a stronger Euro (helped by better than expected German and Eurozone PMIs offsetting China PMI weakness, and lack of optimism in the core Japanese Tankan) and a weaker Yen, the two key signals for E-mini directionality. Sure enough, at last check the futures we trading just why of the "independence day" 1776, after briefly breaking the 50-DMA and then being supported by 1760 in the futures. The rest is perfectly predictable central-planning history.