Remember when Bill Ackman told Icahn on CNBC he should tender for the company (to a less than favorable reply)? Well, Icahn may have done just that: moments ago the belligerent billionaire just reported a 12.98% stake in Herbalife, adding that he intends "to have discussions with management of the Issuer regarding the business and strategic alternatives to enhance shareholder value, such as a recapitalization or a going-private transaction." Needless to say, the stock soars, and it remains to be seen if the epic short squeeze that we predicted, and that Icahn confirmed on TV could happen if there is not enough float to satisfy all the shorts, will be next. Volkswagen anyone?
Over ten years ago, when Europe was a bright and shining example of experimental monetarist "brilliance", and when the money was flowing, the continent decided to do the ethical thing and actively promote the pursuit and development of renewable energy through countless government subsidies. As a result, Germany and Spain became the undisputed leaders in the race for a green future, and both created similar laws to encourage the development of renewable energy. There were two problems: i) green energy, while noble in theory, is about the worst idea possible when it comes to profitability and capital self-sustainability and constantly needs governmental subsidies, and ii) it was the end consumers who would pay for the government's generosity, in the form of a surcharge on electric bills. In Germany, for example, as the industry grew (in size, and thus in losses) demand for the subsidy increased, driving the surcharge higher. In January, the surcharge, which amounts to about 14% of electricity prices, nearly doubled to 5.28 euro cents per kilowatt hour. And here is where a third problem comes into play, because while German and Spanish consumers were happy to pay a surcharge in the golden days of a Dr. Jekyll Europe when everything was great, soon Europe become a doomed Mr. Hyde-ian Frankenstein monster, with imploding economies, 60%+ youth unemployment and resurgent neo-nazi powers. In short: the German and Spanish consumers have had it with funding an infinite money drain (even bigger than Greece), when cash flow is scarce and getting worse, and have just said "Basta" and "Nein", respectively.
Japan's Amari Backtracks On "Stock Market Targeting", Says Government Has No Price Target For The NikkeiSubmitted by Tyler Durden on 02/14/2013 21:30 -0400
If anyone is confused why the BOJ refused to do anything of note until January 1, 2013 at which point it would proceed with open-ended monetization a la the Fed and the ECB's OMT, the reason is simple: it allows the country's (transitory) leaders to jawbone, threaten, cajole and coax, in what will be daily attempts to talk the currency lower without actually implementing any monetary action: just like the ECB has done so far. Case in point: the now daily speeches by Japan's economic and fiscal policy minister Akira Amari, who every single day of the past week has been talking to reporters, on many case openly contradicting himself, and whose only purpose is to spook any remaining Yen longs into submission. Sure enough here comes today's sermon:
- AMARI: ABE CAREFULLY CONSIDERING BOJ GOVERNOR CANDIDATES
- AMARI: ABILITY OF BOJ CANDIDATES MORE IMPORTANT THAN BACKGROUND
But funniest of all:
- AMARI: GOVERNMENT HAS NO TARGET FOR STOCK MARKET
Wait, back up, what? It was just four days ago that Amari himself made it very clear that he would not sleep until the Nikkei hit 13,000 by the end of March.
In typical 'crazy-talk' ways, Venezuela is 'pledging' that its currency devaluation will not increase inflation in the country and, as The FT reports, has warned it will crack down on businesses that raise prices. Hot on the heels of Argentina's ignoration of inflation and recent price controls (and advertising bans), it would appear Venezuela is next as grey market dollars are changing hands for 22 Bolivars - massively lower than the official (just devalued) 6.3 Bolivars per USD rate. An 'equilibrium' rate is believed to be around 9 Bolivars but with Chavez still MIA and Maduro running the show, the 'nymphomania' for dollars - as Venezuela's finance minister called it - continues as businesses are simply unable to find tenable USD to use for imports. Contagion is also spreading as Colombia's FinMin Cardenas fears goods being smuggled across the border - creating inflation there too.
