The recent market sell-off has not been about the re-election of President Obama but rather the repositioning of assets by professional investors in anticipation of three key events coming between now and the end of this year - the "fiscal cliff", the debt ceiling and the expiration of the Transaction Account Guarantee (TAG). Each of these events have different impacts on the economy and the financial markets - but the one thing that they have in common is that they will all be battle grounds between a divided House and Senate. While there has been a plethora of articles, and media coverage, about the upcoming standoff between the two parties - little has been written to cover the details of exactly what will be impacted and why it is so important to the financial markets and economy. We remain hopeful that our elected leaders will allow cooler heads to prevail and that they will begin to work towards solutions that alleviate some of the risks of economic contraction while setting forth logical plans for fiscal reform. However, while we are hopeful of such progress, "hope" is not an investment strategy to manage portfolios by. If we are right things are likely to get worse before a resolution is reached - but maybe that is why the "investment professionals" have already been heading for the exits.
Most have read about the events in Gaza over the past three days, for the most part insulated and buffered by a distance of several thousand miles and one or more oceans, from what is rapidly becoming ground zero of a new and most deadly escalation in the center of the Middle Eastern powder keg. Few, however, have witnessed and documented it quite as well as French photographer Anne Paq and her collection of photos below.
There are only a few people who get it: the era of cheap food is over. The fundamentals (as we noted earlier) of population growth, available land contraction, bone-headed government policy, and the most destructive monetary policy; overwhelmingly point to a simple trend: food prices will continue rising. And that’s the best case. The worst case is severe shortages. This is a trend that thinking, creative people ought to be aware of and do something about.
If the entire world goes full retard, is any individual instance of full retardedness unique? This is what today's IPO bomb, Ruckus, which despite (or probably due to) much praise and lauding from CNBC's Bob Pisani, bombed 20% on its first day of trading, is hoping for. The company which picked the wrong time and wrong place to go public and thus, to realize first hand that the US stock market has for years not been a market in any normal sense of the word, but merely a HFT-manipulated policy vehicle for the central planners, decided to pull ye olde scapegoating trick, and blamed it on, cerebral hemorrhage spoiler alert, Hurricane Sandy.
Equities closed the day-session near the highs of the day as OPEX shenanigans were evident everywhere. Early and ugly macro data was swept under the proverbial carpet (as it is transitory Sandy effects?), the ubiquitous European-close trend reversal started us higher, and then platitudes from D.C., and a late-day Fed-Head jawbone did the rest on a day when AAPL saw its largest volume in 8 months and pinned between 520 and 530 VWAPs. Risk assets did not follow the path of most exuberance that stocks did on the day (surprise). Credit tracked with stocks today in general but remains an underperformer on the week. Oil was the week's big beta winner with the USD (despite underlying dispersion in EUR and JPY) and Treasuries rather dull. Gold sagged but by the close today the S&P 500 had recoupled with the barbarous relic on a beta basis. VIX compressed (exciting some that are incapable of comprehending a term structure) as put overlays were unwound into OPEX (and given the VWAP/volume moves it would seem AAPL saw hedges taken down and exposure reduced). Red week as stocks continue to catch down to bond's new normal.
Judging by the media rancor, the fact that the FHA has run out of capital is a stunning shock since besides, housing is in recovery right? Well, there is one simple reason why the FHA is FUBAR and is only going to get worse (cue Geithner Bailout). As the only player left, the FHA has simply been the sole source of mortgage provision to the worst of the worst. The following chart from Chicago Booth's Amir Sufi shows the diabolic-distribution of poor-performing zip codes that the FHA has lent into - even during the crisis.
