Presented with little comment except to note that Bloomberg's Chart-of-the-Day highlights specifically what we have been discussing for weeks as in this earnings season, only 47% of companies in the S&P 500 have so far exceeded analyst expectations - the lowest since before the credit crisis. S&P 1300 FTW.
The Greek PSI is once again (still) hitting the headlines. Here is what we think the most likely scenario is (80% likelihood). Some form of an agreement will be announced. The IIF will announce that the “creditor committee has agreed in principle to a plan.” That plan will need to be “formalized” and final agreement from the individual institutions on the committee and those that weren’t part of the committee will need to be obtained. The headline will sound good, but will leave a month or so for details to come out. In the meantime every European and EU leader (or employee) with a press contact will say what a great deal it is. That it confirms that Europe is on the path of progress and that they are doing what they committed to at their summits. That will be the hype that will drive the market higher (or in fact has already done so). However, the reality (as we noted earlier in Einhorn's market madness chart) is that this still leaves hedge funds to acquiesce (unlikely) and furthermore focus will switch to Greece's actual debt sustaianability post-default (yes the d-word) and as we are seeing recently, Portugal will come into very sharp focus. If they cannot bribe and blackmail and threaten their way into something they call PSI, then we will see Greece stop making payments, and then the markets will get very ugly in a hurry.
Who needs actual jobs when you can have crony solar companies which go tits up in under 2 years at a cost to taxpayers of over half a bill. From Bloomberg: "The Obama administration will likely announce rejection of TransCanada Corp.’s Keystone XL pipeline later today or tomorrow, according to two people familiar with the matter. The decision will probably come from the State Department, which has been charged with reviewing the project, and a joint statement will come from some of the larger unions and environmental groups in support of the decision, according to one of the people, who spoke on the condition of anonymity before the announcement is made. It wasn’t immediately clear whether the administration would continue studying alternative routes for the pipeline from Canada to the U.S. Gulf Coast."
Einhorn Ends 2011 Just Over +2%, Closes FSLR Short, Warns On Asia, Mocks "Lather. Rinse. Repeat" Broken MarketsSubmitted by Tyler Durden on 01/18/2012 12:17 -0400
Anyone wondering why FSLR just jumped, it is because as was just made known, David Einhorn's Greenlight has decided to close its FSLR position, after bleeding that particular corpse dry. "Our largest winner by far was our short of First Solar (FSLR) which fell from $130.14 to $33.76 paper share and was the worst performing stock in the S&P 500." Einhorn also announces that he was among the "evil" hedge funds who dared to provide market clearing transparency and buy CDS on insolvent European governments: "We also did well investing in various credit default swaps on European sovereign debt." As for losers, Einhorn and Kyle Bass can commiserate: "For the second year in a row, our biggest loss came from positions designed to capitalize on eventual weakening of the Yen." He summarizes the global economic environment as follows: "The global environment is very complicated. On the one hand the Federal Reserve has taken a much-needed break from quantitative easing (at least for the moment). Accordingly, inflation in oil and food has abated, providing relief to the US economy. Bearish forecasts that the US was headed back into recession proved wrong for the third time since the end of the last recession. On the other hand, Asia appears to be in much worse shape than it was at this time last year and could be a drag on the world economy going forward. Very few people trust any of the economic data coming out of China, making it difficult to gauge the situation there. Some of the smartest people we know have very dim views. The Chinese have been a leading growth engine for the last two decades and are largely credit with leading the world out of the recession in 2009. A change in their economic circumstances could really upend things." Yet the best thing is his summary of the current investing climate in our utterly and hopelessly reactionary broken markets.
CNBC's lonely realist took just over three minutes of his busy day today to explain in language that even the e*Trade baby could understand, why he fears for his First Amendment rights. As more sites take a stand against 'top-down' decision-making and who decides what is fair, Santelli veers from SOPA to Obamacare to the EPA in today's well-warranted and reasoned rant at the top of a slippery slope.
As headline after headline suggest that the PSI deal is getting closer and the market appears to be pricing in that headline-driven excitement, we cast a very skeptical eye over the performance of Greek bonds today. Short-dated GGBs, the August 2012 issue for instance, would be expected to rally if the deal was close (or even anticipated by the market) but instead, this 8-month bond traded to new record low price (and obviously therefore record high yields of 421%) today with quite a significant drop from EUR31.5 to EUR30 on the day. Further out, the 5Y GGB is the cheapest-to-deliver and is trading at EUR18.75/23.25 (quite a spread), down more today, and still well below an approximate EUR32 take-out. While there may have been some unwinds in the cash-CDS basis today, it seems to us that the greek bond market is absolutely not expecting a PSI deal and therefore risk-on rallies on the back of this (a debt reduction that will still leave Greek debt unsustainable) seem overdone at best (unless the IMF can cajole the US Congress to untighten its wallet some more - and even then, its not the solution Greece needs).
