While being caught short stocks in the face of the global Bernanke Put, or long Chinese IPOs this year, it seems relative-value trades remain preferential from a risk-reward perspective. That is of course unless you are our old friend Whitney Tilson. The Anti-Tilson ETF (Long GMCR / Short NFLX) is up 8% today and stands at an impressive +43% (lifetime highs) in the 20 days since we recommended it. NFLX weakness this morning attributed to Wedbush's 30% downside target downgrade.
US Economic Data Reporting Now Officially A Farce: Every Economic Data Point Prints 4+ Std Devs Above ConsensusSubmitted by Tyler Durden on 11/30/2011 - 11:15
It appears that central bank intervention was not the only thing in full force today: The US version of the Chinese Ministry of Truth in economic reporting has now officially joined the fray. Anyone wondering just how much of a joke the US high frequency economic data updates have become should look no further than these three charts showing Wall Street forecasts (consensus and distribution) and actual prints for the ADP Payroll, the Chicago PMI and Pending Home Sales. Not one indicator has come below 4 standard deviations above the average forecast, and every single one has printed above the highest forecast. It is now safe to say without any doubt that US data is equal if not more equal in credibility terms with that of China.
Presented with little comment but following the mid-September Global Save, things didn't end so well.
The barrage of better than expected "everything" is relentless.November PMI comes at 62.6, higher than 58.4 before, and a beat of Consensus 58.5. Highest since April. This also means that the ISM will almost certainly be an upside "surprise" imminently. And with the miraculous outlier print from the ADP it was only logical that the employment index in the PMI would print... lower, from 62.3 to 56.9. No data makes sense anymore, so just buy: after all there is no risk. Fed will bail everyone out.
Those wondering about the global Fed bailout (this is not the first time, recall How The Federal Reserve Bailed Out The World) can read the FAQ from none other than the source of the global liquidity tsunami itself.
One of our most watched indications of the pressure on European funding markets is the EUR-USD cross-currency basis swap. This simple trade is a way for European entities to take the excessive EUR funding they can get from the ECB and 'swap' it into USD to meet their significantly problematic USD funding needs. It has smashed higher (well lower in the charts) as the cost of the transaction moves with demand for the swap - indicating that demand for USD is huge and we are in as much of a liquidity crisis as we were in the middle of the 2008 critical period. What is fascinating to us is today's reaction - a 22bps jump - while being large, merely moves us back to the same levels of stress we were at one week ago. So even if this is seen as some huge form of liquidity surge, it seems not to have even solved the liquidity problems of banks, let alone solvency problems.
Looks like geopolitical Plan B is still in play.
- HAGUE SAYS U.K. DEMANDS CLOSURE OF IRANIAN EMBASSY IN LONDON
- HAGUE SAYS ALL IRANIAN STAFF MUST LEAVE
- UK FOREIGN SECRETARY HAGUE SAYS HAS ORDERED CLOSURE OF IRANIAN EMBASSY IN LONDON, EXPELS ALL STAFF
That much-needed by Corning glass price cut may still be coming.
Legendary ex-Bear commentator Sal Catrini summarizes it best: "Whether this solves our long-term problems remains to be seen, but when you flood the market with liquidity, risk assets go much higher"
Risk markets are tearing higher globally with equities, commodities, and credit all considerably higher. Equities and CONTEXT are back in line as this is a very systemic shift up as the dollar tanks and TSY yield surge. US equities are back to 11/18 levels but are stalling out a little here as the initial spike wears off - whether this liquidity surge fixes the insolvency crisis is the question it seems markets are considering now that they have had some time to think (and squeeze). Silver and Copper seem the largest movers for now along with AUD relatively speaking as most equity and credit assets are back to 11/18 levels. We do note that while sovereign spreads in Europe are narrower, the moves are not dramatic and in some cases are actually deteriorating still.
