"No Tapering" - Bernanke's 'State Of The Economy' Testimony - Live Webcast

Tyler Durden — Wed, 22 May 2013 13:56:02 +0000

Update: Bubbles Bernanke slams any hopes for tapering goodbye, as long predicted: PREMATURE TIGHTENING RISKS SLOWING OR ENDING RECOVERY

Bernanke's quarterly hearing with the Joint Economic Committee this morning will be today's must-see event (with FOMC minutes a close second). It seems the equity market has no fears but many in the high-yield market are anxious for the words 'frothy', 'taper', 'bubble', 'clueless', and 'I plead da fif'. While Bernanke's words will be the most important, these hearings typically include their fair share of ironic ignorant 'humor' from the politicians who sit in awe of the most powerful man in the world and his CTRL+P prowess.

Speech highlights:

BERNANKE: PREMATURE TIGHTENING RISKS SLOWING OR ENDING RECOVERY
BERNANKE REPEATS POLICY TO STAY ACCOMMODATIVE AS LONG AS NEEDED
BERNANKE SAYS MONETARY POLICY PROVIDING SIGNIFICANT BENEFITS
BERNANKE SAYS POLICY CAN'T FULLY OFFSET FISCAL DRAG ON ECONOMY
BERNANKE: HIGH RATES OF UNEMPLOYMENT `EXTRAORDINARILY COSTLY'

Full speech:

The real Iron man:

Five Decades Of Asset Bubbles: Which One Is Next?

Tyler Durden — Wed, 22 May 2013 13:47:16 +0000

Or maybe this is a trick question, and the answer for the "New Normal", when all central banks are coordinating on reflating the biggest asset bubble of all time, is "all of them"...

And some thoughts on the chart above from Obermeyer Asset Management:

The above chart shows that once every ten years or so, some investment theme becomes dominant and takes on bubbly proportions. What these dominant themes seem to have in common are roots in economic factors that morph into “truths” that take on a life of their own. These “truths” have self-reinforcing properties where market prices validate the “truth” and vice versa. This creates a virtuous cycle until market prices become unsustainably high, reverse themselves, and essentially purge the beliefs that created the risky condition. This is often a lengthy process.

The purpose of this commentary is not to explore the well-covered ground of how manias form and unwind. Rather, it is to highlight the role of psychology within investment markets and advise caution when conventional beliefs or “truths” begin to take shape. The reality is that there is no single truth that can be relied upon to make money in financial markets. If there were, everybody would be rich. Markets are driven by people, so psychology plays a big role in driving returns on any given day. But a recognition of some of the “truths” evolving within markets can help identify the causes of price trends, which can reveal risks and long-term opportunities.

One of the “truths” that seems to be evolving – as evidenced by how investors are allocating their capital – is that interest rates will stay low for a very long period of time. If this is true, what we’ve seen in markets is rational; if it’s not, many will be disappointed. One of the recurring themes that I heard at the Value Investor Conference earlier this month is that today’s environment is challenging for bargain-oriented investors. Many in attendance saw the Fed as a too-powerful force driving most stock prices out of bargain territory. While this may indeed be the case, there are almost always good investments to be made, especially in areas that are overlooked. The universe of stocks that are popular, that have obvious appeal and are easily understood is rarely fertile ground for bargains.

More here.

Watch The IRS' Lois Lerner Plead The Fifth - Live Webcast

Tyler Durden — Wed, 22 May 2013 13:34:57 +0000

As we noted yesterday, the IRS' head of exempt organizations who started the whole IRS targeting scandal, is testifying this morning and is expected to plead the Fifth. One wonders why, if as the IRS claims, there was no illegal or illicit activity involved. Watch her plead "da Fif" live here...

Click image for live CSPAN stream...

Global Risk Appetite At 2006 Levels - Nears 'Euphoria'

Tyler Durden — Wed, 22 May 2013 13:03:19 +0000

Global risk appetite surged to 4.53 (5 being 'euphoria'), its highest level since the euphoria event of 2006, and up from 1.76 one month ago according to Credit Suisse. Other risk appetite indices, as well as market anecdotes, confirm the “almost euphoric” environment. US credit risk appetite has charged higher and is now at 3.22. Furthermore, as they note, the current risk rally has several unusual features. First, it clearly lacks the usual support of strong global growth momentum. Global IP momentum (as we noted here) is almost always above its long-term average when risk appetite hits euphoria, but currently is below 5%, which is somewhat sluggish. Second, the current near-euphoria is strongly driven by one asset class: Japanese equities. The bottom-line, they conclude, is that the current risk-loving environment is related much more to recent policy innovations than growth data. And confirming this 'euphoria' Investors Intelligence notes that newsletter writers classified as bulls rose to 55.2% from 54.2% with readings of ~55% "suggestive of a trading top," last seen in Oct. 2007. No surprise there but with markets statistically 'euphoric' caution seems warranted at least...

Chart: Credit Suisse

Target Misses, Good Weather Blamed

Tyler Durden — Wed, 22 May 2013 12:48:14 +0000

A week ago it was the better than expected weather's fault for the big Wal-Mart miss. Today, it is the turn of that other retail bellwether, Target, to blame sunny days.

