Across the entire curve, credit spreads on JCPenney are exploding. The curve is inverted with the market indicating an almost 50% chance of default within the next 2 years (specifically in 2014 as opposed to pre-2013 Xmas). The stock price is collapsing further (though we suspect a gaggle of analysts calls to catch the accelerating knife - just as we saw last time). At $6.30, this is the lowest stock price since March 1981, on the back of yet another downgrade (this time with a $1 target) by none other than the same Mary-Ross Gilbert who proclaimed the most recent quarter a success and suggested buying the debt in just August.
Petro-dollars, the word used to describe the billions of dollars earned from the sale of oil and natural gas, have helped change the shape and future of many counties in the Middle East, usually for the better, but not always. In a few short years Petro-dollars have helped shape the Gulf states into the modern and futuristic looking cities of the future that one finds in today’s architecture in Dubai, Doha and Riyadh. But now those petro-dollars are being used to shape the political future of the region and to model specific policies in a number of countries, such as Syria, for example, where petro-dollars are hard at work today.
Newsflow is weak to non-existent. S&P futures volume is 40% below average for this time of day; and ranges across all asset classes are low. Is this the calm before tomorrow's jobs report storm or the calm before storming even higher... The S&P 500 tested new all-time highs earlier (just after the US open) but is fading back. The Nasdaq and Trannies are outperforming with a notable drift lower in the almighty Russell (as momo names stutter - ahead of NFLX earnings maybe?). Treasury yields are modestly higher; the USD in unchanged (back from higher earlier); and Oil is down 1.4% from Friday's close. Silver is up 1.5% while gold and copper are unchanged. Thera er two things of note: VIX remains divergent from stocks... and credit markets are not happy.
Money put into the system would, in normal times multiply aggressively in use (e.g. Fed to bank, bank to business, business to consumer, consumer to restaurateur, restaurateur to farmer, farmer back to bank etc etc.) In reality, as Citi notes, there are often even more legs to this multiplier. However when QE puts artificial support under the Equity and Bond market you get misallocation of capital and no velocity of money. If ever there was a chart of the gross misallocation of capital caused by QE, this has got to be it...
Historians who look back on these strange years of suspended consequence will marvel at how this empire of grift kept its wheels turning after its engine died. Being on the downhill slope is often enough to keep anything going. One might think the young people of this land would be seething at the eclipse of their futures, but it seems they have been successfully lobotomized with cell phones — when the endorphin hits lag between text messages, they can watch sitcoms, or porn. You can be sure there will be a snapback from all this drift and anomie, and when it comes, the snap will be savage.
First it was David Viniar, rumored for so long to be Lloyd's next logical replacement, who rode into the Goldman sunset. Now it is the turn of Goldman's Vice Chairman, Michael Evans, one of the firm's most senior execs and the person who many had expected would ultimately replace Lloyd Blankfein when it was time for succession at the firm that executes God's will (net of 3-5% in commissions) to depart quietly into the night.
Several hours earlier, news broke that a bomb had exploded on a bus in the southern Russian city of Volgograd, a few hundred kilometers from Sochi where the winter Olympics will be held. Russian investigators announced they suspect a female suicide bomber was responsible for the bombing which killed at least five people according to Interfax. Citing a source in the regional Investigative Committee office, Interfax said identity documents belonging to the suspected bomber were found near the site and that she was believed to have been the wife of an Islamist militant. Below, we show the dash cam video which caught this terrorist act in process.
For the first time since July 2009, the European equity markets have risen for 8 days straight. The 4.73% rise is the best run in 3 months and took Bloomberg's European 500 index (akin to the S&P 500 in the US) to a perfect 61.8% retracement of the 2007/9 collapse. Greece and Spain are outperforming (the former +7% in the last 3 days alone). Away fdrom stocks, bonds are quiet, sovereign spreads are hardly moving as liquidity evaporates and while the EUR strengthened early on, as the US day session opened, the EUR sold off back to unchanged by the close of Europe. In the meantime, Europe's VIX dropped to 9 month lows (below 16%) today. Oh - and by the way - European Macro data has collapsed to 3-month lows.
We've heard statement after statement from any and all talking heads (a sample of the best 25 here) and we've seen the numbers (both internally and in context)... and we've discussed the unintended consequences and what to expect in 2014. So now (due at 1125ET - so who knows what time he turns up), it's the big man's turn to become the Sham-Wow guy; explain how great it actually is (and ignore the bloggers); how any minute now it will all be fixed, and how awesome this will all be (one day)... Don't forget you can always call 1-800-F U-CKYO for advice.
Just two weeks ago we discussed the dismal smog that had closed roads and ariports around Beijing during the recent holiday. The situation has got worse, far worse, since then. As Reuters reports (and the stunning images below show), choking smog all but shut down one of northeastern China's largest cities on Monday, forcing schools to suspend classes, snarling traffic and closing the airport in the country's first major air pollution crisis of the winter. An index measuring PM2.5, or particulate matter with a diameter of 2.5 micrometers (PM2.5), reached a reading of 1,000 in some parts of Harbin, the gritty capital of northeastern Heilongjiang province and home to some 11 million people. A level above 300 is considered hazardous! China’s leadership is concerned about air quality because it is a constant source of public anger.
Druckenmiller Blasts Obama: "Show Me When You Initiated Budget Discussions Without A Gun At Your Head"Submitted by Tyler Durden on 10/20/2013 22:45 -0400
One of the great ironies of the Obama presidency is that it has been a disaster for the young people who form the core of his political coalition. High unemployment is paired with exploding debt that they will have to finance whenever they eventually find jobs, and as Stan Druckenmiller explains in his WSJ interview, the "rat through the python theory," (that fiscal disaster will only be temporary while the baby-boom generation moves through the benefit pipeline and then entitlement costs will become bearable) is simply wrong; since, by then Druck exclaims, "you have so much debt on the books that it's too late." Unfortunately for taxpayers, "the debt accumulates while the rat's going through the python." The hedge fund billionaire adds that he "did not think it would be nutty to tie entitlements to the debt ceiling because there's a massive long-term problem. And this president, despite what he says, has shown time and time again that he needs a gun at his head to negotiate in good faith." The interview goes much, much further...
Thanks to a considerable downward revision of the magical NAR numbers, the existing home sales MoM 'beat' expectations for September but the two-month average shows the largest drop in sales since June 2012. From the "cylical peak" in July, of course extrapolated by any and all apologists as confirming the voyage to the moon, it seems, just as we noted, that "affordability" - long shunned by the bulls (because, like you know, interest rates are still low compare to the 1970s...) - has collapsed to five-year lows; worse, in fact, than we expected. With 33% of all transactions cash, it is little surprise that affordability has fallen to a five-year low as home price increases easily outpaced income growth.
What do you expect to happen? The causal chain cannot be disrupted by wishful thinking. Bubbles will pop, and increasingly leveraged, fragile systems will crash. Hoping causal consequences will magically vanish is a strategy doomed to catastrophe.
All those who claim there is no inflation, and a tsunami of hot central-bank money flooding the world, are advised to check out the housing numbers reported overnight by UK's property website Rightmove, according to which asking prices in London saw an "unsustainable" 10% month-on-month increase in October. This sent the typical asking prices in the capital to £544,232, a new record high surpassing the previous high set in July by more than £28,000. But if you thought a 10% increase in one month was bad, what is the proper adjective to describe a 12% increase in home prices in... one week!?