We have presented our opinion on the JPM prop trading desk repeatedly, in fact starting about a month ago. Last night, Senator Carl "Shitty Deal" Levin also decided to join the fray, which is to be expected: the man needs air time. And now, in a surprising twist, competing banks, all of whom have more than enough skeletons in their own prop desk trading closet, are starting to speak up against the bank that should not be named. Enter Deutsche Bank's Jim Reid and his take on the Fail Whale.
JPM Crashing After It Convenes Emergency Call To Advise Of "Significant Mark-To-Market" Losses In Bruno Iksil/CIO GroupSubmitted by Tyler Durden on 05/10/2012 15:50 -0500
Out of nowehere, JPM announced 40 minutes ago that it would hold an unscheduled 5pm call to coincide with the release of its 10-Q. Rumors were swirling as to why. The reason is as follows:
- JPMORGAN SAYS CIO UNIT HAS SIGNIFICANT MARK-TO-MARKET LOSSES - "Fortress balance sheet" at least until Bruno Iskil gets done with it.
- JPMORGAN SAYS LOSSES ARE IN SYNTHETIC CREDIT PORTFOLIO - but, but, net is NEVER, EVER Gross.
- JPM WOULD NEED $971M ADDED COLLATERAL IF RATINGS CUT ONE-NOTCH
- JPM WOULD NEED $1.7B ADDED COLLATERAL IF RATINGS CUT 2 NOTCHES - how about three notches?
- JPMORGAN: MAY HOLD SOME SYNTHETIC CREDIT POSITIONS LONG TERM - "Level 3 CDS FTW"
- "As of March 31, 2012, the value of CIO's total AFS securities portfolio exceeded its cost by approximately $8 billion"
As a reminder, the CIO unit is where Bruno Iksil was making $200 billion-sized bets. Basically JPM has suffered massive losses at its CIO group most likely due to its IG/HY positions held by Iksil.
Equity markets did not disappoint today in their automaton pattern today with the 4th day in a row of buy the morning dip and sell the afternoon rip. Gold was stable (as was the USD) and the S&P 500 rotated back to their reality at the close. Treasuries were notable underperformers today. The Dow just inched into the green, breaking its 6-day losing streak.
Fidelity is happy to announce it has an opening for a new consumer discretionary analyst, because the current one, the one who recommended the firm's investment in Green Mountain, is now looking for a job. Fidelity's GMCR position , which as of 3:59 pm amounted to $1.13 billion, was minutes later trimmed by $445 million, after the company finally posted earnings (and we use the term loosely) which may have finally validated the David Einhorn (and every single skeptic's before) thesis on the name. Because while the earnings themselves came in line, it was the forecast that buried the company: specifically, its forecast of $885 million in Q2 revenue on expectations of $971.7 million, $3.92 -$4.05 billion in full year revenue on estimates of $4.32-$4.46 billion, as well as its 2012 EPS which were forecast to come at $2.40-$2.50 while the street was looking for 2.631 EPS. The result: the growth thesis is now over, and the growth premium has collapsed, with the stock plunging by 40% after hours.
Equity indices managed to close green on a generally lower-than-average volume day but while the morning was dominated by a 20pt rip post-ISM's 4.5-sigma surprise, the post-Europe-close afternoon session saw us give back over 60% of those gains on rising volume and average trade-size. As the day-session closed, ES (the S&P 500 e-mini futures) was right around yesterday's highs and today's VWAP in a relatively balanced manner but after-hours was leaking lower still. AAPL also had a big rotation day as it opened red, surged into the middle of the day then gave it all back to close within a few pennies of its 50DMA (and in fact is trading below it in after-hours trading). Stocks pushed well ahead of credit markets as they rallied and HYG was far less impressed. Sure enough by the close, equities had limped back in line with credit's reality but in the meantime, HYG was back down at last Wednesday's levels. The ISM caused the USD to pop, stocks to pop more, oil to pop about the same and gold/silver/Treasuries to drop. The post Europe-close action saw stocks give back most of those gains, the USD leak back lower (as CAD strengthened), Oil maintained it bid over $106 (month highs) and Gold/Silver pulled back up nicely. Treasuries remained under pressure though with only a very late-day dip lower in yields to show for the dips in stocks. As expected, Energy and Financials outperformed close-to-close on a rally-day but also retraced the most in the afternoon as Discretionary and Materials also joined the high-beta fray. The strength in oil and weakness in TSYs was enough to juice risk-assets in general and provided some support for the rally but stocks remain rich relative to risk in general and we wonder how the bulls have it both ways - rally on unsustainable good news (but no QE3) and on bad news (Ben's got yr back) as the first day of May (absent any European hedging) seemed a chaotic rush to buy this morning that may have been a short-term climax.
