October 24th, 2011
Last week’s moves were entirely based on the fact that stocks are now tracking the Euro almost tick for tick. And last week, the Euro hit “take off,” despite the clear indications that Europe is facing systemic failure (the entire banking system is leveraged at Lehman-like levels and European sovereigns are facing failed bond auctions on a weekly basis).
Today's adjustment to the government's HARP program to get anything with a pulse as close to the discount window as possible was not the only proposal to revive the moribund US housing market. According to a new proposal by HUD, beginning this month and continuing for a year, anyone with a just $100 will be allowed to buy a HUD-owned REO home. In essence: the new buyer is merely taking over the mortgage payments in a repeat of what happened in 1970s New York along the Central Park West corridor. Granted for now it is stricly limited to only... 28 states! But it gets better: "HUD’s $100 down payment incentive program can also be applied to an FHA 203k loan, which can be used to fund repairs and renovations on the home. The 203k program allows buyers to finance both the mortgage and additional money for rehabilitation needs with a single government-insured loan." Said otherwise, a $100 downpayment gives one unlimited degrees of freedom how to spend non-recourse, massively levered capital, and courtesy of money's fungibility, to even fund, shhh, the occasional iPhone. "Matt Martin, CEO of Matt Martin Real Estate Management (MMREM), says this is one of the most exciting features of the new incentive program and should drive a lot of exposure to FHA’s 203k offering." Why of course it is: it will only take enterprising Americans a few weeks to realize that the latest HUD program is basically an EFSF in sheep's clothing, which provides US consumers with a Benjamin in their pocket, the ability to lever up by a factor of about two thousand (or more) and use the proceeds for pretty much anything (but make sure to call it "home repairs"). And when the HUD is stuck with hundreds of billions of non-performing, delinquent loans, what then? Why the same that will happen to the EFSF: another wholesale taxpayer funded bailout... of those who were tricky enough to figure out this latest subsidy of the global retailer base.
As we present Morgan Stanley in the role of the biggest Netflix bull (or is that loser? We are not sure we can use that word without preclearing it with the Wall Street directorate of truth), we eagerly await the barrage from the media that has a "gag order" on the investment bank with massive French bank exposure, that will shoot the messenger for suggesting that in addition to being a European bank risk derivative, Gorman's bank is also one of the biggest finders and keepers of momo darlings. As for the UBS Global Asset Management and Lone Pine analysts who loaded up to the gills on NFLX stock in Q2, we are confident you will have more than enough time to sample the company's streaming product in your extended search for the next job.
Netflix Implodes After Reporting Horrific Guidance; Notes It Repuchased Stock At $218 Avg Cost BasisSubmitted by Tyler Durden on 10/24/2011 16:58 -0400
One hopes that the European surprise on Wednesday will be more successful than this. In the meantime, the XIRR on Jim Cramer's recommendation to buy NFLX on Sept 26 at $135 through the current AH price of $87 is -99.6%.
Instead of tackling any specific and highly volatile high frequency macroeconomic data points today (which will most likely be diametrically inverted in the next update iteration), today David Rosenberg focuses on sundry items and flights of fancy that are worth noting, such as that "the S&P 500 has recorded 62 consecutive days in which it has swung by 1% or more in intraday trading. The Dow has also closed 1% higher or lower 38 times since the beginning of August (compared with just 25 in the first seven months of the year)." Additionally, Rosie shares some views on the Paradox of thrift, i.e., that "spending on appliances, jewellery, watches, air travel, recreation vehicles, cameras, gambling is actually lower today than in 2005", on credit unions whose customers don't want to borrow money, " "Too few of its 95,000 members, most of whom live or work in five counties in the San Francisco Bay Area, want to borrow money. And too many are making extra payments on mortgages and car loans — or paying off personal loans ... Provident's loan portfolio has shrunk by 25% since the end of 2008, including a 5% drop in the first nine months of this year" but most notably concludes with the observation that while the 2008 "Great Financial Crisis" was quite memorably, "I wonder whether we'll say 2008 wasn't the real crisis — it was a warm-up, but the real crisis was the sovereign debt crisis in Europe....It is clear that the situation in Greece has deteriorated markedly and that the scope for any further fiscal restraint without triggering some sort of revolution is small. The only way toward fiscal sustainability — to get the sovereign debt/GDP ratio down to 110% by 2020 — is for investors to grant the country a jubilee of sorts and accept a 60% write-down." Naturally, France will throw up over any proposal that sees a 60% haircut Greek haircut, not so much due to Greek losses per se, but due to imminent losses when Portugal, Ireland, Italy and lastly Spain (to which four countries France has exponentially more exposure) decide to do the same as Greece and start underreporting data, striking daily, and overall just shut down their economies.
