New Normal

Nobody can doubt that (in)famous short seller Muddy Waters, whose initial research pieces received broad distribution on the virtual pages of Zero Hedge, does sufficient due diligence on the companies they designate as targets of their ire. And just for humiliating John Paulson with the utter debacle that was Sino Forest they will forever live in the pantheon of "out of the blue", ad hoc bearish research analysts with a chip on their shoulder. Furthermore, right or wrong, Muddy Waters and their fraudcap peers do a great benefit to the investing society by testing, often repeatedly, the weakest links in the "story" of any one company (especially those out of the increasingly more criminal orient) - if right, it merely precipitates the bankruptcy of what will be a dead end corporate story and thus the misallocation of capital by lazier investors; if wrong, they allow management to generate higher IRRs by buying back their stock in the open market (a far better use of funds for honest management teams than suing independent third party research analysts who may or may not have a short stake). Yet sooner or later, everyone peaks. Has Muddy Waters? This is perhaps a relevant question now that the shorters have taken up another campaign, this time against Singapore agri-processor Olam. The raw data, compiled by Bloomberg is below: decide for yourselves.

Three visualizations describe the breakdown of PSMs--previously successful models: S-Curves, Supernovas and Rising Wedges. A successful model traps those within it; escape becomes impossible.  We see the immense power of previously successful models. Straying from the previously successful trajectory looks needlessly risky, even as the trajectory has rolled over and is heading for unpleasant impact. Anyone who questions the previously successful model (PSM) is suppressed, fired or sent to Siberia as a "threat" to the enterprise's success. Anyone who realizes the Titanic will inevitably sink and abandons ship leaves behind all their sunk capital: they leave with the figurative clothes on their back.

Consumer Confidence up to a level not seen since February 2008—a level that caused people to tear their hair out at the time

Lately it seems that the entire world has become a complete basket case of economic data and market manipulation. On one hand, as we reminded yesterday, the disconnect between US economic fundamentals and the market has hit levels that imply the S&P is rich by 200 points. On the other, this morning the Chinese stock index, the Shanghai Composite, closed at a level of 1991: this was the first sub-2000 close since 2009 so early one can make it 2008. Yet the punchline in today's data is the report from the People's Daily, that in the first ten months of the year, a total of 11.2 million urban jobs have been created, or about 1.1 million per month on average (in context, the US has a problem with creating 150K jobs/month). Ignoring for a fact that this data is total manipulated garbage, is it now safe to say that no news has any impact whatsoever on the global monetary policy playing field once known as stock markets?

For those still unsure why Spain PM Mariano Rajoy is fighting tooth and nail to avoid requesting an official activation of the ECB's SMP reincarnation: the OMT, which is a conditional bond buying program supposedly pari passu with the private market (but not really) here is an explanation. While Spain already requested, and received, a bailout of its banking system, which according to eronous analyses by firms such as Oliver Wyman will be at most €60 billion, and which according to others (such as us) will eventually end up costing orders of magnitude more once the green light for extortion is open for the New Normal modified vigilantes, said bailout would come with full conditions. Today we learn what a major condition of the first bank bailout tranche disbursement will be. It should come as no surprise to our readers- recall that in May when discussing the absolute lack of any actual austerity implementation we said, that "In fact, the epicenter of the current meltdown - Spanish banking - has seen only de-minimus headcount reduction over the past few years - so who is tightening their belts?" It seems someone at the Troika was paying attention, because as El Pais reported, European condition number 1 will be an epic bloodbath of pink slips come Monday, with Spanish banks expected to fire thousands of bank workers immediately and shut down 1,000 branches.

While the developed world's central banks may enjoy trading FX and stocks, either directly or indirectly, with each other in a demonstration of monetary policy "stability", the historically biggest source of capital inflows into stocks - the retail investor - has once again just said "nein", for the 17th consecutive week, and excluding tiny inflows of $95 million in the week of July 18 and $907 million in the week ended May 30, has pulled money from stocks for an unprecedented 39 consecutive weeks, with $6.6 billion pulled out in the last week, the most since the first week of October. In fact going back to the beginning of 2010, according to ICI, while $44.5 billion has been invested into domestic equity stock funds, $412 billion has been pulled out. Where has the money gone on an almost dollar for dollar basis: bonds, confirming that the New Normal mantra is all about return of capital.