In the past it has been the bond market whose vigilantes had rampaged across the fields to keep policymakers honest - but something has changed with the Fed's boot on the bond market. As BofAML notes, when the Fed was too soft on inflation or the fiscal deficit was out of control, interest rates spiked higher. In our view, this has changed and today the stock market is the disciplining force for Washington. We have argued this perspective for a while - that nothing will be done until we get a stock market crash - but the press will continue to make molehills out of mountains it seems as BofAML adds, the most obvious lesson of the last week is that when Washington approaches a policy impasse, the financial press tends to signal a resolution of the crisis many times before it happens. Don’t believe it. After elections there is always conciliatory talk: no one wants to be seen as a sore loser or a gloating winner. The risk remains huge and the four hurdles to a grand bargain seem to be getting larger - no matter what the press wants us to think - investors should look past reassuring rhetoric and focus on the underlying reality.
The invisible hand at work once again as fat-fingered demand dominates union-stifled supply... $8,000 for a single Twinkie... and other offers... It seems, once again, that there are more than a few greater fools who still have no idea just how the bankruptcy process works... will Twinkies be rebranded Bimbettes?
Today's "Fiscal Cliff Compromise" Moment Brought To You By The Congressional Short Squeeze Inception TeamSubmitted by Tyler Durden on 11/16/2012 - 14:53
Once again the market falls for the politicians' snake oil (as we explained before). Unconvinced? This is what none other than "Fiscal Cliff compromise is imminent" photo op participant Nancy Pelosi said moments later to the WSJ:
Ms. Pelosi said. "I was focusing on how we send a message of confidence to consumers, to the markets in the short run, too."
And there you have it from the horse's mouth: absolutely nothing of actual substance in today's presser which was completely hollow of anything remotely resembling an actual compromise, but merely the same type of Euro-propaganda we have grown to loath and despise for the past 3 years, where a flashing red headline was supposed to generate a short squeeze. It succeeded. There is one open question: did Nancy Pelosi's multi-millionaire investor husband Paul Pelosi know ahead of time what the announcement would say, and did he buy any securities in hopes of a "short run" gain?
As if we needed more proof that the course implemented by the eurocracy becomes increasingly untenable politically, millions decided to strike in several European countries this week. The demonstrations have, as they are wont to do these days, turned violent in a number places. The protests were most intense in Spain, where unemployment is at over 25% and desperation over the collapse of the bubble economy is growing by the day. This is what happens when after decades of socialism, the money to pay for the freebies finally runs out. What the protesters don't seem to get: the status quo ante cannot be recreated by decree. There is no magic wand for anyone to wave. The protesters have every right to be enraged, but they are raging against something that cannot be changed at the flick of a switch – the wealth is gone.
Two weeks ago, when Spain unveiled the specifics of the SAREB, also known as the Spanish Bad Bank initiative, which is simply the haphazardly put together chaotic plan to shift toxic assets from Spain's already insolvent banking sector to a bank that is even more insolvent than all others as it is fulled to the brim with "assets" such as land which has already been discounted by 80%, and backed with Spanish government guarantees, which are largely worthless as the entire country has been on the verge of demanding a bailout for 4 months now, we summarized it simply as follows: "it is ugly - far uglier than many had expected. And while the Spanish government expects private interest to take some of this massively discounted 'crap' off their hands, we have three words: 'deleveraging' and 'no bid!" We were right, although one wouldn't get that impression if one reads the official party line. Here is how Reuters summarized the government's party line: "Spain's bad bank is generating a lot of interest amongst international investors, an economy ministry source said. The bad bank would be possible with only domestic participation but non-resident investors gave the vehicle credibility, the source said." That's a lie. Here is the truth.
Because few things are better than having a little Tom Lee in your life all day, every day...
We like to keep our charts just simple enough that a PhD in Economics can understand them; and so we present what must be the scariest chart in the world for much of the developing (and for that matter developed) world. Demand for food is rising inexorably (as is the demand for fuel) but at the same time supply is falling rapidly as the availability of arable land per capita plunges. Perhaps this (along with central bank liquidity spillovers) explains the 'paradigm' shift in staple prices. Food for thought? (pun intended)