From the release: "Target’s first quarter earnings were below expectations as a result of softer-than-expected sales, particularly in apparel and other seasonal and weather-sensitive categories,” said Gregg Steinhafel, chairman, president, and chief executive officer of Target Corporation. “While we are disappointed in our first quarter performance, we remain confident in our strategy, and we continue to invest in initiatives, including Canada, our digital channels and CityTarget, that will drive Target’s long-term growth."

Of course, what this miss really means is that the payroll tax impact on consumption, so well seasonally-adjusted out of the wholesale retail sales numbers, and thus PCE and GDP, and which Goldman has been so inquisitively looking for and not finding at the national level leading it to believe the US economy is steadily on the mend, is more than present at the micro level. One only has to look. And with gas prices set to rise back to all time highs in a day or two, one can forget hopes that the fade in the payroll tax hike's impact on consumption will be promptly forgotten as other forms of taxation strip the already empty consumer wallet even more bare.

Ben Bernanke Crushes Hedge Funds: Average Hedgie Underperforming S&P by 65% In 2013

Tyler Durden — Wed, 22 May 2013 12:10:14 +0000

Yes, yes, everyone knows hedge funds aren't benchmarked to the S&P - after all they "hedge" for the broader market downside.

Here is the problem: having underperformed the S&P for five years in a row, many LPs are starting to get tired of not only underperforming stocks but paying out 2 and 20 on all the lost upside (and not only due to such leftfield surprises as RICO Stevie).

The bigger problem is that by the time the crash finally comes, there will be no hedges left as the Federal Reserve will have made sure all shorts get crushed as confirmed by the relentless outperformance of the most shorted stocks relative to the market (and why we continue to suggest quarter after quarter that going long the most shorted stocks is the most lucrative "alpha" strategy) as "hedge" funds abandon all hedging in droves and become "long-onlies", a problem further compounded by the fact that when the real crash does come not one hedge fund will be positioned properly and able to generate any alpha.

The biggest problem, at least for the active management community, is that with the global central banks now stock market activists and buying stocks outright, it is they who have eliminated the downside risk and by implication made hedging redundant.

So for all those curious why all real money managers (and not those who spend 18 hours a day on the modern day Yahoo Finance known as Twitter, "trading" with monopoly money while selling $29.95 newsletters) are furious at what Bernanke and company are doing as shown in the most recent Ira Sohn conference, we present the chart below from Goldman which confirms what most have already known: the Federal Reserve has made hedge funds a thing of the past, whose investors are sure to keep underperforming the S&P until the moment when it all goes tumbling down.

Luckily, at that point, bidless market aside, everyone will be able to sell ahead of everyone else, or so the momentum-chasing mantra goes. In the meantime the facts are sobering: the average hedge fund has returned a tiny 5.4% through the week of May 10, a whopping 65% discount to the performance of the S&P, and even the average mutual fund has outperformed the average hedge fund nearly threefold!

Some more from Goldman:

The typical hedge fund generated a YTD return of 5% through May 10, compared with 15% gains for both the S&P 500 and the average large-cap core mutual fund (see Exhibit 1). Hedge funds returned an average of 3.5% in 1Q 2013, lagging the S&P 500 by 700 bp. Last year the average fund returned 8% vs. 16% for the S&P 500.
The distribution of YTD performance indicates that 13% of hedge funds have generated absolute losses. The standard deviation of YTD hedge fund returns is 6 percentage points and almost half of funds have generated returns between 3 % and 8%. Fewer than 5% of funds have outperformed the S&P 500 or the average large-cap core mutual fund YTD.
Despite starting the year with the highest net long exposure since 1Q 2007, strong long performance was not enough to outweigh the drag from popular short positions. Our basket of S&P 500 stocks with the largest dollars of shorts (<GSTHVISP>) has returned 17% YTD, in line with the VIP basket. In addition, 22 of the 50 stocks over $1 billion with the highest short interest as a percentage of market cap returned over 30%, twice the S&P 500 return. The average return of these 50 stocks was also 30%.

As for that key "benefit" from hedge funds - diversification away from single-name holdings - they were only kidding. In fact the average hedge fund is nearly twice more undiversified than the average mutual fund, and just 10 names represent 63% of the average hedge fund's AUM. See AAPL for what happens when said hedge fund hotels fall out of favor.

"Hedge fund returns are highly dependent on the performance of a few key stocks. The typical hedge fund has an average of 63% of its long-equity assets invested in its 10 largest positions compared with 37% for the typical large-cap mutual fund, 16% for a small-cap mutual fund, 18% for the S&P 500 and just 3% for the Russell 2000 Index."

Finally, for those wondering who is selling one share of SPY or GLD for every share bought? Wonder no more: ETFs continue to be the widest used hedging vehicle:

Hedge funds appear to use ETFs more as a hedging tool than as a directional investment vehicle, based on our analysis of 13-F and short interest filings. We estimate that hedge funds hold $126 billion in gross exposure to ETFs compared with $1.4 trillion of gross exposure to single-stocks. ETFs represent 3% of long holdings, down from nearly 6% in 1Q 2009 and the lowest since 2Q 2011 levels (Exhibit 22).
The $96 billion of short ETF positions accounts for 76% of the hedge fund gross ETF exposure. In contrast, single-stock short positions ($406 billion) represent 29% of hedge fund gross single-stock positions. The most shorted ETFs tend to be index hedges (representing $50 billion of the $96 billion short positions). Commodity-related, bond funds, and Emerging Market ETFs appear to make up the majority of ETFs that hedge funds utilize on the long side (see Exhibit 23).

