Archive - Jan 14, 2014 - Story

Following ongoing promises from the Fed that the Taper will continue at a pace of $10 billion per month come rain or shine, suddenly good news are critical for stocks, as the stock market is desperate for a strong economy to which Yellen can pass the baton. It did not get that with Friday's payrolls number so it was hoping for some good news in today's retail sales. And judging by the market response to the just released December retail sales, it got it, if only for now: headline December retail sales rose 0.2%, on expectation on a 0.1% increase even as auto sales tumbled -1.8%. Retail Sales ex autos rose 0.7% higher than the 0.4% expected, while ex autos and gas was up a more modest 0.6%, also better than the 0.3% expected.  How is it possible that December retail sales according to the US government were better than expected, when every retailer has posted abysmal results? Well it seems the Census Bureau merely engaged in some recalendarization, with November numbers all revised substantially lower: headline down from 0.7% to 0.4%, ex autos 0.4% to 0.1%, and ex autos and gas from 0.6% to 0.3%. In other words, a complete wash with today's "beat." So when netting away the calendar effect of an early start to the holiday season, perhaps the only value added data in the retail sales report was the data involving Electronics and Appliance Stores.They posted the biggest 2 month drop in 2 years!

"For the first time this quarter, we were able to clearly observe the existence of funding costs in market clearing levels" - JPM

• House Unveils $1.01 Trillion Measure to Fund Government (BBG)
• Credit Suisse Tells Junior Bankers to Take Saturdays Off (BBG)
• Spot the odd word out: ECB Sees Bad-Debt Rules as Threat to Credible Bank Review (BBG)
• Insert laugh track here: Spain GDP grows at fastest pace in almost six years (FT)
• Scandinavian Debt Crisis Waiting to Happen Puzzles Krugman (BBG)
• Fed Said to Release Plan to Limit Banks’ Commodities Activities (BBG)
• Thai Protesters Extend Blockade After Rejecting Poll Talks (BBG)
• China provinces set lower growth goals for 2014 (BBG)

Non-GAAP EPS, sure. But non-GAAP revenues? Up until today one would think that kind of accounting gimmickry is solely reserved for the profitless one-hit wonders of the world, i.e. Tesla, but moments ago we just saw JPM report two sets of revenues: one which was the firm's GAAP revenue, and which was $23.156 billion, and another, far higher number, which was $24.112 billion which JPM described as revenue on a "managed basis" or also known as non-GAAP, and largely made up as they go along. So continuing with the other fudges, JPM also reported Net Income of $5.3 billion, or EPS of $1.30, once again on a pseudo-GAAP basis. However, this wouldn't be JPM if it didn't have a boat load of adjustments, and sure enough it did as per the waterfall schedule below. As can be seen, the biggest benefit aside from the $0.32 DVA & FVA (yes, blowing out your CDS is profitable once more), was the $0.27 in litigation charges. Of course, for these to be an addback, they have to be non-recurring instead of repeated, guaranteed every quarter, but once again, who cares.  And since we choose to stick with GAAP, the bottom line is that JPM revenues dropped from $23.7 billion in Q4 2012 to $23.2 billion this quarter, while EPS dropped from $1.39 to $1.31. Oh, and yes: for the purists, here is the bottom line: of that $5.3 billion in "earnings", $1.3 billion or double the expected (at least from Barclays) $616MM, came from loan loss reserve releases. Accounting magic wins again.

Following yesterday's major market drubbing, in which the sliding market was propped up by the skin of Nomura's (and BOJ, and Fed's) teeth at 103.00 on the USDJPY, it was inevitable that with Japan returning from holiday there would be a dead cat bounce in the Yen carry pair, and sure enough there was, as the USDJPY rose all the way back up to 103.70, and nearly closed the Friday gap, before starting to let off some air. However, now that US traders are coming back online, Japan's attempts to keep markets in the green may falter, especially since it only has a couple of ES ticks to show for its efforts, as for the Nikkei which dropped 3% overnight, it has now lost all US "Taper" gains.