Archive - Aug 2013 - Story

Since Europe closed, US equities have been on a tear - all on their own... Bonds, FX, and credit markets have shrugged as short-term VIX has been hammered lower dragging stocks to the high of the day. It seems the exuberance anticipated 'non-voting member' Lockhart's more dovish comments:

*LOCKHART EXPECTS U.S. ECONOMY TO PICK UP IN 2013 SECOND HALF
*LOCKHART SAYS ANY QE CHANGE SHOULD BE 'CAUTIOUS FIRST STEP'
*LOCKHART SAYS QE TAPER POSSIBLE AT ANY OF NEXT THREE MEETINGS

His main comment that "I don't expect to have enough data to be sure of my outlook next month" seems to have triggered the last little leg higher. And if a non-voting meber can do this - do all these talking heads still think the market is 'pricing-in' a taper?

With the market still stuck in the summer doldrums, where it will be until the Taper announcement and the German election, the dominant topic of water cooler conversation today is Elon Musk's hyperloop idea. While the feasibility, and not to mention profitability, of this concept remains to be determined, it got us thinking: what are some of the other more ridiculous patent ideas conceived in history - a topic particularly germane now that the Obama himself has decided to become the anti-patent troll-in-chief (at least on behalf of those who tend to spend generously for lobbying and other favor-inducing purposes). Below, courtesy of BusinessWeek, we list what may be some of the most absurd, bizarre, humorous and outright idiotic inventions and patent ideas awarded over the years.

It is perhaps too soon to tell if the market is beginning a topping process or just pausing during the current advance.  The bulls will argue valuations, Fed interventions and low interest rates.  They could be right for a while longer but not for the reasons expressed as much as the continued push of panic buying driven by current price momentum.  However, given the current set of circumstances, most investors fail to realize about the current market environment is that with stocks already stretched to extremes, trading driven by computerized programs and near record levels of leverage - a break in the market could lead to a very fast, unprecedented and unanticipated plunge in asset prices... "Still, we know that the same strenuously overvalued, overbought, over bullish syndrome observed in 1972, 1987, 2000, 2007 and even 1929 (on imputed sentiment data) is already in place here, and that the losses from such extremes have been spectacular."

Peripheral bond spreads have rallied for 10 of the last 11 days. At a mere 269bps, Spanish bond spreads are the lowest in 2 years; Italian spreads (at 240bps) are the lowest since July 2011, and even Portugues bond spreads compressed 15bps today to near 2-month-lows. Since mid-July, it is clear that hot-money flows are charging into peripheral European bonds and not into US equities. European stocks (mostnotably the worst economically) have also risen (Greece +21%, Spain/Italy/Portugal +11.5%) but most recently it is the bonds that have seen the major flows.

Instead of fighting for 30-second soundbites on mainstream media news outlets, Ron Paul has created his own TV channel. Now live-streaming exclusive content, the following brief clip gives us a glimpse into the studio from which the libertarian will send forth his message.

Somewhat ironically, the "punishment" of Goldman and JPMorgan has boiled down to the punishment, or lack thereof, of two Frenchmen. On one hand, we have Fabrice Tourre, who we are led to believe (laughably so) was solely-responsible for all CDO-related transgressions at Goldman in the 2003-2007 period. On the other, we have the London Whale, former JPMorgan employee and also French citizen, Bruno Iksil who was the catalyst and public face, that led to the unwind of the biggest prop trading desk in history. But while Fabulous Fab was scapegoated to the full extend of the crony law, Bruno is set to walk. The reason: the London Whale has become the London Snitch.

The Justice department is said to plan to block the AMR-US airline merger:

*AMR-US AIRWAYS DEAL SAID TO BE SUBJECT OF U.S. ANTITRUST SUIT
*US AIRWAYS ALSO SUED BY TEXAS, ARIZONA, FLORIDA, DC, VIRGINIA
*JUSTICE DEPARTMENT SAID TO PLAN SUIT TO BLOCK AIRLINE MERGER
*AMR CAN EMERGE FROM BANKRUPTCY WITHOUT MERGER, U.S. SAYS

Both stocks are down notably on the news - AMR -22%, LCC -11%; and the rest of the airlines sector is weakening. Among the DoJ's 'gotchas - "A US Airways document said that capacity reductions have “enabled” fare increases." Perhaps the lowly lobbyists of the Airline industry should have 'donated' just a little more money...?

We can't wait to hear Bob Pisani explain this one... JPY weakness continues this morning (now -2% on the week) but early in the European day (around the time of the German confidence survey), carry-traders rotated greatly into peripheral European debt and out of US Treasuries and US equities... US equities accelerated lower in the last few minutes following the Business Inventories print.

The Greekovery (where a -4.6% GDP collapse is seen as positive) may be televized, but sadly it will not be electrified.

