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Frontrunning: January 30





  • Boeing misses Q4 top line ($22.3 bn, Exp. $22.33 bn) beats EPS ($1.28, Exp. $1.18), guides lower: 2013 revenue $82-85 bn, Exp. 87.9 bn
  • Hilsenrath discovers DV01: Fed Risks Losses From Bonds  (WSJ)
  • Airlines had 787 battery issues before groundings (Reuters)
  • Monte Paschi ignored warnings over risk, documents show (Reuters) as did Mario Draghi
  • China averts local government defaults (FT)
  • Economy Probably Slowed as U.S. Spending Gain Drained Stockpiles (Bloomberg)
  • Bono Is No Match for Retail Slump Hitting Dublin’s Fifth Avenue (BBG)
  • Catalonia requests €9bn from rescue fund (FT)
  • US plans more skilled migrant visas (FT)
  • Japan PM shrugs off global criticism over latest stimulus steps (Reuters)
  • CIA nominee had detailed knowledge of "enhanced interrogation techniques" (Reuters)
  • Cleanliness Meets Godliness as Russia Reeled Into Cyprus (BBG)
  • Deutsche Bank Seen Missing Goldman-Led Gains on Cost Rise (BBG)
 
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The Honey Badger Market Grinds Higher





The honey badger ramp continues, once more driven entirely by the USD carry as both the EURUSD and USDJPY hit new highs (14 month and 3 year, respectively). The EUR took another major leg higher following today's second ECB refinancing operation in two days, a 3 month LTRO, in which just €3.71 billion was allotted to some 46 bidders, far less than the €10 billion expected particularly in the context of the €6 billion the matured, leading to further Euribor curve steepening, more non-expansion of the ECB balance sheet, and a surge in the EURUSD to new post-2011 highs of 1.3560. But if it wasn't this it would be something else. Elsewhere we got the final official Spanish GDP number, which as previously reported once again came worse than expected at -0.7%, compared to expectations of -0.6%, and -1.8% Y/Y vs Exp. -1.7%. But once again we are told to ignore current reality and look with optimism to the future as various European confidence indices posted higher than expected prints. This seems logical: when the ugly fundamentals don't matter, one must at least pretend there is hope they will improve in the future to serve as a buying catalyst. Finally, and what the surging EUR and crushed exports are all about, Italy sold some €6.5 billion in 5 and 10 year BTPs at yields of 2.94% and 4.17%, both respectively lower than the prior auctions of 3.26% and 4.48%.

 
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The Farce Must Go On: Senate Suddenly Furious With Eric Holder For Allowing Banks To Become "Too Big To Jail"





Or what happens when Wall Street Muppet A is vewy, vewy angwy with Wall Street Muppet B and desperately needs a ratings boost.

 
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RANsquawk EU Market Re-Cap - 30th January 2013





 
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Another Day, Another 5 Year High (Except For Trannies)





The Dow Transports broke its 10-day streak with a very marginal down day today but the Dow Industrials and the S&P 500 all pushed on miraculously running stops and pushing higher. While VIX remains decoupled the two markets traded in a correlated fashion to get the ramp going early and along with Treasury weakness risk-on was well supported. Risk-assets in general are becoming more systemically correlated as USD weakness and oil strength also contemporaneously pulled stocks to highs (led by energy on the week). The afternoon saw VIX decouple from stock's strength and also on the day overall, credit markets were not following along. Volume was above average with some larger block size up near the highs. FX markets reconverged (JPY weakness and GBP strength) to more systemic USD moves as the 10Y tested up near 2.000% but closed just below it. Gold and Silver rose continued their gains from yesterday midday. In general it appears risk is recoupled ahead of tomorrow's FOMC - apart from HY and VIX which appears more hedged.

 
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Frankrupt Damage Control "France Is A Truly Solvent Country, France Is A Truly Credible Country"





In a move farcically reminiscent of Inspector Clouseau, the French Finance Minister made an impromptu appearance on the BBC to confirm what we all should have known all along: that "France is a truly solvent country, France is a truly credible country." As the Washington Post notes, the oh-so-honest faux-pas that enfant terrible Monsieur Michel Sapin made yesterday - explaining how his nation is "totally bankrupt" - had French politicos scrambling today to recover their je ne sais pas. It would appear the crisis management approach taken is the repetitive Jedi mind-trick and of course we should believe Moscovici - even as France faces near-record unemployment, ratings downgrades, fiscal atrophication thanks to a plunge in competitiveness, and backlash among the elites at its increasingly socialist policies. "This is not the France you are looking for," and sure enough, now we believe them.

