Archive - Jun 6, 2014 - Story

We can neither confirm nor deny that this is our first tweet.

— CIA (@CIA) June 6, 2014

Rejoice: the second cold war appears to be over (after Russia skillfully annexed Crimea). How do we know? The following clip of Obama and Putin chatting has been released, by the official account of the French president no less. No blows were exchanged. Surely this in itself is enough to push the VIX to the upper (or middle, or lower) single digits and send the S&P to just about 20x 2014 GAAP P/E...

For many months we have discussed the massive outperformance that buying the "most shorted" stocks has created. The 'alpha' generated fro buying the weakest balance sheet companies in preference of the stronger has enabled the dash-for-trash strategy (just as we saw yesterday when Tepper unleashed hell) to be the new meme. And so it is, like anything that is popular, ETFTrends reports that ETFis - a turnkey ETF provider - has filed with the SEC to launch an actively managed short squeeze fund...

While the Fed's presidents are scratching their heads at the quandary that consolidated cross-asset volatility continues to tumble to never before seen levels, the NY Fed's trading desk, clearly rushing to get to the Hamptons, just sold enough VIX futs to push VIX not only 6% lower for the day, but to the lowest print since 2011. Next up: single digit VIX and the disappearance of all risk.

If corporate profits decline (as they did in Q1), what will hold up the market's lofty valuations other than the tapering flood of liquidity from the Federal Reserve? Answer: nothing. Complacent punters will discover to their great dismay that liquidity is only one dynamic of many.

With the weight of the world on his shoulders, President Obama took time out to lunge and lift at a hotel in Warsaw, Poland. The grimacing golfer was caught in action getting pumped up before meeting Ukraine's Poroshenko...

One after another pundit has tried to explain the relentless bid for US Treasurys, and failed. First it was the March geopolitical shock, and the "capital outflows" from Russia that were supposedly entering the "safety" of US paper. Well, today Russian stocks just hit a bull market from the recent sell off (despite, or perhaps in spite of, Draghi's idiotic "estimate" of €160 billion in Russian capital outflows), however without a comparable move lower in the 10 Year, meaning it was not Russian capital reallocation that was pushing US Treasurys higher. Then, a new theory appeared, namely that pension funds, seeking to lock up equity upside, will "reverse rotate" out of stocks and into bonds. Judging by where US stocks are trading, they certainly did not rotate nearly enough, and now courtesy of Bank of America which parsed the latest Flow of Funds report, we learn that the in fact "buying of bonds by pension funds slowed down significantly in 1Q."

In case you were wondering why US equities are charging higer yet again today on mediocre news (while bonds shrug), we offer another potential reason... Russian stocks are now in bull market territory off the mid-March "sanctions" lows... not exactly the "costs" that the US had in mind and thus even more curcial that S equities are lifted (by any nunber of visible and invisible hands) to show just how powerful the status quo of the West still is (the S&P is up 5% in the same period). Perhaps even more importantly, this refutes any thesis that bonds are higher only due to Russian capital outflow (i.e. flight to safety).

As we noted in the pre-open, the "BTFATH mentality" will be alive in well' and sure enough Goldman Sachs' S&P 500 Target for June 2015 was 1950, we just reached it 11 months early (1949.25 highs to be exact). Their corresponding target for 10Y yields at that level of S&P is 3.50% (so we are 90bps lower) and earnings expectations to support that price was $120 per share (dramatically higher than the current level). Goldman's 2014 Target is 3% lower than the current level. Nothing to see here, move along...

While we are led to understand that the US economy contracting at a pace not seen in three years was blamed on the snow (which somehow subtracted $100 billion in US economic growth for Q1 from early estimates of over 2.5% Q1 GDP estimates), we are not sure if one can also accuse snow for what the Mexican central bank just announced, when in a seemingly shocking announcement, it reported that it cut rates from 3.50% to 3.00%, a move expected by precisely zero economists out of the 20 polled by Bloomberg.

• BANXICO SAYS DOMESTIC SPENDING, PRIVATE INVESTMENT WEAK
• BANXICO DOESN’T SEE PRESSURE ON INFLATION FROM AGGREGATE DEMAND
• BANXICO SAYS POOR PERFORMANCE SUGGESTS MODERATE 2Q RECOVERY
• BANXICO SAYS MEXICO’S 1Q ECONOMIC DYNAMISM WORSE THAN EXPECTED

Yup, sure sounds like a whole lot of snow.

Is the US worker's cup half full, or half empty?

Steve Liesman unleashed a torrent of abuse when he claimed recently that "This Country Was Built On Consumer Debt" Of course, Steve's comments really are of little surprise. With the average American still living well beyond their means, the reality is that economic growth will remain mired at lower levels as savings continue to diverted from productive investment into debt service. Furthermore, with the Federal Reserve and the Administration actively engaged in creating an artificial housing recovery, and wealth effect from increasing asset prices, it is likely that another bubble is being created. This has never ended well. The concern is that without a reversion of debt to more sustainable levels the attainment of stronger, and more importantly, self-sustaining economic growth could be far more elusive than currently imagined.

If there was some hope that in April the trend of the US adding low-quality (as in low-paying) jobs may finally be coming to an end, this came to a quick end in May, when more than half of the 217K jobs added were in the lowest paying sectors. Specifically: Education and health: +63K; Leisure and Hospitality: +39K; Temp Help Services: +14K. These three lowest paying categories amount to 116K, or well over half of the total jobs gains.