Despite the president's tongue-in-cheek warning to Wall Street that this time it's different, and it that "it should be concerned", that same Wall Street continues to roundly mock his attempts to talk it lower on the third day of America's "shutdown", knowing very well that if things ever turn bad, Mr. Chairman, aka the S&P chief risk officer, will get to work, and rescue everyone from that pesky thing known as losses. Whether the offsetting optimism was driven by made up China non-manufacturing PMI rising from 53.9 to 55.4, the highest in six months, or just as made up non-core European PMI data which also beat expectations despite Germany Services PMI continuing to telegraph a weakness, dropping from 54.4 to 53.7, is unknown and once again not important. So while futures are modestly lower if only until such time as the daily 3:58pm VIX slam takes place just before market close, do not expect any major moves in stocks until either the GOP finally folds and lets Obama have his way, or bundles all shutdown legislation into the debt ceiling negotiation, and careens the US right into the debt ceiling deadline on October 17 without any legislation in place.
During Banca d’Italia’s keynote address Salvatore Rossi the director general told delegates how gold plays a key role in the central bank reserves:
"Not only does it have the vital characteristic of allowing diversification, in particular when financial markets are highly integrated, in addition it is unique among assets in that it is not issued by any government or central bank, so its value cannot be influenced by political decisions or by the solvency of any institution," he said.
- Government Shuts Down as Congress Misses Deadline (WSJ); Shutdown starts, 1 million workers on unpaid leave (Reuters); Government Shutdown Begins as Deadlocked Congress Flails (BBG)
- This is not The Onion: Stocks Rise on U.S. Government Shutdown (BBG)
- Pentagon chief says shutdown hurts U.S. credibility with allies (Reuters)
- In historic step, Japan PM hikes tax; will cushion blow to economy (Reuters)
- Obama Says He Won’t Give Into ‘Ideological’ Budget Demand (BBG)
- More part-time warehouse workers: Amazon to Hire 70,000 Workers for the Holidays (WSJ)
- Less full-time legitimate workers: Merck to fire 8,500 workers (BBG)
- Education cuts hit America’s poor (FT)
- Euro-Zone Factory Growth Slows (WSJ)
- Watchdog Warns EU Not to Water Down Insurance Rules (Reuters)
As headline after headline hit today, US equity markets jumped and dumped as the early POMO ramp faded in an oh-so-familiar manner. As the day-session opened, "most shorted" stocks tumbled hard (-1.6% vs the market -1%) and that provided the ammo for the ramp as POMO and PMI hit. That rally stopped on time as EU closed and POMO ended and then Washington took over. FX and commodity markets were volatile early on a settled late as a EUR surge early on (on Italian political news) smashed the USD lower and sparked some risk on. The USD spent the rest of the recovering back to unchanged. Commodities ended the day cuffed at -0.5% in an oddly cozy way given the early rips and dips in Gold and Silver. The S&P has fallen 3.5% from its all-time un-taper highs, is closing right at its 50DMA, and underperformed gold and silver for the quarter.
It seems the earlier rumors that the Bank of France may be selling its gold - which had weighed on the price of precious metals this morning in the face of increasing uncertainty among the most indebted nations on the world - have been officially denied. As Bloomberg reports:
*BANK OF FRANCE HAS NO PLANS TO SELL GOLD, GAUTIER SAYS
And sure enough, Gold and Silver prices just screamed higher.
There may be temporary 'benefits in terms of employment gains' if the Fed creates an even more gigantic echo bubble than it has already done. We are willing to grant that much. The Fed apparently believes these days that there should be no limits whatsoever to the Fed's monetary pumping. 'Inflation' targets? Forget about it! Asset bubbles? Who cares! It is as if the past 20 years had not happened – as if they had simply erased the whole period from his memory. Do they really believe that pumping up another giant bubble will have more benefits than drawbacks? Where does it all end? However, there is no such thing as a free lunch, and there cannot be an 'eternal boom' by simply continuing to print, as once envisaged by Keynes. All that will happen is that the ultimate disaster will be even greater. In fact, is seems ever more likely that the next disaster will be the last one of the current monetary system.
Dispassionate overview of the key factors shaping the investment climate in the week ahead.
When Bubbles Fail: Albert Edwards Explains What Happens When The Fed Can No Longer Contain The Fury Of The "99%"Submitted by Tyler Durden on 09/27/2013 10:49 -0500
"They’re at it again! US inequality is surging and the Fed has created another house price boom. Does this matter? Well I think so. But who cares what I think. Warren Buffet, Bill Gross and Stanley Druckenmiller think it matters. Clients marvel at how the US profits’ share of GDP remains so high and that labour remains so weak. Marc Faber said recently that in postponing the QE taper, we have merely climbed to a higher diving board. I go further. I see growing inequality draining the swimming pool dry. The crunch, when it comes, will be ugly"... Investors should make no mistake. The anger of the 99% will ultimately not be bought off by yet another central bank inspired housing bubble, engineered to pacify them and divert their attention as their real incomes fall and inequality continues to grow." - Albert Edwards
The best summary of what has (not) been going on in the downward drifting equity markets comes from DB's Jim Reid, quoting: "Markets are in non-panicky limbo at the moment ahead of the upcoming US budget debate. US equities fell for the 5th day in row (S&P 500 -0.27%) and although this is the worst run since the Christmas/New Year’s Eve period of 2012 (due to the fiscal cliff debacle), the cumulative fall is only -1.9% over this decline. Meanwhile Treasuries hit a 7-week low in yield as they recorded their 12th decline in the last 14 days." As has been the case over the past week, stocks in Asia have generally traded lower with the exception of the Nikkei225 which day after day continues to do its insane penny stock thing, first dropping -1.5% only to close up 1.2% on absolutely no news, but some chatter the Abe administration would raise the sales tax on October 1, only to offset the fiscal benefit by lowering corporate tax. How this has any net impact is beyond us. Proceeding to Europe, stocks failed to sustain the initial higher open and moved into negative territory, with Italian asset classes underperforming, as market participants digested reports citing Italian MP Gasparri saying that PdL lawmakers are ready to quit if Berlusconi is ousted. This in turn saw a number of Italian banking stocks come under intense selling pressure, with the Italian/German yield spread widening in spite of supportive reinvestment flows that are due this week.
