Archive - Jun 3, 2014 - Story

Back in March we asked "what happens when this chart goes to zero" with regard the exuberant lack of bears in the AAII survey. The last 3 months have seen that sentiment morph into actual positioning as institutional investors have been net sellers of US equities since April leaving assets in bear funds at record lows.

While the last 2 weeks have seen numerous Fed heads, most vociferously Bill Dudley, warning of 'complacency' in markets, fearsome of low volatility and worried about low risk spreads. Of course, investors don't care - don't fight the fed unless the fed tells you to sell, appears the mantra-du-jour. Fed communications are not working... and so they have left it to their mouthpiece - WSJ's Jon Hilsenrath - to explain that they are indeed concerned at just how risk-free markets have become..."Federal Reserve officials, looking out at mostly calm financial markets, are starting to wonder whether tranquility itself is something to worry about."

It's Tuesday - so bonds are red, idiot. Trannies (-0.9%), rather unusually, underperformed and on the back of yesterday's Russell 2000 weakness suggests beta-chasing muppets are less engaged. After yesterday's USDJPY recoupling, Treasury yields pushed higher once again and almost recoupled with stocks strength from last week. 10Y yields are up 12bps in the last 2 days - the worst 2 days in almost 7 months. The USD leaked modestly lower led by EUR strength. Copper gave back all its gains from the weekend's exuberant China PMI and oil, gold, and silver flatlined. VIX remains total decoupled from this last few days' exuberance. Volume was average - fed by the early plunge but faded rapidly as we levitated.  With regard to the red close for stocks on a Tuesday: it is rumored that a wrong seasonal adjustment factor was applied to today: it was really a Wednesday.

The core strategy of central states and banks to fix the Global Financial Meltdown of 2008 was to buy time: take extraordinary emergency monetary and regulatory measures to save the parasitic too big to fail banking sector and the rest of the crony-capitalist Wall Street parasites, and initiate an unprecedented transfer of wealth from savers and Main Street to the banks and Wall Street via zero-interest rates and credit funneled to the very players who caused the crisis. The idea was that the system would "heal itself" if authorities simply "bought time" by saving the financial sector from its own predation. The terrible irony in the official strategy of "buying time so the financial system can heal itself" is the policies prohibit healing and guarantee the next financial crisis will be greater in magnitude than the last one.

As the bloody violence drifts off the mainstream media's headlines in the US - but escalates on the ground - it appears the situation has grown serious enough to prompt further intervention in the separatist-held south and east regions:

• *UKRAINE CONSIDERS DECLARING MARTIAL LAW IN DONETSK, LUHANSK
• *ACTING PRES. TURCHYNOV ISSUES ORDER ON STUDYING MARTIAL LAW

We suspect, following the over-running in Donetsk today that these actions will awaken Putin from his recent slumber... making this week's D-Day celebrations even more tense.

Many people are closely scrutinizing Apple’s policy changes at its Worldwide Developer Conference yesterday, as Liberty Blitzkrieg's Mike Krieger notes that many within the Bitcoin community are focused on a small recent entry within the section on “Purchasing and Currencies” within the document: App Store Review Guidelines that "facilitates transmission of approved virtual currencies." Apple’s brand suffered earlier this year when the company decided to ban the  Blockchain Bitcoin app. In fact, it unleashed such a firestorm that diehard technologists and Bitcoin fans took to YouTube to post videos of themselves destroying their iPhones. This apparent shift in stance, as Bloomberg reports, is being celebrated with Bitcoin entrepreneurs were already predicting an explosion of activity.

It’s hard to "fully commit" to this rally given "corroded internals," warns FBN Securities technical analyst JC O’Hara in note. As we previously noted, new highs are extremely negatively divergent from the index strength, as are smarket money flows, but what has O'Hara "very disturbed" is the fact that the average Russell 2000 stock is over 22% below its 52-week highs. As O'Hara notes, investors are ignoring "technical signals that have historically forewarned" of a drop; they’re "jumping onto a plane where only one of the two engines is working. The plane does not necessarily have to crash but the risk of an accident is much higher when the plane is not firing on all cylinders."

Copper fell by its most in 5 weeks today on the heels of China's HSBC PMI miss overnight. This follows the 'economist' commodity's biggest rise in a month yesterday following China's official PMI beating expectations. It seems the farce of Chinese data has now made a farce of the commodity market as anything but an headline-induced algo trade... even though so many 'renowned' investors still view it as omniscient...