Just when the world's most pummeled stock of the past year thought it may see a brief short covering rally, here comes JPMorgan: "We are establishing our Dec-2012 price target and lowering it to $50 for FSLR due to what we believe has been significant erosion in investor confidence on the longer term growth story for the solar PV sector and the company. This has resulted in significant compression of the P/S multiple for FSLR from a recent range of 4.0x to 6.0x to a 1.4x level as of late. Historically, FSLR traded at a significant premium to other Solar PV stocks. This premium continues, but to a lesser extent. We believe that investors as a group no longer view the Solar PV market as a growth sector and that the stock multiple compression for FSLR is evidence of the increasing level of pessimism the Street has towards the sector outlook." And with that the Icarus Lazarus moment for the solars is postponed indefinitely.
Silver and to a lesser extent Gold are poised to move. You can make a case for either direction. Today’s action was very constructive for commodities in general. But Gold and Silver were the weak performers. The charts show bear-flags, but stochs are in the process of reversing. Fact is, we can see what we want based on our own bias. What we are much more confident in is that in the next week, the Precious Metals will have a move of their own. If you are in the camp that Europe must print money to solve its problems, despite the evidence that Germany is getting its way for now then put on your buying shoes. Ditto if you see Helicopter Ben cranking out more greenbacks in response to a Euro debasing or political pressures from our Keynesian overlords. If you believe that we are on a deflationary spiral, and that there simply isn’t enough money to buy anything at current inflated prices, and there will be no QE3 and that Europe will have enough (levered) money to solve their Grecian woes then get ready to sell Mortimer. Just remember that straddles don’t care which way the market goes.
Dr. Trichet's ingenious EFSF Doomsday Device...[How could we make this shit up?]
Clearly all "bad" ideas are good again. Enron perfected the Special Purpose Vehicle (SPV) and was a master of off balance sheet guarantees. Guarantees with their own equity as collateral in many cases. SIV's are SPV's with leverage. The kind of "asset" that got Citi in huge trouble and almost took down the bank. SIV's had a special place in CDO hell, but I guess you can't keep a good idea down. Detachable insurance. So the EFSF would sell insurance that would come with a new issue bond but could be detached and sold separately? If that doesn't sound a lot like the evil enemy "CDS" than I don't know what does. The biggest detractors of CDS always seem to say it is like buying fire insurance on your neighbor's house. U never agreed with that analogy but this is definitely like buying fire insurance on a house that doesn't cover you in event of fire. The details will be interesting but they had better do as much with cash up front as possible because and ability to require cash in times of stress creates the contagion death spiral they are allegedly trying to prevent. Clearly everyone "gets it" now. What "it" is and how much damage "getting it" will cause remains to be seen.
Commodity prices have certainly been volatile in the last few days with near-record-breaking upside shifts in some. Copper's extravaganza in the last two days was discussed earlier but it is the huge shift in the whole WTI crude complex that is perhaps more fascinating. For the first time since May 2011, Dec 11 WTI is more expensive than Dec 12 and in the last three trading days alone, the entire curve has shifted to backwardation very aggressively. This inflation-prone signal, and much chatter among Fed talking heads on 'helping' the Europeans, could perhaps help explain the strange 'strength' in the EUR as it and the USD circle the drain of fiat currencies. Gold has obviously yet to get going, but today has broken $1660 (up over $50 in the last few days).
