In Q2 Dan Loeb went to town to his holdings as of March 31. Of his roughly 38 different positions, Loeb cut 24 names to zero among which Cisco, Marvell Technology, Sara Lee, Google, Wells Fargo (with the Octogenarian of Omaha likely buying every share), El Paso, Abercrobmie, Goldman and many others. Of course, he kept his stake in Yahoo and added to Apple, while cutting his Delphi stake from 13.34 million shares to 11.5 million. He used the proceeds from these sales to add to new positions (latest 13F here) in new names such aws AIG, Aetna, Chesapeake, Cigna, Coca Cola, Enphase, Humana, News Corp, and Unitedhealth Group. Also, Loeb went quite optically against Bill Ackman and bought a $6.5 million share equivalent put in JCPenney. He is significantly in the money in this. Altogether, his disclosed equity stake was at $3.3 billion as of June 30, down from $4.1 billion at March 31. Dry powder? Or more likely getting more into bonds (which he doesn't have to disclose on any filing).
Don't panic. Change is good. The S&P 500 futures market somehow dropped 1.25 points today - its worst in 10 days! - and yet, shock horror, data was positive, European leaders offered more jawboning support, and Treasuries weakened. NYSE volume remained bleak but S&P 500 e-mini futures (ES) volume rose to its highest in over a week (yes - we were stunned too - volume picked up as selling began) amid reasonable average trade size (especially as ES lost 1400). After VIX's implosion yesterday, it ramped over 1.25 vols higher today - testing back to 15% late on. The USD leaked higher all day, back to unchanged on the week (while Copper/Gold/Silver are all down 1.2-1.3% on the week - having gapped down on positive data this morning). Oil remains green on the week and spurted modestly higher on the day. Treasuries are still under pressure - not getting much back as equities sold off into the close - higher/steeper in yield by 4-8bps on the week now. Of course - the closing rampfest was inevitable as that stunning 4 point drop in ES was rapidly 'tickled' back up to near VWAP into the day-session close - though we note that ES was unable to get green and unable to reach the safety of VWAP with heavy 'down' volume after-hours. Cue 'Asian-opening-gap-worm' algo.
Back in March, the last time we saw a notable and relatively sustained rise in Treasury yields, we pointed out a potential driver for this 'apparent' weakness - the heaviness of investment grade corporate bond issuance. This drives relative selling pressure in Treasuries for three potential reasons: pre-emptive rate locks are positioned; managers hedge away interest-rate duration to lock in the 'spread' on the bonds as they are jig-sawed into existing portfolios; and most simply speculative rotation from Treasury bond 'cash' into new issues (thus avoiding the convexity issues associated with such low yields on existing 'secondary' bonds). As the charts below show, in March, as we noted at the time, issuance expectations (the forward calendar) were falling and we suggested Treasury yields would drop as this implicit selling pressure would also lift. While this time Gross and Singer have spurred some risk-aversion, no doubt, the IG calendar suggests a lifting of the selling pressure soon here too.
Fisker, whose Karma superburningcar made headlines two days ago for being the latest addition to America's New Spontaneously Combusting Green Normal, has decided to double down on that elusive spark, and has released the incendiary news that it has hired as CEO none other than head of that other hot selling eco-car, the Chevy Volt. From Reuters: "Fisker Automotive named the former head of General Motors Co's (GM.N) Chevrolet Volt program as chief executive on Tuesday, marking the second time the troubled, government-funded start-up has replaced its top executive this year. Tony Posawatz, who oversaw the development of the Chevy Volt plug-in hybrid for six years before he left GM this summer, will replace outgoing CEO Tom LaSorda. "I've been recruiting him for quite a while and certainly had some people assist me in giving him the full story," LaSorda said during a conference call with reporters. "He's come in with eyes wide open."" Hopefully he's also come in with a fire extinguisher.
We thought it timely to repost this oldie but humorous goodie on how bank style traders make their money. Ever wonder why Goldman, or BAC can have 90 straight days of profitable trading? Don't wonder too much more, the answer is here. The new reality is however, Banks are fast becoming utilities now that they cannot hide losses in mark-to-myth book keeping (whale legacy), and have removed (or renamed) their Prop trading divisions. The recent purge of prop traders and subsequent start up of unprofitable funds can be attributed to many things; among them market conditions, 100% correlated markets etc. But the biggest for a certain type of trader is a lack of flow, i.e. no clients to fleece or front run.
Morgan Stanley Defends Retail Sales' Seasonal Adjustments From "Crazy Zero Hedge Analysis"; BAC Upgrades NetflixSubmitted by Tyler Durden on 08/14/2012 - 13:35
You heard our side of the story. It is only fair you hear the other side too.
Consider our minds blown, via Bloomberg:
- *NEW YORK SETTLES PROBE OF STANDARD CHARTERED FOR $340 MLN
The life or death of STANCHART is settled - they live; and the $250 billion of 'laundering' transactions - sanctions/terrorism/drugs-related or not - are settled for a 0.14% transaction fee (that'll teach 'em!). In other words, Std Chartered's IRR for committing years of crime is 714%. Finally this is a whopping 1.9% of the bank's entire 2011 revenues, or in other words they had to hand over 7 days of revenue (assuming a 365 day work week). Of course there are other fines/penalties to come but it looks like someone got a little over-excited at the regulators or as we note, STANCHART had some bottom-drawer details no one wanted outed. And now, employees of US "regulators," "enforcers" and various other "crime fighting" organizations can look forward to submitting their resumes to the British banks all over again.
