A Comedy Of IMF Forecasting Errors: Global Trade Growth Tumbles More Than 50% From IMF's 2012 PredictionSubmitted by Tyler Durden on 01/21/2014 11:33 -0400
The most notable feature of today's set of numbers is the IMF's forecast of world trade. In a word: it is crashing. Consider that 2013 world trade was expected to grow by 5.6% in April 2012. Now: it is more than 50% lower at just 2.7%! Yet what is truly hilarious and certainly head scratching, is that somehow the IMF now anticipates a pick up in global growth in 2014 from its previous forecast of 3.6% to 3.7%, even as global trade is revised lower once more to the lowest prediction for 2014:, and currently stands at just 4.5% compared to 4.9% in October 2013 and 5.5% a year ago (it goes without saying that the final global trade number for 2014 will be well lower than the IMF's optimistic forecast). How global GDP is expected to grow on the margin compared to previous forecasts even as trade contracts is anyone's guess...
Let's see: do massive sinkholes next to the headquarters of other massive sinkholes, located in a bankrupt city that may soon become a massive sinkhole, qualify for Federal bailouts?
Markets have started the week on the back foot, despite a brief rally following a better-than-expected Q4 GDP print in China. Indeed, Asian equities recorded a small pop following the GDP report, but the gains were shortlived as the general negativity on China’s growth trajectory continues to weigh on Asian markets. In terms of the data itself, China’s Q4 GDP (7.7% YoY) was slightly ahead of expectations of 7.6% but it was slower than Q3’s 7.8%. DB’s China economist Jun Ma maintains his view that economic growth will likely accelerate in 2014 on stronger external demand and the benefits from deregulation. The slight slowdown was also evident in China’s December industrial production (9.7% YoY vs 10% previous), fixed asset investment (19.6% YoY vs 19.9% previous) and retail sales (13.6% vs 13.7% previous) data which were all released overnight. Gains in Chinese growth assets were quickly pared and as we type the Shanghai Composite (-0.8%), HSCEI (-1.1%) and AUDUSD (-0.1%) are all trading weaker on the day. On a more positive note, the stocks of mining companies BHP (+0.29%) and Rio Tinto (+0.26%) are trading flat to slightly firmer and LME copper is up 0.1%. Across the region, equities are generally trading lower paced by the Nikkei (-0.5%) and the Hang Seng (-0.7%). Staying in China, the 7 day repo rate is another 50bp higher to a three month high of 9.0% with many investors continuing to focus on the Chinese shadow banking system following the looming restructuring of a $500m trust product that was sold to ICBC’s customers.
"It is wrong to link [the Turkish Lira's] fall to the corruption probe," blasted Turkey's Prime Minister Erdogan, explaining that the Lira's fall "is linked to the Federal Reserve's actions." Since the taper was announced the Lira has collapsed over 12%, trading at 2.269 to the USD, a record low for the troubled nation's currency. Of course, the timing is useful for the PM to explain his nation's demise (as it is also proving a good excuse for Thailand - with massive outflows amid its riots; and Ukraine) but it seems the problems on the streets of Turkey are anything but going away. Today's drop in the Lira (the 7th in a row) follows a somewhat surprising "disastrous for their credibility" decision by the Turkish Central Bank to leave rates unchanged (and still warn of inflation).
It appears the early (pre-market) strength in US equities provided just the right amount of stop-hunting room for longs to cover and sellers to re-appear as the S&P 500 tested up towards record highs (and unch year-to-date). US equities ran away from their JPY-related proxy briefly but have collapsed back down to it now as perhaps the tell was a push higher in VIX right from the open. VIX rose over 13% briefly - its highest in a week - as US equities (notably the Dow with no support from Visa or American Express to save its skin) tumbled. Treasuries have ben rallying since 0600ET - about the same time gold and silver were slammed. Precious metals are rallying admirably off the lows as stocks tumble (and the USD is unch on the day now)
S&P filed a declaration of McGraw yesterday in federal court in Santa Ana, California, as part of a request to force the U.S. to hand over potential evidence the company says will support its claim that the government filed a fraud lawsuit against it last year in retaliation for its downgrade of the U.S. debt two years earlier. In his court statement, McGraw said Geithner called him on Aug. 8, 2011, after S&P was the only credit ratings company to downgrade the U.S. debt. Geithner, McGraw said, told him that S&P would be held accountable for the downgrade. Government officials have said the downgrade was based on an error by S&P. “S&P’s conduct would be looked at very carefully,” Geithner told McGraw according to the filing. “Such behavior would not occur, he said, without a response from the government."
