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Citi Warns Of "Disconcerting Disconnects" In US Markets
While BTFATH has caught on as the new normal meme, Cti's Tobias Levkovich has another that is just as critical to comprehending the current euphoria: LMNOP = "Liquidity, Momentum, Not Operating Performance." In essence, Levkovich notes that the recent sharp move has come about as liquidity concerns have shifted to the sidelines; upward momentum for stock prices following the shutdown ending is just pulling in more short covering while long-only investors also have been buyers given the need to meet alpha generation or benchmark requirements; but operating performance by companies is simply not there in the manner that is perceived. As he concludes, "we have not seen this kind of deviation before and it is troublesome to us... we must admit to being a bit worried that investors might be facing some near term volatility."
Via Citi's Tobias Levkovich,
Companies are beating lowered estimates, but it does not seem to be all that clean.

While roughly 70% of companies have again beaten 3Q13 estimates thus far (with approximately 45% having posted results), one needs to recognize that the numbers came down from near 6% year-over-year expected EPS growth back in late June to less than 1% by the time earnings began to get reported. Moreover, a good number have made or topped forecasts on lower than expected tax rates or one-time items, suggesting that results were not necessarily comprised of high quality beats. Accordingly, it is challenging to argue that the reporting season has been all that good when some detailed insight is applied.
The margin story continues to be far less about efficiencies than smart tax and balance sheet planning.

While there is much discussion about companies being able to manage their businesses wonderfully and thus even small revenue gains can generate more impressive bottom-line increases, this mindset is illfounded, in our view. The broad data shows that overall S&P 500 operating margins have been flat to down for more than six quarters and the true story behind net margins has been lower effective tax rates and interest expense. As a result, the somewhat less than inspiring quality seen in earnings recently only supports this idea and it may not be well understood by just headline-seeking investors.
Earnings guidance has been less than stellar with a weakening trend being noted. It is always worthwhile to track the trend of guidance from companies that provide such outlooks and unfortunately, here again, the forecasts have been coming down. While estimate cuts have been anticipated, the trading direction disparity relative to forward guidance is surprising.

Indeed, certain sectors’ profit growth forecasts for 2014 still look aggressive to us, such as Materials where investors are buying the shares that have been outperforming of late but could be surprised negatively in the weeks or months ahead.
The Citi Economic Surprise Index (CESI) is sliding almost uniformly around the world.

Many investors monitor the CESI and there is coincident correlation with stock prices. Hence, it is a bit disturbing that the European, U.S., Japanese and G-10 indices have all dipped from recent highs with the inherent mean reversion characteristic of the models suggesting further weakening in many of the regions potentially acting as a drag on equity markets. While many within the investment community are hoping for a strong rally into year-end, there is the distinct possibility that it has happened already and some modest correction is more likely.
Momentum trading and excessive liquidity appears to be keeping stock prices aloft even as some other nearer-term fundamentals are slipping. With QE tapering pretty much off the table until 1Q14 at the earliest and there being no imminent government shutdowns in the next couple of months, there has been a sense that there is an open avenue for liquidity and momentum to drive share prices higher. Indeed, seasonality is cited regularly in client meetings as support for this concept.