Source: Goldman

The Macro Story as Told by Gold, Copper and Oil

EconMatters — Wed, 22 May 2013 11:47:18 +0000

By EconMatters

Gold’s been on a wild ride. After reaching a peak of $1,920 an ounce in September 2011, gold has tumbled 28% to the current ~$1,380 level forcing John Paulson to take a 47% loss in his gold fund during the first four months of this year, according to Bloomberg.

Unlike Paulson who maintained his positions in gold, other big players like George Soros and BlackRock cut their gold ETF holdings, while Goldman Sachs issued a sell recommendation on gold right before the yellow metal plunged 13% through April 15, the biggest drop in three decades. And by looking at the futures curve (chart below), market does not seem to expect gold to come back roaring any time soon.

Chart Source: S&P Capital IQ

QEs Not Hitting the Real Economy

Historically, gold is regarded as a good inflation hedge and store of value, typically thriving in an environment of high inflation, and/or weak U.S. dollar (currency debasement). With U.S. Federal Reserve’s three rounds of QE, the never-ending debt crisis in the Eurozone, hyperinflation and dollar debasement seem inevitable and supportive of gold for the long run, right?

Theoretically, Fed’s QE and near zero fed funds rate is supposed to encourage borrowing and spending from the private sector thus injecting money into the real economy. However, theory and reality don’t always see eye to eye.

Since the 2008 financial crisis, banks have significantly tightened the credit standard and are reluctant to lend. On the other hand, corporations are making money mostly from “streamlined” headcount and structure, but instead of the intended wealth distribution effect expected by the Fed such as investing back to the economy, or increase employee pay which would in turn increase consumer spending, most corporations are hoarding cash or use profits for dividend, share buybacks, or mergers & acquisitions with limited impact on the real economy.

Copper & Oil Indicating Weak Demand

The weak demand is also reflected in part of the commodity market fundamental. WTI crude oil inventory climbed to 82-year high and copper inventory at LME hit a 10-year high in April, while Goldman Sachs cut its “near-term” outlook for commodities.

Although some have argued oil and copper have lost their significance primarily due to increasing domestic oil production, and “temporary” excess copper supply. While the abundance of domestic shale oil production may have distorted the historical supply and demand relationship, but with the U.S. becoming the world’s largest fuel exporter, the fast and furious oil inventory build is nevertheless still an indication of a weak world economy. And I can’t imagine how the “temporary” buildup of copper inventory is not a sign of weak global economic condition?

Further Reading - Oil Market Manipulation Reaches Absurd Levels

Massive QEs, Limited Inflation?

On top of the overall weak spending and demand in the private sector, most of the developed countries are undergoing some shape or form of austerity with reduced government spending. China, the growth engine of the world, is having some problems of its own. The old-fashioned massive infrastructure building QE program got China through the 2008 financial crisis, and was the main driver behind commodity prices. But Beijing can’t afford another QE due to inflation concern (plus China has probably run out of things to build). Low wage levels means China consumers can’t really pick up the spending slack, coupled with bad credit problem (i.e., NPL: Non-Performing Loans), and recent capital flight, had many analysts worried enough to downgrade China’s growth prospect.

The simultaneous pullback from both the private and government sectors in U.S. Europe, and China is a major factor why Fed's massive QEs have resulted in only limited inflationary pressure and increasing signs of deflation.

Dollar and Carry Trade Kills Gold

Nonetheless, when compared with Europe, China or any other regions in the world, the U.S. seems relatively more stable, and has been able to retain the “safe haven” status despite its own debt problem. With investors pouring money into U.S. equity and bond propping up the dollar, and weak demand suppressing inflation, two of the main conditions for a strong gold price -- high inflation and a weak US dollar -- are basically non-existent in the current macro environment. Furthermore, there was already a bit of disconnect between gold and the other commodity prices such as copper, and oil. So eventually, gold had to come to grip with the macro reality.

Chart Source: Stockcharts.com

Another major factor against gold right now is that gold has no yield and is out of favor with the huge yield-seeking yen carry trade crowd (borrowing yen to invest in higher yield options) since bond and equity now are offering much better returns. Unless there's a shock to the system such as a war breaking out in the Middle East, or an eventual debt crisis in Japan when people start seeking safety, there's not much upside momentum for gold.

Gold's Volatility Game

For now, the prevalent view is that the Fed will slow or exit QE3, and gold is out of favor under the the current macro trend. For example, Lim Chow Kiat, the chief investment officer of the Government of Singapore Investment Corp (GIC), thinks gold still looks overpriced as the usage of gold for industrial or consumer products doesn't quite justify the prices. GIC is one of the world's largest sovereign wealth funds.

