As we warned here, the compression in realized volatility to the levels we were experiencing early in the week was simply unprecedented for any length of time. Furthermore, the relative compression of equity volatility to credit volatility was a concern - sure enough - two days later, spot VIX has just seen the largest two-day percentage jump since November 2011; and equities are catching down to credit's less exuberant view of the world.
The great unrecovery just accelerated with more great unrotation out of stocks following today's February Philly Fed which just plunged from -5.8 to -12.5 on expectations of a positive print of +1. This was the worst print in 8 months, the biggest miss in 9 months, and the biggest two month drop in the New Orders index which crashed to -7.8 in 18 months. Even the attempts at spin were weak: "The survey’s broadest measure of manufacturing conditions, the diffusion index of current activity, decreased from a reading ?5.8 in January to ?12.5 this month (see Chart). The demand for manufactured goods also showed slight declines this month: The new orders index declined from a reading of ?4.3 in January to ?7.8 in February. Despite negative readings for general activity and new orders, the shipments index showed improvement: The index remained positive and edged slightly higher to 2.4. The percentage of firms reporting increased shipments (25 percent) was slightly greater than the percentage reporting declines (22 percent)." But fear not: optimism abounds - after all, that's all there is: "The survey’s future indicators suggest that firms expect recent declines to be temporary." Oddly enough survey participants have been hoping for a brighter future for 4 years now. Expect the sellside penguins to say that this number too should be ignored, just like the initial claims earlier, and the new housing starts yesterday. After all one should ignore all data that does not fit the goalseeked script of a centrally-mandated "recovery."
Much has been made of President Obama's non-deficit-increasing desire to raise the minimum wage by around 20%. This all sounds so good in front of a teleprompter but, as we noted here, a higher price for a good (low cost labor) simply means less of it will be demanded (higher unemployment). However, while setting a federally mandated minimum wage may make sense in the mind's eye of a President's panderers, a glance at Europe will blow most people's minds. The disparity across the nations of the European Union is 12-to-1: from Romania's EUR157 to Luxembourg's EUR1874 per month. This compares with an equivalent EUR998 for the US. As Bloomberg's Niraj Shah notes, this disparity drops to 6-to-1 if adjusted for local prices but two critical points come to mind; first, how can a 'union' with such massive disparity in labor function under a single monetary policy (hint: it can't); and second, with nations such as France, UK, and Ireland offering higher minimum wages than the US, it is hardly inspiring for any benefits Obama hopes to reap from his new deal.
It's that time of day. Commodities exchanges are opening. And yet, today has a different feel to it. For some strange indiscernible reason, the incessant offer on gold and silver that appears every morning for most of the recent weeks has yet to appear. Did the central bankers get busted? Are too many people aware of the manipulation? Did a 3% drop in China spook them back at the margin? Who knows - its early yet...
Initial Jobless Claims Spike Even As BLS "Estimates" California, Virginia, Hawai And DC Data; Back To Year Ago LevelsSubmitted by Tyler Durden on 02/21/2013 09:48 -0400
Last week's initial claims "miracle", when it printed at 341K on expectations of a 360K print when the DOL estimated IL and CT claims, has once again been undone. Moments ago we got the February 16 number which, as could be anticipated, jumped by a solid 20,000, from an upward revised 342,000 to 362,000. And like last week, the Labor Department once again engaged in a huge guessing game, this time forecasting the claims for California, Virginia, Hawaii and DC, meaning next week's data will likely be even worse. Which is troubling. As the chart below shows, one would expect just a little more improvement from a recovery in which the just released initial claims of 362K are doing "so much better" compared to initial claims from precisely a year ago which were... 362K. Perhaps, keeping in line with greatly rotating themes, we can just call this "the 360 degree recovery - where you always end up where you started." Or maybe, just maybe, the Fed's tinkering with the economy for 4 years running has broken the whole thing?
To say that Germany does not love Silvio Berlusconi would be an understatement. But not even we thought European "democracy" would stoop so low as to tell Italians not to bring Bunga back or else. As Reuters reports, the German president of the European Parliament, once compared to a Nazi concentration camp guard by former Italian prime minister Silvio Berlusconi, warned Italians on Thursday not to back the scandal-ridden media tycoon at the ballot box. Martin Schulz is the latest in a line of German politicians to express fears about a possible Berlusconi comeback largely due to worries he will halt Rome's reform drive that has helped to lift investor confidence in the euro zone. "Silvio Berlusconi has already sent Italy into a tailspin with irresponsible behavior in government and personal escapades," Schulz was quoted as saying in German daily Bild.
- China drains cash to curb liquidity (FT) - no longer just a New Year issue...
- Hilesnrath speaks (but nobody cares anymore) - Fed Split Over How Long To Keep Cash Spigot Open (WSJ)
- Chasm opening between weak French and strong German economies (Reuters)
- JPMorgan Said to Seek First Sale of Mortgage Bonds Since Crisis (BBG)
- China's Bo Xilai not cooperating on probe, been on hunger strike (Reuters)
- Fed minutes send warning on durability of bond buying (Reuters)
- Sony Seeks an Extra Life in New PlayStation 4 (BBG)
- Rajoy pledges fresh round of reforms (FT) - and by reforms he means kickbacks?