But, as noted with respect to the CESI, quarterly results and earnings guidance, the near term may not be as rewarding, just as September seasonal weakness did not occur either.
We have not seen this kind of deviation before and it is troublesome to us, but it potentially reflects the aforementioned liquidity and momentum drivers versus less than impressive fundamentals. With our Panic/Euphoria Model approaching complacency, we must admit to being a bit worried that investors might be facing some near term volatility.
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Oh STFU and just BTFATH! Bernanke will cover the Usual Suspects (TBTF, TBTJ).
/s
"I love it when a Conspiracy Theory comes together."
And another one become a fucking conspiracy fact.
Damn, I'm good at this shit
“investors might be facing some near term volatility”
..followed by long term devastation and TEOTWAWKI.
Shitibank, enough said. No one in their right mind should be doing business with them. Boycott the big 5!
...Exactly! Dow is down 90 points right now - I'll bet anyone on this board it closes flat to GREEEEEEN! Geez, how many times do you need to see this movie over the last 5 years??
Don't worry BTFD mode is currently in progress. Soon to be replaced by BTATFH when the DOW goes green
Hey Citi, no on forced you to accept your TARP bailout, nor the allowance you get from Ben through QE.
but he still wants everybody to BUY BUY BUY!!!!!!!!!!!!!!!!!!!!
Damn, I got this trading station and it only has one button labeled "BUY!!" on it.
"The broad data shows that overall S&P 500 operating margins have been flat to down for more than six quarters and the true story behind net margins has been lower effective tax rates and interest expense."
Where was the forward guidance 6 quarters ago Citi? Crickets...
Well, we haven't hit "Euphoria" yet, so I don't see any reason to "panic".
Just don't let the Euro-phoria give way to Euro-trashed or whatever
What is so striking about this reconnect to reality of "earnings" is the extent to which your friendly nanosecond traders over at The BlowHorn [CNBC] continue to carry the lie that "earnings" are just great this quarter. I know...I know...but for me, it continues to be just stunning how cheaply folks sell their credibility...in this case, to daily pimp the "earnings" lie until such time as just one more [thin mint] greater fool can be found to buy their junk equity positions from them.
Short COMCAST for 1. buying The BlowHorn 2. for blatant incompetence in managing the disastrous situation per The BlowHorn's collapsing ratings/integrity.
They at The Blowhorn have not sold their credibility.
They have sold their very souls.
Doing that which is evil ....
For money...
something about Jesus casting the moneychangers from the Temple comes to mind for some obscure reason
I wonder how many times over J. Cramer has rehypothicated his soul...for an after hours HFT hit? Searching Yahoo finance...not finding that data.
Stop watching CNBC...it is pure propaganda. Stop looking for people in the media to have credibility...their salaries depend on them saying things that sell advertising. When you think about it, this very web site is also advertising driven. The ads I get to see as I type this are for GMC trucks...a dark sort of coincidence :)
I stopped trying to make sense of it all a few years back (since the fraud and corruption was just too overwhelming) and I turned most of the media off and I stopped buying stuff except food and my whiskey. That improved matters considerably.
Food?
Which whiskey?
I find brandy more soothing.
"Citi". Isn't that controlled by the biggest shareholders -- the Saudis?
Tobias Levkovich is prollu one of the smartest global macro strategist in the world. Has been a pleasure to work with him.
At least some people in the Arena + ZH alerts about the irrational financial world we are living in.
So ethically he has scored a goal not as full permabullish in the sell side
"Disconcerting disconnects" = the economy is in the shitter but the FED is propping the casino.
Heres a 'Disconcerting Disconnect' for you.
Put the interest rate up up to 5%. Two days later, blood on the streets. The whole shit show collapses.
A 'Disconcerting Disconnect' of this action may just see the central bwankers heads rolling down the street.
Fuckers.... Each and every one.
It would seem the number of banks that keep claiming there is a bubble and the FED needs to taper continues to grow. This can only lead me to believe that they had in place some massive short positions in anticipation of a taper that never came and now they want the FED to bail them out by tapering.
Tobias Levkovich,
Stop panicing. Relax. Plenty of QE coming with Yellen.
All of these asswipes are still contrary indicators. Let me interpret....."We need some more shorts to squeeze, so believe my BS and bet against the market. When we say that the equity markets are ready to explode to the upside, then you will know that is time to sell/short."
Off topic but I can't believe the bullshit coming out of Greenspam's mouth. He actually blames the housing bubble on the fall of the Berlin Wall.
https://grabien.com/story.php?id=2139&order=
Link the to interview with Larry Kudlow on CNBC where he says this.
For full context question and answer transcripted from the interview.
KUDLOW: “But John Taylor from Stanford and others have done econometric work and they have come around to the view, and you know Taylor's not a crazy guy, he's a conservative. He says Alan Greenspan, you were a great Fed chairman for all those years, except from 2002 to 2005 you kept rates too low for too long and that created the bubble.”
GREENSPAN: “John is terrific. He used to work for me. We are very good friends but we really disagree. Let me tell what you the take is on why I think that argument that he's making is wrong. If you look at the -- it's not the issue of, first of all, subprime, that's a minor -- almost a minor issue. The real problem is that when the Berlin Wall came down, the economic room behind the Iron Curtain was so debilitating and so unexpected that the Third World, which is what we now call the developing world, which had been largely collectivized with Fabian socialism and regulation, switched very dramatically towards market capitalism.”
KUDLOW: “And that money flowed here? Is that what you're saying? From the Berlin Wall to the U.S. markets?”
GREENSPAN: “China basically was the big mover, India's also moved. But the data show that since then, the rate of growth in the developing world is also running at twice the rate of growth of the developed world. The cultures in those societies are such that they can't spend it all and indeed China has a 50 percent savings.”
KUDLOW: "And we got the backwash, we got the backwash."
GREENSPAN: "We got this huge flow of savings, which suppressed the real rate of interest not only in the United States but everywhere."
Also here is another evil jooo Peter Schiff ripping putty face apart over this.
https://www.youtube.com/watch?v=IyiP74bPJtk
I watched that and my jaw dropped; "WTF did he just say!?!?"
Greenspan is fishing in the sea of horrendous excuses for the biggest fish tale he can find.
His ability to convince is severly lacking. He's been all over the place.
It ain't working. He's shit in the history books.
"Off topic but I can't believe the bullshit coming out of Greenspam's mouth. He actually blames the housing bubble on the fall of the Berlin Wall."
That is old news. Greenspan said that years ago. He also blamed globalism at the time.
I don't remember him saying that back when. Not saying he didn't just it is news to me and relevant news at that since he repeated it again the other day.
this crap always comes out anytime we hit a FATH.
then he can say "see? i told ya so"
move on