Archive - Jul 2013 - Story

Facts are treasonous and dangerous in an empire of lies, fraud and propaganda. It is maddening to watch the country spiral downward, driven to ruin by a psychotic predator class, while the plebs choose to remain willfully ignorant of reality and distracted by their lust for cheap Chinese crap and addicted to the cult of techno-narcissism. We are a country running on heaping doses of cognitive dissonance and normalcy bias, an irrational belief in our national exceptionalism, an absurd trust in the same banking class that destroyed the finances of the country, and a delusionary belief that with just another trillion dollars of debt we’ll be back on the exponential growth track. The American empire has been built on a foundation of cheap easily accessible oil, cheap easily accessible credit, the most powerful military machine in human history, and the purposeful transformation of citizens into consumers through the use of relentless media propaganda and a persistent decades long dumbing down of the masses through the government education system. This national insanity is not a new phenomenon. Friedrich Nietzsche observed the same spectacle in the 19th century: “In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule.”

With the Singapore Dollar (NEER) continuing its surge higher (+6% against the USD in 2012), the Monetary Authority of Singapore (MAS) saw a S$10.6 billion loss this year as the "FX impact exceeded the interest, dividend income and other gains from the foreign assets held." This is the 3rd loss in the last 4 years and 2nd largest on record, but of course the central bank notes, "this is not a cause for concern." As if this wasn't enough, the MAS' annual report also details 22 fixed income firms that have been fined and 7 that have been restricted for failure to comply with anti-money-laundering and terrorism-financing rules. The MAS suggested firms 'improve' their screening of customer names and sources of wealth in order to prevent the financial system from being used to harbor or act as conduit for illegal funds. It seems to us like they may be a little late.

How far has the global economy come in its recovery from the financial crisis? Citi's ten-chart tour highlights that even now, six years after the financial crisis first erupted, the global recovery continues to face some very powerful headwinds. Among the most notable are drag associated with ongoing efforts to consolidate private-sector balance sheets, challenges with managing high levels of public debt and the eventual unwinding of central bank balance sheets, the still-incomplete pattern of adjustment in Europe, and deteriorating demographics across the advanced economies. We see these challenges as being mainly lodged in the advanced economies, where the global financial crisis raged most intensively. But the resulting softness of advanced-economy demand has become an increasing obstacle for growth in the emerging markets. The bottom line is that investors, central planners, and politicians alike are frustrated by the slow pace of global recovery.

Typically we wouldn't note such tabloid gutter trash as the pilot episode to the upcoming reality show "In The Carlos Danger Zone with the Weiners", but since what is going on in the farce that is NYC's mayoral race is just another analogy for America's broken market, broken politics, broken morals and, ultimately, broken society, this deserves at least a few words, so here they are. Anthony Weiner resigned from Congress after being exposed for having a "sexting problem." As it turns out the Democratic mayoral candidate's sexting problem never went away, and continued well after said resignation with at least one young female, with whom he used the alias "Carlos Danger" and likely more. We learn all this because despite simple logic, Weiner decided to not only run for mayor but following today's revelations, will continue his run for mayor as he announced at a just concluded press conference. And the most inexplicable twist in all this: his wife was there beside him, supporting him and urging him on in the mayoral race.

The gorilla in the room may sleep soundly for the rest of July and August, but expect a foul temper when he wakes up in September. At that time, Congress once again haggles over our debt ceiling.

Presented with no comment...

Here are the highlights:

• Q3 Revenue of $35.32 billion beats expectations of $35.04 billion; This compares to $35.0 billion a year ago, or the firm barely posted a revenue increase this quarter - the first time in years
  • sees Q4 revenue of $34-37 billion, Exp. $36.97 billion;
• Q3 EPS of $7.47, Exp. $7.31
• Q3 Gross margin of 36.9%, Exp. 36.7%; Sees Q4 margin of 36%-37%
• iPhone sales of 31.2 million, Expected 26.1 million
• iPad sales of 14.6 million, Expected 17.4 million
• And since margin did not reflect a pick up in iPhone sales, sure enough the Q3 iPhone ASP was $581, vs Expectations of $597
• AAPL total cash and investment rose to a record $146.6 billion up from $144.7 billion, however the sequential growth of "only" $1.9 billion was the lowest since March 2010

And on those news the stock is up some $15 after hours: hardly indicative of the epic moves in days gone by.

The S&P 500 - after failing once again to take out the 1,700 magic line - closed the day just 'off the lows' with its worst day in a week (down a modest 0.1%). Stocks saw their best levels in the overnight session (echoing yesterday's move) and faded from the European open bouncing modestly at the European close. But unlike yesterday, we were unable to hold the bounce and dropped back to the lows of the day. Materials popped (shorts cover) at the open and dumped all day (a pattern seen in every sector). The USD rose in the early morning as the EUR faded but once the US opened the USD slid lower all day as JPY was well bid (back to its highs of the week). Gold (and less-so silver initially) lurched back up to pre-Taper talk FOMC levels (as did the USD) - its best 4-day run in 20 months. WTI held steady around $107 (and the Brent spread ebbed and flowed). Treasuries saw modest weakness on the day (+1 to 2bps) but ended well off the day's worst levels. VIX rose 0.3 vols on the day (more than expected given the equity move). Volume (once again) was entirely abysmal.

