Archive - Sep 9, 2013 - Story

To paraphrase:

• Kerry to Syria: Turn over your chemical weapons!
• Syria to Kerry: Ok
• Kerry to Syria: I was being rhetorical. We will just bomb you anyway, as soon as we are done gassing you.

With the White House increasing its rhetoric in the face of Russia/Syria headlines and growth-inspired commodities like copper and oil suffering, the meme of the day that today's rally was a combo Asian growth and Syrian 'ease' is bullshit. Simply out, it's just another day in paradise as we noted earlier the 'most-shorted' names in the US equity market were squeezed dramatically higher - the most in 15 months (+2.8%). Interestingly, as the Russell surged to highs of the day, the Dow and S&P diverged lower in the afternoon. Homebuilders were the best choice for this idiocy as they soared 5% from Friday's lows (even as WFC and BAC shut their mortgage departments?) and are now 2% above pre-Kerry levels. Carry-mongers were equity bulls best friends as EURJPY lifted stocks all day and the USD dumped - led by EUR and SEK). Gold and silver flatlined for most of the day along with copper with WTI dumping into the pit close to around $109 (still its highest for this date ever). Treasuries were bid 5bps (belly) to 2bps (long-end). Trannies remain the only major index below pre-Kerry levels. War schmoar...

Less than 10% of the House publicly supports President Obama's plan for a military strik on Syria. As Bloomberg notes in this updated visual description of the hill he faces, at least 202 House members currently oppose military action.

There has been much jubilation in recent months over the so-called end of the consumer deleveraging (and implicitly, the start of releveraging) - that key missing link so needed for a truly sustainable, Fed-free recovery. The problem, unfortunately, is that this jubilation has been once again misplaced (read wrong) and following the just released July Consumer Credit data, we know that US consumers continued to pay down their credit cards (i.e., delever) for the second month in a row, reducing total outstanding revolving debt by $1.8 billion, which when added to June's revised $3.7 billion reduction in credit card borrowings, is the biggest two month drop in revolving debt since January 2011. The offset? Same as always: non-revolving i.e., student and car loans, debt soared once more by $12.3 billion this month, representing 118% of the total increase of $10.4 billion (less than the $12.7 billion expected), and down from last month's downward revised $11.9 billion.

It wouldn't be the US equity market if the worst-of-the-worst companies were not getting bid to the moon. With all the event risk ahead, those who suggest that "stocks dont like uncertainty," appear to be talking anally once again. Today's best day in stocks in 2 months is driven not just by EURJPY carry-mongers, but by the largest short-squeeze in US markets in 15 months. Why, we hear you ask? Why not... Just ask the homebuilders - which are up a new normal 5% from Friday's open.

We were wondering if Hillary Clinton, who back in June 2012 made the first demand for a regime change in Syria, had disappeared to. We now know the answer:

Use of chemical weapons by Syria’s Assad “violates a universal norm,” warrants a “strong response from the international community led by the United States,” former Sec. of State Hillary Clinton says at White House event.
Immediate surrender of Syria’s weapons “would be an important step,” Clinton says; Russian proposal on weapons “can’t be another excuse for delay, for obstruction”

Then again, what difference does it make, if the US will get the "support" for another war of aggression? The decision in Saudi Arabia has been made long ago. And what difference does it make if Hillary received hundreds of thousands worth of expensive Saudi jewerly. Seriously.

So much for the revised US plans, now revealed to have been about overthrowing Assad all along, to be derailed by the Syrian attempt to appease the aggressor.

• REID SAYS SENATE WILL HOLD PROCEDURAL VOTE ON SYRIA WEDNESDAY

More importantly, DE Shaw's headline algo now appears to have been finally recalibrated to respond to "moar woar" flashing red headlines as bullish for confidence, represented as always in the New Normal, by the S&P as stocks just hit new intraday highs on the news.

Today's equity market exuberance is being pitched as due to to Asian strength... We hate to burst that bubble but... The Nikkei 225 actually fell after GDP was released; JGBs rallied (well that doesn't fit with the meme of Japanese growth); Japanese GDP missed expectations (oops); Japanese trade balance was the 3rd worst on record; Chinese imports missed expectations (as copper demand fell since liquidity has eased and less need for cash-for-copper deals). So what is the catalyst for today's S&P 500 rally... behold the EURJPY cross rate...