 
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Silver Eagle Sales Surge To All-Time Record In January





A massive 7.4 million Silver Eagles were purchased from the U.S. Mint in January, considerably higher than the previous record from early 2011. After halting Silver coin production/sales for over a week, the Mint re-opened yesterday and demand once again surged. Having almost doubled from the first week in January, there remains two more days before the book is closed on January's sales. At 140,000 ounces, the Mint has also sold the most ounces of gold in January in almost three years, suggesting the rising 'currency wars' are stoking people's ongoing rotation from paper-to-physical assets as their 'wealth' slowing loses its value.

 
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Guest Post: You Know You're Not Living In A Free Country When...





You know you’re no longer living in a free country when the government tells you what you can and cannot put in your body. Or when an unelected board of bureaucrats and corporate insiders can confiscate the assets of hardworking small business owners. Yet these have become par for the course in the Land of the Free. The police, the bureaucrats... they are not the enemy. They are merely pawns of an entire system gone critically bad. In truth, there is no actual enemy. The enemy is an idea - a faceless government that is not embodied in a single individual or group. Trying to ‘fight’ this enemy, this idea, is as futile as a government ‘declaring war’ on drugs or poverty. These are not enemy combatants. They’re nouns. Concepts. As such, trying to ‘take back’ the country is a noble yet unfortunately misguided expenditure of precious resources.

 
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China Hits Key Demographic Ceiling As Working-Age Population Now Declining





The meme of the moment remains China's 'rotation' to urbanization as the new growth engine, but as SocGen's Wei Yao notes, while this shift from farmers to manufacturers has raised productivity, urban population growth is set to decelerate rapidly in the current decade. Yao comments that the impact of urbanization has been "misunderstood and overstated by the market" as it is now official that China’s working-age population has peaked and is starting to decline. China’s National Bureau Statistics announced that the share of population aged between 15 and 60 years old declined for the first time in 2012 by 0.6ppt to 69.2%. This slower labor growth brings China ever closer to the so-called "Lewis Turning Point"  at which excess labor in the agriculture sector is fully absorbed into modern sectors - leading to no or negligible productivity improvements. The bottom line is that hopes for "new urbanization" appear overdone, given the demographic (and productivity) headwinds and China's focus should shift to social safety nets and not torrid physical construction.

 
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Zimbabwe's Total Cash On Hand: $217.00





Several years after revealing the first one hundred trillion modern-day banknote and seeing its economy implode in a cloud of hyperinflationary smoke, Zimbabwe's problems are back with a vengeance. And this time not even more currency destruction, as Zimbabwe does not actually have its own currency any more having largely shifted to foreign currencies primarily the USD and the ZAR - can help. The problem? The country is officially out of cash. From AFP: "After paying public workers’ salaries last week, the balance in cash-strapped Zimbabwe’s government public account stood at just $217, Finance Minister Tendai Biti said Tuesday. “Last week when we paid civil servants there was $217 (left) in government coffers,” Biti told journalists in the capital Harare, claiming some of them had healthier bank balances than the state. “The government finances are in paralysis state at the present moment. We are failing to meet our targets.”" Sadly not even the projected and quite hilarious 5% GDP growth of the now completely broke country, which can't even create money out of thin air as there is nobody who will lend it even one penny, will do much if anything. (Here we will briefly ignore the fact that Zimbabwe's net cash position is about $120,000,000,000,217.00 greater than that of the US)

 
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Guest Post: The Siren Song Of The Robot





The quest for cheap energy and cheap labor is a conquering human urge, one that has played out with notable ferocity starting with the Industrial Revolution. The introduction of coal into British manufacturing, and the more recent outsourcing of Western manufacturing to Asia, have marked key thresholds in this ongoing progression. But despite the harvesting of additional productivity gains from the more recent revolution in information technology, the suite of macro data suggests that the rate of advancement in physical production has slowed, notably, in the past thirty years. Seen in this light, the greatest gains to global industrial production were probably enjoyed from the late 18th century (when coal extraction and use began in earnest) into the mid-20th century (when oil reached broad distribution). In contrast, computers, the Internet, and the leveraging of developing world labor might eventually be seen as the finishing touches on this great industrial wave.

