For the last few years, the US equity market has soared through Q4 and into Q1 and macro-economic indications have trended with them in a virtuous circle 'confirming' that this time it's different and recovery is 'on'. Then just as investors get all bulled up, convinced by the market's all-knowing-efficiency that the old normal is back and growth is returning, macro-economic data starts to disappoint expectations. This is initially shrugged off - "it's a transitory dip", "the market sees through this temporary weakness", "where else are you going to put your money?" - and the stock buying continues through the Winter. But there comes a time, when the divergence from economic reality grows too wide and the 'faith' that the market knows best starts to fade; and sure enough, each time, the market drops back rapidly to reality. What is the common denominator for this winter surge?
Indifference has historically been accepted by multiple cultures and religions as a vice. Isn’t it about time, in an era where democracy appears to be slowly gaining ground, that we successfully battle such vice with its corresponding virtue: indignation? After all, indignation is not just anger, but righteous anger at people or situations that are truly offensive or unjust to the better nature of humankind. As we look at the arrogance of the strong, and the ignorance of the weak, we can’t help but recognize that at least for now... vice rules over virtue and our country will continue to remain long on indifference and short on indignation. And that’s not a prescription to cure us from terrorism... or, what’s even worse, the fear of terrorism.
Confused why AAPL is opting for the dividend recap route (as we predicted it would in January )? Simple: as the first chart below reminds us, as of December 31, nearly 70% of the company's total cash, which has grown to a record $145 billion in the current quarter, was held offshore. This means that if AAPL wanted to repatriate this $100 billion or so in cash, it would have to pay Federal tax on it, amounting to dozens of billions in remittances to Uncle Sam as this is cash which AAPL does not have full access to for US based operations. Hence: it has opted to raise cash by issuing debt instead of repatriating its cash.
We have been reporting extensively on the terminal disconnect between the paper gold market, which tumbled ten days ago for a variety of reasons, and the physical gold market which one can safely say, has seen a record surge in demand by those who wish to take advantage of the tumbling prices, depleting inventories of gold and silver in virtually all jurisdictions, and leading to the a record purchase of gold in the US mint a week ago as also reported here. Today, we learn that, as expected, none other than the US Mint has officially run out of small denomination gold coins, in this case One-Tenth ounce American Eagle gold bullion coins. We are confident this incontrovertible proof of soaring retail demand for physical will somehow result in JPM or another bullion bank dumping a few extra thousands ounces of paper/electronic gold or silver to further disconnect the paper price from what is actually going on with physical demand. As for the US Mint, first it's fractions of an ounce: look forward to the mint running out of all bullion denominations in the coming days and week, first in gold, then in silver as well.
Not supremely confident despite the stock market being at all-time highs? Unsure of the future and feeling poorer than in the past? You are not alone. In fact, you are among the 93% majority. As the Pew Research Center finds, during the first two years of the US economic 'recovery', the mean net worth of households in the upper 7% of the wealth distribution rose by an estimated 28%, while the mean net worth of households in the lower 93% dropped by 4%. As they explain, affluent households typically have their assets concentrated in stocks and other financial holdings, while less affluent households typically have their wealth more heavily concentrated in the value of their home. Due to these differences, wealth inequality increased during the first two years of the recovery. The upper 7% of households saw their aggregate share of the nation’s overall household wealth pie rise to 63% in 2011, up from 56% in 2009, with the mean wealth of affluent households now 24x the less affluent group (up from 18x in 2009). So the next time you see some talking-head on TV devoutly proclaiming his faith in the Fed's QE policies, perhaps it's worth considering in which cohort he and his clients sit.
"You will not see economic growth until you liquidate the debt and liquidate the malinvestment out there," is the hard truth that former Congressman Ron Paul lays on Bloomberg TV in this wide-ranging interview. Paul is concerned at "the erraticness of the dollar... and its devaluation," explaining that, "people think the gold price up and down is a reflection of something wrong with gold; no, I say it is something wrong with the dollar." The topic gravitates to inflation, which Paul explains is far from missing as, "Bond prices go up. Stocks are going up. Housing prices are starting to go back up again. Education costs are going up," adding that, "CPI is not reliable." Paul is buying gold, believes "we are in as much trouble as Greece," and while fascinated by the free market nature of Bitcoin, he notes that while he doesn't fully understand it, "if I can't put it in my pocket, I have some reservations about that."
