Another day, another demand by "activist" (which as we have explained patiently before simply means someone who demands companies use moar debt to fund buybacks and/or dividends) Carl Icahn for Apple to buyback it shares. Uncle Carl's bottom line: AAPL stock would be worth a ridiculous $203 (or a $1.2 trillion market cap), if only the board were to "repurchase a lot more" stock "and sooner." Icahn's insight in a nutshell: "the more shares repurchased now, the more each remaining shareholder will benefit from that earnings growth." That's great, but we don't get why waste his precious repeating what he has said so many times before: instead Icahn should just pitch the Fed to monetize AAPL stock in QE 5. Value added Q.E. and well D.
Investors - at least the carbon-based variety not the vacuum tube-driven algos, assuming there are any left - are in a state of complete shock!
The S&P swung 44 points from low-to-high today as panic-buying lifted stocks vertically on the back of an utter VIXtermination (from over 18 to under 15). Nasdaq surged over 2.5% from its lows before FOMC Minutes - the biggest swing since May 2012 (and biggest daily gains in a year). 10Y Yields closed at 2.33% (2.3249% lows) - the lowest since June 2013. The TSY curve steepened dramatically post-FOMC with 5Y now -18bps on the week and 30Y -7bps. The Dollar fell for the 3rd day in a row (-1.6%) - its biggest such drop in 15 months. Initial weakness in commodities was wiped away post-FOMC leaving Silver +3.3% on the week (Gold +2.3%). Oil saw no bounce closing at April 2013 lows (WTI below $87.50). The S&P and Dow managed to get to green on the week in the last few minutes (only the S&P held it into close). So in summary: FOMC Minutes sent Stocks Up, Bonds Up, and Gold & Silver Up; VIX down, USD down, and Oil down.
For the US, it’s now shooting fish in a barrel – but just for now. The three-pronged plan the Fed has started to execute is plain for everyone to see... And it will have the rest of the world begging for mercy.
In is only fitting that a week that has been characterized by deteriorating macroeconomic data, and abysmal European data, would conclude with yet another macro disappointment in the form of Markit's sentiment surveys, for non-manufacturing/service (and composite) PMIs in Europe which missed almost entirely across the board, with Spain down from 58.1 to 55.8 (exp. 57.0), Italy down from 49.8 to 48.8 (exp. 49.8), France down from 49.4 to 48.4 (exp. 49.4), and in fact only Russia (!) and Germany rising, with the latter growing from 55.4 to 55.7, above the 55.4 expected, which however hardly compensates for the contractionary manufacturing PMI reported earlier this week. As a result, the Composite Eurozone PMI down from 52.3 to 52.0, missing expectations, as only Germany saw a service PMI increase. And yet, despite or rather thanks to this ongoing economic weakness, futures have ignored all the negative and at last check were higher by 9 points, or just over 0.4%, as the algos appear to have reconsidered Draghi's quite explicit words, and seem to be convinced that his lack of willingness to commit is merely "pent up" commitment for a future ECB meeting. That or, more likely just another short squeeze especially with the "all important" non-farm payrolls number due out in just over 2 hours, which for the past 24 hours has been hyped up as sure to bounce strongly from the very disappointing, sub-200K August print.
- As we warned in May 2013... Gross Exposes $42 Trillion Bond Market’s Key Flaw in Exit (BBG).... hint: no liquidity
- WTI Crude Slips Below $90 for First Time in 17 Months (BBG)
- Traders Thank Fed for Once-in-Decade Surge in Profit (BBG)
- Islamic State committing 'staggering' crimes in Iraq: U.N. report (Reuters)
- Philippine Islamist militants threaten to behead German on October 17 (Reuters)
- Draghi’s Buying Spree for the ECB Might Start Modestly (BBG)
- Russian Officials Say No Plans for Capital Controls (WSJ)
- Indians Join the Wave of Investors in Condos and Homes in the U.S. (NYT)
- Leader of Mexican drugs cartel captured (FT)
- Dallas Ebola patient vomited outside apartment on way to hospital (Reuters)
While we already documented the crash in Japanese stocks earlier, the biggest market development overnight is the plunge in crude, with both Brent and WTI plunging, the latter sliding under $90 for the first time in 17 months, extending yesterday's selloff after Saudi Aramco cut Arab Light OSP in Asia to 2008 levels. Brent drops to lowest since June 2012. This also confirms that the global slowdown whose can is kicked every so often in a new bout of money printing, is arriving fast. That, and the imminent crackdown on today's Hong Kong protest will likely be the biggest stories of the day, even as the spread of Ebola to the US is sure to keep everhone on edge.
The small-cap Russell 2000 is down over 10% from its July highs (down 6.2% year-to-date) as VIX is back over 17. Treasury yields continue to collapse (down 8-9bps today alone) with 10Y trading with a 2.40% handle (and 3Y under 1% again). All other major equity indices are also red from the Russell 2000 peak in July and have broken various key technical levels today - S&P below 100DMA, Dow Industrials below 100DMA, Dow Transports At 100DMA, and Nasdaq broken well below its 50DMA. Russell is back at levels first seen a year ago.
A quick anecdote that should quickly confirm just how broken everything is: earlier today MarkIt reported European manufacturing data that was atrocious, with both German and European PMIs tumbling to levels not seen since mid-2013, and with Europe's growth dynamo now in a contraction phase clearly signalling what has been long overdue: a European triple dip recession. So what happens? Moments later Germany sells €4.1 billion in 10 Year paper at a record low yield below 1%.... even as the Bundesbank had to retain a whopping 17.84% of the auction, the highest since June, with only €4.663 Bn in bids for the €5 Bn target, the first miss since May 21. So hurray for the central banks, boo for the economy, and as for that mythical creature, once known as bond vigilantes, our condolences: good luck figuring out what the hell just happened, and good luck recalling what a free market is.
The Nasdaq, Russell 2000, and Dow Transports have been rescued in their high-beta manner all the way back to green by an initial USDJPY ramp to ignite some momentum "off the lows". Treasuries and credit refuse to play along and even USDJPY has decoupled as stocks surged on a VIX-slamming (from over 17 to 15.50) ramp to unch. Safe-haven buying of camera-on-a-stick continues (+8% today).
With over half of all the stocks in the Russell 2000 and Nasdaq already in a bear market, US equity market indices are becoming increasingly driven by a highly concentrated set of stocks that lack any relationship to macro factors. As BofA shows in the charts below, participation in the record-high exuberance in stocks is waning... and waning fast... But, the biggest concern, BofA fears, is a new low for net free credit at -$182 billion - the major risk is if the market drops and triggers margin calls, investors do not have cash and would be forced to sell stocks or get cash from other sources to meet the margin calls. This would exacerbate an equity market sell-off.
We have corporate insiders selling the farm, investment legends warning of a collapse, institutional investors selling stocks, and global growth slowing rapidly.
Black Swan? Having seen liquidations of a relatively small fund yesterday send the NASDAQ down 2% and credit reeling, world bond and stock markets are reacting aggressively to Bill Gross' move from PIMCO. German stocks (PIMCO's parent Allianz is the 7th largest stock in DAX) are tumbling, European peripheral bond spreads are pushing wider (major holdings of PIMCO) and US credit markets are getting smashed (PIMCO is a major player in CDS markets and obviously a huge holder of US corporate debt) and concerns spread of redemptions triggering the kind of liquidity suck out we described yesterday.