By now we know that at least according to conventional wisdom says one has to be a banker, lawyer, or hedge fund manager to be guaranteed a spot in the fabled "1%". But a still outstanding question is what college-level studies do future 1%'ers take to end up in the top of the social pyramid? As the NYT shows, the result is quite surprising. As it turns out, "the majors that give you the best chance of reaching the 1 percent are pre-med, economics, biochemistry, zoology and, yes, biology, in that order." Just as curious, in terms of actual proportional representation, coming in at 1.9 million, the second most represented major within the 1% is... English and English Language. Bottom line - good news for Liberal Arts majors: all you have to do to get that PM job in Greenwich is to convince the boss that extensive knowledge of Shakespeare's sonnets is conducive to procuring some quality "information arbitrage" (on an untapped phone line of course). Alas, bad news for sociology and geology majors - these two are nowhere to be found, dooming the Rocks for Jocks crowd to a life of "99%"ism.
Last week we heard from Nomura's bearded bear as Bob Janjuah restated his less-then-optimistic scenario for the global economy. Today his partner-in-crime, Kevin Gaynor, takes on the bullish consensus cognoscenti's three mutually supportive themes in his usual skeptical manner. While he respects the market's potential view that fundamentals, flow, valuation, and sentiment seem aligned for meaningful outperformance, it seems actual positioning does not reflect this (yet). Taking on each of the three bullish threads (EM policy shift as inflation slows, ECB has done and will do more QE, and US decoupling), the strategist teases out the reality and what is priced in as he does not see this as the March-2009-equivalent 'big-one' in rerisking (warranting concerns on chasing here).
Tomorrow the BLS will announce that last week's initial claims number was revised to over 400K, the first time this important level has been breached, this time in an adverse fashion, in the past 2 months. But why is 400K important, and why do economists and pundits put impact on this particular number? Here is Bank of America with the explanation in the form of a historical matrix, correlating the historical relationship between these time series, highlighting the notable patterns observed in the past several decade, and what it all means for the big picture.
Though it won't come as a surprise to too many who have seen us point to US equity outflows and the dreadfully declining volume on the NYSE, we leave it to UBS' Art Cashin to uncover where the real action is - and more importantly where it really is not. The experienced Cashin points to the early excitement as Asia and Europe remain active and the dramatic ebb as both of these markets head off to supper, leaving just US traders (and investors we assume) sitting on their hands, twiddling their thumbs, and generally not playing the game (aside from the general rumor-mongery that appears to be rising day by day).
Today's TIC data confirmed what Zero Hedge readers have now known for quite some time: namely that foreigners are selling US paper. And while we have used contemporaneous Custody Account data from the Fed to present that in the past 7 weeks foreigners have sold a record amount of bonds, we now get confirmation via TIC that in November the selling continued, especially at the biggest non-Fed holder of US paper, China, which saw its holdings down to $1,132.6 billion, the lowest in the past year. Yet where the selling is just relentless is in Russia, which has quite demonstratively slashed its US Treasury holdings in half in the past year from $176 billion to under $80 billion. Putin is not happy, and is not afraid to show it.
The world's biggest primary silver miner, Fresnillo, had flat silver production in 2011. Output is only expected to remain stable in 2012. African Barrick Gold said on Wednesday fourth quarter gold production fell 11% and missed its annual production targets. Despite price rises seen in 2011, gold and silver mining is remaining static contrary to claims by gold bears that higher prices would lead to increased production and therefore increased supply. Geological constraints may be impacting mining companies ability to increase production of the precious metals. Standard Bank has said it lowered its average 2012 gold price forecast by 6 percent to $1,780 an ounce, but continues to expect prices of the precious metal to touch new highs in the latter half of this year. "We maintain that gold will reach new highs this year but, given our dollar view, we believe that these highs will be reached only in the second half of 2012," the analyst said in a note. Standard Bank expects the U.S. dollar to gain strength, especially against the euro, over the next quarter. A few other banks have recently lowered price forecasts for gold, including ANZ and Credit Suisse – however the majority remain bullish on gold’s outlook for 2012.
Headline PPI Drops By 0.1%, Core PPI Rises By 0.3%, Highest Y/Y NSA Jump Since June 2009, BLS To Change PPI WeightsSubmitted by Tyler Durden on 01/18/2012 09:46 -0400
Mixed picture in today's PPI which saw headline prices decline by 0.1%, on expectations of a 0.1% increase, driven by a 0.8% drop in both food and energy finished goods. Alternatively, core PPI rose by 0.3%, with the same +0.1% consensus, and is the largest M/M increase since July 2011. Just as curious, the Year over Year change in the NSA PPI of 3.0% is the highest in the series since June 2009. It appears money printing even in the face of multi-trillion debt deleveraging can be inflationary. Finally, and in pulling a page straight out of the BLS playbook, the BLS announced it would change the weighting in its PPI categories. "The new weights, which will be introduced in February 2012 with the release of January 2012 index data, will be based on shipment values from the year 2007. These value weights come from the Census of Manufactures, the Census of Mining, the Census of Services, and the Census of Agriculture. PPI weights have been based on 2002 census shipment values since January 2007. All PPIs will be affected by this weight update, including all the industry net output indexes, as well as indexes for traditional commodity groupings. In addition, weights will be updated from the 2002 to the 2007 census for all stage-of-processing indexes, durability of product indexes, and special commodity-grouping indexes. This weight revision will not change any arithmetic reference bases for indexes, the dates when PPIs were set to 100." This is a lot of words to say that going forward even more inflation will be crammed into smoothed core price indices, so as to completely ignore any swings in the margins. Because after all who cares about energy and food?