The face of Yemeni deli clerk Mutahar Murshed Ali was slashed nearly in two for committing that most grievous of offenses: refusing to "sell" a Colt 45 to a drunk 20 year-old in exchange for foodstamps (whose usage Zero Hedge readers know, recently reverted back to all time highs). Of course, Ali was perfectly in his right to refuse to exchange booze for EBT: we reported recently that "New York would prohibit welfare recipients from spending their tax-funded benefits on cigarettes, alcohol, gambling, and strip clubs under a bill passed overwhelmingly by the state Senate." That however appears to not have bothered the assailant, who nearly cut off the deli vendor's face off in retaliation for not getting the "entitled" quid-pro-handout.
VIX is nothing more than the market's implied 'factor' that makes the supply-demand of options prices fit with model-based parameters. In simple terms it measures the market's expectations for volatility (up or down moves - not just down) going forward. Empirically it has a relationship with realized volatility - how much the market actually moved up or down relative to what VIX expected - and professionals will use various 'scalping' techniques to lock in day-to-day gains from the difference between the market's actual movement and what options prices expected. To wit: the current expectations of central bank action, just as it did in 11/2011 (global CB action) and 1/2012 (LTRO1), has caused a slow steady leak higher in stocks which crushes realized volatility - currently at record lows. This in turn drags implied vol lower as the 'scalpers' sell vol to capture the difference. With September 'events' around the corner, we suspect there are only a few more days before realized vol picks up and implicitly implied vol momentum scalpers are squeezed out again (and despite a low absolute VIX, the market IS pricing for a pick-up in risk).
It's like Deja-Vu all over again. The last two days effluence exuberance in European stocks - most specifically Italian and Spanish broad indices - is extremely different from the lack-luster moves in corporate, financial, and sovereign credit markets. Yes, we know short-sale bans; we know fast-money; we know liquidity; but it is beginning to become a little farcical that equities are doing what they do with no follow-through from the actual underlying markets that 'should' benefit the most from whatever it is that the equity markets are rallying for. EURUSD ends the week perfectly unchanged from last Friday. Spain and Italy 10Y end the week down 60bps and 25bps respectively (but the gains were fading fast today - even as stocks accelerated). Europe's VIX collapsed 1.7 vols to around 21% today after being steady all week (as US VIX drops below 14%).
Bridgewater's Ray Dalio is quoted in a recent Barron’s interview, describing the current phase of the U.S. deleveraging experience as “beautiful”. He goes on to explain the three options for reducing debt: austerity, restructuring and printing money. “A beautiful deleveraging balances the three options. In other words, there is a certain amount of austerity, there is a certain amount of debt restructuring, and there is a certain amount of printing of money. When done in the right mix, it isn’t dramatic. It doesn’t produce too much deflation or too much depression. There is slow growth, but it is positive slow growth. At the same time, ratios of debt-to-incomes go down. That’s a beautiful deleveraging.” That sounds pretty good and makes sense. Or does it?
We all make mistakes. In the investment world, some mistakes arise from having imperfect information, some from not anticipating the future correctly and some from sloppy analytics. Sloppy analytics includes everything from outright mathematical errors or misinterpretations, to poor assumptions, to overfocusing on unimportant variables or underfocusing on important ones. Analytics is the most critical and controllable part of the investment process, but even if done flawlessly does not ensure a favorable outcome by any means because the views/ behaviors/incentives of other investors – and indeed, the investment environment itself – change continually in ways that can’t be anticipated. But there is one more common mistake that is a consistent source of perplexity for active investors. Over the years, my experience has been that those who lose money more often (and in greater amounts) than they should, often do so because of overconfidence. Overconfidence can lead to the conviction that one is only buying investments that will be highly profitable and one is only selling investments that no longer have significant upside potential. This can lead to a lack of diversification and a heavy concentration of money in a single investment or asset class. Overconfidence, however, also leads to overtrading.
