Archive - Oct 2015 - Story

Valeant Pharma is halted for the 4th time today, this time for news pending, as the stock has lost 40% of its value since the open...

The "moar easing" hope-strewn panic-buying of the last few days is rapidly turning into regret as US equity markets tumble back into the red for the week. The biggest driver today appears to be pressure on the Healthcare sector driven by Biotechs collapse and break below a key uptrend... As one veteran trader noted... The plunge in stocks has a very 'liquidation' feel to it...

Who could have seen that coming?

Currently, wage growth is the middle of its 5 year range - the last reading was just 1.63%. Positive wage growth is a good thing. Still, it is not accelerating the way it would if we were at full employment. The US labor markets are not weak but they are not as strong as some of the headline data suggests they are. If we look beneath the surface then it is clear that there are multiple explanations for the lack of growth in wage inflation...

"As examples of products that were not made entirely in the US — contrary to their billing — it highlighted a sandwich bag that was produced in Thailand and a toy car that was assembled in the US with some imported parts, including a Chinese steering wheel."

Bonds ain't buying it...

*BIDEN SAYS HE WON'T SEEK DEMOCRATIC PRESIDENTIAL NOMINATION
*BIDEN: ATTEMPT TO UNDO OBAMA LEGACY WOULD BE `TRAGIC MISTAKE'

One day Palo Alto-based medical-laboratory-services company Theranos was worth $9 billion (with its 31 year old CEo Elizabeth Holmes owning about half of this), a day later - following a crushing review of the company's business practices - not only is the company (and Holmes) worth far less, but the venture investors who gave the company hundreds of millions in cash have quickly become the "due diligence-free" laughing stocks of Silicone Valley.

The arms race of devaluation is not free and has come at the cost of massive global debt expansion. The world has simply shifted private debt to the public balance sheet. The next major global crash will likely be driven by unhealthy sovereign credit rather than corporate credit. The next Lehman moment will be the financial collapse of a major developed country instead of a bank.

We expect the ultimate outcome of Carl Icahn's Super PAC will be to make it easier for activists to pressure management teams into buying back even more of their shares - perhaps by granting them a tax amnesty on repatriating some of the $2 trillion in offshore cash if used for shareholder friendly activity - but then again we tend to be cynical.

As a desperate Saudi Arabia taps the bond market to mitigate the SAMA drawdown while simultaneously attempting to muscle in on Moscow's Eastern European market share, Russian crude sales to China soared 42% in September. The result: for the second time this year, Russia has overtaken Saudi Arabia as the number one crude supplier to Beijing. 

"Real investors" are simultaneously nervous and hopeful, confident yet resigned. Yes, their basic belief in equities as an investment class is sound and supported by the last five years of good performance. At the same time, they understand the nuances of the bear case extremely well and are prepared for a long slog of lower returns.

The DOE just reported an 8.028mm barrel inventory build in crude stocks, even larger than the API reported data. This is the highest weekly build since April 3rd and is dramatically higher than expected. Crude prices are pressing on lower, with the new Dec contract now trading with a $44 handle. To make matters worse, US crude production was unchanged.

With default risk soaring, and Ackman's dreams dissolving, Valeant Pharma is crashing again today (halted three times and down over 28%) following a report by Citron Research that claims to have a "smoking gun" on the company's activities, claiming Valeant is using pharmacies related to Philidor to store inventory and record the transactions as sales.

The bloodbathery in Treasury Bills continues this morning with11/12/15 Bills pushing up to 14bps (from 0bps on Friday). Despite the "hopes" of Treasury Secretary Jack Lew that the US avoids a crisis, he warns "there's no margin for error" and with GOP Leadership talks still ongoing (as Paul Ryan lays down his demands), it appears markets are not taking any chances for now.