Archive - Apr 10, 2014 - Story

As one well-known trader noted - referring to the current move in the US Treasury complex - "rubber, meet road."With the death cross (50DMA crossing below the 200DMA) for bond yields and a crucial trendline having been tested now numerous times (building up its importance), it seems we are about to find out just how much "growth" stocks really do reflect the reality of 'ungrowth' in bonds and vice versa. A break of 2.64% in 10Y yield could be a critical floodgate the Fed does not want opened. As BofAML's Macneil Curry warns, 10Y Treasury bears beware, a break below this level opens up a drop to 2.399%.

Today it was NATO's turn to retaliate once more to the Russian arms build up aclong the border. only this time both with words and with actions, and by explicitly confirming that Lavrov was absolutely correct when he accused NATO of building up weapons around Russia and thus forcing Russia on the defensive, when US destroyer Donald Cook crossed the Bosphorus overnight and entered the Black Sea. Why? To "show America's commitment to the region."

Well that didn't take long. At yesterday's close, every talking head was proclaiming the growth sell off over and "see" the Fed is as easy as we said... however, this morning (after dismal data out of Japan and China) US equities have been a one-way street lower. If the world is relying on a post-cold-weather rebounding US economy to be the engine of growth... is it any wonder they are selling "growth" and buying bonds... Only the Dow is holding post-FOMC-Minutes gains and Momos and Biotechs are being monkey-hammered...

*RASMUSSEN SAYS RUSSIA NOW HAS 40,000 TROOPS ON UKRAINE BORDERS

It's not quite YouTube clips, but NATO has released satellite image-based proof that confirms the dramatic build up of Russian military forces along its borders. The images showing tanks, attack helicopters, and war planes, according to NATIO general Breedlove provide support for counter-moves by allies to safeguard their partners. Russia, for its part, has denied it has any plans to invade Ukraine and suggests that NATO is "using the crisis in Ukraine to rally its ranks in the face of an imaginary external threat to strengthen demand for the alliance ... in the 21st century."

European partners have left Russia with "no alternative" but to halt supplies of gas to Ukraine and Europe, according to a letter from Russian president Putin to European leaders. The remarks, as Reuters reports, were the strongest sign yet that Russia could curtail supplies of gas to (and through) Ukraine affecting supplies of gas to Europe (as they fear Ukraine will siphon off Russian gas meant for Europe). Russia is getting angry, and an angry Russia can simply turn the gas switch to the "Off" position and hibernate for a bit.

So from MF Global's "vaporized" commingled client assets to Basel's "evaporated" toughened derivatives rules, the banks are indeed "very happy." And now back to perpetuation the illusion that the system is stable.

When one thinks of the bailout-taking, London-Whale-suffering, regulatory-fine-paying, pay-rise-taking CEO of JPMorgan, the first analogy is not the philosophical similarities between Jamie Dimon and Martin Luther King. But, according to Dimon's letter to shareholders below, he feels injustice has been done and quotes MLK on the future ahead. "The arc of the moral universe is long, but it bends toward justice" Progress, sometimes painful and slow, has been happening all around us all the time, and the optimist in me believes that it will continue." What a year... he begins.

Another day, another 'failed' IPO. Ally Financial - aka GMAC - that bastion of subprime auto loans and risk management, IPO'd at $25 last night (at the very bottom of the $25 to $28 range) but investors seem to prefer to sell their allocations than pile into this 'bank'. Enabling the Treasury to exit more of its losing proposition (raisng $2.38 billion), ALLY opened well below its IPO price... at $24.25. As a gentle reminder, ALLY filed to go public in March 2011.

Companies will have to increase profit margins to all-time records in order to meet estimates, is the message of utter hope embedded in the forward expectations for earnings and sales growth. As Bloomberg reports, Oppenheimer's Andrew Burkly warns this is "a scenario we view with ongoing skepticism." As the chart below shows, the gap between growth in sales (top-line) and earnings (bottom-line) is set to explode in the next few quarters as even the most exuberant analsyst struggle to upgrade their GDP-riddled sales forecasts and are thus forced to make up whatever margins they need to reflect extrapolated buy-and-hold targets for their stocks.

