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With David Tepper "BWICs To The Wall", Has The Smart Money Begun "Greatly Rotating" Out Of Risk?





No one typifies the bullish euphoria of the last year better than Appaloosa's David Tepper (except perhaps Laszlo Birinyi). It appears, however, that everyone's favorite perma-bull is up to his old tricks again. The manager who infamously opened his mouth about how he couldn't be more "balls to the wall" bullish of US financials - and then proceeded to reduce his positions notably in the quarter following that media appearance - has seemingly done it again. His appearances earlier this month on CNBC and Bloomberg were both full of hubris and arrogance as he encouraged the world to grab financial stocks with both hands and feet. However, as Fox Business' Charlie Gasparino reported yesterday, Tepper's Appaloosa is now seeking bids (to unwind a long position) for $400mm of European bank debt - doesn't seem so balls-to-the-wall bullish to us? With two weeks left to the great unveiling of the Q4 13Fs, we wait anxiously to see just how big Tepper's 'balls at the wall' really were/are.

 
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Advice From The Department Of Homeland Security: "If Attacked By A Shooter, Grab Some Scissors"





We first heard about this from a New York Post article on the topic.  Then we watched the video for ourselves.  It’ll make you want to defund the Department of Homeland Security (DHS) immediately.  While the whole “grab scissors” to defend oneself during a mass shooting is pretty amusing, the more disturbing part is that 90% of the video just consists of people on their knees in cubicles cowering in fear or running panicked with their hands in the air.  All the while police in black uniforms and “assault weapons” race in to save the day!  The video is a great representation of how the DHS views the citizenry.  Feeble, helpless, pathetic little children.  You’ve gotta watch it for yourself!

 
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Gold Leasing: The Case Of The Disappearing Gold





The practice of gold leasing has been endorsed by none other than Alan Greenspan, former Chairman of the Fed. The gold is leased to a bullion bank, which typically pays one percent interest to the Fed, with a promise to return it on a specified date. The bullion bank then sells the gold on the open market and uses the proceeds to buy Treasury bonds, which will net a three to four percent return. The nicest thing about such an arrangement is that the lessor continues to claim it on his balance sheet as a line item: “gold and gold receivables.” After all, an asset that we have leased out is still an asset, even if it has now been sold by the lessee. In effect, this means that, if you bought a gold bar today, it is possible that it is a bar that was shipped from the Bundesbank to the Federal Reserve decades ago and is presently listed by the Fed on its balance sheet as “gold and gold receivables.” Both you and the Fed are claiming to possess the same gold bar. The fly in the ointment, of course, is that only one bar can be the actual bar. The other is a receivable and therefore is an asset on paper only. This, of course, means that there is less gold in the world than has been claimed. How much less? That’s anyone’s guess.

 
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"The Winners Of The New World", Circa February 2000





Because humor is always the best and only cure to pervasive central planning that has made a mockery of traditional investing and capital allocation, and because nobody delivers unlimited sheer, unadulterated humor quite as well as one James J. Cramer when he is "recommending" stocks, here is the full text of Jim Cramer's "The Winners of the New World" speech delivered in February 2000. Because it really never is different this time.

 
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Dan Loeb Sells 15% Of Yahoo Stake In Past Two Days





While the initial response to last week's YHOO earnings was afterhours euphoria all of which fizzled in the first hours of trading, sentiment on the firm which has yet to do more than merely promise may sour in the coming days even more following news late on Friday that the company's formerly staunchest advocate, Third Point's Dan Loeb sold some 15% of his stake, or 11 million of 73 million shares on Thursday and Friday at a price between $19.68 and $19.70. The remaining stake is now 62 million shares, which means Third Point is now longer the firm's largest institutional holder with a 6.17% stake, but drops to 4th place behind Capital Group and above Vanguard, who own 67 and 48.9 million shares respectively. The reason given for these opportunistic sales is that they were "motivated by Third Point`s desire to maintain a roughly consistent percentage holding of Yahoo`s outstanding shares as the company pursues its $5 billion buy-back authorization." Of course considering the $1.5 billion in shares that YHOO has actually bought back represent some 6.5% of the outstanding, one is a little confused how a 15% stake reduction is hedged relative to an actual buyback that is some 60% smaller. Does this mean another 15% stake cut in Q1 when YHOO, supposedly, buys back another $1.5 billion?

 
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The Complete And Unabridged Works Of Dylan Grice





Dylan Grice may no longer work at SocGen, and, as we reported previously, has finally put his mouth where his money is and opted to replace his desk at a government subsidized, undercapitalized French megabank with a hedge fund invested 60% in precious metals, but his wisdom remains. And while we are confident that we have covered all of his prior reports over the years, we now provide one handy, 244-page compendium covering the bulk of Grice's work over the past 4 years. Covering the financial gamut: from Valuation, to the Euro Crisis, to Japan, to Asia, to Gold and commodities, all the way to the Philosophically arcane, we are confident that the attached presentation will provide countless hours of reading pleasure for all.

 
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China's Broken Shock Absorber





Analysts who’ve only started paying attention to the country in the last decade often seem convinced that China has no real business cycle, or a very mild one, that because its economy is centrally planned, it’s free from the fluctuations in investment that cause booms and recessions in countries that lack the scientific guidance of a Leninist single-party state. This convenient belief, however, is mostly an artifact of the period over which they’ve been observing its economy. The boom of the early 1990’s wasn’t followed by the usual bust. Instead, after a fairly mild slowdown, another boom period began towards the end of the decade, without the usual deep cyclical trough between expansions. However, this anomaly suggests that it is unlikely to be repeated. We’re probably living, now, with a China that’s back to the sort of violent swings in economic activity, and repeated struggles with inflation, that have been characteristic of most of its recent history. To understand why, it’s necessary to understand DeWeaver's explanation of the nature of the cycle itself.

