Archive - Aug 20, 2013 - Story

Gross: Today I feel less "GUARDED" than yesterday. Is the free press still free?

— PIMCO (@PIMCO) August 20, 2013

There was some hope two months ago when CAT global retail sales posted a modest uptick between February and May, rising from a recent low of -13% Y/Y to "only" declining -7%. Alas, it turned out to be nothing but a dead CAT bounce, as a month ago hopes the global recovery would continue were dashed after the -7% global dealer retail sales dipped once again to -8%. Moments ago, the downward trend continued its acceleration, when the company reported global retail sales at -9%. And while it was not all bad news, with the US retail sales drop slowing and in July posting an almost flat print at -1%, it was the key market of Asia/Pacific (read China) that plunged by 28% from past year, far worse than the 21% drop in June, and the ugliest Y/Y comp since November 2009. Any day now, though, the third cat bounce will take place.

A stunning 57% of undergraduates used federal student aid to help pay for college in 2012; dramatically higher than the 47% in the pre-crisis 2007 year. As the WSJ reports, an average of $8,200 per recipient is paid out by the government coinciding with climbing tuition costs (credit fuels growth?). The report, via the Education Department, noted that "even students from households we would consider middle-income are increasingly eligible and are increasingly taking advantage of Pell grants," as the number of full-time students who received Pell grants in families with incomes between $60,000 to $80,000 shot up to 18% in 2011-12 from 2% in 2007-08. Just another wealth transfer scheme or moar better bargains for the middle class.

In the biggest non-news of the day, Germany's Finance Minister Wolfy Schaeuble finally admitted, officially for the first time, what everyone knows: Greece will need a third bailout. His exact words, as cited by Reuters, "There will have to be another programme in Greece," Wolfgang Schaeuble told a campaign audience in northern Germany, in comments that raised prospect of a step that could be deeply unpopular domestically just five weeks before national elections.

Just as Japan's department store sales hit overnight (plunging at their fastest level in 13 months), gold and silver prices were shellacked lower almost instantaneously (admittedly in thin markets). We haven't seen this kind of morning smack-down in a little while but this time was different... the dip was bought aggressively and has now been retraced.

One can look at the just reported JCPenney Q2 results and compare them to expectations, which as "expected" missed across the board, with Revenues coming at $2.66bn below expectations of $2.78bn, EPS missing consensus of $1.07, printing at $2.16 per share, comparable store sales sliding 11.9%, a profit margin of 29.6% lower than last quarter's 30.8%, and 33.2% a year ago, and so on, but that would be ignoring the forest for the tress. The only data point that summarizes the epic, no recovery catastrophe at the company is the cash burn. As the following tell all chart shows, the company burned a ridiculous (and record) $1.146 billion in free cash flow (Cash from Ops less CapEx) in just one quarter, Q2, and when adding the $948 billion in cash burn in Q1, JCP burned a monstrous $2.1 billion in the first six months of 2013. At this point the only question is when the bankruptcy filing comes.

• So no great rotation into EM? Capital Flows Back to U.S. as Markets Slump Across Asia (BBG)
• Muslim Brotherhood leader arrested in Egypt (Reuters)
• Allies Thwart America in Egypt: Israel, Saudis and U.A.E. Support Military Moves (WSJ)
• Dear Bloomberg: when you buy the loans of a distressed retailer, you are not betting on a rebound, you are betting on being the fulcrum security in a bankruptcy: Kyle Bass Said to Bet on J.C. Penney Comeback With Loan Purchase (BBG)
• Bubbles Bloom Anew in Desert as Buyers Wager on Las Vegas (BBG)
• Britain rejects Spanish request for Gibraltar talks (Reuters)
• U.K. Mortgage Lending Rises to Highest Since Lehman Collapse (BBG)
• Pension Funds Dispute Math in Detroit Bankruptcy (WSJ)
• Christie Says Gayness Inborn as He Signs Therapy Measure (BBG)

Following yet another rout in Asia overnight, which since shifted over to Europe, US equity futures have stabilized as a result of a modest buying/short-covering spree in the 10 Year which after threatening to blow out in the 2.90% range and above, instead fell back to 2.81%. Yet algos appear confused by the seeming USD weakness in the past few hours (EURUSD just briefly rose over 1.34) and instead of ploughing head first into stock futures have only modestly bid them up and are keeping the DJIA futs just above the sacred to the vacuum tube world 15,000 mark. A lower USDJPY (heavily correlated to the ES) did not help, after it was pushed south by more comments out of Japan that a sales tax hike is inevitable which then also means a lower budget deficit, less monetization, less Japanese QE and all the other waterfall effect the US Fed is slogging through. Keep an eye on the 10 Year and on the USD: which signal wins out will determine whether equities rise or fall, and with speculation about what tomorrow's minutes bring rife, it is anybody's bet whether we get the 10th red close out of 12 in the S&P500.