The Fed has never met a large bank merger that it did not like and has never been willing to deny such an application by a bank holding company, especialy a BHC that houses a primary dealer.
For a few months there, we were worried that GM may have actually found a (government-funded) natural subprime buyer of its vehicles after the company managed to keep its channel stuffing in check for several months. Those fears ended today with the company's October car sales report, according to which GM sold 4.7% more cars, or 42,759 in absolute terms (from 153,005 to 195,764) in October than September, below expectations of a 7.8% increase. So far so good. What however will hardly get any mention from Government Motors cheerleaders is that GM auto inventory at dealers as of October 31 was a record 739,034 (a massive 98 days of supply), an increase of 49,700 from October's 689,334. In other words, the entire incremental rise in sales, and then some, was due to the firm stuffing dealers with even more inventory than they can possibly handle!
- ISM Manufacturing: 51.7, Exp. 51.0, Last 51.5
- Consumer Confidence: 72.2, Exp. 73.0, Last 68.4
- Construction Spending: 0.6%, Exp. 0.7%, Last -0.1%
What's happening is that Facebook is realizing the advert model of revenue is fatally limited. Adverts just don't generate billions of dollars in profit, even with 1 billion users. So it was inevitable that those using the FB platform to generate revenue in some fashion would be squeezed to "share" their revenues with FB. Previously "free" distribution would no longer be free, and users would face a stark choice: either start paying for distribution or lose 85% of their audience. The response depends on the users' level of dependence. Those who are well and truly hooked on the FB platform can either make ineffectual protests and end up paying to reach their former audience, or they can quit: cold turkey, baby. So FB will eventually have to decide if it can profit with a customer base in which 99% don't pay anything. They could try squeezing users in more "stealth" ways, for example, making the first 10 friends and first 10 posts a week free, and charging for useage above a low threshold. If it follows this revenue model, it will follow MySpace down the path to hosting tens of millions of zombie users. Or FB (and Wall Street) could accept that it is fundamentally a low-profit utility and always will be. It could charge individuals $1 a month--a utility fee, in effect-- $10 a month for groups and small enterprises and $100/month for corporations and large organizations. This model would recognize FB is basically offering server space. If users aren't getting $1 a month in value, then why be users at all? How addicted are we? It's a good question of all social media, especially the (currently) "free" stuff. How many people would click "abandon FB" if that were offered alongside the new "promote" button?
Given the length of time that has passed the markets are mostly immune now, deadened by some kind of economic Novocain where there is little feeling left and where the ECB’s “Save the World” rhetoric overshadows all issues and problems and so the prevailing attitude is “Yes, there is Greece; but it doesn’t matter.” I am afraid that this will not be the case in the coming weeks and that Greece will matter once again as the severity of the situation rises anew and like the Gorgon and their quite ugly heads will be revealed once again. You may recall the tale of the three sisters where Stheno and Euryale were immortal but their sister Medusa was not and she was slain by the mythical demigod Perseus. I fear that the immortals are about to be slain next and it could come in a number of ways.
May the farce be with you...
If you bought the deep OTM, high theta option that is the Greek stock market on October 1, or wheat on January 1, 2012, you can now retire. For everyone else who still hasn't gotten the hang of this here "New Normal" Cramer market, better luck next time.
Last week, when we reported last week's lucky Initial Claims expectations beat of 369K, we explicitly said the following: "today's Initial Claims number which magically "beat" expectations by 1K, printing at 369K, on expectations of 370K, will be revised to a miss of 372K next week." And guess what last week's number was just revised to? That's right: 372K, which means that last week's beat was actually a miss. But who cares. Oh, and this week's just as manipulated print of 363K, which was a beat of expectations of 370K, will be spun as a 9K drop in initial claims of course. Next week this number will be revised to 365K-366K as usual, because the BLS has now upward revised its weekly claims number for something like 80 weeks in a row.
That by now absolutely nobody can possibly take any number out of the ADP seriously is beyond question. For those confused why, just read "ADP "Cancels" 365,000 Private Jobs Created In 2012." And yet the establishment, and its very serious PhD pretend this "advance look" into NFP is relevant for one simple reason: it provides an anchor for HFT algos to send risk ramping, even though everyone knows it is a purely goalseeked, statistical aberation. To that end, moments before it was announced we tweeted the following: "October ADP "beats", ES jumps, then after one year it is revised lower by 50%" Sure enough, seconds ago, the ADP reported that after its October number was revised from 162K to 88K, the November print just came out at 158K, on expectations of a 131K print (and a very serious sell side range of 80K to 170K). Now all we need is the October 2013 revision of this data series, which will say the ADP was only kidding and the number was really half of what was reported. "Automatic Data Processing" indeed...
