Remember - when in doubt, always blame it on the software: that way the risk of tainting one's "business model" no matter how irrelevant and anachronistic it has become, may be preserved - after all it is the vacuum tube's fault. If possible add the words "glitch", "dormant" and "stupid algo" and always, always, use the passive voice: once again - it can never be insinuated that a carbon-based lifeform (human, monkey, Mary Schapiro) was behind the screw up. Sure enough, here comes Knight two weeks after nearly destroying its trading platform responsible for 10% of the daily market churn, and to a big extent for the endless levitation to VWAP on low volume we have seen every day for the past 3 years, and blaming it all on "dormant software" which was accidentally reactivated. From Bloomberg: "Knight Capital Group Inc. (KCG)’s $440 million trading loss stemmed from an old set of computer software that was inadvertently reactivated when a new program was installed, according to two people briefed on the matter. Once triggered on Aug. 1, the dormant system started multiplying stock trades by one thousand, according to the people, who spoke anonymously because the firm hasn’t commented publicly on what caused the error. Knight’s staff looked through eight sets of software before determining what happened, the people said." Of course, one may ask just why did someone put in code in the first place, that multiplied stock trades by one thousand: is that the special turbo buy option reserved for when the Liberty 33 phone rings?
Last Friday we presented the dismal performance (and major divergence with broad equity markets) of recent IPOs and reflected on what this meant for the millions of retail investors who were 'suckered' into these must-win dot-com-renaissance names. Again and again one name keeps coming up with regard to the worst-performing and most-1999-dot-com #fail-like names - Morgan Stanley. Since November of 2011, Morgan Stanley has 'successfully' brought three of the biggest disasters of Silicon Valley to market - GRPN, ZNGA, and of course, most recently, FB. What is stunning is that since the GRPN IPO on 11/3/11, investors in these three 'new' normal names have lost an incredible $58 billion in market cap with GRPN and ZNGA now down 70% from their IPO price and FB down 44%. Perhaps more intriguing is that IPOs keep coming as there appears to be a 'muppet' born every day.
Here Come The Praises For The "Stronger Than Expected" Retail Sales From Bank of America And GoldmanSubmitted by Tyler Durden on 08/14/2012 - 09:59
Instead of actually doing the work to figure out what is going on behind the headlines, both Goldman (which also hiked its Q3 forecast GDP to 2.3% as a result) and Bank of America rushed to come to market with their congratulatory notes praising the "far stronger than expected" retail sales number. And as a result clients of these two banks will be promptly skewered as happens now virtually all the time on belief that the "rebound" in the economy is real instead of an ARIMA driven seasonal adjustment abortion.
The July retail sales beat came as a surprise to many: an 0.8% increase (full series here) at a time when the data was supposed to grow at less than half this would surely be indicative of a potential turnaround in the US economy. Then we decided to do a quick spot check if maybe the Census Bureau had not adopted one of the BLS' worst habits: fudging seasonal adjustment factors. The reason for this is because we happened to notice that Not Seasonally Adjusted (full series here) retail sales data in July actually declined by 0.9% from $405.8 to $402 billion. Of course, if the Census Bureau was using a consistent, or at least remotely comparable July seasonal adjustment factor as it has in the past, this would make sense and we would move on. So we decided to look at what the July seasonal adjustment variance over the past decade has been. What we found would have shocked us if indeed this is not precisely what we expected: with the July seasonal adjustment factor routinely subtracting a substantial amount from the NSA number, averaging at -$5.2 billion, in 2012, for the first time this decade, the seasonal adjustment not only did not subtract, but in fact added "value" to the NSA number, resulting in a seasonally adjusted number that was $1.9 billion higher than the NSA number at $403.9 billion.