As long as dollar maintain its strength and inflation remains tame, gold prices most likely will see considerable volatility swinging between rumors and speculation (e.g., some central banks may need to unload some of their holdings due to debt crisis), and Asia retail buying on the dip (South China Morning Post reported that many shops in Hong Kong were running out of the precious metal for the first time in decades.)

Technically speaking, gold's next support level should be $1,330 range with $1,320 as the major support when most physical retail buyers would rush in. If gold breaks below $1,300 hard, expect a major liquidation when even Paulson could be forced to sell and everybody piles in.

Only In America: Anthony Weiner Announces NYC Mayor Candidacy On YouTube

Tyler Durden — Wed, 22 May 2013 11:39:29 +0000

We would have been perfectly happy to report this as Humpday Humor, but unfortunately, and only in America, can a disgraced former Congressman, the very appropriately named Anothony Weiner, announce his candidacy for NYC Mayor via YouTube in all too serious news.

What is perhaps most disturbing is that, "a Quinnipiac University poll also released on Wednesday found Weiner in second place with 15 percent of the vote, trailing City Council Speaker Christine Quinn by ten points. The poll also found that nearly half of city voters say Weiner should not enter the race for mayor, while 38 percent of voters want to see him run." That is a 38% of the population that wants nothing more than bread and ever more circues, and if possible, to let it all burn all around them.

Frontrunning: May 22

Tyler Durden — Wed, 22 May 2013 11:29:09 +0000

Apple Bonds Stick Buyers With $280.6 Million Loss as Rates Climb (BBG)
Iceland Freezes EU Plans as New Government Shuns Euro Crisis (BBG)
"Transparent Fed" - Ben Bernanke meets privately with Darrell Issa (Politico)
Bank of Japan vows market steps to curb bond turbulence (Reuters) holds policy (FT)
Stockholm riots spread in third night of unrest (FT)
Dudley Says Decision on Taper Will Require 3-4 Months (BBG)
Senate panel passes immigration bill; Obama praises move (Reuters)
Italy to outline youth jobs plan as government struggles (Reuters)
Apple CEO Tim Cook, Lawmakers Square Off Over Taxes (WSJ)
Google Joins Apple Avoiding Taxes With Stateless Income (BBG)
Sony Board Discussing Loeb’s Entertainment IPO Proposal (BBG)
Vote Strengthens Dimon's Grip (WSJ), Dimon performance well choreographed (FT)

Overnight Media Digest

WSJ

* Federal investigators apparently accessed records of calls to and from a phone number at Fox News Channel in their leak investigation of a former state department contractor, according to a court document.

* Insecticide sales are surging after years of decline, as American farmers plant more corn and a genetic modification designed to protect the crop from pests has started to lose its effectiveness.

* Starwood Capital Group is in talks to buy seven U.S. shopping malls from Westfield Group for more than $1 billion, a deal that would mark the latest in a flurry of big ticket acquisitions of retail property. Starwood's talks with Westfield aren't yet in the final stages and still could collapse, according to people familiar with the matter.

* A lawsuit brought by auto dealers has put a chill on the potential sale of R.L. Polk & Co, owner of the used-car shopping tool Carfax, according to people familiar with the matter. Polk, which provides car companies and consumers with data on autos, attracted interest from some potential corporate buyers as well as a host of private equity firms, including buyout giants Carlyle Group LP and KKR & CO LP, the people said.

Apple Inc Chief Executive Tim Cook defended the technology company's tax practices, saying Apple did not depend on "tax gimmicks" as U.S. senators grilled him over charges that the company avoided billions of dollars in taxes on international profits.

A majority of JPMorgan Chase & Co shareholders voted to let Jamie Dimon keep his chairman title, handing him a decisive victory over shareholder activists who wanted to strip him of the role.

BP has stepped up appeals against what it says are unjustified compensation payments under the settlement it reached with those affected by the 2010 Gulf of Mexico oil spill.

Europe's banking regulator has broadened its bonus cap rules to bring in far more bankers within the scope of the regulation.

G4S Chief Executive Nick Buckles has stepped down with a 16 million pound package following a series of embarrassments, raising shareholder fears over the future direction of the company.

Some of Royal Dutch Shell's shareholders called for a rethink of the company's Alaska plans amid questions over the company's troubled drilling programme there.

NYT

* Other countries have long been annoyed by Irish tax laws, but the benefit to the struggling country's economy means the rules are unlikely to change.

* Tim Cook came to Capitol Hill prepared to face down senators furious over evidence that Apple Inc had avoided paying billions in taxes, but he left having won many of them over.

* James Bullard, a member of the Federal Reserve's policy committee, warned Europe of becoming trapped in the economic stasis from which Japan is only now emerging.

* Microsoft's new Xbox game console also serves as a home entertainment hub, a response to the rising popularity of mobile devices for playing games.

* A lawyer argued that Rajat Gupta, found guilty of leaking boardroom discussions, should be granted a new trial because a judge erroneously admitted wiretapped conversations.

Canada

THE GLOBE AND MAIL

* Civic leaders are adding to a chorus of calls on Toronto Mayor Rob Ford to clear the air about allegations of drug use amid growing concern that the scandal has derailed council's business of governing.