While Carl Icahn admits 'modest' defeat on the Dell deal, he remains neck deep in Herbalife, and as we illustrated back in February, and warned earlier in January, it seems someone is betting right alongside him on a massive short-squeeze - a la Volkswagen. It would appear, someone decided that today was the day to buy 1000 lots (100,000 shares) of Jan 2014 $105 calls (implying an expectation of a 65% surge in price from here) and funded that by selling 1000 lots of the Jan 2014 $95 calls. Whether this is a hedge for Ackman (fearing the worst) or someone betting on an 'event' across the one-year anniversary of Ackman's big bet is unclear. One thing is for sure, if this pays off, we will see more tweets from the man himself...

Rice: "Our overarching goal is to end the underlying conflict through a negotiated, political transition in which Assad leaves power" #Syria

— White House Live (@WHLive) September 9, 2013

Today we got yet another indication that the smartest money was not lying when it said to "sell now" and is eyeing the rapidly shutting window on public equity investment exits, when news broke that TPG and Warburg Pincus, the firms who LBOed Neiman Marcus in October 2005, have decided to pull the luxury retailer's IPO filed in June, and instead will sell the company in yet another LBO, this time to Ares and the Canadian Pension Plan Investment Board. This is a hit to Neiman's proposed valuation: according to JBN it had been reported that the equity funds could price, or rather thought they could price, the retailer at $8 billion. Instead they will opt for a cash check of $6 billion, or a solid 25% reduction in expected return. Still don't cry for the PE giants: as the back of the envelope analysis below shows, net of the sponsor equity investment of $1.2 billion, and adding the $435 million dividend from March 2012, assuming the return to sponsors is $3.4 billion ($6 billion price less $2.6 billion in net debt), the generated XIRR over the 8 years holding is a decent 15.6% XIRR.

The USD is getting pummeled once again today. Along with Friday's drop, this is the biggest plunge in the greenback in 2 months. This is not an exodus to JPY (for once JPY is very stable) but appears to be very much a European issue as EUR, SEK, and CHF are all surging against the USD. Treasuries are bid once again (with 5Y 16bps lower in yield from Friday's highs) and stocks are bid on negligible volume. The S&P just regained the mythical 50DMA (and the Dow 15,000) leaving stocks with the best 7-day run in 2 months (sure why not?).

"I state that the Syrian Arab Republic welcomes the Russian initiative, motivated by the Syrian leadership's concern for the lives of our citizens and the security of our country, and also motivated by our confidence in the wisdom of the Russian leadership, which is attempting to prevent American aggression against our people"- Syrian Foreign Minister Walid al-Moualem

The 2013 German federal elections may bring about pretty complicated results. With Merkel's junior coalition partner's (FDP) support dropping below the mandated 5% to enter parliament (according to polls), as Deutsche Bank notes, there is no point in working through the numerous possible coalition scenarios and options. In that case, the task of governing Germany and providing joint leadership in European affairs will become much more complicated than it used to be in normal times of a clear-cut victory for one camp. All inter-camp coalitions may well have a built-in tendency towards paralysis and require special political tricks that allow the partners to show their true colors in clearly circumscribed policy issues while not rocking the boat. A few years from now, September 22, 2013, might be remembered as the day when German politics finally became normally complicated, as in other countries, too. There are two major political narratives that appear dominant currently.

San Francisco Fed head John Williams - known for his extremely dovish views on monetary policy (and support of record accomodation)  - appears to have taken some uncomfortable truth serum this morning. In a speech reminiscent of previous "froth" discussions and "irrational exuberance" admissions, Williams explained:

• *WILLIAMS SAYS POLICY MAY YIELD ASSET BUBBLES, UNINTENDED RESULT
• *WILLIAMS: ASSET-PRICE BUBBLES AND CRASHES 'ARE HERE TO STAY'
• *WILLIAMS: ASSET-PRICE BUBBLES ARE 'CONSEQUENCE OF HUMAN NATURE'

His words appear to reflect heavily on the Fed's Advisory Letter (from the banks) from 3 months ago - warning of exactly this "unintended consequence." This, on the heels of Plosser's recent admission that the Fed was responsible for the last housing bubble, suggests with the black-out period before September's FOMC about to begin, the Fed is sending us a message that Taper is coming - as we know they are cornered for four reasons (sentiment, deficits, technicals, and international resentment).