VIX has only rarely traded below 15% during 'new normal' times. The period from 2004 to early 2007, the so-called 'Great Moderation', saw VIX average 13.6% - at the time stunningly low (and notably where VIX closed yesterday). While looking at VIX alone can be misleading (with regard to the term structure differences and realized vol premia), it is nevertheless a gauge of market's expectations of return volatility in the short-term - however contemporaneous that is. Following the two times that VIX first closed below 15%, the S&P 500 has suffered from a 5.25% and 7.75% plunge in the following two months - and each time saw a quick post-VIX-plunge pop in stocks that provided better entry levels for shorts. High Yield credit also stumbled hard widening 80 and 150bps respectively.
The Status Quo around the globe is trying to manage perceptions to foster the illusion that all the high expectations can be met; but the reassurances are increasingly hollow, and the promises increasingly threadbare. People are waking up, one at a time, to the reality that all the promises and guarantees are fantasy, and their emotional response is deeply negative: they feel betrayed by the Status Quo and its institutions, and they feel a volatile mixture of rage, distrust and resignation. Studies have found that people (usually those in the lower social and financial tiers) with low expectations tend to be happier than those with high (and unmet) expectations. The Status Quo bought the support of the masses by raising expectations of permanently rising prosperity and security for all. Now that these near-infinite claims cannot be fulfilled, the Status Quo has no institutional ability to lower expectations to more realistic levels. It only knows how to spin artifice and fantasy, in the vain hope that managing perceptions will substitute for managing reality. This is how credibility is lost. Managing perceptions is a dangerous game, as the perceptions are pushed ever-farther from reality, increasing the shockwave when the two snap together: it won't be reality rising to meet lofty perceptions, it will be perceptions and expectations plummeting to meet reality. This is how the Status Quo will collapse: it will lose the faith of its people, and become the target of their wrath.
.... The local socialists are suffering under oppressive austerity. And by that we mean the 1% continues to party like it is 1999. Of course, this is amateur hour for the luxury beach club: recall that the man, the FX myth, the, well arestee, Alex Hope spent $323,483 back in March. That was right before the market swooned. Is this another interim top?
As Simon Hobbs noted this morning, Olli Rehn confirmed ahh that err "both the European Union and the ECB are ready to take action" but only conditional upon requests for aid. What is perhaps missed by most observers is what Rick Santelli and Mark Grant discuss in more detail in the short clip below. Greece managed to sell EUR4 billion short-dated bills this morning at remarkably low yields - not exactly the kind of thing that incentivizes political leaders to request aid - but how did they do it? Who bought it? Well, we suspect you know the answer but Mark Grant's clarifying response to Santelli's question concluded simply that the ECB-to-Greek-Banks-to-The-Bank-Of Greece-to-ECB circle-jerk is "in a sense, a kind of Ponzi scheme." Santelli's response that "it really is a rigged game" and that our reflexive response to the signaling of bond yields is remarkable given the manipulation; Grant agrees adding that "the real money guys are either out of Europe, getting out of Europe, or have cut back as much as they can" since simple math shows you that at some point Europe will have it's 'moment'.
Previously we explained on at least two occasions (here and here) why the upcoming death of the US money market industry is not greatly exaggerated: quite simply, as we wrote back in 2010, the Group of 30, or the shadow group that truly runs the world (see latest members) decided some time ago that it would rather take the "inert" $2.6 trillion held in money markets, and not used to boost the fractional reserve multiplier, and instead have it allocated to such more interesting markets as bonds and stocks. As a reminder, Europe already achieved this last month when it cut its deposit rate to zero leading to a sequential shuttering of money market funds. The Fed, however, has to be far more careful to not impair the overnight General Collateral repo market which as everyone who understands the nuances of Shadow Banking knows is where all the bodies are buried, and as such has been far more careful in implementing such a shotgun approach. Instead, Ben, the SEC, and the Group of 30 have adopted a far more surgical approach to destroying money markets: they want investors themselves to pull their money by implementing such terminally destructive measures as floating NAV, redemption restrictions and capital requirements, which will achieve one thing - get the end user to pull their money from MM and put the cash either into either deposits, where it can then proceed to be "fractionally reserved" into the banking system, or to boost AMZN's 250+ P/E. After all the number under observation is not modest: at $2.6 trillion, this is almost 20% of the market cap of the US stock market. So it was only a matter of time before major money market institutions, in this case Federated first, but soon everyone else, starts screaming and warning that money markets are about to die (which they are).
How does the current 'recovery', which according to the NBER officially began in June 2009, compare to those of the past? The Council on Foreign Relations updates its recovery chartbook and succinctly notes that "the current recovery remains an outlier among post-war recoveries along several dimensions." Consumers remain reluctant to take on new debt and the stock of debt is lower than it was when the recovery officially began. The global economic slowdown is beginning to manifest itself in world trade. After staging the strongest recovery of the post–World War II era (thanks to the depth of the plunge), growth in world trade has begun to decelerate.
A week ago we brought you Elliott Management's summary opinion on US paper: "We Make This Recommendation To Our Friends: If You Own US Debt Sell It Now." Today, Bill Gross doubles down.
Gross: The #Fed is where bad bonds go to die. Today it was 10-years. Tomorrow 30-years. Stay short my friends.
— PIMCO (@PIMCO) August 14, 2012