We have long been pounding the table on what in our view is the biggest detriment to any future growth for not only corporate America, but the entire US (where, sadly, government investment IRRs just happen to be negative - a fact that most won't understand until it is too late, especially not self-anointed economic wisemen whose only solution to everything is "do more of the same" yet who thought the utility of the Internet would be eclipsed by that of the fax machine): the complete lack of capital expenditures at the corporate level, and lack of (re)investment spending. It turns out that, however, that there is more to the story, and as the following chart from SocGen's Albert Edwards shows, not only are companies using up what actual free cash flows they have for such stupid stock boosting gimmicks such as harebrained M&A (just look at the recent fiasco between HP and Autonomy to see how rushed M&A always ends), and of course buybacks, but they are now levering to the hilt to do even more of this. The last time they did this? The golden days of the credit bubble.

Something odd popped up while going through the weekly H.6 update...

Today's AAPL move, on no news, is as of this moment a $35+ move in one trading session, or a $30+ billion market cap move in one trading session, and a nearly $60 move from the Friday lows. As the histogram below shows, in absolute terms, this is the second largest intraday move up in the stock in the past two years, and a 4 sigma move for a stock which has moved 7% on a 1.7% standard deviation, for no other reason than the "stock is oversold" or whatever other narrative those who put narratives to stock moves have ascribed to it today. And with HFT's determining valuation based on momentum, RSI, Bollinger bands, and other meaningless New Normal technicals, we have just gone from massively oversold, to massively-er overbought.

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.

Between the escalation in the Middle East and Olli Rehn pouring cold-water on the hopes and prayers of an imminent Spanish rescue-request, sovereign bond risk rose notably today. A late-day rampapalooza in EURUSD (another round of end-of-day repatriation?) signaled risk-on in the correlated monkeys and sure enough (in the US and Europe) stocks rose into the European close. The USD is remarkably unchanged on the week - despite the volatility in risk assets in general (zee stabilitee at the 1.27 peg seems the new normal) - as the Fed/ECB 'agreement' appears to have crushed the life out of yet another market-based signal - as EURUSD implied vol crashes to five-year lows.

It wouldn't be the New Normal if the basket case that is Europe, and its amusingly named "Union", didn't somehow manage to trip over itself. This is precisely what happened last night at the European finance ministers meeting after IMF head Lagarde and pathological liar and chair of the Europe's mostly broke Finance Minister, Jean-Claude Juncker, openly disagreed with each other, an event even the FT called a "feud" after they proposed two alternative visions for Greece, one which envisioned the 120% debt/GDP debt target goal pushed forward to 2022 (for Juncker), and on the other hand, IMF, which has been humiliated enough with its horrible predictions, and which refuses to budge from its 2020 Greek target. Per the FT: "In a rare breach, Mr Juncker told a post-meeting press conference the target would be moved to 2022, prompting Ms Lagarde to insist the IMF was sticking to the original timeline. When Mr Juncker again insisted it would be moved – “I’m not joking,” he said – Ms Lagarde appeared exasperated, rolling her eyes and shaking her head. “In our view, the appropriate timetable is 120 per cent by 2020,” Ms Lagarde said. “We clearly have different views.” Officials will meet again November 20 in an effort to reach agreement, Mr Juncker said. Despite the delay, officials insisted Greece would not default on Thursday, when Athens must make a debt payment of about €5bn without the benefit of international aid." Nothing like total coordination and organization within a monetary union that may not exit if Greece does not make its November 16 bond payment, which it likely will, by issuing debt and forcing the ECB to accept it as eligible collateral so that Greece can roll the maturity. And concluding this hilarious incident was Juncker's statement this morning that there is "no real dispute" with the IMF. When it gets serious...

There was one, just one, country that escaped the bankster Mutually Assured Destruction singularity force field in 2009 and after destroying the financial overhang and starting from scratch, has become a paragon of growth in the New Global Depressionary Normal. Iceland (profiled most recently here). As such, what Iceland says is signal, and what the legacy masters of the abovementioned New Normal repeat day after day, is recurring noise. Here is the signal: when Icelanders were asked if they should join the EU, this is what they responded:

• YES - 27.3%
• NO - 57.6%

Q.E.D.

Retirement-Off! The Dow just crossed back under the magical 13,000 level for the first time in two months...Having crossed this rubicon for the first time on Februray 21st, we can reflect on eight months well spent... and the sound of millions of retirees sifting through the 'Help Wanted' pages is deafening - as those 'young-people' that voted for change will continue to participate less in the workforce.

Tonight it's all Obama-corns and Biden-faeries but the market is already 'adjusting' to the new old new normal regime. Unfortunately in 'Obama II - This Time Its Different' the odds of going over the Fiscal Cliff just got real. As we noted here (and in more detail here and here), there is now a 55% chance we go over the cliff (given the status quo of no compromise) and the market is a long way from pricing that kind of GDP shock...