Archive - Sep 16, 2013 - Story

It is tough to see the exact catalyst for the collapse in AAPL's share price in recent days (though it is clear that no China Mobile news is not good news) - but then aside from Carl Icahn's tweets it was hard to see what the exuberance in August was. Now a month later, AAPL has retraced all Icahn's gains and then some and is trading at 5 week lows. Today's weakness - in the face of a surging broad market - is being pinned on talk of Chinese telecoms firms cutting subsidies - not exactly strategically in line with AAPL's growth goals. Add toi that Wal_mart is already slashing prices on the iPhone 5C - considerably earlier than normal - and it suggest more of the same from AAPL is not beingmet by exuberant demand.

When the tracking of potential Ben replacement candidates for Fed Chairman by Irish bookmaker Paddy Power, and InTrade prop bet replacement, started it had Janet Yellen as a solid favorite. Shortly thereafter, as news leaked that Obama's favorite was Larry Summers, and as the president made it quite clear Yellen's candidacy was certainly not on the front Burner with the "Mr. Yellen" Freudian slip, Summer's odds soared and hit a contract high of 85% last week. Over the weekend, anyone who had put money on Summers, was Harvarded and lost all capital at risk, and now, it is Yellen who is once again firmly in the lead with her odds soaring right back to just why of 90%, and well-ahead of second placed Don Kohn at 17%. Ironically, while the market never actually corrected for the "market negative" that Larry Summers' candidacy is now spun to be, it is surely uncorrecting now that he is out.

It had become clear that the President's own political base in the Senate were not going to support Mr. Summer's ascendancy. The eye of the Press will now turn to Mr. Kohn, Ms. Yellen, who does not seem to have the support of Mr. Obama, and the long, though interesting shot, of Stanley Fischer. Mr. Obama appears to be easing into a lame duck presidency far earlier than once thought and the reality of Obamacare will hit Main Street on October 1 which may tip the scales further out of his control. It may not be either the best of times or the worst of times but very volatile times that mark this week.

*NAVY OFFICIALS SAY AT LEAST 6 DEAD IN NAVY YARD SHOOTING: AP
*TWO 'POTENTIAL OTHER SHOOTERS' ON THE LOSE, DC POLICE CHIEF
*DC POLICE: POSSIBLE BLACK MALE SHOOTER MAY BE CARRYING LONG GUN
*ONE SHOOTER MAY BE WHITE MALE IN KHAKI UNIFORM, DC CHIEF SAYS

While hardly reminiscent of Chicago during peak shooting hour on a weekend, news of occasional shootings in the US is becoming increasingly more prevalent, the most recent report coming from a Washington Navy Yard, where the police reports at least three people were shot by an active shooter. As WaPo reports, "D.C. police are looking for a suspect they say shot at least three people at the Washington Navy Yard on Monday morning. According to a police spokesman, there is an “active shooter” on the grounds of the Navy Yard in Southeast Washington."

While headlines, we are sure, will crow of industrial production's best gain in six months, the sad fact is that the market was expecting more. At +0.4% - against an expectation of +0.5% - this is the 5th month in a row of missed expectations for this significant indicator of economic health. Capacity utilization rose but also missed expectations. It seems manufacturing and mining got a modest boost (the former bounced more than expected but only thanks to a notable prior revision downward) and Utilities dragged the headline index down - so we await the "it's the weather's fault" remarks.

With so many candidates dropping out of the race, one has to wonder why the attraction of the 'most-powerful' job in the world is fading. Perhaps it is not wanting to stuck between the rock of the 'broken-market-diminishing-returns' of moar QE and the hard place of an economy/market that is sputtering and needs moar. As Bloomberg's Rich Yamarone notes, There’s a little known rule of thumb in the economics world: when the annual growth rate of key U.S. indicators falls below 2 percent, the economy slides into recession in the next 12 months... and more than one of them is flashing red.

