Archive - Apr 20, 2015 - Story

Either join the disruptors or prepare to be disrupted.

With escorts forced to travel and with spending on alcohol and gambling on the decline, there's still one area of the vice economy which offers a compelling investment opportunity and thanks to Bloomberg, we now know which 55 stocks to focus on in order to capitalize off of the rise of legalized marijuana. 

Because... fun-durr-mentals...

What are the prevailing pain trades at this moment? According to BofA's latest fund manager survey, investors are positioned for i) more asset reflation, ii) stronger US$ and iii) rising rates. "So weak US growth, a rise in EU rates & stronger Chinese production would be painful in coming weeks."

Somewhat ironically, given that April 20th is Hitler's brithday, one of Greece’s most important political trials against current and former MPs and members of neo-nazi Golden Dawn started this morning. Party leader Nikos Michaloliakos and 68 other defenders stand trial on felony charges for having established a criminal organization, having committed several racists attacks and murder and the procession of weapons. The trial takes place in a special courtroom built inside high security prison Korydallos in western Athens. Several antifascists groups and Golden Dawn supporters gathered outside the prisonand violence broke out leading to the decision, two hours after the trial began, to adjourn until May 7th 2015  for "procedural reasons."

For the 2nd day in a row, WTI crude prices are falling (back below $55) after Saudi Arabian Oil Minister Ali al-Naimi said production in the world's biggest crude exporter would stay near record peaks around 10 million barrels per day in April. The investment community remains divided over the future (perhaps more a reflection of time horizons): BofA notes Large Speculators bought crude contracts for the 3rd consecutive week - the longest streak since June 2014; but Blackstone (among other private equity firms) have stayed on the sidelines (despite plenty of cash to put to work) as public markets have exuberantly filled the void so far this year: Oil producers have been able to “raise a lot of debt and, in some cases, equity publicly at values that we wouldn’t touch."

In January when we first brought news of one of China's largest developer's inability to cover interest payments on its debt, we raised the question of who's next. Now that it is official - China's first major developer to default on its US currency debt - and property prices are falling at a record rate, we suspect the likes of Wanda and Agile will also start to collapse once again (after being bid up incredibly amid China's latest exuberant bubble). Kaisa’s debt problems underscore the slump in China’s property sector, which has been hit by the slowing economy and a series of cooling measures instituted by Beijing to avoid a bubble in what had been an overheated housing market.

In a recent blog post, Citadel's latest trader and part-time Brookings blogger, Ben Bernanke, asks "does the U.S. economy face secular stagnation? I am skeptical, and the sources of my skepticism go beyond the fact that the U.S. economy looks to be well on the way to full employment today."We, on the other hand are skeptical of Bernanke's skepticism, for one simple reason: reality.

While this week sees the peak of Q1 earnings season, it will be a generally quiet week on the macro economic front for both EM and DM, with the emphasis on the latest seasonally adjusted manufacturing sentiment surveys, US durables and Japan trade.

• Just How Leaky Is the Fed? More Than You May Realize (BBG)
• Republican Presidential Candidates Spar Over Party’s Future (WSJ)
• Euro Area Seeks Greece Roadmap to May Agreement (BBG)
• The $320 Billion Bogey Needed to Placate U.S. Stock Market Bulls (BBG)
• Seeking Obamacare alternative, Republicans eye tax credits (Reuters)
• Gundlach Says Market Hasn’t Seen Full Impact of Fed Moves (BBG)
• EU meets on migrant crisis as shipwreck corpses brought ashore (Reuters)
• Canada’s Own Oil Pipeline Problem (WSJ)

It is only fitting that the next business day following a headline that "Global Futures Slide China Tumbles On Short Selling Boost" we would see China, in an apparent panic, not only cut its RRR by 100 bps to 18.5% - far more than expected and the most since 2008 - but, more importantly, hinted that the Friday regulatory decision to encourage short sales and tighter margin rules on "umbrella trusts" was in no way meant to pop that the Chinese stock bubble, ridiculous as it may be. End result: after Chinese futures crashed by up to 6% on Friday after the Shanghai close, overnight the SHCOMP was down just 1.64%, erasing the bulk of the futures loss. More importantly, US equity futures have seen a strong bid this morning in yet another attempt to defend not only the Apple Sachs Industrial Average from going red on the year but the all important 100 DMA technical levels.

Shortly after Russia announced early last week that it would take advantage of the lifting of the Iran sanctions and proceed to deliver an unknown number of S-300 "defensive" surface-to-air missiles, the Kremlin sought to reassure Israeli Prime Minister Benjamin Netanyahu that any deliveries of these to Iran will not threaten Israel's security. Judging by the following video which captures what happens when a launch of a S-300 SAM goes horribly wrong (and the immediate stunned aftermath), he may very well be right.