Wonder why the Fed and the banks are so desperate to reflate the second housing bubble, to the delight of flippers and taxpayer consequences (deja vu) be damned? Simple: as Goldman points out in a note released last night, "without the boost from housing, real GDP growth would fall below 1% this year." That's the revised GDP by the way, the one that now includes iTunes song sales and underfunded pension plans in the sumtotal. Which in reality means that ex housing, GDP would almost certainly be negative. So the bigger question is what happens to housing which has already seen a shock to the system following the surge in interest rates in the past month and which hobbled both homebuilders and mortgage applications? This is what Goldman sees there: "On house prices, we have started to see the first signs of deceleration and expect a slowdown from the 10%+ pace observed over the past year. Our bottom-up house price model projects 4-5% annual growth rate in the next two years." Alas, since prices moves from top and bottom inflection point never happen in a straight line as everyone rushes to buy, or sell as the case may be, resulting in a skewed and pronounced move, once the reality seeps in that the artificial housing 'recovery' is over, watch what happens when everyone rushes for the door. That goes for GDP as well.

In the past the Jackson Hole conference very much revolved around the Fed chairman with the opening remarks often the top (and most market-moving) news from the junket. Despite an interesting docket of speakers and presenters from a central banking perspective (as BofAML details below), with no major Fed officials scheduled to speak (and only Kuroda turning up from the rest of the major world central banks), the markets are likely to pay a lot less attention to Jackson Hole than in the past.

While today's retail sales headline data was the second miss in a row (the "longest stretch" of misses going back to january 2012), printing at 0.2% on expectations of 0.3% (with last month's 0.4% miss revised to 0.6%), the internal data was modestly better, printing at 0.5% ex autos (exp. 0.4%), and in line ex autos and gas which came right on top of the expected 0.4% increase. So overall, a wash report, and one which doesnt tip the scales in either direction. Since this was the most important August report left ahead of September, any hopes the Fed's taper would be delayed based on this data point can now be dashed. And yet, there was some other data inside the retail sales report which showed that the real weakness for the economy, that focusing on the marginal provider of "net worth" housing may be tapering, with sales at both Furniture and Home Furnishing Store Sales and Building Material and Garden Equipment suppliers declining by -1.4% and by -0.4%, further confirming that the second housing bubble has not only peaked by but going forward will be deflating ever faster.

The last time a big financial firm rushed into buying rental exposure (just as others were quietly leaving the sector in droves and when the ingenious Wall Street was coming up with such derivatives as Rent-Backed Securities to dump their exposure to dumb yield-starved Germans and Asians), it had a very unhappy ending for the buyer. That transaction of course was Lehman Brothers' rushed acquisition of landlord Archstone, which as many have noted over the years, was a big contributor to the Lehman bankruptcy once the rental payments dried up. But then again, as others have pointed out, Lehman was so deep in its real estate exposure by then it really had no choice but to keep doubling down all the way to the bitter end. Which may explain why while most other brand name hedge funds and P/E firms are now cashing out of the US housing market whose second bubble may already have peaked (only last night Goldman said that "On house prices, we have started to see the first signs of deceleration and expect a slowdown"), Blackstone, which is now the US' largest landlord, is digging in its heels and is not letting go. In fact, it is adding to its exposure - as the WSJ reported overnight, Blackstone has invested another $1 billion to purchase GE's stake in 80 apartment complexes amounting to 30,000 apartment units, located in Dallas, Atlanta and other parts of Texas and the Southeast.

• U.S. Regulator Subpoenas Banks Over Long Warehouse Queues (BBG)
• Apple Said to Prepare Holiday Refresh of IPhones to IPads (BBG)
• Fed's Yellen Says Stance on Banks Hardened (WSJ)
• Mexico opens up its energy sector (FT)
• Spin: Greek GDP marks gradual deceleration of recession (FT) ... spin aside, it dropped 4.6%, and in reality, probably over 10%
• Made-in-Canada Solution For BlackBerry Avoids Nortel Fate (BBG)
• America's Farm-Labor Pool Is Graying (WSJ)
• Video of 'lame' cattle stirs new concern over growth drugs (Reuters)
• Paulson Bid for Steinway Trumps Kohlberg Offer (WSJ)
• Egyptian government yet to decide on pro-Mursi vigils (Reuters)

It's only fitting that in a bizarro new normal, the news that passes for positive is either conflicting, reflexive or, well, simply bizarre. Last night was no exception as the "good" news came in the form of speculation that in order to promote its consumption tax hike, the Abe government would consider a corporate tax cut. How that helps the country with the 1 quadrillion yen in debt is not exactly clear, or how it makes consumer tax hikes any more palatable in a nation in which more people than anywhere in the world are retired and elderly, and thus removed from the corporate lifecycle, is just as nebulous. But the market liked it. Just as it liked the good ole' European cop out, of posting a surge in consumer confidence, or relying on reflexive indicators to represent an improvement in the economy, when in reality the only thing "improving" is the stock market. This happened when the German ZEW Economic Sentiment survey soared from 36.3 to 42.0 on expectations of a 39.9 print. So one must buy futures, or that's what the GETCO algo programming says.