Trichet Interrupts Speech Calling For Formation Of European Finance Ministry, Booed Off By German StudentsSubmitted by Tyler Durden on 10/24/2011 13:53 -0400
Earlier today we transcribed the speech by outgoing ECB president Trichet in which he called for the formation of a European Ministry of Finance coupled with what is essentially a requirement for the abdication of national sovereignty of those less than worthy countries, together with some less than flattering commentary. It appears a few people at least were not too happy with the call for the formation of the United Empire of Europe, at Humboldt University where the speech was delivered. Bloomberg reports that the "ECB president interrupted during speech in Berlin. Banners held up by students in audience reading “no more money for banks,” and “say no to debt tyranny.” We hope to bring readers a video as soon as one is available.
Head Of China Sovereign Wealth Fund Voices Displeasure With China's Debt Slaves, Calls Europeans "Lazy" And "Entitled"Submitted by Tyler Durden on 10/24/2011 13:29 -0400
Two weeks ago, Marc Faber provoked the fury of a broad segment of the population by daring to tell America that it is lazy, needs to work more, and is overly-reliant on a welfare government which is an eager parasite of the welfare system cocoon in which it has wrapped the majority of the population knowing full well it can get away with anything due to threats it can pull the (otherwise insolvent) social safety net at any given moment if the status quo is threatened. Needless to say, European readers were delighted and amused by Faber's statements. We wonder, then, what the US (and correspondingly, European) response will be to the news that last week it was the turn of Jin Liqun, chairman of the China Investment Corporation (CIC), the sovereign wealth fund all too often (by the overeager European media) tasked with bailing out, to channel Faber: "Europe is not really short of money. Europe needs to give a clear picture to the Europeans themselves and to the rest of the world that their problems could be worked out. The root cause of the trouble is the over-burdened welfare system, built up since the Second World War in Europe - the sloth-inducing, indolence-inducing labour laws. People need to work a bit harder, they need to work a bit longer, and they should be more innovative. We (the Chinese) work like crazy." Translation: China is finally announcing that it is unhappy with the work output of its debt slaves. And since China, courtesy of its trade surplus or something, will sooner or later also have to apply the same bailout hypermathematics which indicate that despite having to bail out its own banking system it can bail out the world, expect comparable announcements about its latest shipment of debt slaves situated conveniently between the Atlantic and Pacific oceans.
Remember: when in doubt, baffle with bullshit. From Dow Jones:
- EU Paper Confirms Looking At 2 EFSF Options, May Combine Them -Senior EU Source
- EU Paper Says EFSF Option To Set Up Special Purpose Investment Vehicle -Senior EU Source
- EU Paper Says EFSF Bond Insurance and Special Vehicle Options Could Be Combined - Senior EU Source
- EU Paper Says Neither EFSF Leverage Option Requires Change To EFSF Rules -Senior EU Source
- EU Paper Says EFSF SPIV Would Combine Public, Private Capital - Senior EU Source
- EU Paper Says EFSF Could Set Up One Central Euro Zone SPIV - Senior EU Source
- EU Paper Says EFSF SPIVs Could Be Set Up In Several Euro Zone Countries - Senior EU Source
- EU Paper Says EFSF SPIVs Would Be Used For Bond Purchases, Bank Recapitalization - Senior EU Source
- EU Paper Says EFSF Bond Insurance To Be Tradable Independently Of Bonds - Senior EU Source
It also has a Phillips-head screwdriver, opens cans, serves as a flashlight, dispenses crazy pills can be used as a garrote. And if you act now, you can get get a second one free for the low, low price of €1 trillion, leveraged infinitely courtesy of the world's most complex structured credit product ever conceived.
Who are we to argue with the impressive numbers that CAT delivered today - nothing jumps out as obviously dragging forward demand (though we suspect CATFI is very busy with vendor-financing and we know how well that worked out for GMAC) or forced purchases via fuel/emissions standards. Perhaps copper demand today is forced buy-ins on letters-of-credit for heavy equipment sales in China? But for some context, every talking head is noting the earnings beat and outlook changes and we thought it may be useful to consider the 'adjustments' that earnings expectations have seen over the past few months. It turns out that Q3 2011 earnings expectations (chart below) have dropped over 10% in the last three months to their lowest level since Jan11 - and Q4 expectations remain at Jan2011 lows and are also down almost 6.5% in the last three months.