- Doubts loom over eurozone recovery (BBG)
- China Extending Zhou Stay Seen as Aid to Financial Overhaul (BBG)
- King Pulls Out Stops to Energize Economy in Carney Handover (BBG)
- Central Banks Discussed Nominal GDP Targets at G-20 (Businessweek)
- Grand Central Owner Opposes IPO of Empire State Building (BBG)
Moment ago Wal-Mart reported a top-line miss, a bottom line beat, a dividend hike and a rather subdued full year forecast ($5.20-$5.40 on Exp. of $5.39), and nobody cared. The only thing that algos and carbon-based lifeforms alike honed in on, was the recap of the most recent 13 week period, to see if WMT was only kidding when it said that February sales, which obviously were not part of Q4 results, were a "total disaster." The reason WMT's stock is not doing to well in the pre-market is that they did not like what they found.
Please do not adjust your monitors: that strange, non-green color greeting you this morning is not a "glitch." Following yesterday's market drubbing, in which a modest 1% decline in the S&P ended up being the biggest market drop of 2013, we next got a wipe out in China, where the SHCOMP plunged by 3% the most in 15 months, down the third day out of four since the start of the year of the Snake on renewed concerns around home purchase restrictions urged by the government, but mostly driven by rampant liquidations of commodity-related stocks following yet another liquidity withdrawing repo (not reverse) by the PBOC which took out even more money out of the market. We then continued to Europe where despite the near-record surge in German optimism (because in the New Normal hope is a strategy - the only strategy), German manufacturing PMI missed expectations of a rise to 50.5 from 49.8, instead printing at 50.1, while the Services PMI outright declined from 55.7 to 54.1 (55.5 expected). We wonder how much higher this latest economic disappointment will push German investor confidence. Not too unexpectedly, Europe's suddenly weakest economy France also disappointed with its Mfg PMI missing as well, rising from 42.9 to 43.6, on expectations of a 43.8 print, while Services PMI declined from 43.6 to 42.7, on "hopes" of a rise to 44.5. The result was a miss in Europe's composite PMIs with the Manufacturing posting at 47.8 on expectations of 48.5, while the Services PMI was 47.3, with 49.0 expected, and a blended PMI missing just as much, or 47.3 with 49.0 expected, and down from 48.6. The news, which finally reasserted reality over hopium, immediately pushed the EURUSD to under 1.32, the lowest print since January 10. Therefore while Germany may or may not escape recession in Q1, depending on how aggressively they fudge their export numbers, for France it seems all hope is now lost.
We noted yesterday the strange intraday pattern emerging in Silver price movements - the alarmingly predictable morning takedown of the precious metals when the NYMEX opens. It's a reality that we need to be eyes wide open about, as it underscores the challenges of being long in an asset that powerful players don't want to appreciate. And while it's important to understand the risks in play here (e.g. these raids may continue for longer than we think possible), we emphasize the importance for precious metal owners to hold fast with the courage of their convictions - ultimately fundamentals will prevail and gold and silver prices will rise to their true levels. So, if you decide to bet on the continued success of the status quo, your choices are easy: Get in the paper markets and go long. The Fed will be adding $85 billion of liquidity rocket fuel each month for the rest of the year to push the prices of your paper investments even higher. But if you choose the fundamentals, here are a few important guidelines to keep in mind.
Day after day, whenever anyone challenges the TBTF banks' scale, they are slammed down with a mutually assured destruction message that limitations would impair profitability and weaken the country's position in global finance. So what if you were to discover, based on Bloomberg's calculations, that the largest banks aren't really profitable at all? What if the billions of dollars they allegedly earn for their shareholders were almost entirely a gift from U.S. taxpayers? The stunning truth is that the top-five banks account for $64 billion of an implicit subsidy based on the ludicrous (but entirely real) logic that: The banks that are potentially the most dangerous can borrow at lower rates, because creditors perceive them as too big to fail. Once shareholders fully recognized how poorly the biggest banks perform without government support, they would be motivated to demand better. The market discipline might not please executives, but it would certainly be an improvement over paying banks to put us in danger.
One can spend all day watching financial media channels stuffed full of self-promoting index-hugging asset-managers and be left with the belief that all is well and that the market does indeed represent our reality... Or, as UBS' Art Cashin notes today (confirming what we first published a month ago - here, here, and here), there is more (well less) to today's global economy and markets than meets the eye or rests in the headlines. His excellent diatribe today reiterates our previous comments of investing icons such as Baupost's Seth Klarman and Oaktree's Howard Marks that "(The) underpinnings of our economy and financial system are so precarious that the un-abating risks of collapse dwarf all other factors."
Quarter after quarter we would recap the hedge fund world's infatuation with one stock and one stock alone: Apple. This inverse-mormon love affair hit its peak in the quarter ended September 30, when a record number of hedge funds were invested in AAPL stock. This was also the quarter when AAPL hit its all time high price and has since proceeded to slump by nearly 40% in four short months. Which was to be expected: hedge fund hotels always become flaming death traps when the sucker rally finally ends and what so many mistook and goalseeked for fundamentals, ended up being merely euphoria and momentum chasing as one after another marginal buyer put their money into a stock that seemingly could do no wrong or so we were told day after day. As of December 31, AAPL is no longer the darling of hedge fund groupthink. In its place we have a new hedge fund hotel. Presenting: AIG, which with 80 hedge funds reporting it as a Top 10 holding (compared to GOOG with 73, and AAPL with 67), is now the stock that has suckered in the most hedge fund capital, and where any future growth will depend solely on pulling incremental dumb money in.
Following the FOMC's schizophrenic minutes, we thought it topical to look at how history has treated divergences between a lagging jobs market and a leading indicator (new orders) of the real economy. It appears that since the debt super-cycle began, the real economy has downshifted before the jobs market with CEOs finally giving in to slowing growth and laying people off soon after... of course, this time could be different - as we are sure to be told...