* Without more support for industry investment in research and development, Canada will be hard-pressed to keep up with international competitors and will risk an erosion of its economic wellbeing, a report on the state of the nation's science and technology landscape by the Science, Technology and Innovation Council has revealed.

Reports in the business section:

* The damage to the ground immediately surrounding an oil car that derailed on Tuesday and spilled some of its contents in rural Saskatchewan is apparently contained. On Tuesday morning, five tank cars carrying crude oil and operated by Canadian Pacific Railway Ltd derailed outside the town of Jansen, Saskatchewan.

NATIONAL POST

* Federal NDP Leader Tom Mulcair says he was contacted by the provincial police anti-corruption squad in Quebec to discuss a suspected 17-year-old bribe offered to him. Mulcair says he never reached out to the police himself because he had no proof a bribe was actually being offered at a 1994 meeting with the now controversial ex-mayor of Laval, Quebec, Gilles Vaillancourt.

* Canada is investigating allegations that Eritrea's diplomatic mission in Toronto has continued soliciting money for the East African regime's military despite being warned by the Department of Foreign Affairs to stop.

FINANCIAL POST

* Gold mining stocks have been decimated in recent months, but Jamie Sokalsky does not think investors should expect any corresponding uptick in merger and acquisition activity. Speaking at the Bloomberg Canada Economic Summit, the chief executive of Barrick Gold Corp said there is a general "anti-M&A" mood in the gold space right now, and that investors don't even ask him about it much anymore.

* Concerns are being raised that efforts to improve efficiency at Canadian Pacific Railway are contributing to a series of accidents at the railroad in recent months, including two more this week.

China

CHINA SECURITIES JOURNAL

-- The China Securities Regulatory Commission should focus on its key duties of regulating the market and delegate unnecessary duties to other departments gradually, its Chairman Xiao Gang said on Tuesday.

SHANGHAI SECURITIES NEWS

-- A major gold deposit with estimated reserves of 53 tonnes was discovered in Yili Valley of China's northwestern Xinjiang province, government data showed. Total gold resources at the field are expected to exceed 100 tonnes, with a potential value of about 20 billion yuan ($3.26 billion).

CHINA DAILY

-- Local government officials said Dongguan in Guangzhou province remains a top destination for processing trade businesses, despite recent closures in the city being blamed on the continued strength of the yuan.

-- The Shanghai government plans to allow cold-processed poultry meat to return to the market by the end of May as there have been no new confirmed cases of the H7N9 virus in China for more than a week, giving the poultry industry a chance to recover.

SHANGHAI DAILY

-- Cosco Pacific Ltd, the container-terminal arm of China's biggest shipping group, agreed to sell its stake in the world's largest shipping-container manufacturer to its parent for $1.22 billion, according to a Hong Kong Stock Exchange filing.

-- Three rice mills in central China's Hunan province are being investigated after cadmium was found in their rice last week, local authorities said last week. The mills were ordered to recall their products and suspend business operations, according to a statement released by the county government.

Corporate Finance

* Australia's Westfield Group is in talks to sell seven U.S. shopping malls to private real estate investment company Starwood Capital Group for more than $1 billion, a source said on Wednesday.

* Roche Holding AG teamed up with Sigma-Aldrich Corp to make an unsuccessful bid for Life Technologies Corp earlier this year, people familiar with the matter said.

* U.S. prosecutors are considering charging Steven Cohen's SAC Capital Advisors as a criminal enterprise engaged in a long pattern of insider trading in stocks, according to a person familiar with the matter.

* Telecom Italia SpA is mulling spinning off its mobile unit along with its fixed-line network to bring new investors on board, three people, including a senior political source, told Reuters on Tuesday.

* Singapore state investor Temasek Holdings Pte Ltd has paid $500 million for a stake of around 10 percent stake in financial data provider Markit Group, a person familiar with the transaction said.

* Britvic Plc's new chief executive is set to lay out plans for the soft drinks maker to continue as a standalone company, casting further doubt on its proposed merger with A.G. Barr Plc, Sky News reported, citing people close to Britvic.

* A boutique carmaker led by former General Motors Co executive Bob Lutz and China's largest auto parts supplier made an offer this month to buy cash-strapped "green" car company Fisker Automotive, people familiar with the matter said.

* Chevron Corp is in advanced talks to sell most of its downstream assets in Egypt and Pakistan, three sources said, with the planned disposals seen raising around $300 million for the U.S. oil major.

* Finnish paper firm Ahlstrom Oyj is set to secure European Union approval for the merger of its label unit with Munksjo to form the world No. 1 speciality paper maker after agreeing to sell a German business, a person familiar with the matter said on Tuesday.