For the second month in a row, the Empire Fed has fallen and missed expectations. At 6.29 (vs 9.1 exp), this is the lowest since May as the average workweek (down from 4.81 to 1.08) and number of employees (down from 10.84 to 7.53)  subindices fall notably. In general the index was not worse because of the effect of the six-months-outlook views (which soared 3pts to 40.6 - its highest since early 2012) when, as usual, current conditions deteriorate but offset by hopium that eventually things will get better, but even there employment (number of employees outlook down from 8.43 to 4.30) was seen as weaker.

A flurry of headlines suggesting the Syrian situation may not be contained, after Turkish media report a Syrian jet crashed 400 meters away from the Syrian-Turkey border.

• MILITARY JET SAID TO CRASH ON SYRIA BORDER: TURKEY’S DHA

It also appears the crash was not self-inflicted. Moments ago, Turkey's Today's Zaman adds that "Turkish army has downed a Syrian fighter jet in Hatay on the Syrian border." Has Turkey, which has been spoiling for regime change in Syria (just think of all the fringe benefits if and when the Qatari pipeline finally crosses Syria and enters Turkey), grown tired of waiting for a decisive false flag, and decided to take matters into its own hands?

The most important event of the "coming" week was unexpected, and did not even take place during the week, but the weekend. So with Summers unexpectedly, and uncharacteristically out, here is what else is in store.

• Summers Quit Fed Quest After Democrats Spurned Obama Favorite (BBG)
• Geithner Still Not Interested in Fed Chair Slot (WSJ)
• Gross’s Trade Sours as Bonds Lose Faith in Fed Guidance (BBG)
• Bob Diamond calls for bank rules shake-up (FT)
• Russia says may be time to force Assad's foes to talk peace (Reuters)
• Iran Dials Up Syria Presence (WSJ)
• Kerry Seeks to Sell Syria Deal (WSJ)
• Shutdown of Japan’s Last Nuclear Reactor Raises Power Concerns (BBG)
• Emerging Stocks Rise to 3-Month High as Bonds Gain on Fed (BBG)
• Bernanke’s Maradona swerve hits bonds (FT)

While the only market moving event of note had nothing to do with the economy (as usual), and everything to do with the Fed's potential propensity to print even more dollars and inject even more reserves into the stock market (now that Summers the wrongly perceived "hawk" is out) some other notable events did take place in the Monday trading session. Of note: while India's August inflation soared far higher than the expected 5.7%, rising to 6.1% from 5.79% (making life for the RBI even more miserable, as it is fighting inflation on one hand, and a lack of liquidity on the other), in Europe inflation decelerated to 1.3% from 1.6% in July driven by a drop in energy prices, while core inflation was a tiny 1.1%. In a continent with record negative loan growth this is to be expected. Additionally, as also reported, Merkel appears to be positioned stronger ahead of this weekend's Federal election following stronger results for her CDU/CSU, if weaker for her broader coalition. In Libya, oil protesters said they would continue stoppages at oil terminals until their demands are met in yet another startling outcome for US foreign intervention. Finally, some headline on Syria noted a Kerry statement "will not tolerate avoidance of a Syria deal", while Lavrov observed that it may be time to "force Syria opposition to peace talks." And one quote of the day so far: "Don't want market to become excessively exuberant" from the ECB's Mersch- just modestly so?

Now that the market has had a day to digest the Summers news, its conclusion is still the same: the man who deregulated and was on Wall Street's payroll for years (when he was not busy micromismanaging Harvard's endowment) and yet was somehow supposed to be Wall Street negative by bearing "hawkish", would have been bad for stocks. And while there was not a correction per se associated with the Summers' appointment or rumor thereof, the fact that he is now out, is even more bullish for stocks, and the correction that never was, can be uncorrected, sending stocks to new record highs, and all EM trades which had unwound modestly on fears of an end of the Fed carry trade, are getting rewound, even as gold has retraced all gains since the Friday fixing because while Yellen is pro-printish, she too is expected to be able to unwind any resurgent inflation in precisely "15 minutes." Here is what else is being said.