Archive - May 2014 - Story

The streak is over! US equities suffered their biggest Tuesday loss in over 6 months today. Despite the same valiant attempt to ramp stocks after a weak open (using JPY and VIX) as yesterday, Turbo Tuesday turned out to be tepid tumbling Tuesday as high-beta hopes were dashed amid little to no macro or event risk news. Yesterday's dead cat bounce in yields appears to have been just that and stocks tracked them lower all day (and disconnected from USDJPY mid-afternoon as it was unable to break 101.50). The Russell was the worst performer (along with NASDAQ) as the broad index closed below its 200-day-moving-average for the first time in 18 months (after 7 false alarms in the last 2 weeks). Away from stocks, credit spreads widened, bond yields dropped, the USD sold off 0.5% to 19-month lows, commodities were generally flat (gold +0.65% on the week), and VIX closed +0.5 vols near 14. Welcome to "Torpedo Tuesday"

Is Detroit destined to become a Chinese city?  Chinese homebuyers and Chinese businesses are starting to flood into the Motor City, and the governor of Michigan is greatly encouraging this.  In fact, he has formally asked the Obama administration for 50,000 special federal immigration visas to encourage even more immigration from China and elsewhere.  So will Detroit be the first major city in the United States to be dominated by China?  It could happen.  Once upon a time, Detroit was the greatest manufacturing city in the history of the world and it had the highest per capita income in the entire country.  But now it is a rotting, decaying, bankrupt hellhole that is in desperate need of a savior, and Michigan Governor Rick Snyder appears to be fully convinced that China can be that savior.

Russia has made its first official comment following the latest escalations in Ukraine - and they are not peaceful-sounding - "We are dealing with the real genocide of both Russian and Ukrainian people,” said Russian State Duma Speaker Sergei Naryshkin, adding that Russia was shocked by the massacre in Odessa and mourns the victims together with their families. His words went further as he warned the perpetrators "will get what they deserve from their people." 

With the world (or mostly the Japanese) front-running Draghi's ever-increasing threat of QE in Europe, Spanish and Italian government bond yields have reached levels commensurate with insanity compared to their risk (event and macro). Lower rates are great news right? They encourage growth... as the cost of borrowing drops across the nation's capital assets and the phoenix rises from the flames. Well - as the following 2 charts show - no! The lower rates are not 'trickling down' to real loans and loan creation continues to contract. So, aside from direct lending to SMEs, what exactly will Draghi's direct monetization of peripheral European bonds do aside from provide the leveraged speculators with their willing buyer to take profits (just as it did the last time he decided the time was right to buy bonds).

You might not realize it, but yesterday was a very important date. Yes, of course, it was Cinco de Mayo. But possibly more important, it’s also the deadline for banks around the world to sign up for information-sharing agreements with the IRS.

But "they" said it was all ok yesterday? That is was all "priced in"... and it's a Tuesday!!!! US equity markets - most notably the Russell 2000 and Nasdaq - are back at yesterday's lows. We did see the ubiquitous JPY ramp, stock pump around POMO but it would appear we have reached Peak Tuesday Effect as every self-fulfilling prophecy inevitably comes to an end (though there is will a couple of hours left to save "investors")... Treasury yields are notably lower (unch on the week) with gold and silver modestly higher (up small on the week). Credit markets warning signal from yesterday seems to have bee spot on ...oh and TWTR's lock-up was "NOT" priced in... 1114 is the most important number of the day (the 200DMA for the Russell 2000)

Elon Musk's "dream" of a (taxpayer-paid for) hyperbolic Hypertube connecting Los Angeles to San Francisco may have fizzled, but an even more improbable place may be getting its very own high speed monorail quite soon. Africa.

It seems Goldman Sachs is willing to do pretty much anything when it comes to maintaining SAC Capital (now Point72) Steve Cohen's liquidity. On the heels of last year's "stand by your man" moment in the midst of the insider-trading scandal, Goldman has kindly offered to provide Cohen another lifeline of liquidity - this time backed by his $1 billion art collection. As Bloomberg reports, Cohen pledged “certain items of fine art” under a security agreement which didn’t specify how much money was borrowed. As one art "investor" noted, this is not unusual, "hedge fund guys who manage their money wisely... look to put their art collections to work... If you can get liquidity out of your collection and pay only 250 basis points...it just makes sense." Sense, indeed!