Fly On The Wall 7:00 AM Market Snapshot

ANALYST RESEARCH

Upgrades

Bristol-Myers (BMY) upgraded to Buy from Neutral at Citigroup
CVR Energy (CVI) upgraded to Neutral from Underperform at Macquarie
Cree (CREE) upgraded to Buy from Neutral at Sterne Agee
Roche (RHHBY) upgraded to Buy from Neutral at Citigroup
Terex (TEX) upgraded to Overweight from Equal Weight at Barclays
Volcano (VOLC) upgraded to Overweight from Equal Weight at First Analysis

Downgrades

Caesar's Entertainment (CZR) downgraded to Neutral from Outperform at Credit Suisse
Carnival (CCL) downgraded to Neutral from Overweight at HSBC
Chart Industries (GTLS) downgraded to Hold from Buy at BB&T
Dick's Sporting (DKS) downgraded to Market Perform from Outperform at BMO Capital
EPIQ Systems (EPIQ) downgraded to Market Perform from Outperform at William Blair
EQT Corporation (EQT) downgraded to Hold from Buy at Societe Generale
InterXion (INXN) downgraded to Neutral from Buy at Goldman
Joy Global (JOY) downgraded to Equal Weight from Overweight at Barclays
Newcastle (NCT) downgraded to Market Perform from Outperform at Keefe Bruyette
Rosetta Resources (ROSE) downgraded to Neutral from Outperform at Cowen
SodaStream (SODA) downgraded to Neutral from Overweight at JPMorgan
UBS (UBS) downgraded to Underperform from Market Perform at Keefe Bruyette
Warner Chilcott (WCRX) downgraded to Market Perform from Outperform at Leerink

Initiations

Chart Industries (GTLS) initiated with an Outperform at Raymond James
Coca-Cola (KO) initiated with a Market Perform at BMO Capital
Cott Corp. (COT) initiated with a Market Perform at BMO Capital
Dr Pepper Snapple (DPS) initiated with a Market Perform at BMO Capital
Galena Biopharma (GALE) initiated with an Outperform at JMP Securities
Monster Beverage (MNST) initiated with an Outperform at BMO Capital
PepsiCo (PEP) initiated with an Outperform at BMO Capital
Popular (BPOP) initiated with an Outperform at Wells Fargo

HOT STOCKS

Saks (SKS) rallied after NY Post reported Goldman Sachs (GS) hired for possible sale
Merck (MRK) announced $5B share repurchase
Moody's placed Carnival's (CCL) A3 rating on review for possible downgrade
Ford (F) raised North American capacity by 200,000 units, reduced summer shutdown, added jobs
NetApp (NTAP) reducing workforce by 900, expects $50M-$60M charge
BNY Mellon (BK) plans to increase Wealth Management sales force by 50%

EARNINGS

Companies that beat consensus earnings expectations last night and today include:
Toll Brothers (TOL), Dycom (DY), NetApp (NTAP), Intuit (INTU)

Companies that missed consensus earnings expectations include:
Staples (SPLS)

Companies that matched consensus earnings expectations include:
Compuware (CPWR), Analog Devices (ADI)

NEWSPAPERS/WEBSITES

Since the financial crisis, bonds backed by a single loan have been less common than securities made up of a group of unrelated loans. But the market for loans on commercial properties has changed in recent months and is booming again--$12.1B so far this year--the Wall Street Journal reports
Big phone companies (SAP, T, TEF, VZ, VOD, CCO) have begun to sell the vast amounts of data they gather about their subscribers' locations, travels and Web-browsing habits. The information provides a powerful tool for marketers but raises new privacy concerns, the Wall Street Journal reports
Apple's (AAPL) ability to shelter billions of dollars of income from tax has depended on an unusual loophole in the Irish tax code that helps the country compete with other countries for investment and jobs. Apple channeled profits into Irish-incorporated subsidiaries that had no declared tax residency anywhere in the world, Reuters reports
The dollar languished well below last week's 4 1/2-year high against the yen today, ahead of testimony from the Fed Chairman Bernanke after two regional Fed presidents hinted that the central bank will continue its bond-buying scheme, Reuters reports
Samsung (SSNLF) and LG Electronics are reworking their strategies for high-end TVs after spending billions of dollars on a new display technology that’s behind schedule and costs nearly $10,000 a set. The misstep has created an opening for Sony (SNE), Sharp (SHCAY) and Chinese maker Skyworth Digital, Bloomberg reports
Apple’s (AAPL) bonds have lost $280.6M of market value since buyers snapped up $17B of the iPhone maker’s debt last month, declining as yields climb from record lows, Bloomberg reports

SYNDICATE

Aeterna Zentaris (AEZS) may sell up to 2.5M common shares for up to $4.6M
Alcobra (ADHD) 3.125M share IPO priced at $8.00
Baltic Trading (BALT) files to sell common stock
CVR Partners (UAN) files to sell 12M shares for CVR Energy interests
Cadiz (CDZI) files to sell 9.69M shares of common stock for holders
Ironwood (IRWD) 10.5M share Secondary priced at $13.00
M/A-COM (MTSI) files to sell 9.24M shares of common stock for holders
NPS Pharmaceuticals (NPSP) 6M share Secondary priced at $14.53
PGT (PGTI) 11M share Secondary priced at $7.75
Portola Pharmaceuticals (PTLA) 8.423M share IPO priced at $14.50
Sensata (ST) announces 12.5M common share offering by selling holders