UPDATE: *S&P TO ASSESS EFFECTS OF SPAIN DOWNGRADE ON SPANISH ISSUERS
Adding insult to Bayern Munich injury, we just got S&P which did the impossible and cut Spain to BBB+ from A (outlook negative) not on Friday after hours. Kneejerk reaction is a 30 pip drop in EURUSD. Oh, and most amusing, those witches among men, Egan Jones, downgraded Spain from BBB to BBB-.... a week ago. Crush them, destroy them... How dare they be ahead of the pack as usual: after all their NRSRO application was missing a god damn comma.
Amazon Surges After Hours On After-Tax Accounting Gimmick, Cash Burn, Collapsing Margins, And Negative GuidanceSubmitted by Tyler Durden on 04/26/2012 15:54 -0500
Either the algos are getting really stupid, or nobody cares at all about the quality of earnings any more. Case in point - Amazon, which was expected to post revenues and EPS of $12.9 billion and $0.07 came up with a revenue of $13.18 billion, hardly breathtaking if this came entirely at the expense of margins as has been the case in the past year, yet the one item that is sending the stock surging after hours on yet another short covering squeeze in which people cover first and ask questions later, was the EPS which came at $0.28. Amazing. Only problem is that the EPS, which was $130 million equivalent, was based on $41 million in actual net income from continuing operations, or $0.09. Hardly the stuff sending stocks up 10% in after hours. What accounting for the balance? An after tax adjustment amounting to $89 million coming from Equity-method investment activity, or the oldest accounting trick in the book, which alone added $0.19 cents to the EPS number, or about 95% of the entire EPS beat. What is surely not driving the AH spurt is that company's guidance for Q2: "Net sales are expected to be between $11.9 billion and $13.3 billion, or to grow between 20% and 34% compared with second quarter 2011. Operating income (loss) is expected to be between $(260) million and $40 million, or between 229% decline and 80% decline compared with second quarter 2011." So... actual profit before after tax accounting gimmicks may be negative, but at least they will make up for it in volume, right? Or inverse cash: in Q1 the company burned $3 billion in cash, bringing its cash load down from $5.3 billion to $2.3 billion. One final thing that is not causing the10% spike after hours is the operating margin: the company made $192 million in income from operations on $13.2 billion in revenue, or 1.5% profit margin, compared to what was considered abysmal 3.2% last year.
As we said yesterday, traders could have just slept through the entire day, ignored headlines about mad cows, auctions of European bonds maturing in a few weeks, speculation of Europe's alleged falling out favor with austerity which is very much irrelevant as all that matters is what German taxpayers/voters say, and the SEC's latest laughable scapegoating attempts, and just woken to the 4:30 pm announcement of iPhone sales in China. As expected, the entire world is now reacting. Here is Deutsche Bank's Jim Reid with the global response to the world's ongoing fascination with aspirational cell phones.
And here they are:
APPLE 2Q REV. $39.19B, EST. $36.87B
APPLE 2Q EPS $12.30, EST. $10.02
APPLE SOLD 35.1 MILLION IPHONES IN QTR, EST. 31.2M
APPLE 2Q IPOD UNITS SOLD 7.7MLN , DOWN 15%
APPLE 2Q IPAD UNITS SOLD 11.8MLN
APPLE 2Q GROSS MARGIN 47.4%, EST. 42.8%
APPLE 2Q MACINTOSH UNITS SOLD 4MLN , UP 7%
- APPLE SEES 3Q REV. ABOUT $34B, EST. $37.49B
- APPLE SEES 3Q EPS ABOUT $8.68, EST. $9.96
Google Reports Earnings, Beats EPS, Meets Ex-TAC Revenues, Announces 2:1 Stock Split And New Non-Voting ClassSubmitted by Tyler Durden on 04/12/2012 15:10 -0500
The headlines flow in:
- GOOGLE 1Q REVENUE $10.65B
- GOOGLE 1Q REVENUE EX TAC $8.14B, EST. $8.14B
- GOOGLE 1Q ADJ. EPS $10.08, EST. $9.64
- GOOGLE 1Q PAID CLICKS ROSE 39% VS YEAR AGO
- GOOGLE 1Q TRAFFIC ACQUISITION COSTS $2.51B
- GOOGLE 1Q COST PER CLICK DOWN 12%
