Archive - Nov 2015 - Story

Let them in...

Today's 1.75% rally in copper (ripping vertical at the US open) broke a record 14-day losing-streak after COMEX futures tested towards a '1' handle numerous times for the first time since March 2009 (when the S&P 500 traded around 800). The metals market appears to be increasingly pricing concurrent and/or future weakness in China’s old economy, according to Goldman, as China futures open interest surges, but discussions at the 2015 Shanghai CESCO conference last week exposed the extremely bearish views of Chinese market participants regarding Chinese metals demand in 2016 (notably sentiment was worse than that expressed by investors outside of China) specifically citing a Fed rate hike before year-end as a further bearish factor for metals.

If Putin was angry when Turkey shot down a Russian plane, which may or may not have crossed Turkish territory - reports on both sides are conflicting - he will be absolutely livid to learn that, according to Turkey's Dogan News, the Russian pilots who had parachuted in an attempt to save their lives after the plane was shot down, had been executed while parachuting down by local rebels, which considering the video released earlier belonged to the Free Syrian Army, are same "rebels" who are funded directly by the CIA.

"Fake", a simple definition: something that is not what it purports to be, a worthless imitation passed off as genuine; an impostor or charlatan.

Example: “American society is extraordinarily fake; filled with lies, fraud, facades, mirages, deception, disinformation, misinformation, propaganda and brainwashing.”

With seeming daily record highs in stocks such as AMZN, FB and others it is easy to get excited about further tech gains. They never go down after all, or the so the impression goes...

According to Goldman, "tech accounted for 50% of the overall S&P 500 expansion during the past five years (Apple is responsible for 20% of rise). Tech sector now has margins (18%) that are twice the overall market." That tremendous tech, but mostly AAPL-driven, margin growth has now ended.  So can this torrid surge in tech margins continue? Goldman's answer is a resounding no.

It’s quite interesting indeed when both progressives and conservatives seem to be nostalgic for those good ol’ days in the 1950s, for different reasons, of course. Conservatives want to go back to the nuclear Leave It to Beaver family and what not while liberals like to talk about those 90-percent tax rates that we owe our prosperity to. Or something like that. However, what a tax rate is and what is actually paid are two very different things.

Wondering where the world's economies are in the leverage cycle? Well, wonder no more. SocGen is out with its updated "leverage clock" which shows you where the bank thinks everyone falls in terms of ticking debt time bombs. As you'll see, SocGen's assessment is quite generous...

Following last week's modest inventory build, API reports another much larger-than-expected build in total crude inventories (+2.6mm barrels). This is the 9th weekly build in a row for total crude inventory but more worrisome is the 3rd weekly surge in Cushing inventories (+1.9mm build) as we warned previously, land storage fears are starting to rise.

With the fundamental and economic backdrop becoming much more hostile toward investors in the intermediate term, understanding the value of cash as a "hedge" against loss becomes much more important. As John Hussman recently noted: "The overall economic and financial landscape, then, is one where obscene valuations imply zero or negative S&P 500 total returns for more than a decade — an outcome that is largely baked-in-the-cake regardless of shorter term economic or speculative factors. Presently, market internals remain unfavorable as well. Coming off of recent overvalued, overbought, overbullish extremes, this has historically opened a clear vulnerability of the market to air-pockets, free-falls and crashes."

November has been a banner month for black swans. From Leftist political coups in Portugal to terror attacks in Paris to downed Russian fighter jets in Syria, the market is gradually learning to expect the unexpected. In its latest Quarterly Economic Outlook, SocGen outlines five political and economic black swans that could land in 2016.

When buy the dip doesn't work. "Most distressed situations have not worked out in 2015," exclaims one distressed hedge fund manager facing significant losses on the year, "It wasn’t just energy. It was anything with loads of leveraged debt on it." As Bloomberg reports, distressed hedge funds dropped 5% in 2015 through October, putting them on pace for their worst year since 2008, when they lost 25%... and November isn’t looking like it will be much better.

The financial news continues to confound and confuse investors. The Fed is telling one story. The world economy is telling another.

"Would I approve waterboarding? You bet your ass I would. In a heartbeat. I would approve more than that. It works and if it doesn’t work, they deserve it anyway for what they do to us."