Days after Cyprus banks were bailed out (or, rather, in) in March, even if it meant the complete collapse of the local economy just to keep the country in the Eurozone and potentially the sale of the country's gold to provide its own funding toward the "common cause", the Eurogroup came out with a "Debt Sustainability Analysis" which predicted some hard times for the country but its eventual recovery. About a week later it emerged that the funding needs of the tiny island nation would be far greater than previously imagined, but for the time being, since the liquidity (if not solvency) situation had stabilized, all was well and that was one bridge that would be crossed when Europe came to it. That time may be coming fast. As Reuters reports, the Cypriot banking collapse has finally spilled over into the economy and resulted in a record collapse in local real estate values, which ranged from a 12.6% price drop in the valuation of an apartment to a 23.3% fall for office space in just the second quarter, which were the "sharpest recorded since RICS started collecting data in 2009, Loizou told Reuters."

It would appear, judging by the following discussion that the mainstream is so far down the rabbit-hole of central-planning bias that, as CNBC's Rick Santelli exclaims, "you can't imagine it any other way." In a brief 60 second screamfest, Santelli and Liesman battle over just who (or what) should be in charge. Santelli's free-market perspective that markets will set the equilibrium prices is entirely lost on a bleating Liesman who, when addressing the question of what would happen without a 'Fed', utters the following serf-like phrase, "but, who would pull the levers?"

Before the new Royal prince showed his face (and waved to his people), gold was limping higher at around $1335. Soon after, it appears the world demand for gold surged as baby-baubles were bid and gold has spiked to Pre-FOMC levels around $1350. Not only is gold back to pre-Taper levels but it has broken one of its more odd correlations in the last few days - that of the AAPL-coupling.

A BP official who led the company before the 2010 incident in the Gulf of Mexico marked his return to the region in a $3.75 billion deal with Houston-based Apache. Apache seemingly said goodbye to the Gulf of Mexico in the deal, opting instead to focus its efforts onshore. Former BP Chief Executive John Browne helped nab 1.9 million net acres in the agreement with Apache last week. Apache's "good run" in the Gulf of Mexico may suggest assets onshore may hold more long-term value for explorers as new drilling technologies have contributed to exponential production gains for onshore oil and natural gas in the United States.

It appears reality is hitting home in the property bubble capital of the world. The so-called "Skyscraper Index" continues to show an unhealthy correlation between construction of the world's tallest building and an impending financial crisis - for example, New York 1930; Chicago 1974; Kuala Lumpar 1997, and Dubai 2010. As The Dubai Chronicle reports, the record-breaking Sky Tower in Changsha, China, has seen its budget surge from $625 million to $855 million and completion dates pushed back to April 2014, after originally being scheduled for completion at the start of 2013. As Barclays notes, often the world's tallest buildings are simply the edifice of a broader skyscraper building boom, reflecting a widespread misallocation of capital and in impending economic correction.

Federal Reserve Chairman Bernanke's term expires January 31, 2014. While his continuation as Fed chair cannot be ruled out, he has given no public indications that he plans to seek another term and most market participants - as well as many members of Congress in last week's Humphrey-Hawkins hearings - seem to believe he will retire from public service early next year. As Goldman notes, the announcement of the next Chair of the Federal Reserve seems most likely to come in October, though nominations for Fed Chair have been announced as early as five months before the current term expires and as late as less than a month before expiration. There does not appear to be much risk to the Senate's ultimate confirmation of whomever the President chooses, though the Fed nominations have become more politically controversial over the last few years, which is likely to lengthen the confirmation process. Following previous confirmations, financial market volatility has typically increased slightly, though whether this occurs following the upcoming transition will of course depend on who is nominated.

If last month's 2 Year auction was all sparks and fireworks, when the yield priced at a two year high coupled with a plunging Bid To Cover, then today's issuance of $35 billion in 2 Year paper was all yawns and snoozes. Moments ago the Treasury issued another $35 billion in 2 Year near-cash equivalent bonds, at a 0.336% high yield, stopping through the When Issued 0.338% and slumping from the 0.43% in June, when the market was terrified that tapering means tightening (it does for the long-end, and for stocks but we will get there eventually), even if the Bid To Cover was barely unchanged, and at 3.08, it was only higher compared to the past two months' disastrous demand. Going further back would mean looking all the way back at 2 Year auctions from the summer of 2011, after which the BTC soared. In fact, the LTM average bid to cover is a far higher 3.61 although don't expect this to return at least no until the US has another "debt ceiling fiasco" type of event.