As was seen in Iraq, it is the people who suffer most from sanctions and economic and civil war and the Syrian people are indeed facing increasing hardships. Hunger is a problem that is growing more acute by the day. As the prices of what little food is available soar, there are increasing signs of desperation among parents seeking to feed families. Prices of fuel and medicine have also soared amid shortages compounding the misery of Syrians and leading to another humanitarian crisis. Professor Nouriel Roubini and other financial experts have pointed out that “you cannot eat gold.” However, people in nations suffering from currency and economic wars can testify as to how they can use gold in order to buy food, fuel and medicine for their families in difficult times. To wit, Syrian President Bashar Al-Assad announced measures facilitating imports of gold bullion coins and bars. Gold bullion imports no longer require a special permit and travellers are allowed to bring gold bullion coins and bars with them into the country, the decree said. Gold is, as it has done throughout history, protecting them and their families from the ravages of currency devaluation and economic collapse.
Despite the majestic efforts at jawboning 'markets' higher with constant reassurance that infinite QE will come 'we promise', it seems the real economy - full of small businesses and job creators - hasn't got the message. As while equities trade at multi-year highs, small business optimism just printed at its lowest in 9 months. Trickle-down QE doesn't seem to be taking hold among the dismal reality in which we all actually live - as opposed to the vacuum tune hyperplane that stocks exist on.
The inevitable headline-driven algo-kneejerk reaction to retail sales and inflation coming hotter than expected was a 4-5pts pop in S&P 500 futures (testing the magical 1410 line). But almost immediately, gold, silver, FX, and TSYs all reacted in a decidedly QE-off manner and are extending QE-unwind-type moves. For now, S&P 500 futures still believe in miracles...
Jackson Hole To Be Empty: July Retail Sales Spike As Producer Prices Have Highest Increase In 6 MonthsSubmitted by Tyler Durden on 08/14/2012 - 08:41
Dash any hopes about a "surprise" Jackson Hole announcement by the Fed. The reason: July retail sales posted the biggest beat to expectations, rising at 0.8% on expectations of a 0.3% increase, which was above the highest Wall Street estimate of 0.6%, and which despite the downward revision of June headline retail sales from -0.5% to -0.7%, means that the Fed will now be looking at the possibility of inflation rising as a result of increased consumer spending. Ex autos and gas, the increase in spending was +0.9%, on expectations of a 0.5% rise (prior revised from -0.2% to -0.4%). Was this spike in spending credit driven or not? This will be seen once the next personal savings and consumer credit report is out, but that won't happen until after Jackson Hole. So those who trade based on hope and prayer may be well-advised to shelve those two strategies for the next 3 weeks, especially since PPI rise 0.3%, on expectations of a 0.2% pick up following June's 0.1% increase: the biggest increase in 6 months.
As Industrial Production falls -0.6% in Europe and as the economy shrinks -0.2% there is once again a good reason to pause to consider the ramifications for this going forward. When you sit back and take a hard look at the last two years you begin to learn a few things. If you just stick to the actual data and forget the rhetoric that surrounds it the picture becomes clearer. Each and every projection for Greece, Spain and Italy that has been forecast by the EU and the IMF has been wrong; dead wrong. Europe is getting worse and not better. Whether you turn your attention to Greece, Spain, Italy, Portugal or even Ireland; it is getting worse. Nowhere on the Continent are things improving and even in France and Germany the financial strains are beginning to show. It is not a question of Euro-bear or Euro-bull; it is just the numbers as they come rolling out month after month. It is the banks, it is the sovereigns and grand visions must, in the end, give way to the facts.
It is just getting stupid. Europe officially enters recession, Japan GDP declines nominally, China admits to food inflation which locks the PBOC out of easing for months, UK inflation is again rising faster than expected which will soon force the BOE to reevaluate its latest easing episode, Brent is once again rising on supply fears and middle east war fears to a 3 month high, corporate revenues have never been worse in this recession cycle and what happens? Futures spike following a very visible invisible finger pushing ES higher by 0.5% at 9 pm Eastern and setting the scene for trading throughout the night. And since the market has reverted back to full retard mode full of hope of an absolution from the Fed, this time at the August 31 Jackson Hole meeting, which will be very disappointing as Ben will say absolutely nothing yet again, why not take the S&P to new 2012 highs? After all well over 100% of QE3 is now priced in. Finally, expect the ES to surge by 10 points should advance retail sales miss wildly the consensus of a +0.3% print. After all, inverted is the NKI.
