Bob Farrell's rule #9 is: "When all experts and forecasts agree — something else is going to happen." This statement encapsulates the basic tenant of being a contrarian investor. As Sam Stovall, the S&P investment strategist, puts it: "If everybody's optimistic, who is left to buy? If everybody's pessimistic, who's left to sell?" Going against the herd as Farrell repeatedly suggests can be very profitable, especially for patient buyers who raise cash from frothy markets and reinvest it when sentiment is the darkest. However, being a seller in exuberant markets or a buyer in major rout is very tough, if not impossible, for almost every investor as the emotions of "greed" and "fear" overtake logical buy and sell decision making.
Nothing could be more appropriate than topping a week of surreal newsflow than what just happened with the EURUSD, which soared by 80 pips on absolutely non news, in what can be attributed to either some algo going apeshit and lifting every offer, a fat finger, or just the tried and true Bank of International Settlement stop hunt seeking to send correlated risk assets higher courtesy of a spark in upward momentum. Sadly today not even this glaring attempt to jump broad risk into the stratosphere is working. And ahead of a weekend where it is rumored Europe may reopen on Monday, we can't wait for the inevitable snapback.
Instead of his usual rant, Charles Biderman of TrimTabs discusses the reality of the macro environment with Madeline Schnapp - though do not worry as the sense of sarcasm and disbelief at the government's actions and hopes is palpable. Noting that our economy is at best growing 'sluggishly' based off her real-time macro data, Biderman's right hand goes on to explain to him that inflation is running hotter than the government would like us to believe. More importantly, she hits the nail on the head with regard to what Biderman notes is the wasted stimulus money, saying that the economy needs to clear the malinvestments, not sustain them through stimulus transmission mechanisms, in order for growth to once again re-appear. Historically QE2 did manage to create some inventory restocking and pick up in wages/salaries in Q1 2011 but Operation Twist appears to have little to no impact on the real economy (outside of government statistical modelers) - which as we have said before indicates the diminishing returns to government intervention. What is clear is that, as we have noted, that post the 1971 modified gold standard, over a long-period of time it has taken an 'unsustainably' increasing amount of government debt to create economic growth - with the post-2008 insanity that we need $2.50 to create $1 of economic growth. The two end with a discussion of the debt ceiling and deficit potential for a black swan event.
I am not exaggerating.
This is Finnish writer Pentti Linkola — a man who demands that the human population reduce its size to around 500 million and abandon modern technology and the pursuit of economic growth — in his own words.
Well, better late than never.
A few days ago we suggested that this action by LCH.Clearnet was only a matter of time. Sure enough, as of minutes ago the bond clearer hiked margins on all Spanish bonds with a duration of more than 1.25 years. Net result: the Spanish Banks which by now are by far the largest single group holder of Spanish bonds, has to post even moire collateral beginning May 25. Only problem with that: it very well may not have the collateral.
While all eyes are focused on Greece (and contagiously Spain), they have forgotten that two far weaker countries still exits - and combined have the power to do as much (if not more) damage than Spain. Portugal and Ireland have moved back into the Red-Zone of risk in Europe's credit markets. Ireland back over 700bps and Portugal back over 1200bps reflects both their idiosyncratic issues (that we have discussed at length) or the systemic issues (which we discussed most recently this morning here). In the case of Portugal, it appears the Dan Loeb trade (we said to fade it) is now being unwound en masse as the reality of the fundamental risks we discussed here seem to be realized. In the case of Ireland, not only is there a rising chance of a 'no' vote at the forthcoming referendum (discussed here) but as Deutsche Bank notes today, via Bloomberg, that Irish banks may face a further $5.1 billion capital call to cover loan losses as "A new, even modest, increase in capital requirements could deter sovereign investor participation and tip the balance in favor of the sovereign requiring a second loan program." Of course the CDS reflect not just the chance of these nations restructuring but also the probability of a EUR devaluation (since the instruments are denominated in USD) but still - we thought Ireland was the template for the success of austerity?
So stepping aside from the biggest aggregator of private data for a few minutes, and focusing on what actually matters, here is Citigroup telling our European readers who have those fancy multi-colored bills in their wallets, that they are in deep trouble.
To summarize from Citi:
- There are many scenarios for a Greek exit; almost all of them are likely to be EUR negative for an extended period
- Some scenarios could be positive in equilibrium but the run-up to the new equilibrium could be nasty, brutal and long
- The positive scenarios for the euro involve aggressive reduction of tail risk; none of these seem likely
- It is unlikely that central banks busily substitute EUR for USD in their portfolios during periods of intense political uncertainty.
Remember there is no short-selling - only long-adds and long-exits. Syndicate fall back...26.7mm shares at $38.00, 9mm shares at $39.00, and 42mm at $40.00 - leaves a VWAP (or average price at which everyone is in Facebook) at $40.36 (green arrow) with over $10.5b billion traded so far as over 60% of the float has 'turned-over' this morning.
If you just submitted an order to buy FB today, and were confident the order was executed even if at market, you may be out of luck:
- NASDAQ HAS PROBLEM DELIVERING FACEBOOK TRADE EXECUTION MESSAGES
What this means is that the exchange at this point is deciding whether or not to send back late executions to all people who bought, or thought they bought. Needless to say this means that the indicated price is likely not the real price if one factors for all the latent orders, on both the bid and offer side, unless of course all those orders get cancelled, further eroding confident in the market, only this time hitting that one segment most disenchanted with the stock market - mom and pop.
$38.00 Syndicate bid holding...high was $45.00 - 200mm shares traded
UPDATE: $40 handle broke - $38.3!!
UPDATE: Algos defending $40.00 desparately! 115mm shares
From the $38 IPO price, we open at $42.05 (now at $40.1) but we note that in Germany it has tumbled from well over EUR90 earlier. We get the sense the media is disappointed, but of course they will be talking longer-term now and defending a weaker-than-expected open: CNBC: "I just want to make sure we don't whip ourselves into a frenzy on the short term value." - perhaps a little late for that eh?
Yes, we are all waiting for what is increasingly becoming an epic disaster. In the meantime there is this:
- TRADERS FOR FACEBOOK HAVING PROBLEMS CHANGING/CANCELING ORDERS:WSJ...
We believe CANCELING is the operative word. Of course, Europe is about to close which according to some may be the catalyst. In other news, nobody even dare think, let alone whipser "Market Conditions"