There is only one notable data point in today's release of new home sales, which, and this should not come as a surprise to anyone, continue to crawl along the floor with just 313,000 houses sold. The datapoint is the median home price, which tumbled from $210,900 to $204,400. This is certainly the lowest number in 2011, and is just modestly off the decade low record in October 2010. And it gets worse: the 3 month drop in median home prices is the biggest ever. Regardless: we are confident this will force the Comcast-based, housing "bottom-callers" to call yet another bottom shortly.
As the euphoria of a Bundestag vote begins to fade and the reality of the need to reduce Greek debt by more than 21% (or whatever the ridiculous number the entirely independent think-tank called the IIF is pushing now), we note that almost perfectly tick-for-tick the price of EFSF bonds today are inversely correlated with the EURUSD. It seems evident that our fears (oft discussed here) over the actual increased contagion and concentration risk that EFSF will withstand should it be more levered are clearly being gradually priced in - despite what every other correlation-driven momentum junkie asset class is saying. Perhaps buying EFSF protection (we are sure it will be quoted soon) is the new EUR hedge for all those stuck short?
Well, that surge lasted all of 10 minutes.
- EU TALKS WITH BANKS ON GREEK BOND LOSSES SAID TO BE DEADLOCKED
- EU TALKS 'PAUSED' ON A DISPUTE ON INSURING RISKS OF NEW BONDS
- EU official says dispute centers on insuring risk of new bonds.
- Involuntary Greek haircuts can’t be ruled out
- EU Said to Consider Limits on EU-IMF Loans in 2nd Greek Rescue
At some point the algos now trading the EURUSD exclusively will run out of money chasing each and every headline, a strategy that has empirically worked precisely 0% of the time.
Amazon's business model is quite fascinating: it is a retailers' retailer, and an online micropayment-based bookstore. That's it. Yet, as is well known, the key problem with retailers is margins. So take a retailer squared and the margin becomes a problemsquared. And the one problem with online bookstores is that they compete dollar for dollar with Apple's ap store, so one must constantly spend for "innovation", if not actually innovate. Which explains the only two truly relevant charts from the AMZN earnings release: their operating income profit, and their R&D spend. One, to confirm that you can remove the retailer from the retailer, but you can never remove the margins; and the no matter how hard you try, you will always have to compete with Apple, and spend accordingly. And we throw in one bonus chart for good measure.
- PARLIAMENTARY SOURCE SAYS GERMANY'S BUNDESTAG LOWER HOUSE OF PARLIAMENT APPROVES MOTION TO STRENGTHEN EFSF VIA LEVERAGE
- 503 vote in favor of the measure; 89 voted against, while four abstained in Berlin today - so this is a surprise we take it?
EURUSD promptly soars despite this having been priced in days ago and despite the addition by the parliament that the SMP program is now effectively over: "Motion states that EFSF cannot be financed via the ECB and that the ECB will no longer need to buy bonds in the secondary market." In the meantime, the latest batch of weak hand shorts, covers.
The only real question remains, is whether Merkel and Sarkozy will hold hands to add emphasis to their "we saved the world" announcement. We will get an announcement and it will sound positive. Unless they did a lot of work in the past 24 hours, it seems unlikely that any details will come out. We will hear about grand plans to leverage EFSF, how it has more than enough money to accomplish its goal (of pushing default to next year) and how countries are committed to making it work, and how bank recapitalizations will be done to ensure the safety and soundness of the Eurozone banks, and how with private sector involvement, not only will Greece have the opportunity to grow its way out of the crisis, but other countries too will be given the chance to grow and be successful - austerity is now a dirty word.