There may have been some concern about demand coming into today's 3 Year auction, however that promptly dissipated moments ago when the latest issuance of $29 billion in 3 Year paper priced at a yield of 0.928%, 0.3 bps though the 0.931% when issued, and a Bid to Cover of 3.401, the highest since February. Still, following recent concerns about the short-end of the Treasury market (recall the "dots"), this was the highest primary yield on 3 Year paper since May 2011, which has been creeping higher in recent months, surpassing the latest Taper Tantrum highs of September 2013. Dealers took down 47.4% of the auction, below the 49.4% TTM average, leaving 28.1% to Indirects and 24.5% to Directs, well above the TTM average of 16.6%.

Presented with little comment aside to remind those momentum junkies about to pile in to this surely-fundamental-driven rally (and best-performing stock market in the world in 2014) that a "blank check" Dubai IPO was recently oversubscribed by 36x.

When it comes to returns, 2013 will be best remembered as the fifth consecutive year in which the S&P 500, lead by Chief Risk Officer and Portfolio Manager Ben Bernanke (replaced by Janet Yellen in 2014 following a bumper 30%+ year), outperformed about 90% of all hedge funds, which as the recent beta blow up has shown, have virtually no original "alpha" ideas, and all merely piggyback on the same high beta "greater fool", hedge fund hotel trades and/or lever on beta as much as their Prime Broker will allow them (in many cases quite a lot). And yet, hedge fund investors were perfectly happy to keep handing over 20% of their upside and paying a 2% management fee when they could have generated the same returns for free by simply buying the SPY ETF. How happy? According to a just released ranking by Institutional Investor magazine, The 25 top earners of 2013 raked in a total of $21.15 billion.

As Fiat unveils its grand five-year plan, it is clear where the car maker sees the real growth in the world...

• *MASERATI TARGETS 75,000 SALES IN 2018 FROM 15,400 IN 2013
• *MASERATI TARGETS EU6B REVENUE IN 2018 FROM EU1.7B IN 2013

Now that is growth!! Welcome to the new normal (or more likely the most massive mis-signaled mal-investment boom ever created) Extrapolating recent growth in Maserati sales would make even Birinyi proud.

So much for the post-cold-weather, pent-up demand stoked spending spree as human beings emerge from hibernation and buy-buy-buy all the food/iPads/clothes/cars they did not buy during the stormy first quarter... First, Goldman confirms that retail sales actually fell 2%, and then, more broadly, Gallup confirms that Americans' reports of daily spending in April averaged $88, virtually the same as in March ($87) and February ($87). Keep praying to the god of hockey-sticks that the now grossly revised down GDP for Q1 is merely setting the US up for the mother of all v-shaped recoveries (or not)...

Following the Ukraine government's most recent retaliatory escalation, which saw the death of some 50 people in Odessa on Friday, everyone has been waiting to see how the Kremlin would respond. For now while Putin appears to be merely biding his time until the various referendum votes take place in east Ukraine, quite confident they will have the same outcome as the Crimean vote to join Russia, thus giving him a legitimate basis to annex further Ukraine regions, some "independent" military units, according to local press, appear to be making their way into Ukraine: Cossacks, that roving group of militants (and sometimes mercenaries) who have been so instrumental in shaping the history of both Ukraine and Russia.

Many are perplexed by the 'strength' in Treasuries as yields collapse despite a headline payroll print propagandized (choosing to be non-believers in the bond-market's all-knowing eye). As Deutsche Bank notes, for well established reasons, a multi-decade Pavlovian response to much stronger than expected US data has been higher Treasury yields, which usually provides some USD lift. Last Friday, this plainly did not work, which proved extremely costly for many in the trading community. At a minimum Pavlov’s dog choked, but is Pavlov’s dog dead? The short answer is no, but Pavlov’s dog may have taken off the summer.