New Normal

"The new normal..."

UPDATE: BBRY opens and trades down to $8.06 - all-time lows -21%

Having risen phoenix-like off the lows in July, it seems Blackberry is echoing the Eastman Kodaks of the world. Releasing its earnings early, the results are dramatically worse than expected:

BLACKBERRY 2Q PRELIM. REV. $1.6B, EST. $3.03B
BLACKBERRY CUTTING 4,500 JOBS
BLACKBERRY TO CUT OPER EXPENDITURES BY ABOUT 50% BY END 1Q '15

The last bullet point is great news: think of all the cash that will go toward dividends and stock buybacks...

• Expectations for Fed to begin to taper asset purchases by USD 10-15bln
• Ranges for pace of Treasury purchases: high USD 45bln, low USD 25bln
• Ranges for pace of MBS purchases: high USD 45bln, low USD 30bln
• Some see FOMC lowering unemployment threshold from current 6.5%
• Summary of Economic Projections and Press Conference from Fed Chairman Bernanke follow the announcement

A snapshot of the top Bloomberg news from five years ago shows something very unusual - an entire screen of negative headlines. Of course, back then, bad news was indeed bad news... in our new normal, a smorgasbord of cataclysmic event, terrorism, and systemic risk possibilities would likely be reason to BTFATH as it guarantees the Fed will come to the rescue... (just as they did eventually last time).

Greek PM Antonis Samaras: "You have to tell people the truth but you have to give them hope as well." i.e., lie

To say that bonds are under pressure would be an understatement. Over the last few months, sentiment about fixed income has flipped dramatically: from a favored investment destination that is deemed to benefit from exceptional support from central banks, to an asset class experiencing large outflows, negative returns and reduced standing as an anchor of a well-diversified asset allocation. Similar to prior periods, history will regard the ongoing phase of dislocations in the bond market as a transitional period of adjustment triggered by changing expectations about policy, the economy and asset preferences – all of which have been significantly turbocharged by a set of temporary and ultimately reversible technical factors. By contrast, history is unlikely to record a change in the important role that fixed income plays over time in prudent asset allocations and diversified investment portfolios – in generating returns, reducing volatility and lowering the risk of severe capital loss. Understanding well what created this change is critical to how investors may think about the future.

What do you do when there are some of the biggest and most catalyzing events in recent years waiting just around the corner? Why you buy stocks of course with both hands and feet... The Dow gained around 3% on the week - its best since the first week of January - outperforming its higher-beta peers (as AAPL lost over 6% for its 3rd worst week of the year). This was the lowest non-holiday week volume of the year. It seems weak retail sales and a collapse in confidence also spurred buying (and yet more short-covering: Shorts +0.5%, RUT +0.17%) and the opposite-world of QE rules the day/week (until next week perhaps). Bonds rallied (best week in 4 months), the USD dropped its most in a month, and VIX had its biggest weekly drop in 6 weeks. Gold and Silver were clubbed like baby-seals this week until lunchtime today - when they started to surge green on the day.

Ex-ECB insider Lorenzo Bini-Smaghi has once again proved that conspiracy 'theory' in the new normal is the same a conspiracy 'fact'. As The Telegraph's Ambrose Evans-Pritchard notes, Bini-Smaghi's new book details Silvio Berlusconi seriously floated plans to pull Italy out of the euro in October/November 2011, precipitating his immediate removal from office and decapitation by EMU policy gendarmes. Specifically, he discussed (threatened?) Italian withdrawal from the euro in private meetings with other EMU governments, presumably with Chancellor Angela Merkel and France's Nicolas Sarkozy. Bini-0Smaghi's tell-all goes further, noting that Merkel continued to think that Greece could be thrown out of the euro safely as late as the early autumn of 2012. It appears - just as we have always believed - that all is not well under the surface in Europe and that Dragji is in charge.