The stockpiling continues. While today's durable goods number on the surface was good, declining less than expected at the top-line level, down 0.8%, or $1.5 billion, to $200.3 billion, better than the -1.0% expected, and compared to the -0.1% decline in August. What was better than expected is that durables ex transportation came at 1.7% on expectations of 0.4% (previous adjusted to -0.4%). What however negates all the good data is one simple fact: shipments of manufactured durable goods, declined substantially to $200.1 billion, or 0.7%. So what is the reason for this continuing beat? Why inventories of course: "Inventories of manufactured durable goods in September, up twenty one consecutive months, increased $0.4 billion or 0.1 percent to $365.6 billion. This was at the highest level since the series was first published on a NAICS basis in 1992 and followed a 0.9 percent August increase. Transportation equipment, also up twenty one consecutive months, had the largest increase, $0.5 billion or 0.5 percent to $112.7 billion." Not only that, but the annualized growth rate just hit the highest ever (see chart below)! And as would be expected, the Inventory-to-Shipments ratio increased from 1.81 to 1.83. Said otherwise, we are back to the old model where economic "growth" is only due to stockpiling as producers hope that tomorrow, and tomorrow, and tomorrow someone will actually buy record inventory stockpiles at market value instead of LIFO liquidation prices. Oddly, this reminds us of European thinking too.
- German Chancellor Merkel said that all models that involve the ECB are not on the agenda tonight, however both leverage models are going to be discussed
- According to a senior EU source, IMF thinks 60% Greek debt write-down is not enough, and it should be 65% or more
- Widening was observed in the Greek/German 10-year government bond yield spread ahead of the EU leaders' summit today
- According to a draft statement from the EU heads of state, banks would need guarantees on liabilities for more direct support for access to funding. It further said that there is broad agreement on requiring banks to have capital ratio of 9%, to be attained by June 30th 2010
- There were reports that the Italian PM Berlusconi may resign
It appears yesterday's FSLR CEO "departure" was no fluke. The company just came out with earnings which in addition to being a current quarter disaster with EPS coming in at $2.25, on expectations of $2.67, also added disastrous guidance to the mix. To wit: First Solar now sees year EPS $6.50-$7.50, compared to $9-$9.50 previously, and is now forecasting net sales of $3 billion - $3.3 billion, compared to $3.6 billion -$3.7 billion previously. And combining the worst of both the Netflix and Amazon press releases, the company has also announced it is cutting its CapEx, and is further exploring options to reallocate overhead expenses. We hope Whitney Tilson wasn't buying this one on the way down too as the company may be headed for $0.00 soon to quite soon. Of course, if his plan, like in NFLX, is to keep adding more on the way down and averaging lower, he will be more than content.
Italy On The Ropes Again After Secret Berlusconi Promise To Step Down In Exchange For Compromise Achieves NothingSubmitted by Tyler Durden on 10/26/2011 - 08:01
Over the past few days, Italy has promptly re-emerged as a main cog in the illusion that Europe is a well-greased machine (yes, we know, funny) after it became clear that the country continues to refuse to implement any actual austerity measures following the requirement to do just that months ago when it got access to the ECB's sterlizied bond monetization scheme. In fact it got so bad that yesterday the entire Italian government was rumored to be on the verge of collapse as it was once again unable to reach a resolution on what the EU demands are prompt actions taken to raise pension and/or retirement age. According to the Telegraph, Italy may have found a compromise, one which actually ends the regime of Berlusconi... but not yet. Telegraph reports that Silvio Berlusconi has reportedly drawn up a "secret pact" under which he will resign in December or January, paving the way for Italy to elect a new government in March. "The embattled prime minister made the deal with his key coalition ally, Umberto Bossi of the devolutionist Northern League, in return for Mr Bossi's support for pension reforms, according to unconfirmed reports in two Italian newspapers – La Repubblica and La Stampa. Italy is under huge pressure from the European Union to reform its pensions system and extend retirement ages as part of a plan to rein in its enormous public debt and revive its moribund economy." "Don't make a fool of me in Brussels, and I promise that we'll go to elections in March," Mr Berlusconi told the Northern League leader, according to La Repubblica." This would all be great, if only for one small snag: the "plan", like everything else in Europe, is worthless. The FT reports that the compromise agreement "lacks specifics and risks falling short of what eurozone leaders have demanded ahead of Wednesday’s summit in Brussels....In the end, Umberto Bossi, the fiercely eurosceptic leader of the federalist League, made minor concessions that would raise the general retirement age to 67 years by 2026, but rejected changes to Italy’s length of service pension system that allows many workers to retire at the age of 61 with 35 years of contributions. Even Mr Bossi did not sound hopeful that the proposals would go down well in Brussels. In the past he has said he “doesn’t give a damn” about pressure from Europe over Italy’s pension system." He may change his tune once BTPs drop under 90 and go bidless.