The reason the market is up today? Jefferies' Peter Misek hikes his price target on Apple from $800 tio $900 (the same AAPL which is now supposed to grow almost exclusively in China, and where as Apple Insider just reported "China's second-largest carrier may end contract sales of Apple's iPhone"). Yes, middle market, $100-$200MM high yield bond issuer Jefferies has an equity research group. And yes, after working at JPmorgan, Scotia, Orion, Alpcap, and Canaccord in the past decade, Misek finally has found a place he can call home (for more than 2 years), or at least until the next bonus renegotiation-cum-upgrade option time. And yes, Jefferies actually is moving the volumeless market for the first and only time ever courtesy of 1.000 implied correlation between the NASDAPPLEURUSD. Which is great. Maybe Misek will be right here.,, Unlike his calls on DragonWave for example, where he was buying all the way from $7 until $2, in the interim moving his Price Target from $9.00 to $3.50 to $10.00 to $3.00. Peter likes even numbers. He keeps it simple, except for his $699 PT on AAPL back in March- why $699? "It's one iPad." Sometimes he likes it complicated.
"It's defining a new category in real estate" is how the ultra-luxury apartment business is seen in New York. Goldman's Lloyd Blankfein and his buddies (including Sting) at 15 Central Park West are set to double their money as Bloomberg reports four condos in the Richie-Rich style extravaganza of a building have hit the market at asking prices at an average 192% over what owners paid in 2007 and 2008. The most expensive (a five-bedroom 35th floor pied-a-terre), topping Oaktree's Howard Mark's previous $52.5mm record purchase at 740 Park, is priced at a stunning $95mm. Testing the glass ceiling of a $100mm apartment is nothing though - as just like the rest of the nation's apparent house price recovery 'tight supply is supporting the current spate of eye-popping asking prices' which obviously will mean an influx of 'very expensive' inventory hitting the market in the coming years. For $95mm we wondered exactly what the apartment comes with? Perhaps $90mm of gold bars on the coffee-table? Perhaps Hugh Verrier and his wife Celia sum up the largesse perfectly: "we just thought of it as a living space". Indeed, Hugh, indeed.
University of Michigan Consumer Confidence came modestly higher than expected and limped higher off the lowest levels of the year. However, aside from this apparently positive event (accoding to some media pundits), there are two worrying things shifting rapidly. Consumer outlook for the economy (as opposed to current conditions) dropped to their lowest of the year with the largest 3-month drop in 11 months (so much for hope?); and inflation expectations soared by the most in 17 months.
While one may wonder about the implications of the just announced "accelerated windown" of the GSEs, predicated in no small part by the surge in animosity between Tim Geithner and the FHFA's Ed DeMarco, there is one aspect of the announcement that is completely and utterly unambigious: as part of its justification to demand faster liquidation of Fannie and Freddie's "investment portfolio" Tim Geithner gave the following argument:
This will help achieve several important objectives, including... Ending the circular practice of the Treasury advancing funds to the GSEs simply to pay dividends back to Treasury
Transfer one more conspiracy theory into the conspiracy fact bin.
Probably no other commodity is tied to global growth, especially EM and China growth, than the key steel-making ingredient - Iron Ore. The iron ore price continues to plunge and it would appear that very few are focused on it. Critically, this is the one commodity that is not a futures contract, cannot be manipulated by trading desks or by levered hedge funds. Despite all the euphoria about risk assets and commodities - and the central bank front-running - Iron Ore prices continue to sink lower and lower...
Gold continued gains on Friday receiving a boost from Angela Merkel’s comments saying she supported ‘Super’ Mario Draghi’s pledge “to do whatever it takes” to save the euro. While this sentiment lifted markets and some investors hope ECB action is sooner rather than later - it is also creates the risk of currency debasement and could lead to further falls in the euro. At the beginning of August, the European Central Bank said that it might buy Spanish bonds if the government first applied for the European Financial Stability Facility (EFSF) support. The ECB has said that specific committees within the bank would design the appropriate mechanisms for the bond purchases in the coming weeks, suggesting a possible green light within a few weeks.
