Archive - Feb 2015 - Story

"Go long Russell 2000 vs. short S&P 500 via futures or total return swap – Russell 2000 futures have traded persistently cheap to fair value due to the high borrow rate on small-cap stocks, while S&P 500 futures have traded rich over the last 2 years as equity financing rates were driven higher by regulatory and industry changes. A long/short trade via futures allows the investor to collect this financing spread, and thus would be expected to yield a positive carry in addition to any outperformance (this carry was ~90bps annualized over the last year based on average futures roll costs). A swap-based implementation of this trade would similarly provide a positive carry, while eliminating dividend and futures roll risk."

They are at it again... The 'smartest people in the room' have once again taken the big board-eraser to GDP growth expectations... but have no fear, for what Keynesian aggregate demand can't pull forward into Q1 will surely unleash pent-up demandedness in H2 to save the year...

With an increasingly vitriolic tone, the new Greek government has come out swinging today with leader Alexis Tsipras making it clear that he will implement the election pledges the people of Greece voted for:

A NEW GREEK GOVT WILL BARGAIN TOUGH, AND PUT A FINAL END TO THE TROIKA AND ITS POLICIES, WE MANAGED TO DECONSTRUCT THE EUROPEAN STATUS QUO THAT WANTS MORE AUSTERITY AND LESS DEMOCRACY

"We will make the impossible, possible to turn things around in Greece" It took one week, Tsipras chides, to get European leaders to talk about the real problems and Greece will negotiate hard to "put an end to Troika," and "rebuild the country from the beginning."

And so after that epic 5.0% Q3 GDP print, driven largely by Obamacare, the payback begins, and the annualized Q4 GDP print, which came in at nearly half the previous quarter run rate, or 2.6%, is about to tumble by another ~0.5% following the just released trade data for December which saw a 17.1% surge in the US trade deficit from $39 billion (revised to $39.8 billion) to a whopping $46.6 billion in December, the widest deficit since 2012, as US exports declined 0.8% to 4194.9Bn from $196.4 Bn, while imports rose notably from $236.2Bn to $241.4Bn in the month before. All of this brought to you courtesy of the soaring USD. This was also the biggest miss to expectations of $38.0 billion since July of 2008. If this does not force policymakers to reassess the impact of the soaring dollar on US trade, nothing will.

It all makes perfect sense. Challenger announced this morning that layoffs in January soard 17.6% year-over-year with planned job cuts at the highest level in almost 2 years... Jobless claims in Shale states continues to trend higher as oil prices collapse... but initial jobless claims beat expectations - hovering near cycle lows - though did rise modestly WoW.

With one of the world’s leading dry bulk shipping companies, Copenhagen-based D/S Norden, having made huge losses for the last 2 years and expected to report dramatic losses in 2014 also, it is hardly surprising that the smaller bulk shipping firms are struggling as The Baltic Dry Index collapses ever closer to record all-time lows. As Reuters reports, privately-owned shipping company Copenship has filed for bankruptcy in Copenhagen after losses in the dry bulk market, with the CEO exclaiming, "we have reached a point where there is not more to do." We suspect, given the crash in shipping fees, that this is the first of many...

SCHAEUBLE: "MY PRESS SPOKESMAN ADVISED ME TO SAY "WE AGREED TO DISAGREE"

VAROUFAKIS: "WE DIDN'T EVEN AGREE TO DISAGREE"

And so another central bank admits defeat to the forces of market supply and demand.

Just what the market had hoped would not happen...

*ECB SAYS IT LIFTS WAIVER ON GREEK GOVERNMENT DEBT AS COLLATERAL
*ECB SAYS IT CAN'T ASSUME SUCCESSFUL CONCLUSION OF GREECE REVIEW

What this means simply is that since Greek banks are now unable to pledge Greek bonds as collateral and fund themselves, and liquidity is about to evaporate, the ECB has effectively just given a green light for Greek bank runs, as suddenly it has removed, both mathematically but worse politically, a key support pillar from underneath the already bailed out Greek banking system, (or merely a negotiating move to let Greece see just what kind of chaos this will create ahead of the big D-Day on Feb 25th when ELA could be withdrawn).

If you are one of the slithering acolytes of political theory then the primary tool of organization for you is to lie, and to lie often. Tricking people into action using false premises, telling people what they want to hear rather than opening their eyes to reality, is perhaps the easiest way to build a movement. Of course, that movement will eventually destroy itself as the lies begin to inhibit progress rather than inspire it. But in most cases, by the time the organization self-destructs it has already been exploited for the nefarious purpose it was intended. For the liberty movement, the movement against globalization and forced centralization of financial and political power, lies are simply not an option. We must organize around the truth, no matter how painful it happens to be.

Despite numerous explanations that no boots-on-the-ground will be on-the-ground in Iraq in the war against Islamic State, it appears, as CNN reports, that the US military has moved Search-and-Rescue (S&R) assets to Northern Iraq as part of a "constant rebalancing" depending on the evolving airstrike-only mission. Of course, as the 'unnamed source' was so quick to explain, this was in no way a response to threats from The UAE to pull out of the coalition unless S&R assets were placed in Iraq since, cynically speaking, the UAE demands are only the result of US demands that it demand it anyway.

Every money manager makes mistakes in the course of a career. Sometimes the mistakes are isolated, and sometimes they come in bundles or waves. The fact that the vast majority of investors and traders cannot (with rare exceptions) beat the markets over long periods of time is not an argument for efficiency. Rather, the reason is that they are mostly doing the same thing sharing the same set of assumptions, and following the same impulses.

With S&P facing billion-dollar fines for defying the narrative, Goldman Sachs just dared to go even further against the US government by suggesting that the new oil order may be a blessing in disguise for Russia's oil industry. Simply put, the impact of the lower oil price and sanctions on the Russian economy increase the importance of oil industry tax reform, which could provide stimulus for upstream investments and commercialisation of the country’s vast oil reserves. An acceleration of upstream/downstream tax rebalancing could incentivise the development of substantial new basins in Russia, leading to a production capacity increase and a reduction in refining volumes to levels necessary to supply the domestic market. As a result, in Goldman's view, Russian crude exports would increase, improving the country’s current account, government revenues would grow, and upstream would attract material incremental investments.

Scenes like this one from the iconic movie Trading Places will henceforth be forever entombed in the annals of trader history, a history in which man is thoroughly replaced by machine, following news earlier today that the CME will close most of its futures pits in Chicago and New York. "The move deals a death blow to trading floors that grew in the 20th century alongside America’s agriculture, mining and energy industries and were once synonymous with capitalism."