Gold has extended yesterday’s 4% rise in the US, with further gains seen overnight in Asia and consolidation in Europe. Safe haven demand continues due to increasing risk of a failed outcome from the European Union leaders' meeting scheduled later today and due to significant macroeconomic and monetary risks. The cancellation of a European finance ministers meeting and downplaying of expectations by euro-zone officials about the outcome of the EU summit is adding to investor concerns about contagion emanating from the nexus of European banks and large sovereigns including Italy. There are conflicting reports that Berlusconi has agreed to step down. U.S. Treasury Secretary, Timothy Geithner warned of the “catastrophic risk” posed by the turmoil. The Bank of England dismissed the chaotic efforts to save the eurozone from financial meltdown as a temporary solution to the region’s woes. Governor Sir Mervyn King said long term issues such as towering levels of debt and structurally weak economies still needed to be tackled. ‘The aim of the measures to be introduced over the next few days is to create a year or possibly two years’ breathing space,’ he said. King’s warning follows that of former Fed Chairman Alan Greenspan who warned on CNBC two weeks ago that the EU was doomed to fail because the divide between the northern and southern countries is just too great. The key problem facing bureaucrats and bankers of massive swathes of debt in the European and global financial system is not being tackled. They are attempting to rectify a problem of too much debt by further electronic and paper money creation and the creation of even more debt.
- Incoming ECB head gives euro zone pre-summit boost (Reuters)
- Fears Euro Summit Could Miss Final Deal (FT)
- Merkel Puts Rescue Fund to German Vote (Bloomberg)
- Iron ore in record slide as China demand slows (Reuters) BHP, Rio CDS Soar
- MF Global slumps 47% on unexpected loss (FT)
- Bankers fear political moves will kill off CDS (FT)
- EU Banks Warn of Credit Drought in Push for Capital (Bloomberg)
- Analysis: Obama's moves pack political rather than economic heft (Reuters)
Guest Post: Whilst We All Await The Outcome Of The EU Summit I Want To Draw Your Attention ElsewhereSubmitted by Tyler Durden on 10/26/2011 - 07:03
Whilst the US equity markets closed down 2% last night, it is clear that there is little appetite to put on new trades in front of this summit meeting as evidenced by the lack of interest in Asia. Equities and FX markets were extremely quiet except for when the Aussie CPI came in weaker than expected sparking a fall in the AUD and a complete 25bp cut being priced in for next week’s meeting. To me the AUD looks very exposed to a steep fall as global growth is in trouble. The fall on Wall St was, in my opinion, more on the back of further weak data from the housing market in the US and consumer confidence which is collapsing fast, as the Case Schiller disappointed yet again. Is operation twist going to help? If the answer is no then Bernanke will have to try something else and this view is building as the fall in equities was accompanied by a fall in the Dollar and a steep rise in precious metals, all signs that fears of further QE are building.
As Merkel ends her speech to the Bundestag on her way out to the Euro Summit, here are the main rhetorical conclusions:
- MERKEL SAYS JUSTIFIABLE TO MAXIMISE EFSF FIREPOWER
- MERKEL SAYS GERMANY `IS NOT THE NAVEL OF THE WORLD'
- MERKEL SAYS EURO CAN'T BE ALLOWED TO FAIL
- MERKEL CITES 'HISTORIC DUTY' TO PRESERVE EUROPE, EURO
But none of that compares to what just was the use of the nuclear mutual assured destruction option, to wit
- Merkel: No one should take another 50 years of peace in Europe for Granted
And scene: Hank Paulson would be so proud
With European coverage today about to confirm with absolutely certainty that the only option for Europe is to baffle everyone with intolerable and ridiculous amounts of bullshit, and failing that, to delay, delay, delay (we are already hearing of another summit in 4 days), probably what is most indicative of what to expect out of Europe is what incoming ECB president Mario Draghi said is the situation in Italy which he called is "confused and dramatic." That pretty much sums it up. Anyone expecting any actionable result out of the drama queen country or continent, will be disappointed. In the meantime here are sporadic news which attempt to paint a picture of the total confusion in Europe...