Crony Socialism Strikes Back: Geithner Retaliates Against DeMarco; Accelerates Wind Down Of GSE Treasury BackingSubmitted by Tyler Durden on 08/17/2012 08:41 -0400
Two weeks ago we reported in Geithner To DeMarco: "I Do Not Believe [Un-Socialism] Is The Best Decision For The Country" that TurboTax Tim did not take lightly to FHFA head Ed DeMarco's snubbing of the worst treasury secretary ever, when DeMarco refused to comply with Tim Geithner's "proposal" for mortgage principal reduction in effect forcing responsible taxpayers to bail out irresponsible ones. Lots of media posturing and free-market bashing ensued. Today, Tim has once again taken the offensive, and is announcing plans that the Treasury is accelerating the winddown of its backing of Fannie and Freddie and that going forward instead of a 10% dividend, the Treasury will be entitled to a "full income sweep" of the GSEs on behalf of the US Treasury. One can only hope that the loan loss reserve reduction which was the sole source of Fannie and Freddie "profit" (see Bank of America) will continue. And since it won't, it is once again Tim Geithner who ends up with the short end of the stick in his idiotic attempt to escalate a matter which is far beyond his meager comprehension skills. And here is the kicker: "The agreements require an accelerated reduction of Fannie Mae and Freddie Mac’s investment portfolios. Those portfolios will now be wound down at an annual rate of 15 percent – an increase from the 10 percent annual reduction required in the previous agreements. As a result of this change, the GSEs’ investment portfolios must be reduced to the $250 billion target set in the previous agreements four years earlier than previously scheduled." Oops MBS market, unless of course there is someone who will miraculous step up and buy the "excess investment portfolio"... who could that be... who could that be? Ah yes: Giethner just greenlighted the MBS purchases (sorry MBS twist - no cookie for you) portfion of QE3. And finally, following today's unambiguous renationalization of the GSEs, does this mean that US debt is now $16+6 trillion or over $22 trillion courtesy of the GSEs which are now on the US balance sheet?
The absence of any ket EMU events combined with a relatively muted news flow on the debt crisis amid the summer vacations/doldrums and a major lack of bond supply from the periphery until the end of August has created a favorable environment for peripheral debt. Draghi's August 2nd comments drove risk-on and as UBS notes, this amplified the usual thin liquidity and light volumes. However, all these fun and games are about to stop as September has myriad events slated that are likely to have significant impacts on investors' demand for peripheral paper. Spain, in particular, after seeing its stock and bond markets surging euphorically, is about to suffer a double-whammy. Gross issuance for the rest of the year is estimated at EUR8bn per month (and could rise to EUR13bn per month) implying EUR4-6bn per auction twice a month - keeping bonds back under pressure as supply approaches. As if that was not enough, Delinquencies on Spanish bank loans just soared to new all-time highs, rising by the most in over three years and accelerating. So, after a calm summer vacation, Spain (optics aside) is bad and about to get much worse.
Peripheral stock indices continued to outperform today, as market participants reacted to yet another reiteration of support for ECB’s pledge to do all necessary to defend the Eurozone. As a result, banks in Europe are trading up with decent gains, with health care sector in the red given its traditional appeal as a safe-haven investment. German DAX continues to consolidate above the key 7000 mark, being driven higher by Daimler and Deutsche Bank. Looking at other asset classes, there is visible outperformance in the short-end of the curve, with the in-focus Spanish 2s tighter by around 20bps mark. The ongoing speculation of an intervention in the bond market also weighed on the German Bund, which underperformed its US counterpart. USTs come off overnight highs to trade little changed, with the move attributed to deal related selling. In the FX market, the EUR continued to re-price risks surrounding what is inevitable an unlikely scenario of a Eurozone break up. To the upside, resistance levels are seen at the 55DMA line at 1.2395 and then at 1.2400, which is also an intraday option expiry for the session.