Archive - Nov 2, 2015 - Story

Yesterday in "$20 Trillion In Government Bonds Yield Under 1%: The Stunning Facts How We Got There", we did just that: showed several "facts" demonstrating how, as Bloomberg puts it this morning, "QE Helped Wall Street Steamroll Main Street." It appears many missed the findings of how central planning has now gone full retard, so here again, are the facts...

With Markit suggesting US Manufacturing is at a 7-month high (with new orders surging), The ISM appears to disagree as ISM Manufacturing PMI dropped to 50.1 - its lowest since Dec 2012. The silver lining in the ISM report is that it was a 'Chinese beat' - 50.1 vs 50.0 exp - but with the employment sub-index at its lowest since August 2009, the report is anything but positive. Finally, ISM inventory drops to 46.5 (its weakest since January) after Chicago PMI inventories soared over 60; and along with export orders in contraction for the fifth month (while Markit claims highest new orders in 7 months), today's US manufacturing outlook is just more baffle-em-with-bullshit.

"I’m not authorized to make any sort of conclusions, but a plane cannot simply disintegrate"...

Amid a slew of sometimes contradictory Manufacturing data, Canada appears to have suffered the most with its Markit PMI tumbling to 48.0 - a record low. Canada's weakness puts it below China (based on China's Caixin/Markit measure). US manufacturing rose marginally from its preliminary 48.0 print to end October at 48.1, highest since March. Output and New orders are seen rising at the fastest pace since March, but despite this 'strength' Markit is careful to warn a rate hike would be premature.

As the crackdown against Zexi was taking place, Shanghai police also arrested 3 suspects as they cracked a case of stock futures price manipulation involving over 11.3 billion yuan (US$1.8 billion), police said yesterday in a statement. According to Shanghai Daily, Yishidun, a commercial company registered in Jiangsu Province’s Zhangjiagang City in 2012, was found to use an illegal stock futures trading software to destabilize the market and profit from volatility.

Disappointed "this time it's different" analysts point out better-than-expected China PMI, a relatively large decline Friday for U.S. rig count, and overall sentiment today as reasons why crude oil prices should not be falling, but after hitting 2 week highs Friday, with algos running stops on every swing, it appears the harsher reality of China's full storage, plunging tanker rates, an unquivering OPEC, and ongoing production levels is too much to bear for the bulls...

If one looks at the NDX alone, one would have to conclude that the bull market is perfectly intact. The same is true of selected sub-sectors, but more and more sectors or stocks within sectors are waving good-bye to the rally. Even NDX and Nasdaq Composite have begun to diverge of late, underscoring the extreme concentration in big cap names. Naturally, divergences can be “repaired”, and internals can always improve. The reality is however that we have been able to observe weakening internals and negative divergences for a very long time by now, and they sure haven’t improved so far. In terms of probabilities, history suggests that it is more likely that the big caps will eventually succumb as well.

The torrid October, with its historic S&P500 point rally, is finally in the history books, and at least for a select group of hedge funds such as Glenview, Pershing Square and Greenlight and certainly their L.P.s, a very scary Halloween couldn't come fast enough, leading to losses between 15% and 20%. How did everyone else fare? Below, courtesy of Deutsche Bank's Jim Reid, is a summary of what worked in October (and YTD), and what didn't.

• Baffle with BS: German Bonds Decline Along With Peers as Draghi Cools QE Talk (BBG)
• And yet... ECB's Nowotny says low inflation forces ECB to act (Reuters)
• Stocks fall on China data, but stronger euro zone lifts gloom (Reuters)
• Global factories struggle as stimulus fails to spur (Reuters)
• Russian airline rules out technical fault, pilot error in Egypt crash (Reuters)
• Turkey returns to single-party rule in boost for Erdogan (Reuters)

A bigger problem for Valeant, however, emerged today when none other than Warren Buffett's right hand man Charlie Munger in an interview with Bloomberg "tore anew into the besieged drug company, calling its practice of acquiring rights to treatments and boosting prices legal but “deeply immoral” and “similar to the worst abuses in for-profit education.”  And to prove just how much clout Munger does indeed have, moments ago the most important Wall Street bank, Goldman Sachs, downgraded Valeant to Neutral from Buy, cutting its share price target from $180 to $122.

On a day full of Manufacturing/PMI surveys from around the globe, the numbers everyone was looking at came out of China, where first the official, NBS PMI data disappointed after missing Mfg PMI expectations (3rd month in a row of contraction), with the Non-mfg PMI sliding to the lowest since 2008, however this was promptly "corrected" after the other Caixin manufacturing PMI soared to 48.3 in October from 47.2 in September - the biggest monthly rise of 2015 - and far better than the median estimate of 47.6, once again leading to the usual questions about China's Schrodinger economy, first defined here, which is continues to expand and contract at the same time.