The great trade, capital flow and debt imbalances that were built up over the preceding two decades must reverse themselves. Michael Pettis notes, however, that these imbalances can continue for many years, but at some point they become unsustainable and the world must adjust by reversing those imbalances. One way or the other, in other words, the world will rebalance. But there are worse ways and better ways it can do so. Pettis adds that, any policy that does not clearly result in a reversal of the deep debt, trade and capital imbalances of the past decade is a policy that cannot be sustained. It is likely to be political considerations that determine how quickly the rebalancing processes take place and whether they do so in ways that set the stages for future growth or future stagnation. Pettis' guess is that we have ended the first stage of the global crisis, and most of the deepest problems have been identified. In 2013 we will begin to see how policymakers respond and what the future outlook is likely to be. The following 10 themes are what he will be watching this year in order to figure out where we are likely to end up.
Just over two years ago, we reported that "The Farce Is Complete: S&P Downgrades Moody's To BBB+ From A-2", or in other words, one rating agency downgraded another rating agency, with the following rationale: "While we believe it is likely that the new pleading standard will lead to an increase in litigation-related costs at Moody's and therefore poses an element of risk, whether the new pleading standard may increase the likelihood of successful litigation against Moody's will be determined in the future by the courts.... Moody's management has stated that it plans to adapt its business practices in an effort to offset any potential new litigation-related costs associated with the legislation. Nevertheless, we believe that Moody's will likely face higher operating costs, lower margins, and increases in litigation-related event risk that we believe may present risks to the company's reputation." Well talk about irony, and of course role-reversal, now that it is not Warren Buffett's pet company Moody's (which is just as guilty as US-downgrading S&P was in rating financial toxic garbage as AAA), but S&P that was just sued by the DOJ and the kitchen sinks. And the last laugh - the piece de resistance as it were - sure enough, belongs to Moody's, which just downgraded S&P parent McGraw Hill.
Another day, another ugly glimpse of economic reality, another volume-less bid for every dip in stocks as momentum is all. Today, it seems, the bullish meme remains: earnings, which we know were abysmal if judged correctly (and appear extended longer-term); valuations, which we know are higher than at the previous peak on a forward P/E (and are notably expensive on a long-term cycle basis); dividends and cash on the balance sheet (which has been created by relevering firms significantly and in no way represents 'flexibility'); and buybacks - if management is buying then we're all in - which, based on SocGen's Albert Edwards' excellent works, turns out to be a great market-timing tool for bulls to run for the hills. Four charts for the bullish faint of heart...
As the charts below show, more quantitative easing is unlikely to have a beneficial effect. The transmission mechanism is broken. What good is new money if it’s just sitting unused on bank balance sheets? What new productive or useful output can be summoned simply by stuffing the banks full of money if they won’t lend it? The sad truth is that a huge part of the financial sector has failed. Its inefficiencies and fragilities were exposed in 2008, as a default cascade washed it into a liquidity crisis. And yet we have bailed it out, stuffed it full of money in the hope that this will bring us a new prosperity, in the delusional hope that by repeating the mistakes of the past, we can have a prosperous future. The sad truth is that the broken, sclerotic parts of the financial sector must fail or be dismantled before the banks will start lending again, start putting monies into the hands of people who can create, innovate and produce our way to growth.
While it is commendable that Bernanke has generated a wealth effect of some 12% for those few who are planning for retirement, another problem is where the funding for this increase has come from. As Bloomberg explains, while two thirds of the increase came courtesy of the stock market, or some 8% in absolute terms, the rest was from funded (and matched) contributions to accounts. This is equal to $2733 in actual money set aside for retirement in 2012, a far cry from the maximum allowed $17,500 per year, with the actual cash outflow excluding the corporate match substantially less. This amount to a measly $228 per month (less net of matching) that the average American who has a 401(k), has set aside for retirement. We understand now why Bernanke is so hell bent on hitting that Dow 32,000 bogey - without it, the average retired American will wake up very soon one day and realize that the money is gone. All gone.