Europe is, supposedly, fixed: between the upcoming one year anniversary of the 3 year LTRO, which has flooded the continent in excess €1 trillion of liquidity, and the OMP, which has supposedly backstopped sovereigns in perpetuity (even though the market has fully frontrun what now appears to be a massively unpopular political decision, as Spain has been demonstrating for the past 2 months), European bank liquidity needs are supposed to be fully taken care of. Yet something went bump on Halloween. As the ECB reports, borrowing on the prohibitive, and largely "last resort" ECB "Marginal Lending Facility" (whose rate is an usurious 1.50%), one or more banks saw their need for EUR explode in the last day of the month, sending overall usage on this credit line to €7.8 billion, the most since mid-March, and a surge of over €7 billion overnight. What spooked European banks so much (whose liquidity needs are not month or quarter-end window dressing driven) that the ECB had to step in on top of everything else it has already done? We will surely find out soon.
As we enter the North American session, equity markets are seen marginally higher, as concerns over the never-ending Greek debt drama are offset by the release of an encouraging data from China. Chinese HSBC Manufacturing PMI printed a fresh 8-month high, while the official Chinese Manufacturing PMI came in line with expectations. In addition to that, a state researcher has said that the countries economy has bottomed and is stabilizing. Meanwhile in Greece, the fact that debt is now seen climbing to 192% in 2014 and an agreement on how to defuse the situation has yet to be found may lead to another speculative attack not only on Greek paper, but also other southern states. As a result, GR/GE 10s spread is seen wider by 30bps, however other peripheral bond yield spreads with respect to the German Bund are tighter. The second half of the session sees the release of the latest weekly jobs report, consumer confidence and the weekly DoE from the US.
- Millions still lack power (WSJ); New York Region Transit Tracker (WSJ), Blackouts Remain for 6.1 Million as Power Repairs Begin (Bloomberg)
- U.S. regulator seeks $470 million from Barclays (Reuters)
- J.P. Morgan Sues Whale's Ex-Boss (WSJ)
- London Frets Future as Financial Hub Outside Bank Union (Bloomberg)
- SNB now selling EUR: Swiss Central Bank Pulls Off Euro Sleight of Hand (WSJ)
- United Said to Study Biggest Airbus A350 to Replace Jumbos (Bloomberg)
- Draghi expands role in fight to save euro (FT)
- Panasonic Plunges by Daily Limit on Loss Forecast, CDS Soars (BusinessWeek)
- Italy risks economic ‘vicious circle’ (FT)
- Starbucks's European tax bill disappears down $100 million hole (Reuters)
- Bernanke Depression Guru Seeks Roosevelt Well-Being (Bloomberg)
"Obama/Romney, Romney/Obama – the most important election of our lifetime? Fact is they’re all the same – bought and paid for with the same money. Ours is a country of the SuperPAC, by the SuperPAC, and for the SuperPAC. The “people” are merely election-day pawns, pulling a Democratic or Republican lever that will deliver the same results every four years. “Change you can believe in?” I bought that one hook, line and sinker in 2008 during the last vestige of my disappearing middle age optimism. We got a more intelligent President, but we hardly got change. Healthcare dominated by corporate interests – what’s new? Financial regulation dominated by Wall Street – what’s new? Continuing pointless foreign wars – what’s new? I’ll tell you what isn’t new. Our two-party system continues to play ping pong with the American people, and the electorate is that white little ball going back and forth over the net. This side’s better – no, that one looks best. Elephants/Donkeys, Donkeys/Elephants. Perhaps the most farcical aspect of it all is that the choice between the two seems to occupy most of our time. Instead of digging in and digging out of this mess on a community level, we sit in front of our flat screens and watch endless debates about red and blue state theologies or listen to demagogues like Rush Limbaugh or his ex-cable counterpart Keith Olbermann."
It was a week ago when we first observed that the defense of 1400 in the ES at all costs must go on, or else the only thing that is keeping the market propped up - psychology (now with the AAPL euphoria long gone), would be gone as would all support. But once again, the overnight session has proven that, with a little help from its central banking friends, 1400 (and 1.2900 in the EURUSD) can be defended. This was in danger of being breached until China reported two PMI numbers: an official one which printed at 50.2, or modest expansion, and up from 49.8, magically right on top of expectations of 50.2, and the HSBC PMI, which also rose to 49.5, from 47.9: the 12th straight contraction print, but the highest number in 8 months. The market spin is naturally that this is an indication of a rebounding China. Sadly, just like in the US, this is merely pre-party congress data manipulation. The only thing that does matter out of China: whether or not the country will actually ease as opposed to doing day to day reverse repo injections. Without the former, the Chinese economy will not rebound, and will not lead to an improvement in corporate outlook for US tech stocks, period, the end.