Archive - Jun 2014 - Story

US Banks enjoyed more or less steadily climbing, or rather soaring, deposits by Russian institutions and individuals, having tripled in just two years to $21.6 billion by February, according to the US Treasury... and then March hit... boomerang

For 5 years the correlation between the expansion of the Federal Reserve's balance sheet and the growth of the S&P 500 has risen dramatically. Since QE3 was unveiled, the correlation is converging on 1 which of course is just happy coincidence and nothing to do with the free and easy flow of liquidity that month after month of Fed largesse has created. The problem is we now know that the hurdles to a Fed un-Taper are very high and so we can extrapolate the end-point for the Fed's balance sheet and where stocks would trade at that point. The S&P 500's recent exuberance has priced in the total expansion of the Fed's balance sheet to the end of the taper, so how much more upside is there?

On June 6, 1944, Allied forces from the United States, United Kingdom and Canada launched the largest seaborne invasion in history by landing nearly 160,000 troops on the beaches of Normandy in a single day...

There was a moment of awkward levity during today's D-Day celebration when a cruel TV producer decided to show both Obama and Putin on the big screen at the same time. And the crowd, of course, goes wild.

While the bulk of the just announced Icahn activist foray into yet another company, this time Family Dollar, is cut and dry, we can't help but wonder: was Phil Mickelson the person buying all those FDO calls just after noon today?

Most commentators are of the view that the Fed’s massive monetary pumping of 2008 has prevented a major economic disaster. We suggest that the massive pumping has bought time for non-productive bubble activities, thereby weakening the economy as a whole. Contrary to popular thinking, an economic cleansing is a must to “fix” the mess caused by the Fed’s loose policies. To prevent future economic pain, what is required is the closure of all the loopholes for the creation of money out of “thin air.”

With The Fed tapering proceeding as scheduled and complacency having reached 11 on the Spinal Tap amplifier of over-confidence, Janet Yellen and her fellow PhDs have one last best hope... a second-half pick up to magically confirm escape velocity and 'prove' monetary policy is not simply the enrich-the-rich scheme we all know it is. For that reason, we suspect Yellen, Lew, Obama, and every bull out there will be screaming "move yr arse" to California Chrome in The Belmont on Saturday...During years when there is a Triple Crown winner, the U.S. economy has averaged 4.85% growth in real GDP.

This past week has been all about "anticipation." The markets made little headway during the first half of the week as traders waited in an almost breathless anticipation of the announcement from the European Central Bank. When the news was finally received, investors were initially disappointed but David Tepper stepped into the fray with his ever bullish optimism. The more we read, the clearer it becomes that the world's Central Banks have become caught in a "liquidity trap" which is entirely based on circular logic... Central banks must create asset bubbles in the hopes of stimulating economic activity. When the bubble eventually pops the economic activity evaporates which requires the creation of another asset bubble.

The US Dollar, gold, and oil closed the week unchanged... Treasury yields rose 6-8bps on the week... and the Russell 2000 had its best week in 2014... Sure, why not? VIX was crushed back to a 10-handle as managers lifted hedges and the Tepper-induced short-squeeze from yesterday followed through (+2.5% against a 1% rise in the S&P). The Dow and S&P 500 both closed at record highs (notably rich to the Fed balance sheet). Volume was 20% below average (and that was a payrolls day!). Copper tumbled over 2% - its worst week in 3 months as China's warehouse probe continues.  VIX closed at its lowest close since Feb 2007 (and once again the strange shadowy figure of massive after-0hours volume spikes in VXX appeared).

We recently noted that the average Russell 2000 stock is down over 22% and the majority of the broad equity market is well into correction territory as the rally is supported by fewer and fewer names (cough AAPL cough). However, as FBN's JC O'Hara notes, looking at the percent of stocks above their 200 day moving average in the S&P 500 vs the percent of stocks above their 200 day moving average for the Russell 2000, we find the spread is at its widest point in the history of our database. While we find breadth is not a proper market timing tool, a heightened reading often forewarned of troubles ahead. It was more common to alleviate a wide spread by the S&P pulling back to the Russell rather than the Russell playing catch up.

A month ago we pointed out that with April US consumer savings plunging to levels not seen since Lehman, the only place where the tapped out consumer could find some purchasing power is by maxing out their credit cards. This is precisely what happened: moments ago the Fed released its April consumer credit report and it was a doozy: expected to print at $15.00 billion, down from a pre-revision $17.5 billion, the April total instead exploded to a whopping $26.85 billion. This was the fifth biggest surge in history, and was only surpassed by the 2010 "cash for clunkers" record, as well as previous one time outliers in 1998, 2001, and 2006.

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...