Archive - Nov 18, 2014 - Story

Can beggars be choosers again? Judging by the drop in Greek bond prices, the answer is no. As Bloomberg reports, Greek PM Samaras is pushing back against Troika demands for up to $3 billion more savings (i.e. cuts to spending) in 2015. "It's crucial that Greek authorities work with the troika to complete the current review,” but with the government in Athens refusing to concede there is a funding hole, the standoff means Greece may miss a Dec. 8 deadline for agreement on the steps required to unlock the 'aid' tranche.

One bank is already set to benefit from the ABS program no matter what its actual outcome and impact on the European economy: the same bank that spawned none other than ECB's head... Mario Draghi. According to Bloomberg, Goldman Sachs Group says it’s adding staff to its European asset-backed securities business as the bank prepares for a resurgence in the $305 billion market that shrank more than 40 percent over the past four years.

"My personal fond hope and expectation is still for a market that runs deep into bubble territory (which starts, as mentioned earlier, at 2250 on the S&P 500 on our data) before crashing as it always does. Hopefully by then, but depending on what the rest of the world’s equities do, our holdings of global equities will be down to 20% or less. Usually the bubble excitement – which seems inevitably to be led by U.S. markets – starts about now, entering the sweet spot of the Presidential Cycle’s year three, but occasionally, as you have probably discovered the hard way already, history can be a snare and not a help." - Jeremy Grantham

NAHB homebuilder sentiment rose to 58 in November, from 54 in Oct, beating expectations but remains below the 59 cycle highs in September. Since those highs, Prospective Buyer Traffic is down the most but remains near cycle highs. The Northeast saw a huge spike in Prospective Buyer Traffic (from 39 to 51) and The West bounced back from its plunge in October. So if everything's so awesome, what's wrong with these two charts...

The S&P 500 is now up 12.5% from the Bullard lows in mid-October and has broken to new record highs over 2048 - within 2 points of Goldman Sachs year-end target. Since Bullard's comments, the S&P 500 has been up 19 days and down only 5 (and today will be the 23rd day in a row of closing above its 5-day moving-average - a record!) WTI crude oil prices are collapsing back to cycle lows below $75 but perhaps most notable is the plunge in 'implied correlation' - which measures the relative demand for individual stock protection over index macro protection. Implied correlation is at a record low - which suggests capitulation among those with macro overlays (like Carl Icahn)...

The bad news in today's PPI inflation report: por prices soared by 7% in the past month, while beef prices hit a new record high, rising 2% in the month, and up nearly 30% from a year ago. The good news: for the first time in years, booze prices declined from a year ago. So, with compliments of the hoapy president: don't be moapy and start drinking cheap booze, preferably early and often, as you try to remember - in an alcoholic daze - what beef tastes like.

Janet Yellen will be pleased... or not. Producer Price Inflation printed hotter than expected across all its various incarnations (good news, no deflation; bad news, no deflation excuse for The Fed). Ex Food-and-Energy prices rose 1.8% YoY (4-month highs), considerably more than the 1.5% expectations but surged 0.4% MoM - the most in 16 months. PPI Final Demand rose 1.5% YoY (1.3% exp). The rise in PPI appears driven by Food prices which are up 1.0% (the most since April) and Trade PPI (+1.5%) thanks to a 26.1% jump in margins for fuels and lubricants retailing (under new calculation methods) accounted for nearly 40% of the rise in final demand.

Major equity / Credit divergences should always be taken very seriously. They were among the best forward looking indicators at almost every major turning point for equities over the last 20 years. Today, the divergence is visible again. The fact that all this is happening while bullish sentiment in the US is at record highs is of particular worry. Everyone is expecting higher equities due to lower yields and depressed food and energy prices. But when everyone is thinking alike, no one is really thinking...

A few weeks after VIX, aka market implied vol, soared from the mid teens to 30 following the Trasury flash crash and the subsequent near correction in the market before the much publicized James Bullard stick save of the "wealth effect", VIX has since tumbled and at last check was once again trading in the 13/14 range, above the recent all time lows hit over the summer, even as the market continues to levitate on zero volume to ever higher record highs. So what does this mean for that other volatility, actual realized? As Newedge's Brad Wishak points out, "30 days ago 5 day realized was printing 2yr highs (28%) vs 1% y'day." He also notes that the only lower realized vol print in the past decade was in September 2005.

• Japan Prime Minister Shinzo Abe Calls Snap Election (WSJ) - as repeatedly priced in...
• Flash Boys Raising Volatility in Wild New Treasury Market (BBG)
• Not Greece again: Greek Bailout Review Stalls as Troika Demands Final Steps (BBG)
• Iran uses China bank to transfer funds to Quds-linked companies (Reuters)
• Porn Mags With Free Madrid Theater Tickets in Tax Protest (BBG)
• Hong Kong, China stocks ease on profit-taking after stock connect launch (Reuters) - Hang Seng down 500 points in past 2 days
• Halliburton Mega-Deal Sealed by CEOs Over Coke and Coffee (BBG)
• Wall Street to Reap $316 Million From Day of Mega Deals (BBG)
• Mass murderer Charles Manson gets marriage license, state says (Reuters)

After weeks of relentless flashing red headline barrage whose only purpose was to force snap algo buying of the USDJPY pair time after time after time, Japan is once again out of FX algo danging carrots after moments ago Abe confirmed what everyone had known already: he called a snap election to seek a mandate for his decision to delay by 18 months a further sales-tax increase that had been planned for next year; he also said he would dissolve the lower house of parliament on Nov. 21 in preparation for an election in December, without specifying a date. Cited by the WSJ, Abe said "To ensure the success of Abenomics, I’ve concluded that it shouldn’t be carried out next October and instead be postponed by 18 months,” the prime minister told a nationally televised news conference, stressing that the additional tax burden would risk putting the economy back into deflation. “I will seek the people’s judgment over our economic policy."