Archive - Jul 2015 - Story

Across the board commodities are weak again today as CCFD unwinds and mal-investment booms collapse across the world. Copper is under the most pressure today, plunging to its lowest since June 2009... but of course, Dr. Copper now knows nothing about economics because eyeballs trump reality in the new normal... even as Goldman warns lower prices are to come.

US equity prices are back below yesterday's lows leaving The Dow down over 350 points off its "everything is awesome" highs on Monday (nearing its 200-DMA at 17,743). It's not just the Dow, as the rest of the major indices have given up all the post-Greferendum gains from a month ago...

WTI gave up earlier gains and is tumbling once again to 4-month lows, back into the $48 handle range... S&P Energy stocks are now back at Dec 2012 levels as Forward P/Es collapse back to reality...

Just in case you still harbored any doubt that absolutely zero lessons were learned from the cataclysmic financial collapse of 2008/09...

As the following chart shows, with $203 billion in investible dry powder which is probably the best way of calling AAPL's cash the Cupertino-based company is more than $30 billion larger than what is generally accepted to be the largest hedge fund in the world, Ray Dalio's Bridgewater, which however "only" managed some $171 billion as of May 2015.

Just minutes after rumors of Axel Springer Verlag's interest in buying The Financial Times were flatly denied, Marketwatch reports that Japanese financial newspaper Nikkei said Thursday that it is buying Financial Times from U.K. publishing group Pearson for 160 billion yen, or $1.29 billion.

Great news... jobless claims are at 42 year lows. So sell stocks, sell 'em all...

China matters after all. As recently as three weeks ago, Bridgewater - the world's largest hedge fund - was among the most effusively bullish on China deflecting fears of the stock market drop on the basis that its "movements are not significant reflective of, or influential on, the Chinese economy." However, that meme that has been spewed by endless talking heads protecting their assets under management, has evolved. In his latest letter to investors, Ray Dalio warns, "our views on China have changed... there are no safe places to invest." As WSJ reports, the move adds to a growing chorus of high-profile investors who are challenging the long-held view that China’s rise will provide a ballast to a whole host of investments, from commodities to bonds to shares in multinational firms, as they realize, "it appears that the repercussions of the stock market’s declines will probably be greater."

Bloomberg's Consumer Comfort index slipped lower once again this week back to six-week lows but the most notable aspect within the survey data was a sudden burst of consumer confidence among Democrats... one wonders why?

With a central bank following an asset inflation policy the flows are following performance. The Fed has unknowingly created winners and losers in the asset management business on a massive scale. The asset inflation environment also creates a volatility vacuum. Volatility is necessary to keep markets honest and provide long term stability. An investor must truly believe in their investment and must have performed significant due diligence to have the confidence to ride out the volatility. The market that is not kept honest is the one where reckless behavior proliferates, because it works and is profitable. The most prominent example is the massive carry trading that occurred during the last tightening cycle.

When it comes to corporate earnings announcements, some two-thirds of the time companies beat consensus expectations. This happens both during good quarters and bad (such as this one). How is this possible? The following chart form Deutsche Bank explains it once and for all.

It appears The IMF is willing to shake the boat of status quo, everything-is-awesome, once again. After proclaiming Greece is screwed and needs a haircut no matter what, the bank to save the world has unleashed a new report on Japan...

*IMF SAYS JAPAN NEEDS DEEPER CUTS TO CURB ‘UNSUSTAINABLE’ DEBT,  RISKS SURGE TO TRIPLE GDP WITHOUT CHANGE, IMF SAYS
*IMF: YEN MODERATELY WEAKER THAN IS CONSISTENT WITH FUNDAMENTALS

We assume Abe and Kuroda will disagree strongly, argue that they just need a little more devaluation and everything will be perfect. The slide in JPY suggests some more capital leaving their shores. It appears The IMF has read some of Kyle Bass' work.

Time for a rate hike?

We’ve spent the past few days in this space noting the recent thinning of the stock market advance. That is, despite the major averages continuing to hover near their 52-week highs, the internals are becoming uglier by the day. The main takeaway from this trend is that, should the relatively few areas of the market that are keeping it afloat begin to weaken, there will be precious little support left to prevent a significant correction. Indeed, we are beginning to see signs of deterioration now even among the stronger areas of the market.

• In Asia/Pacific, the sales decline was primarily due to lower sales in China and Japan.
• Decreases in Latin America were primarily due to continued weak construction activity
• Sales declined in EAME primarily due to the unfavorable impact of currency, as sales in euros translated into fewer U.S. dollars.
• Sales declined in North America as weakness in oil and gas-related construction was largely offset by stronger activity in residential and nonresidential building construction.