VIX futures positioning hit another all-time record short just two weeks ago after collapsing to 12-month high levels as "Taper" concerns increased. From the start of July to the 3rd week of August VIX futures were sold in epic proportions providing the fuel to lift a plateaued stock market from taper-anxiety to new all-time highs (as nothing changed). Over 100 million contracts were sold in the 7-week period - a totally unprecedented amount of complacency. However, in the past 3 weeks, there has been an inflection; is this the end of selling, or are we about to pull VIX even lower with a concerted reflexive selling of even more shorts? As SocGen warns, this historic level of non-commercial short positions (read speculative) implies any market correction - or VIX-related spike - would increase short-covering and exaggerate the fall dramatically. With today's exuberant spurt lower in VIX, vol has caught back with stocks once again.

One reason why the US has been able to extend its true "drop dead" cash exhaustion date has been due to an increase in tax revenues due to the payroll tax cut as well as cash inflows from the GSEs (which are set to reverse and become outflows once the latest housing dead cat bounce reverses), and cash remittances from the Fed. However, the capacity under this extended "revolver" is rapidly running out, and as of August 31, 2013, approximately $108 billion in extraordinary measures remained available for use. In a report released today, the Bipartisan Policy Center has released another analysis of just when the US will hit the "X Date" or the date on which the Treasury will not have sufficient cash to pay all of its bills in full and on time. Should there be still no deal on the debt ceiling by this date, the Treasury will be forced to prioritize payments to avoid a debt default. According to this estimate, the X Date falls anywhere between November 5 to as recently as October 18, or just over a month from now (and there has been zero real discussion in Congress over the debt ceiling hike with all the excitement over Syria).

It wouldn't be the US equity market if the worst-of-the-worst companies were not getting bid to the moon. With all the event risk ahead, those who suggest that "stocks dont like uncertainty," appear to be talking anally once again. Today's best day in stocks in 2 months is driven not just by EURJPY carry-mongers, but by the largest short-squeeze in US markets in 15 months. Why, we hear you ask? Why not... Just ask the homebuilders - which are up a new normal 5% from Friday's open.

So much for the revised US plans, now revealed to have been about overthrowing Assad all along, to be derailed by the Syrian attempt to appease the aggressor.

• REID SAYS SENATE WILL HOLD PROCEDURAL VOTE ON SYRIA WEDNESDAY

More importantly, DE Shaw's headline algo now appears to have been finally recalibrated to respond to "moar woar" flashing red headlines as bullish for confidence, represented as always in the New Normal, by the S&P as stocks just hit new intraday highs on the news.

Succinctly summarizing the weekly bull/bear recap, positive and negative news, data, and market events of the week...

Frequent readers are well aware that in addition to having broken the story about America's conversion to a part-time worker nation nearly three years ago, another topic we have been closely tracking over the past year has been its conversion to a gerontocratic worker society (from October 2012: "55 And Under? No Job For You"), which confirms that contrary to yet another urban legend that old workers are retiring in droves, it is the old workers who are getting the bulk of the jobs, at the expense of everyone else (those 55 and younger). Which brings us to today's chart of the day which shows the August job additions broken down by age group, and as tracked monthly by the household survey. The additions, or rather job losses, need no additional commentary aside from what we have provided so far.

It would appear that the new normal's Bond gurus are struggling with the weight of the 'Taper'-ing, deleveraging, 'special-repo'-ing, government-repress-ing, EM-crisis-ing world of extreme fast money flows that the Fed has thrust upon us. Just 3 short months ago, Jeff Gundlach said that he "expects the absolute highest for the 10-year yield this year is 2.4%, but he expects it to stay closer to 2%." However, as the 10Y yield presses up towards 3.0%, he told CNBC (in this brief but insightful clip on world flows and how he sees markets playing out) that "the 10Y Yield may go up to as highs as 3.1% by year-end," because "investors have switched from "I don't care about volatility, I want income" to "I don't care about income, I dont want volatility." He sees no sign of that changing...