It's Central Banker Appreciation Day

Tyler Durden — Wed, 22 May 2013 10:56:39 +0000

Today is one on those rare days in which everyone stops pretending fundamentals matter, and admits every market uptick is purely a function of what side of the bed Bernanke wakes up on, how loudly Kuroda sneezes, or how much coffee Mark Carney has had before lunch, but more importantly: that all "risk" is in the hands of a few good central-planners. Following last night's uneventful Bank of Japan meeting, in which Kuroda announced no changes to the "full speed ahead" policy of inflation or bust(ed bank sector following soaring JGB yields) and which pushed the Nikkei225 to surge above the DJIA closing at 15,627, today it is Bernanke's turn not once but twice, when he first takes the chair in the Joint Economic Committee's "Economic Outlook" hearing at 10 am, followed by the May 1 minutes release at 2pm (which may or may not have been previously leaked like last month). As a reminder, Politico reported last night that Ben Bernanke had previously met in secret with Darrell Issa and other lawmakers "to discuss the central bank’s efforts to stimulate the economy and how it could exit this strategy in the future, according to people who attended the meeting." And since we know how important transparency is to Bernanke and the Congress, "Participants in the meeting declined to disclose specifically what Bernanke told lawmakers beyond saying there was discussion about the Fed’s bond buying programs and other issues." But as long as Mr. Issa, the wealthiest man in the House, has his advance marching orders, all is well.

Just in case there is still any doubt that the Fed is just as clueless as everyone else in this uncharted territory, Bill Dudley appeared minutes ago on Bloomberg TV with the following key observations:

Says QE tapering possible by autumn if economy improves, speaking in interview on Bloomberg TV. Or, if it doesn't as it won't as it is the Fed that is preventing growth, then impossible
Says Fed wants to make sure markets don’t overreact to taper
Says Fed hasn’t decided yet on tapering timing, steps
Says he is “very much in sync” with Bernanke on policy
Says fiscal drag obscuring stronger economic fundamentals
Sees lot of real positive things underneath the surface
Says economy not quite at “self-reinforcing” stage yet
Says 2%-2.5% growth “pretty good” given fiscal restraint
Says he’s “not very nervous” about slower inflation rate

And so on.

In other, irrelevant but still notable news, UK retail sales plunged -1.3% and -1.4% ex autos, on expectations of a +0.1% print for both, while the BOE announced it had voted 6-3 to keep QE unchanged. This will certainly change once Mark Carney takes the helm in just under two months.

And in somewhat strange news, Russia pulled a 33.6 billion ruble bond auction of 2019 OFZ bonds with a yield of 6.33%-6.38% due to lack of bids. A failed bond auction in this carry chasing environment? Surely this can't happen, and if it did, there is something more than meets the eye. Oh well, let's just ignore it as it does not fit the narrative of all is well, as confirmed by the EURCHF passing 1.26 for the first time in years, following rumblings out of the SNB's Jordan about a possible negative deposit rate. Wait, did we say "all is well" - we meant all is centrally-planned.

The remainder of the key events summarized in bulletin format courtesy of Bloomberg:

Treasuries little changed before Bernanke speaks on economic outlook, Fed releases May 1 meeting minutes; NY Fed’s Bill Dudley said policy makers will know in three to four months whether economy is healthy enough for QE to be tapered.
Dudley cited “tug-of-war between the fiscal drag and the improving economy” in an interview with Bloomberg TV; said that his views and Bernanke’s were “very much in sync”
The Bank of Japan pledged to adjust its unprecedented stimulus program as needed after a jump in bond yields that highlighted risks linked to policy makers’ campaign to revive the world’s third-largest economy
BoJ maintained pledge to double monetary base in two years; link to statement
BoE Governor Mervyn King was defeated for a fourth month in his bid to expand stimulus as the majority of officials cautioned against the danger of stoking inflation expectations
U.K. retail sales fell 1.3% in April (est. +0.1%), led by drop in food sales
CHF weakened through 1.26 vs EUR for first time in two years; SNB President Thomas Jordan yesterday said a shift of the cap on the franc and negative interest rates are among steps the central bank could take to prevent a tightening of monetary conditions
Government bonds should be excluded from the EU’s planned financial-transaction tax because the levy would drive up sovereign borrowing costs, a panel of European debt-management officials said
Apple Inc.’s bonds have lost $280.6m of market value since buyers snapped up $17b of the iPhone maker’s debt last month, declining as yields climb from record lows.

SocGen recaps the already noted key highlights, only better:

Fed chairman Bernanke's testimony before the Joint Economic Committee last year (7/6/12) produced no fireworks, with the exception of gold. A run of open and closing prices for that day reads as follows: EUR/USD 1.2559/1.2566, USD/JPY 79.13/79.60, UST 10y 1.6541%/1.6388%, gold $1,634/$1,592, S&P 1,316/1,314. What on earth is all the fuss about today, if you are really keen sell JPY and gold. But that's no rocket science and corresponds neatly with the view any USD bull has today, and there quite a few. Except that the last leg of the dollar rally has not been led by speculative accounts (see chart). Does that mean the rally is running out of steam and a dovish Bernanke reignites risk on and a weaker USD?

