Archive - Aug 9, 2013 - Story

Do you see what happens Larry when you float a strategic trial balloon or two? Your odds literally surge, at least according to Irish bookmaker Paddy Power, which in the absence of InTrade has become the only market polling venue where pundits put money where their mouth is (as opposed to countless clueless Op-Eds written by every self-proclaimed Fed expert in existence). Where two weeks ago, on July 24, Larry "the hawk" Summers was a long 20% odds challenger to Janet Yellen, who was a solid 75% favorite to become the next Fed chair, since then Yellen's odds have crumbled to just 33% currently, while Summers has exploded higher and after peaking at 60% two days ago has climbed even higher, and is a 66.6% (appropriately enough) favorite currently. Time for the perma-Doves to panic yet?

"The rich are feeling better about their prospects and starting to rediscover real estate as a place to park money," notes one analyst who was seemingly not alive 7 years ago, adding, "the stock market has created a tremendous amount of wealth, and that's being put into homes." It seems we are destined to 'never' learn that too much of a good thing might just not be... a good thing. Following President Obama's homeownership is patriotic roadshow this week and his almost too ironic to be real comments that the U.S. has "got to turn the page on this kind of bubble-and-bust mentality that helped to create this mess in the first place," it appears we have gone perfectly 360 as once again home prices for the wealthiest are soaring. Homes priced at more than $1 million lost about 46% of their value during the housing crash; since then, based on Bloomberg's survey of Zillow data, their value has more than doubled.

There are real-world consequences to over-issuing credit and currency. Eventually this leads to a bidding war for trust: Whose credit/cash will be trusted to retain its purchasing power? There is a grand irony here, of course; as issuers of credit/cash attempt to debase their currency to boost their exports, their debased currency buys fewer real-world resources.

When it comes to the programmed, centrally-planned Chinese economy, the academics who pre-determine the daily lives of over one billion citizens and report randomly generated gibberish when they have to validate to the world the success of their macro experiment, go straight and by the textbook. The same theoretical textbook taught in every Keynesian class which says "if you build it, they will come." Alas, as even the WSJ has discovered, when it comes to China, if you build it, they are no longer coming... and are in fact leaving.

Since mid-July, the S&P 500 is practically unchanged having ebbed and flowed on lower and lower volumes. But one thing that is very clear in the last few weeks, investors seem to have been conditioned to sell early and BTFD late... The question we have is (given the S&P is approaching its worst week of the year), when everyone 'knows' this is the strategy, when does it become self-defeating?

It hasn’t been a great year for Chesapeake Energy, just coming down from a management meltdown and now giving up on its leases in New York over the state’s ban on high-volume fracking. It’s a battle that’s been on for two years over thousands of acres of natural gas leases in New York, where fracking has been banned for five years. The problem was that the landowners leased the acreage to Chesapeake before the advent of hydraulic fracturing, and now they don’t want these leases extended under the original terms, according to a report by Reuters. The report says that Chesapeake has now notified the landowners that it is giving up the fight, and that the decision should be finalized next week. But there’s more to this than a simple court case...

A shroud of mystery has surrounded American whistleblower Edward Snowden's whereabouts since he received temporary asylum in Russia last week, but migration authorities have let slip that he is not in Moscow... "We don't have these records. I don't have any such information. He's not in Moscow."

Those seeking the definitive, one-stop fund flow heatmap covering the key paper asset classes over the past 10 years, are advised to bookmark this page.

... what has been different about the current negative GOFO episode is that while in the past GOFO spiked negative and promptly reverted to normal, short-end GOFO rates (1-3 Month) have been negative now for the longest period on record: 25 consecutive work days. And it's only getting worse: after the 6 Month GOFO rate also slid below 0% in mid-July, only to recover positive for the next two weeks, as of today it has again turned negative for the second day in a row while the short-end procurement situation has gone from bad to worse.

While outlining the ridiculous spectacle of the last 24 hours news flow on JCPenney is useful for some, a step back to view this charade for what it is - a hedge fund manager massivley under-water, a company careening into bankruptcy, a board desperate to show it has any relevance, and a most senior creditor (Goldman Sachs) chomping at the bit to securitize the firm's T-Shirts and small appliances... the entire 'bounce' from yesterday has been retraced as Ackman and JCP's board fling insults at each other... JCPanic has been downgraded to JCPandemonium... on its way to JCPoof...

Gross: Strategists/writers I follow? Dalio, Durden, Bianco, Arnott, Aitken, Santelli, Grant, Grantham, Inker, Marks, Quaintenance & Brodsky

— PIMCO (@PIMCO) August 9, 2013

For the 7th time in the last day or so, the S&P 500 has tested up to the magical 1,700 level and failed. With JPY once against strengthening as carry unwinds re-escalate, we wait breathless for a deja deja deja vu repeat of the last 3 days post-European close rampfest...

France is the odd duck on the Continent. It is neither a petulant member of the Southern European financial disasters nor a member of the Northern European banner of austerity nations. France, as we discussed here and here, is the swing country in Europe. It waives about with the wind depending upon the subject. The bonds of France trade just behind those of Germany. While we are sure the portfolio managers on the Continent require diversification. Where the market is pricing French bonds now may turn out to be a rather serious mistake in judgment.

It is well-known that as part of the S&P500's ascent to new records, investor margin debt has also surged to all time highs, surpassing for the past three months previous records set during both prior, the dot com and the housing, stock market bubbles. And as more attention has shifted to the topic of speculator leverage once more, inquiries into the correlation between bets upon bets and stock performance are popping up once more, in this case in a study by Deutsche Bank titled "Red Flag! - The curious case of NYSE margin debt." Of particular note here is a historical comparison of margin-debt warnings that have recurred throughout history but especially just before major stock bubble crashes, such as in the period 1999/2000, 2007/2008 and of course today, which have time and again been ignored. Here is what was said then, what is being said now, and what is ignored always.