Despite a grumpy open in the major cash equity indices - which opened pretty much in line with where S&P futures had closed on Friday morning - equity indices provided some BTFD reassurance for any and everyone who wanted to get on TV today. In sad reality, a lot of this equity index performance was due to Apple's 2% rally off pre-open lows, as it made new highs and vol continued to push higher. Financials, Industrials, and Materials all underperformed on the day (and Utes outperformed but still lost 0.5%). The majors were hurt most once again but remain notably expensive still to their credit-market perspective. On an admittedly quiet volume day (with Europe closed), the credit market (especially HYG) underperformed equity's resilience open to close but an after-hours reality check dragged ES down to VWAP once again on notably above average trade size and volume for the day. VIX managed top almost reach 19%, leaked back under 18 before pushing back up to near its highs of the day by the close - breaking back above its 50DMA (as the Dow broke below its 50DMA but the S&P remains above). Treasuries shrugged off the equity resilience and stayed in very narrow range near their low yields as stocks diverged once again (until after hours). FX markets were very quiet with JPY crosses getting some action as EUR and AUD managed to drag the USD down a little. Commodities were mixed off Thursday's close with Copper the major loser and Gold outperforming. Oil managed a decent intraday recovery today most notably back over $102. The weakness after-hours in ES (the S&P 500 e-mini future) is worrisome as its lost the support of AAPL and its options. At the cash market close, ES peaked for the day at 1382.75 and has since drifted back all the way to 1374.25 - just shy of the day's lows.
It seems like yesterday that to much pomp and circumstance, Groupon came public. We can only hope that anyone who bought into the public offering sold long ago, because the company has just decided to TVIX the muppets:
- GROUPON CUTS FORECAST - BBG
- GROUPON REFUND RESERVE ACCRUAL INCREASED - BBG
But most importantly:
- GROUPON SAYS MATERIAL WEAKNESS IN INTERNAL CONTROLS - BBG
We are fairly confident that the stock will continue imploding after hours until such time as confidence in the stock market returns.
AIG just conducted a two-fold master class of i) how to confuse Wall Street of having "superb" earnings, and ii) how to avoid paying any corporate taxes for years to come. Because as part of the company's just announced massive $19.8 billion profit, a whopping $17.8 billion was nothing short of the oldest tax accounting gimmick in the book - the release of a valuation allowance (i.e., deferred tax liability vs deferred tax asset conversion). In other words, apples to apples, the real Net Income attributable to shareholders was not $19.8 billion but realistically $2 billion, which would compare to last year's $11.2 billion if only it was not for a $13.5 billion gain on divested business posted in Q4 2011, when the company again was fudging numbers like a drunken sailor. Anyway, we are confident even the algos will figure it out eventually. But the real slap in the face coming from this bailed out company is that as a result of this accounting change, AIG will essentially not pay any taxes for years to come, most likely until its next insolvency.
UPDATE: EURUSD back over 1.32 and TSYs +2bps on Greek loan plan news.
Credit (and vol) continue to lead the way as smart deriskers as ES (the e-mini S&P 500 futures contract) ends down only 0.5% - which sadly is the biggest drop since 12/28. The late day surge in ES, which was not supported by IG or HY credit (and very clearly not HYG - the HY bond ETF - which closed at its lows and saw its biggest single-day loss since Thanksgiving), saw heavier volumes and large average trade size which suggest professionals willing to cover longs or add shorts above in order to get filled. Materials stocks underperformed but the major financials had a tough day as their CDS deteriorated to one-week wides. VIX (and its many derivative ETFs) had a very bumpy ride today. VXX (the vol ETF) rose over 14% (most in 3 months) at one point before it pulled back (coming back to settle perfectly at its VWAP so not too worrisome). After the European close, FX markets largely went sideways with the USD inching higher (EUR weaker) as JPY strength reflected on FX carry pair weakness and held stocks down. Treasuries extended their gains from yesterday's peak of the week yields as 7s to 30s rallied around 6bps leaving the 30Y best performer on the week at around unchanged. Commodities generally tracked lower on USD strength with Oil the exception as WTI pushed back up to $99 into the close (ending the week +1.1% and Copper -1.1%). Gold and Silver ended the week down almost in line with USD's gains at around 0.25-0.5%. Broadly speaking risk has been off since around the European close yesterday and ES and CONTEXT have reconverged on a medium-term basis this afternoon (to around NFP-spike levels) as traders await the potential for event risk emerging from Europe.