Strategically our secular view for a stronger USD has not changed, but the question is whether Bernanke calls for a short-term tactical switch after a 3.7% rally in the USD this month. The currency is by no means technically overbought and bright prospect of additional gains are unchanged over a 6 to12 month time horizon based on our expectations that the Fed will start tapering bond purchases later this year (Q3). However, planning ahead for stimulus exit is not the same as pledging to exit and for Bernanke (and other FOMC voters), the bar is likely to be pretty high before steps are undertaken to dial back from the current purchase rate of $85bn per month.

The FOMC minutes could include an updated guidance of how a roadmap would look once the Fed decides the time has come to take its foot off the monetary accelerator. Speculation has been building steadily since the start of the year but is only a few weeks since FOMC voters and non-voters alike have stepped up the rhetoric with some calling for tapering at soon as the June meeting. We believe Bernanke will stick to the last FOMC statement to allow the central bank maximum flexibility, and in doing so, keep bullish conditions intact for risk assets. Watch the 2.00% level in UST 10y.

It has not been a one-way street for the USD and UST yields despite speculation that 2013 could be a watershed for Fed policy. There have been a few bumps along the road which caused the USD and UST yields to give back some of the early 2013 gains, notably in March and April. In contrast, the equity and credit markets have been on a planet of their own, supported by concerted central bank efforts to support global demand. The S&P gave up 2.8% in February and 3.8% in April over one-week periods but other than that it's been fairly smooth sailing. With inflation subdued and the labour market still not satisfactory, Bernanke will be careful not to spoil the party.

* * *

And DB's recap of the past 24 hours.

Central banks are also the key focus over the next 24 hours with the Fed minutes and Bernanke speaking later. However as I type the BoJ have just concluded their latest policy meeting by reaffirming their target to double the monetary base over two years and the inflation target of 2%. In terms of the economic outlook, the BoJ said that exports and business fixed investment have stopped weakening amid improving consumer sentiment. The central bank added that indicators are suggesting a rise in inflation expectations. There was no reference made to the recent JGB volatility which was probably behind the 4bp sell-off in 10yr JGB yields (to 0.895%) in the minutes following the BoJ’s statement. We will probably get more on this at Governor Kuroda’s post-meeting press conference scheduled for 7:30am London time today. USDJPY is steady at 102.5 following the announcement.

Returning to the Fed, relatively dovish comments from the NY Fed’s Dudley and St Louis Fed’s Bullard, both FOMC voters, helped put a floor on risk assets yesterday. Starting with Bullard, who is not generally known for his dovishness, remarked that the Fed should “continue with the present QE program” because it is the best available option for policy makers to boost growth. Bullard added that he doesn’t see a good case for QE tapering unless inflation risks pick up. On the topic of IOER, Bullard said that he advocates negative interest rates arguing that paying interest on excess reserves was “mildly counterproductive”. Dudley backed up some of those comments about the pace of easing but stressed that QE should be largely data-dependent.

In terms of the market reaction, the S&P500 was trading near a session low of -0.1% yesterday, but rallied as Bullard and Dudley spoke to close at another record high of 1669.16 (+0.17%). Sectorally, healthcare (+1.1%), consumer discretionary (+0.5%) and financials (+0.2%) enjoyed the best of the gains. The latter was buoyed by news that JPMorgan’s Jamie Dimon had survived a proposal to split his role of CEO and Chairman. The proposal to split the roles drew only 32% of votes this year, was down from 40% last year, which helped propel JPM’s stock to a 1.4% gain yesterday. Better than expected earnings from Home Depot underscored a strong day for consumer discretionary stocks. As US earnings season draws to a close, it’s fair to say to that results have been somewhat mixed this quarter with 71% of US firms beating estimates, but only about half managing to do the same on the top line.

Outside of equities, 10yr UST yields threatened to breakthrough the 2.00% level yesterday before rallying 7.5bp from the intraday high to close at 1.93%. In addition to the Fedspeak, the volatility was also attributed to short covering ahead of Chairman Bernanke’s testimony today. The USD index closed higher (+0.2%) in an up and down session. Gold (-1.3%) and silver (-2%) gave up most of yesterday’s rebound amid the stronger risk sentiment and stronger USD.

Turning to Asian markets, equities are trading mostly higher overnight led by gains on the Nikkei (+1.2%). The Nikkei traded through the 15,500 mark for the first time since December 2007. The KOSPI (+0.8%) and Shanghai Comp (+0.2%) are also firmer, but the ASX200 (-0.3%) is lagging the region’s broader moves. The Hong Kong equity markets remain shut due to inclement weather (“black rain”) but are due to reopen in the afternoon. I’m glad I flew out last night from there. I did one meeting yesterday where I was so high up that I was practically in the middle of the violent thunderstorm! I was trying to convince the client that I wasn’t in the slightest bit scared!! The reality was a bit different.

In the day ahead, Ben Bernanke takes centre stage when he speaks before the congressional Joint Economic Committee on the US economic outlook at 3pm
London time. The Committee is bipartisan, and it’s safe to say that will be an effort by lawmakers on both sides of politics to prise more detail with respect to the Fed Chairman’s QE plans. The Fed minutes from its Apr30/May1st FOMC meeting are published at 7pm London today. The BoE’s will also publish its latest meeting minutes this morning. US existing homes in April and UK retail sales are the highlights on the data calendar.