 
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Chesapeake Energy Surges On Aubrey McClendon Exit





Update: it appears Carl Icahn agrees with our assessment: CARL ICAHN SAYS CHESAPEAKE'S COLLECTION OF ASSETS "ARE THE BEST PORTFOLIO OF ENERGY ASSETS IN THE COUNTRY"

Back in May 2012, when Reuters' all out aggressive campaign against Chesapeake Energy was in full swing and the stock was trading around $14 per share but before Icahn and Loeb were publicly involved, we predicted that contrary to the endless balance sheet bashing there was, in fact, much upside to CHK. We said that the argument rests on one simple fact: its asset base, which ignoring the firm's liabilities - as in a ZIRP environment, even CHK could easily refi its debt at very agreeable terms - and the CEO's lousy industry reputation implied a far higher stock price for the company. To wit: "the company has lots of good assets, as well as quite a few legacy liabilities, combined with an industry environment that is as bad as it has ever been. And sure enough, in betting that the environment might actually improve for a change, there are quite a few big firms which may be happy to onboard the assets and the liabilities, knowing they wouldn't impair the right side of their balance sheet, while acquiring some good real estate and substantial reserves on the left, at a valuation that is the cheapest in the industry. Because in finance, once central planning is (finally) stripped away, valuation is all that matters." And even before that, a far more immediate catalyst we predicted would be a simple succession event "which eventually will culminate with the long overdue termination of the company's head." Or, said simply, the sacking or resignation of the disgraced CEO would unlock material upside value. Moments ago just this happened, as the company just announced a "succession plan" the direct result of which is that the CEO is out as of April 1. The upside value in question: just about 10% as the stock is currently soaring in the after hours session.

 
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Student Loan Bubble Update: "This Situation Is Simply Unsustainable"





"The delinquency rate today on student loans that were originated from 2005-2007 is 12.4 percent. The comparable figure for student loans that were originated from 2010-2012 is 15.1 percent, representing an increase in the delinquency rate by nearly 22 percent....This situation is simply unsustainable and we’re already suffering the consequences,” said Dr. Andrew Jennings, FICO’s chief analytics officer and head of FICO Labs. “When wage growth is slow and jobs are not as plentiful as they once were, it is impossible for individuals to continue taking out ever-larger student loans without greatly increasing the risk of default. There is no way around that harsh reality.

 
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Amazon Misses, Growth Slows, Guides Lower, P/E Goes Negative And Stock Soars





The most cartoonish stock of all time just came out with results that can only be characterized as ugly. To wit:

  • Q4 revenue of $21.27 billion missed expectations of $22.23 billion
  • Q1 EPS of $0.21 missed expectations of $0.27;
  • The firm guided top-line lower, seeing Q1 sales of $15-$16 billion, below the estimate of $16.5 billion
  • The firm guided operating income much lower, seeing Q1 op income of ($285)-$65 Million on expectations of $261.4 MM
  • The firm said the its physical books sales had the lowest growth in 17 years
  • Total employees grew by 7,000 in the quarter and 32,200 Y/Y to a record 88,400
  • Worldwide net sales Y/Y growth was the slowest in years at 23%, down from 30% in Q3 and 34% a year ago
  • And, last and certainly least, LTM Net Income is now officially negative, or ($49) meaning as of this moment the firm with the idiotically high PE has an even more idiotic N/M PE.

... And the stock is soaring in the after hours. Thank you DE Shaw.

 
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Santelli's Paradox And Why The Fed's Exit Will Be "Very, Very Messy"





We are in our sixth year since the US officially went into recession and yet, as CNBC's Rick Santelli notes, we are still in crisis management mode. Some argue that any day now, the Fed will begin to remove its mega liquidity pipe from the market but Rick exclaims in this wonderfully succinct clip that: "there is no expiration date on faulty illogical ideas," as he expects any Fed exit to be "very, very messy." Rick's dilemma is the seemingly paradoxical need for yet moar and bigger monetary policy crisis management by Ben Bernanke when day-after-day we are told by the very guests on his network that "stocks look great." At the end of the day, when the Fed decides to exit, they will not be able to put the liquidity 'toothpaste' back in the tube.

 
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