The United States is a deeply unhappy place. We are a nation that is absolutely consumed by fear, stress, anger and depression. It isn't just our economy that is falling apart - the very fabric of society is starting to come apart at the seams and it is because of what is happening to us on the inside. We are overwhelmed by anxiety, and much of the time the ways that we choose to deal with those emotions lead to some very self-destructive behaviors. Americans have experienced a standard of living far beyond the wildest dreams of most societies throughout human history, and yet we are an absolutely miserable people. Why is this? Why is America #1 in so many negative categories? There is vast material wealth all around us. So why can't we be happy?
Apple is out with Q2 results which are hardly inspiring. Revenue and sales beat, but margins missed and guidance is weak:
- The good news: Q2 Revenue: $43.6 billion, Exp. $42.3 billion
- Q2 EPS: $10.09, Exp $9.98
- And the not so good news: Q2 margin weaker than expected 37.5%, Exp. 38.5%
- And Q3 revenue seen at $33.5-$35.5 billion far below the estimate consensus $38.4. Remember: AAPL no longer sandbags the future
For those looking for a special dividend you won't see it, instead will have to be satisfied with a buyback expansion by $50 billion (eventually), and an increase of 15% in the dividend. Ironically, cash cow AAPL just announced it will raise debt (and got rated by various rating agencies) in order to fund its cash outflow. In other words, it is slowly but surely becoming a utility. So much for the near infinite growth projections.
As we tweeted somewhat prophetically this morning when futures were still modestly red:
If sliding Chinese and German PMI data don't send the S&P to new all time highs, nothing will
— zerohedge (@zerohedge) April 23, 2013
And sure enough, equities close at the highs of the day (up over 1.5% from the overnight lows) and back near all-time highs once again. Ignoring the well-discussed elephant-in-the-room of the fake-tweet-based-flash-crash which exposed all that is unholy about the financial markets (i.e. coordinated HFT algos across every futures-market risk-asset); we note that shorts were heavily squeezed today, grossly outperforming the indices and JPY carry trades pulled stocks up tick-for-tick. Bonds sold off about 8bps higher in yield from overnight lows on the terrible data but yields ended the day only modestly higher (far removed from equity exuberance). The Dow, intriguingly, closed perfectly unchanged to the moment the Boston news hit last week, but the Russell was the day's big winner...
“Recovery” has become the shibboleth constantly invoked by people running things after the crisis of 2008. Unfortunately, no such recovery was underway. It was papered over by the twin Federal Reserve policies of quantitative easing and financial repression – a combination of the nation’s central bank loaning vast new amounts of money into existence at ultra-low interest rates (hardly any interest to pay back) and creating steady monetary inflation to reduce the burden of existing debt by shrinking the dollar value of the debt. The program was a racket in the sense that it was fundamentally dishonest. The presumed purpose of these shenanigans from the point of view of the Federal Reserve and the White House was to keep the financial system stable and afloat, and therefore to keep “normal” American daily life going. Unfortunately, it was based on the unreal assumption that the financial norms of, say, 2006 could be ginned back up again, and this premise was just inconsistent with the reality of a post-Peak-Cheap-Oil world. Unfortunately, there was no organized counter-view to this wishful thinking anywhere within the boundaries of the political establishment.
260,000 S&P 500 e-mini contracts traded in the three minutes following the fake AP Tweet. That is ~$20.4 Billion notional value 'changed hands'. For those with trailing stops, our condolences...
Another word for locked (or where the bid and ask are the same; the only condition which is worse - crossed, where the bid is higher than the ask)? Broken.
Presented with little comment aside to note that based on a tweet, the 'deeply liquid' US equity market collapsed instantaneously as all those liquidity-providing 'algos' jumped ship. The good news, if indeed this was merely a test for "the big one", is that everyone managed to sell ahead of everyone else. Right?