It seems that if the monthly payment is right, then no matter how "Sarcophagus-like" GM's cars are, Americans will lever up and buy 'em. Many were shocked to hear that GM reported the highest sales this month since August 2008 - especially in light of the record-breaking recalls and now Reuters reporting that up to 74 people have died from faulty ignition switches - but one glance at Experian's auto loan data and it's clear why... The average loan term and average amount financed for a new light-vehicle hit record highs in the first quarter, signaling U.S. consumers continue to extend themselves to afford pricier cars. GM cars may be "grenade-like" but US consumers - with stagnant wages - are extending maturities (loans with terms 73-84 months grew by 27.6%) to manage that monthly nut... This will not end well.

Following our post yesterday, showing what appeared to be a Ukrainian Su-25 firing rockets at a busy Lugansk city square and hitting the city administration building, there was much lively debate from both sides of the ideological and political divide whether this was a indeed the Ukraine military firing at its own people, albeit living in the east, or a provocation attempt by Lugansk militia to make it appear that the Kiev regime has taken the civil war to a new and very uncivil level. Moments ago the (somewhat) impartial OSCE laid any debate on the topic of where the rockets came from to rest.regime has taken the civil war to a new and very uncivil level. Moments ago the (somewhat) impartial OSCE laid any debate on the topic of where the rockets came from to rest.

OSCE: ROCKETS FROM PLANE HIT LUHANSK ADMINISTRATION YESTERDAY

Now that all the scapegoats have been terminated, it is time for Saudi Arabia to pull a GM (where so far the new/old CEO is still in her position), and reveal just how serious the problem truly is. Moments ago AP reported that according to the latest Saudi data a whopping 282 deaths have been confirmed as a result of 688 infections: a fatality rate of 40%! Circa says that Saudi Arabia's Health Ministry reported on June 3 that "after reviewing its records, it discovered 113 confirmed cases of MERS not previously included in nationwide totals. The discovery brings the country's total cases to 688; the death toll was raised to 282 from 190." It just "discovered" that today? Was the previous number of fatalities calculated using a wrong ISM seasonal adjustment factor?

Broad US equity markets stumbled out of the gate this morning but it's Tuesday so the BTFT traders rescued it. However, when news of 2 downed helicopters in Ukraine hit, stocks tumbled once again with Russell 2000 (small caps) and Dow Transports (the highest hig beta recently) getting slammed... USDJPy ramp efforts continue to save us from terrible Tuesday. Bonds and FX are not reacting so far...

As SocGen's Albert Edwards conveniently points out, during the excitement of the downward revision of Q1 US GDP from +0.1% to -1.0% investors seem not to have noticed a $213bn, 10% annualized slump in the US Bureau of Economic Analysis's (BEA) favored measure of whole economy profits, defined as profits from current production. Also known as economic profits, the BEA makes adjustments to remove inventory profits (IVA) and to put depreciation on an economic instead of a tax basis (CCAdj). Edwards shows the stark difference between the BEA's calculation for post-tax headline profits (up 5.3% yoy) and economic profits (down 6.8% yoy) in the chart below. In short: the plunge in actual corporate profits in Q1 was the biggest since Lehman!

It took the Fed long enough but finally even it succumbed to the reality of surging food prices when, as we reported previously, it hiked cafeteria prices at ground zero: the cafeteria of the Chicago Fed, stating that "prices continue to rise between 3% and 33%." So with input costs rising across the board not just for the Fed, but certainly for food manufacturers everywhere, it was only a matter of time before the latter also oo threw in the towel and followed in the Fed's footsteps. Which is what happened earlier today when J.M. Smucker Co. said it raised the prices on most of its coffee products by an average of 9% to reflect higher green-coffee costs.

Factory Orders beast expectations with a 0.7% rise (against expectations of a 0.5% rise) but this marks the 2nd month in a row after the February spike bounce back that growth has slowed and in fact shows the post-weather-slump recovery is anything but being sustained. Ex-defense, new orders for April actually fell 0.1% (after rising 1.1% in March)... simply put, the entire beat was driven by defense (does that sound sustainable? or like organic growth?) Non-defense factory orders were the weakest since January (in the middle of the catastrophic weather)