ADP Payroll Print Of 206,000 Comes 4 Standard Deviations Higher Than 130,000 Consensus, Above Highest Wall Street EstimateSubmitted by Tyler Durden on 11/30/2011 - 09:25
The global coordinated "feel good" rally is out in full force. First China, next Fed global bail out, and now ADP confirming that massive banker layoffs are actually beneficial, reporting a 206,000 increase in private payrolls in November. This compares to a consensus estimate of 132,000, and is above the highest Wall Street forecast of 200,000. In other words, first we get record volatility in the markets, and now we get record upside volatility in economic data after this number comes 4 standard deviations above consensus! More: "The increase in November was the largest monthly gain since last December and nearly twice the average monthly gain since May when employment decelerated sharply." Of course, this is not to say that America is actually making anything: "Employment in the private, service-providing sector rose 178,000 in November, which is up from an increase of 130,000 in October. Employment in the private, goods-producing sector increased 28,000 in November, while manufacturing employment increased 7,000." Still, surely, the unemployed among the 99% will be delighted to know they were actually working all along.
As expected, the Fed has just bailed out the world once again:
- FED, ECB, BOJ, BOE, SNB, BANK OF CANADA LOWER SWAP RATES - BBG
- ECB, FED other major central bank to lower the pricing of existing USD liquidity swaps by 50BPS
And as we have been writing every single day, the worldwide dollar crunch is now confirmed:
- At present, there is no need to offer liquidity in non-domestic currencies other than the U.S. dollar,
This means that the global situation is far, far more dire than the talking heads have said. Luckily, when this step fails, which it will, Mars can always come and bail us out.
Some important economic data upcoming, which will certainly be drowned in the headline rush, now that Asia is once again on the radar.
Just in time for the Chinese 50 bps RRR cut, we get a note from Albert Edwards reminding us just why this desperate and sudden move from China comes: "We have identified a China hard landing as one of the biggest investment shocks next year." Not only that, but the SocGen strategist takes a long overdue swipe at the world's most ridiculous concept, Jim O'Neill's BRIC debacle: "Despite recent poor performance investors still seem to favour EM and the BRICs. My good friend and former colleague Peter Tasker came up with an alternative for the widely (over) used BRIC acronym - Bloody Ridiculous Investment Concept." It appears that the PBOC was well aware of this re-definition when it decided to announce to the world that it has started easning once again last night.
- China Cuts Reserve Requirement for Banks as Europe Crisis Threatens Growth (Bloomberg)
- Don’t Count on China Easing Curbs: PBOC Adviser (Bloomberg)
- Germany Told to Act to Save Europe (FT)
- Fed Policy Makers Sharpen Differences Over Bond-Purchase Policy (Bloomberg)
- European Nations Pressure Own Banks for Loans (WSJ)
- Govt tries to soothe companies' concerns (China Daily)
- S&P Rates China Banks Higher Than U.S. Rivals (Bloomberg)
- Republicans Make Demands on Payroll Tax Cuts (FT)
- Eurogroup Set to Fix EFSF Leveraging Rules, Deal With Greek Aid (Reuters)
It appears that China has already forgotten its close encounter with inflation as recent as a few months ago leading to assorted riots, and is instead far more concerned with the collapsing housing market. As a result it just announced a 50 bps reserve ratio cut, well in advance of when most commentators thought it would happen, on what is now the start of a monetary policy loosening cycle. The kneejerk reaction is for futures to surge and gold to spike, and crude to pass $100, even as the EURUSD was once again drifting lower overnight. And while this is beyond bullish for commodities, we doubt equities will remain bid unless Europe mysteriously fixes itself overnight too. Which won't happen. More from Reuters: "China's central bank cut the reserve requirement ratio for its banks on Wednesday for the first time in nearly three years to ease credit strains and shore up activity in the world's second-largest economy." Naturally, this ties Bernanke's hand even more as Chinese inflation will now be stoked internally in addition to importing any excess inflation to be generated by the Chairman, likely leading to an even faster spike in global inflation the next time we get US-based quantiative easing. Look for Chinese-based purchases of gold to surge.