Nothing matters - that is all. Some of the ugliest macro data we have seen in a while (apart from an 'estimated' initial claims print) and the moment the US opens - the bid is in (discounting Buffett's inflows?). It seems that the market has decided that if it quietly goes up day after day by a point here or there then noone will notice - and call it for what it is. S&P 500 has closed within a 4 point range for the last week - 1518, 1517, 1519, 1520, 1521. Financials were bid, Utilities offered, and Tech tracked AAPL up and down. Treasuries rallied notably from the open of the US day session, recoupling with stocks from yesterday's 'great rotation' sell-off. The USD leaks higher, with GBP weakness and modest JPY strength on the week, weighing on PMs further as Silver ran lower this morning (to test unchanged YTD) but bounced from the open on. VIX compressed to 12.65% and held stocks up. Oil remains bid above $97 - handy outperfortmer on the week. So summing it up - 4 days of uber low volume, falling average trade size, gently rising stocks, flat USD, flat Treasuries, lower gold, and higher oil. And for the record, S&P options skew (complacency) is now at pre-crisis levels.
Until last night, United which combined with Continental in 2010, was the nation's largest airline (surpassing Delta which had merged with Northwest some two years earlier). This morning this changed when the previously disclosed merger between US Airways and bankrupt American Airlines, was formally announced. The resulting airline, with some 26% of the market share is now the nation's largest legacy carrier, bigger than United at 19.3%, Delta with 19.2%, and discounted Southwest with 18.2%. Below are some of the key highlights of this brand new airline behemoth. And just like that, taxpayers now eagerly await the bailout of United South-American Deltawest Airlines in 2-3 years: the first Too Big To Take Off airline.
If 2012 was the year Mayor Mike crushed the (apparently second) greatest evil in society: super-size sugary drinks, in 2013 he has found a new target in his neverending nanny-state vendetta: the pure, concentrated evil that is styrofoam.
It seems the massive gains and obvious pre-deal trades that we highlighted earlier nudged the SEC off their kiddy-pr0n sites and into action. Via Bloomberg:
- *SEC SAID TO REVIEW POSSIBLE INSIDER TRADING IN HJ HEINZ :HNZ US
But, of course, this is the SEC...
- *SEC HEINZ REVIEW MAY NOT LEAD TO INVESTIGATION, THE PERSON SAID
We await their justification that because no downgrade of the US was conducted by the perpetrator of this glaring insider trade, no charges will be forthcoming.
Starting at around 10amET this morning, the 'markets' began to get a little more odd than normal. The glimpses we got overnight are playing out in FX, Treasury, and credit markets - i.e. they are trading in a notably risk-off mode, recognizing the doubt over economic recovery and perhaps even concerns at the sequester. However, while it may not come as a huge surprise to many, equities have no fear and as bond yields test the day's lows, S&P 500 futures test the day's highs... recoupling on the week. All is well...
With central banks sponsoring their own (and each other's) bond markets, and every financial entity owning its own and each other's bonds, Santelli pops his lid over the Pollyanna business leaders (like Bob Lutz - proclaiming GM's European business is troughing because Goldman Sachs is buying European bonds) are pointing to market-based bond prices as indicative of optimism and that economically the worst (must) be over. "Forget the wall of worry, this is the wall of weakness", Rick rants, and the interconnectedness of global markets now means if Goldman is right (as we noted yesterday) that Treasuries are 200bps rich then how does that reconcile with growth that is just bumbling along as evidenced with today's GDP prints from around the world (and surging unemployment). Just what is the Fed going to do to save the world this time? - buy $160bn more per month if we see global weakness restart? How do traders react to slowing global growth? Buy Treasuries? Indeed, the good is bad but bad is better meme seems back and being a trader is, as Rick notes, nigh on impossible.