Archive - Aug 4, 2014 - Story

President Barack Obama has a direct message for the leaders of America’s biggest companies: if you have a complaint, you can keep your complaint. "If you look at what’s happened over the last four or five years, the folks who don’t have a right to complain are the folks at the top," Obama said in an interview with The Economist published over the weekend. As The WSJ adds, Obama maintained that complaints from corporate CEOs in the current environment should be taken with “a grain of salt” as most policies he has implemented have "generally been friendly towards business." In other words, thank me for the recovery, but don't blame me for the inequality - an irony we have noted numerous times.

There is a war being conducted out there in the financial markets. A war between debtors and creditors, between governments and taxpayers, between banks and depositors, between the errors of the past and the hopes of the future. How can investors end up on the winning side ? History would seem to have the answers. We would argue today that central bank bubble-blowing has made the entire market high-risk, with a broad consensus that with interest rates at 300-year lows and bonds hysterically overpriced and facing the prospect of interest rate rises to boot, stocks are now "the only game in town". If history is any guide, the identity of the losers seems to be self-evident.

Despite European weakness, US equity investors decided bailing out BES with taxpayer money means BTFD. As soon as Europe closed, VIX was monkey-hammered lower and stocks took off, first running today's stops, then Friday's highs, then pressing all major indices into the green for August. Notably, "most shorted" stocks were sold hard early on and that provided the ammo for the bounce. VIX was clubbed over 2 vols lower back under 15 as EURJPY became all the fun-durr-mentals stocks needed to surge. Treasury yields rose as stocks rose but 10Y ended the day -0.5bps (30Y +1.5bps). The USD flatlined as modest EUR weakness was offset by GBP/AUD strength. PMs slipped lower as oil and copper gained. Credit markets rallied along with VIX. The Dow closed unch for 2014.

"Data dependent" or "making it up as they go along?"

Having unleashed a massive military drill earlier in the day, Russia is reportedly amassing military force on Ukraine's border once again:

*RUSSIA HAS 160 TANKS NEAR UKRAINE BORDER, KOVAL SAYS: INTERFAX
*RUSSIA BOOSTS BUILDUP NEAR UKRAINE TO 33,000 TROOPS, KOVAL SAYS

Mykhailo Koval, deputy head of Ukraine’s National Defense and Security Council, spoke on Russian military buildup on ICTV channel, according to Interfax.

By now it is well known that Argentina has been declared in default by the major credit rating agencies. However, the default is really a sideshow to Argentina's real problem, which is a profligate government financing its spending increasingly via the printing press, while publishing severely falsified “inflation” data in order to mask this fact. Inflationary policy is and always will be extremely destructive. In the developed world, a situation like that observed in Argentina has so far been avoided, but that doesn't exactly mean that central banks in the industrialized nations are slouches in the money printing department. Their actions buy us what appear to be “good times” by diverting scarce resources into various bubble activities, but in reality they impoverish us.

Stocks have given up JPY-carry momentum and fallen back to the old VIX-smashing algo (back under 16) to run stops above Friday's highs. This morning's dip has been bought (on notably low volume) and lifted the S&P, Nasdaq, and Russell 2000 back into the green for August (Trannies and The Dow remain laggards). 10Y Yields are unch, the USD Index is unch, gold is down and oil is up. Perhaps, US investors have forgotten that Europe opens again in 12 hours...

Here are the latest news on the worst Ebola epidemic in history.

While we are used to the daily flashing red headline from GM on recalls, today's was a lot more concerning:

• *GM RECEIVED SUBPOENA BY U.S. DOJ
• *GM SUBPOENA RELATED TO SUBPRIME AUTOMOBILE LOAN CONTRACTS
• *GM FINL: SUBPOENA ALSO FOR WARRANTIES ON UNDERWRITING CRITERIA

We have warned of the surge in subprime auto-loan lending (and lowering standards and rising delinquencies) but this move by the DoJ should be very concerning. Once investors began digging into the details of subprime mortgage deals in 2007, the drastic credit risks reality was exposed very quickly... we fear the same in auto loans.

John Kerry is at it again... Speaking at the US-Africa Summit, the US Secretary of State explained:

*KERRY STRESSES NEED FOR COUNTRIES TO OBSERVE HUMAN RIGHTS

Which is odd, given that: a) Obama admitted we tortured some "folk"; and b) when countries refuse to observe human rights - the US drones them?

Never has so much fragility-in-motion come so close to an implacable wall of consequence. Here's what we think is going to happen now...

The Lagos doctor who treated American Patrick Sawyer (who died from Ebola in late July) has been confirmed as infected by the deadly virus by Nigerian authorities. This is Nigeria's second confirmed case of Ebola but what is most concerning is the fact that the doctor's infection suggests contagion is less well-contained that authorities have claimed - especially in light of the fact that they did not quarantine Sawyer's fellow passengers. Nigeria is now the fourth nation to report Ebola cases, as Sierra Leone and Liberia are deploying hundreds of troops under an emergency plan to "contain" the worst outbreak of Ebola virus in history.

Another day, another case of unprecedented muppet brutality, or, as Cramer would say: "Bear Espirito Stearns is fine"...