It was about 5 years ago, roughly the same time we launched our crusade against HFT, that we also first made the accusation that as a result of QE and the Fed's central planning, the forward-looking, discounting mechanism formerly known as the "market" no longer exists, and instead has been replaced with a policy vehicle designed to create a "wealth effect" if only for those already wealthy. In other words, while HFT may have rigged the market, it was the Fed that has openly broken it. Today, none other than the WSJ is the latest to confirm this.

From a revised 332k last week, initial claims collapsed 32k to 300k (smashing expectations of 320k) and dropping to the lowest of the recovery. This is the lowest initial claims print since May 2007. Rather stunningly, given the real employment situation in America, this claims data is nearing the best levels since 2000 (and certainly does nothing for the un-taper case so many are hoping for). This is the biggest weekly drop since January 2006. Continuing claims also dropped to new cycle lows back to Jan 2008 lows. Mission Accomplished?

In the interests of transparency and on the heels of Mary Barra's suggestion that some of those involved in the ignition switch problem are still employed at the firm, she has decided to place 2 employees on paid leave...

• *GM BARRA CONFIRMED 2 ENGINEERS PLACED ON PAID LEAVE
• *GM SAID TO PLACE DEGIORGIO, ALTMAN ON PAID LEAVE
• *GM CREATES SPEAK UP FOR SAFETY PROGRAM FOR EMPLOYEES

To distract from the main headlines, GM has created a "speak up for safety" spy-on-your-neighbor plan as part of her safety-first strategy.

"Fear Of Missing Out" - that is the only way one can explain the irrational idiocy with which asset "managers" are scrambling to allocate other people's money into today's "historic" Greek (where unemployment just printed at 26.7%) return to the bond market, and which according to Greek PM Venizelos was eight times oversubscribed, or far more demand than for the Facebook IPO. Ironically, while we joked earlier this week, when the Greek 5Y was trading in the 6% range that the new bond would issue at 3%, we were not too far off on the final terms which were largely expected in the mid-5% range. Instead, Greece shocked everyone when it announced that the avalanche of lemmings had made it possible for Greece to issue debt at a sub-5% yield, and a 4.75% cash coupon! Here is the final term sheet.

• J.P. Morgan's Dimon Describes Year of Pain (WSJ)
• SAC Faces a Final Reckoning for 14 Years of Insider Scam (BBG)
• New Standards for $693 Trillion Swaps Market Increase Risk of Blowup (BBG)
• China says no major stimulus planned; March trade weak (Reuters)
• As we said in 2012 would happen: Record Europe Dividends Keep $3 Trillion From Factories (BBG)
• Blame it on the algo: Deutsche Bank Said to Find Improper Communication in FX Case (BBG)
• Coke Sticks to Its Strategy While Soda Sales Slide (WSJ)
• Ukraine’s Rust Belt Faces Ruin as Putin Threatens Imports (BBG)
• RBC Joins Goldman in Suing Clients After Singapore Crash  (BBG)
• U.S. House panel to look at aluminum prices, warehousing (Reuters)
• Brooklyn Apartment Rents Jump to a Record as Leases Surge (BBG)

The main overnight event, which we commented on previously, was China's trade data which was a disaster. March numbers turned out to be well below market consensus with exports falling 6.6% YoY (vs +4.8% expected) and imports falling 11.3% YoY (vs +3.9% expected). The underperformance of imports caused the trade balance to spike to $7.7bn (vs -$23bn in Feb). Pricing on the Greek 5-year syndicated bond is due later today, with the final size of the bond boosted to EUR 3bln from EUR 2.5bln as order books exceed EUR 20bln (equating to a rough bid/cover ratio of over 6) as the final yield is set at 4.75% (well below the 5.3% finance ministry target and well above our "the world is a bunch of idiots managing other people's money" 3% target). Ireland sold EUR 1bln in 10y bonds, marking the third successful return to the bond market since the bailout. Also of note, this morning saw the release of lower than expected French CPI data, underpinning fears of potential deflation in the Eurozone.