 
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Morgan Stanley On Europe: "We're Getting Worried"





We have noted the similarities between the current risk rally and previous years but Morgan Stanley's Laurence Mutkin is "getting worried" that investors expect the second half of this year to be different (and consistently bullish). Much of the current risk-on rally around the world was sparked by Draghi's "whatever it takes" moment theoretically reducing the downside tail-risk in Europe. Well, systemic risk in Europe is now at recent lows and just as in 1H12 and 1H 11, core yields are rising notably, peripheral spreads compressing, money-market curves are steepening, and 2s5s10s cheapening. Of course, he notes, 2013 is different from previous years (OMT for example) but much rests on how ECB's Draghi responds to the recent (LTRO-repayment-driven) rise in EONIA forwards. Albert Einstein reportedly said that insanity is doing the same thing over and over again and expecting different results. Applying that to the European bond market - for the third time running, the year has opened well but it would be insane to expect a different outcome (than the typically bearish reversion) this time?

 
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It's Deja Vu, All Over Again: This Time Is... Completely The Same





It was the deep of winter... CNBC was talking about "animal spirits", had just touted "the best January in 14 years", was quoting Raymond James' Jeff Saut as saying that "The market "is amazingly resilient, and is no longer overbought" and desperately doing everything it could to get retail back into stocks, and was succeeding: retail inflows into stocks were surging and seemed unstoppable... The Chicago PMI had just printed at its highest level in decades... the VIX was dropping fast... Stocks were soaring... Bonds were sliding... NYSE margin debt had just risen to the highest level since 2008... A few brief months earlier the Fed had unleashed a new, massive round of unsterilized bond buying...  Bank of America was blaring about the "great rotation" for stocks, and yes - just shortly prior "global currency warfare" had broken out. 

Name the year?

 
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Japan’s Demographic Disaster





Projections by the Japanese government indicate that if the current trend continues, the population of Japan will decline from its current 127.5 million to 116.6 million in 2030, and 97 million in 2050. This is truly astonishing and puts Japan at the forefront of uncharted demographic territory; but it is territory that many other industrial countries also are beginning to enter as well. Obviously, only time will tell.  But Japan is faced with an unprecedented population challenge that will have social, economic, and political consequences over the next century—consequences that will not only affect Japan, but also influence Japan’s trading partners as well as its political and military allies. There is, perhaps, no single variable in the complex web of East Asian politics more uncertain in terms of how it may influence future relations throughout the region than the fate of Japan’s population.

 
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5% Correction Sell Signal Triggered... Just Like In January 2011





We previously explained the obvious similarities (with stocks, bonds, and leveraged positions) with the current period in the market and the end of 2010 and start of 2011 period. Much is once again being made of the 'flows' as $18.8bn (the 3rd largest on record - since 1992) pushed into equities. Retail also bought long-only equities for the fourth straight week ($2.7bn), and $12.2bn was added via ETFs, but the significance of the flows has triggered a "sell" signal for the traders at BofAML. The last time such a sell-signal was triggered was, ironically, late January 2011 - which was followed by an 8% correction. Their Global Flow Trading Rule (based on flows breaking 0.5% of AUM) on average has led to a 5% correction in global stocks over the subsequent 4-5 weeks. Different, this time?

 
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The State Of World 'Macro' At A Glance





As you shuffle from cocktail party to cocktail party and reminisce on holding NFLX all month and being short AAPL, perhaps the following 'simple' table should be tucked in your pocket. Since everyone is now a genius stock-picking market guru, sometimes seeing the forest for the trees in macro land is useful... note, red is bad...

 
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Bearish VIX Positioning Near Record, As Russell 2000 Non-Commercial Longs At All Time High





There were two quite notable pieces of information in today's Committment of Traders weekly update: on one hand, the net non-commercial spec position in VIX futures just plunged by 16,222 contracts to 104,284. This was just shy of the all time low net VIX spec position hit in early December, and means bets that the VIX will continue plunging lower will likely set a new record next week.  It could also mean that courtesy of the reflexivity of the market, in which the underlying is driven by its synthetic derivative (for a detailed explanation of how that works just ask Bruno Iskil and how massively mispriced various IG credits were thanks to his whale trade in IG9), the VIX itself is being pushed around by the VIX futures itself. That the dramatic move lower in the VIX futures began with the appointment of Simon Potter as head of the NY Fed's trading desk is perhaps not surprising.

 
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Dow Closes Over 14,000 - Highest Close Since October 2007





While the close was not exactly bullish (just look at HY credit, volatility, and homebuilders), the only thing that matters is - Dow 14,000. The highest close since 10/12/2007. Since that time, 10Y Treasury yields have dropped from 4.68% to today's 2.03% - the first close above 2.00% since early April 2012. Risk-assets spent the day catching up to equity's early lead and recoupled into the close. Some modest after-hours weakness to the shine off an otherwise exuberant day as Treasuries snapped lower in yield on NFP and spent the rest of the day surging higher in yield to end the week +6 to 8bps. Silver gained 2% on the week - beating stocks, as the USD dropped 0.7% (almost equal to Gold's gain). With stocks unch from Oct 07, perhaps it is worth reflecting on Gas prices being up 58% since then... but that would spoil the party... and by the way from 10/12/2007...Bonds +28.5%

 
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Weekly Bull/Bear Recap: Jan. 28-Feb. 1, 2013





This objective report concisely summarizes important macro events over the past week.  It is not geared to push an agenda.  Impartiality is necessary to avoid costly psychological traps, which all investors are prone to, such as confirmation, conservatism, and endowment biases. 

 
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