Even as the Spanish (and Italian) sovereign bond market foundered in July, hitting record yields following stark realizations just how insolvent Spain is, a more sinister development was taking place: Spanish banks, completely disconnected from the funding needs of the sovereign were receiving a daily bailout from the ECB to the tune of over €1 billion. As the Bank of Spain released hours ago, in July Spanish banks borrowed a record €375.5 billion from the ECB, a new record, and a €38 billion increase from June. Sadly, as the red line in the chart below demonstrates, the parabolic increase in Spanish bank borrowings from what is effectively Germany, continues unabated. Indicatively this is comparable to the US banking system obtaining a roughly $500 billion rescue in one month for the 8th month running. Year to date, Spain has received €257 billion in ECB "borrowings" which we put in quotes as this money will obviously never be repaid, which means simply that Europe continues to be entrenched in the most diabolical version of Stockholm syndrome, where the hostages and the kidnappers have now realized they can only exist as long as the other is alive. If there was any good news, it is out of Italy, whose ECB bank borrowings rose by "only" €2 billion in July to €283 billion, and leaving Spain far ahead in the direct borrowing insolvency race. Of course, this was offset by the far more complicated ponzi scheme where banks can and continue to issue government-backed bonds. In fact, as reported yesterday, Italian sovereign debt rose to a new all time high. Because at the end of the day remember: sovereign or financial debt - it doesn't really matter in Europe, an asset-starved continent where the two terms are now effectively synonymous, and where the law of fungible funding and communicating vessels in the context of debt has never been more in your face.
- Must be those evil speculators' fault: Oil price inflates as speculators bet on stimulus (Reuters)
- Need moar stimulus: UK Coalition plans housebuilding stimulus (FT)
- Paul Ryan brings fundraising prowess to Romney presidential bid (Reuters)
- Chinese serial killer shot dead after massive manhunt (Reuters)
- Silver Hoard Near Record As Hedge-Fund Bulls Recoil (Bloomberg)
- World powers eye emergency food meeting; action doubted (Reuters)
- Clegg Said to Have Role in Picking King Successor as BOE Chief (Bloomberg)
- Standard Chartered CEO takes charge of Iran probe talks (Reuters)
- Risks must not hide positive China trends (FT)
- BOJ should not rule out any policy options: July minutes (Reuters)
- India Says Growth Sacrifice Needed in Inflation Fight (Bloomberg)
The two major overnight data points were European Q2 GDP which printed at -0.2%, or the expected continuation of the European double dip. As SocGen explains, these numbers continue to paint an all too predictable picture of growth in Europe, with expansion in Germany driven by exports and consumption, growth in France stagnating and deep recessions continuing in southern Europe. The European GDP pattern is now expected to be a copy of 2011. Amongst the country details, growth beat expectations in Germany (+0.3 q/q), Austria (0.2%), Slovakia (+0.7%) and the Netherlands (0.2%) but this was offset by deep declines in Finland (-1.0%) and Portugal (-1.2%). Amongst data already published we know Italy declined 0.7%, Spain declined 0.4% and Belgian GDP declined 0.6%. And while the market was clutching at the German GDP beat straw, it was the German ZEW Survey which threw a cog in the spikes of German economic perception, after the number came at a whopping -25.5, declining for the 4th consecutive month and far below expectations of -19.3, and a drop from the already negative -19.6. Finally, while there may be hopes that this is the bottom, already weak IP data confirms that the weakness in Europe has continued into Q3 and as such as the continental contraction will likely not stop contracting for the foreseeable future.