Herbalift: Barclays Raises HLF Price Target From $78 To $94, Says Herbalife's "China Business Model Is Unique"Submitted by Tyler Durden on 01/21/2014 10:29 -0400
The soap opera that just won't end... won't end. After last week's collapse in the price of Nuskin, which dragged down the price of Herbalife, there were some rumors that Ackman's calls for a collapse of one of the best performing stocks of 2013 may finally come true. Not so if Barclays has anything to say about it. Moments ago the British bank reported that it is raising its price target on HLF from $78 to $94, and anticipates some 34% upside from current levels. From the just released report: "Our new EPS also reflects a large stock buyback. HLF has said it was comfortable with leverage of 2.5x, which would permit it to repurchase stock worth about $1.5bn ($1.2bn from new debt, $0.3bn from cash). HLF has many ways to execute a buyback: dutch tender, ASR, or enhanced open market purchases, but right now it is in a blackout period following YE13. We assume the stock is repurchased at prices of $80 (1Q14) and $85 (2Q14), leading to 18.4mn shares being retired. Our price target rises to $94 from $78, which represents 15.0x our new FY14 EPS of $6.27 vs 13.8x our old $5.65. We maintain our OW rating." Cue some more theta.
Dan Loeb Goes Activist On Dow Chemical, Reveals DOW As Largest Position, Urges Spin Off Of Petrochem BusinessSubmitted by Tyler Durden on 01/21/2014 09:58 -0400
In a letter posted moments ago on Hvst.com, activist Dan Loeb announced that currently the largest investment of his Third Point is Dow Chemical, where he proceeds to use the usual hack-attack "spin off" proposal , and urges Dow to sell its upstream and downstream Petrochemical businesses (as Dow Petchem Co), about which it says, "the benefits from a spin-off far outweigh the supposed integration benefits." The reason: "Dow shares have woefully underperformed over the last decade, generating a return of 46% compared to a 199% return for the S&P 500 Chemicals... in April 1999 an investor could have purchased Dow shares for the same price that they trade at today." Now imagine where those shares would trade without $10 trillion in liquidity pumped by the central banks. We wish Loeb all the best: recall that precisely this strategy did not quite work out with Sony. The good news: George Clooney will hardly give a rat's ass what Dan Loeb does with some obscure "chemical" company, and thus Loeb's invites to the Hollywood party circuit are secure.
UPDATE: Some chatter that the earlier drop occurred around a story on the overhauling the London Gold fix (amid all the manipulation talk).
With no apparent news - who needs news - the precious metals market participants have decided that now is the time to sell, sell, sell in huge volume and all of a sudden... Gold is down 1.3% - its biggest drop in a month; and silver is down 2.8% - its biggest drop in 5 weeks. Gold has dropped back down to test its 50DMA and silver has crossed back down through it. Bonds are modestly bid, stocks ar enot moving on this collapse and the USD is hardly budging.
The Syrian peace talks - much heralded by investors and politicians worldwide as a brave step towards a better future - are on the ropes this morning. Following the UN acquiescence to the US demand that they rescind Iran's invite to the so-called Geneva II conference,and yet another suicide bombing in Lebanon, this morning's incredible SNAFU is thanks to the Greeks:
- GREECE REFUSES TO REFUEL SYRIAN GENEVA TEAM AIRCRAFT: SYRIA TV
- SYRIAN AIRCRAFT DELAY CANCELS MEETING WITH UN’S BAN: STATE TV
The peace accord set to begin tomorrow will be delayed and are in further jeopardy as CNN reports further evidence of Syrian President al-Assad systematically killing and torturng around 11,000 people.
ECB Fails To Sterilize Bond Purchases In 4th Failure Of Last 6 Attempts: Harbinger Of Upcoming Unsterilized QE?Submitted by Tyler Durden on 01/21/2014 09:18 -0400
The last time we pointed out an ECB bond sterilization failure as part of its legacy SNP program was on December 30 of last year (the third in a row), when a liquidity glut led to the biggest sterilization shortfall, one amounting to €39 billion, when only 89 banks submit bids to absorb paper in exchange for a paltry tip. Moments ago, the ECB reported that in just the third such sterilization auction of the new year there was once again a failure to absorb all the €177.5 billion in outstanding toxic peripheral bonds, when an impressive 126 bidders showed up and yet were only able to generate only €152.1 billion in bids, leaving a €25 billion shortfall.
- Hilsenrath: Next Cut in Fed Bond Buys Looms - Reduction to $65 Billion Could Be Announced on Jan. 29 (WSJ)
- China Workforce Slide Robs Xi of Growth Engine (BBG)
- Obama pulls the race card: Obama Says Race May Blunt Poll Standing in Interview (BBG)
- Chinese firm's IPO deal switches banks as chairman's daughter moves from JPMorgan to UBS (SCMP)
- China and Russia may hold joint naval drill in the Mediterranean (RT)
- Iran invite to Syria talks withdrawn after boycott threat (Reuters)
- Seven Chinese IPOs Halt Trading After 44 Percent Share (BBG)
- U.S. military says readying plans for Olympic security assistance (Reuters)
- Thank you Bernanke: Investors Most Upbeat in 5 Years With Record 59% Bullish in Poll (BBG)
- From His Refuge in the Poconos, Reclusive Imam Fethullah Gulen Roils Turkey (WSJ)