Early weakness in Asia driven by US-follow thru selling and ongoing concerns about the us fiscal showdowns as well as the debt ceiling, if not by actual news, resulted in a red close in both the Nikkei and SHCOMP, as well as other regional indices such as the Sensex. This then shifted to Europe, where however stocks reversed the initial move lower and are seen broadly flat, with Bunds remaining bid on the back of month-end, as well as coupon and redemption related flows. However the move higher in stocks was led by telecommunications and health care sectors, which indicates that further upside will require another positive catalyst. There was little in terms of fresh EU related macroeconomic commentary, but according to a report published by the European Banking Authority, the EU’s biggest 42 banks cut their aggregate capital shortfall with respect to the “fully loaded” 2019 Basel III requirements to €70.4bln as of December 2012. This is amusing since not one European bank has actually raised capital, but merely redefined what constitutes capital courtesy of a liberal expansion of RWA, Tier 1 and various other meaningless definition which works until such time as the perilous European balance kept together by the non-existent OMT, is tipped over.
When it comes to the "fairness doctrine", there was always some confusion in the matter of work ethic: how was it fair that some should work under the socialism-endorsed confines of a 29.5 hour workweek, while being forced to suffer the indignity and moral denigration of watching others labor under the faux guise of capitalism, putting in 60, 80, even 100 or more hours per week in the pursuit of self-actualization, contentment and general happiness? Furthermore, as has been well documented, despite rumors the contrary, the biggest incubator of neosocialism the "fairness doctrine" is not the US, nor Leningrad (sic), but France.... Sephora's flagship Champs Élysées cosmetics store, one which attracts six million people a year or nearly as many as the Eiffel Tower, has been ordered by a French appeals court to close at 9 pm at the latest because it "breached work-time regulations by hosting customers until midnight on weekdays and 1 am on weekends."
The point here is that we can only sustainably distribute the nation's surplus that is left after capital investment. Borrowing or creating vast sums of money to paper over the fact that we're spending more than we generate in surplus fosters an entirely illusory sense of wealth and prosperity. Eventually the interest owed on debt crowds out all other spending, and the debt-based system implodes. Borrowing money to fill the gap between what we want to spend and what we generate in surplus incentivizes fraud and speculation and creates a pernicious sense of entitlement: we can have it all, everyone can have everything they want, and there is no need for sacrifice, thrift or hard choices.
- Iran Icebreaker Set at U.N. (WSJ)
- Chrysler Feud Triggers IPO Filing (WSJ)
- JPMorgan Chase, 12 More Banks Said to Be Sued Over Libor (BBG)
- Regulator sues Morgan Stanley, eight others over faulty securities (Reuters)
- Monte Paschi Seen Boosting Cost Goals to Meet EU Demands (BBG)
- Here we go again - "not enough funds": CFTC chair Gary Gensler warns on fund cuts to police derivatives (FT)
- Congress Fuels Private Jails Detaining 34,000 Immigrants (BBG)
- KKR, Sycamore looking to buy Jones Group this week (NYPost) - take with lots of salt
- Fiat rethinks alliance with Chrysler after IPO filing (Reuters)
- Young Invincibles Caught in Crossfire Over Obamacare Cost (BBG)
- Mayfair Office Squeeze Spawns New London Real Estate Hubs (BBG)
The Germans will be getting out the beer and drinking a double dose of the amber nectar not only because MuttiMerkel as she is known (otherwise known as ‘Mother’ Angela Merkel) was reelected on Sunday 22nd September, but also because new reports issued today show that the Eurozone is doing better than expected.
UPDATE: AAPL +5.7% on revised guidance
Despite concerns about supply (and 'change') the lines we saw on Friday and the disappointments in the UK have been dismissed by the latest Apple press release as opening weekend iPhone sales top their record at 9 million sales (compared with the 5 million sold at iPhone 5 launch and 6-7mm units expectations).
APPLE SAYS OVER 200M IOS DEVICES RUNNING IOS 7
APPLE 9M NEW IPHONE 5S AND IPHONE 5C MODELS SOLD IN 3 DAYS
APPLE SAYS OVER 11M UNIQUE LISTENERS USED ITUNES RADIO
APPLE SEES 4Q REV. NEAR HIGH END OF $34B-$37B, EST. $36.11B
The share price was up over 4.5% from Friday's sub-50DMA close in pre-market trading; but is fading back now.