In a finding that many have subliminally known about for years, but never been actually proven, yet is still quite shocking, the WSJ is reporting that tourism portal Orbitz "has found that people who use Apple Inc.'s Mac computers spend as much as 30% more a night on hotels, so the online travel agency is starting to show them different, and sometimes costlier, travel options than Windows visitors see." Which is not really surprising: after all Mac users tend to "see" far pricier computers too, not to mention "buy." As a result, Orbitz has decided to automatically redirect Mac users: aka the rich, but gullible ones, to seeing hotel offers that are more expensive than those seen by PC users by on average $20-$30. Call it OS screening, and call it perfectly acceptable: because it appears, empirically, that Mac users are perfectly ok with spending more than they have to for virtually anything.
The underlying premise for much of the management of other-people's-money (OPM) is that if the market drops by an appreciable amount, then Bernanke will step in and save the day. The problem with these 'perceived truths', as Charles Biderman of TrimTabs notes, is that they come-and-go; much like buy-and-hold and China-as-the-engine-of-the-world's-growth. The belief in the Bernanke Put has been around since the end of 2009 and is why the biggest holders of stocks are today mostly fully invested because they really believe that the Fed will remain the buyer of last resort. Unfortunately, as Charles points out, 'market truths always end badly' and in this case what is underlying the belief is that sooner of later the US economy will grow fast enough to allow the Fed to stop priming the pump with newly minted money into stocks; and in this case, he fears, "the headwinds are just too big and that rapid growth will not happen any time soon".
One of oil's most important characteristics is its fungibility, which means that a barrel of refined oil from Texas is equivalent to one from Saudi Arabia or Nigeria or anywhere else in the world. The global oil machine is built upon this premise – tankers take oil wherever it is needed, and one country pays almost the same as the next for this valuable commodity. Well, that's true aside from two factors that can render this equivalency void. In fact, crude oil prices range a fair bit according to the quality of the crude and the challenge of moving it from wellhead to refinery. Those factors are currently wreaking havoc on oil prices in North America: a range of oil qualities and a raft of infrastructure issues are creating record price differentials. And with no solution in sight, we think those differentials are here to stay.
Just out from the TOTUS, who manages to convert a Supreme Court slap into a piece of pre-election propaganda like no other.
While few want to think about their death, its becoming increasingly popular for folks to prepare for the inevitable by pre-planning their own funerals (we assume a little like England's soccer team yesterday). While cremation is rapidly gaining on straight-up-burial, funeral costs remain high; and despite non-traditional options like 'Angels Flight Inc.' which launches your ashes in fireworks or 'Space Services Inc.' which sends you posthumously into orbit around the moon, the following infographic is a guide to budget-busting your own 'happy-ending'.
The long anticipated downgrade of the recently bailed out Spanish banking sector has arrived. Moody's just brought the hammer down on 28 Spanish banks. Also apparently in Spain banks are now more stable than the country: "The ratings of both Banco Santander and Santander Consumer Finance are one notch higher than the sovereign's rating, due to the high degree of geographical diversification of their balance sheet and income sources, and a manageable level of direct exposure to Spanish sovereign debt relative to their Tier 1 capital, including under stress scenarios. All the rest of the affected banks' standalone ratings are now at or below Spain's Baa3 rating." Can Spain borrow from Santander then? They don't need the ECB.
US equities dumped out of the gate from the day-session open - after drifting lower with Europe all night/morning. Regimes shifted as Europe closed with Gold and Silver spurting higher (with the latter outperforming to play catch-up from last week) which led to the start of a correlated risk-on move in stocks (egged on in a 'ignorant' way but Oil strength from its increasing war-premium given the middle-east turbulence.) The levitation on low average trade size and low volume was mind-blowingly algorithmic as ES came to rest for the last hour almost perfectly at VWAP (and EURUSD seemed pegged at 1.25). Just like on Friday though, with a few minutes to go, ES dropped rapidly on heavy volume and average trade size as it would appear institutional sell orders plagued the market. The close took us back into the down-trend channel and back to 10-day lows for stocks. Modest USD strength (and JPY strength on carry-unwinds) left Oil lower from Friday but well off its lows as the rest of the commodity complex surged. Treasuries gained back all of Friday's losses ending at Thursday's low yields with 30Y outperforming. Financials and Energy sectors were worst with the major financials ending down 5-7% from the pre-downgrade close now. HYG (and HY) outperformed in the short-term but as we noted earlier remains a convergence trade than an indication of rotation or strength. The late-day dump in stocks lifted VIX back over 20% ending up 2.3 vols as implied correlation lifted back above the 70 'crisis' levels once again.
The NATO system — set up to oppose the Warsaw Pact system, which no longer exists — functions the same way — rather than dissipating risk, it allows for the magnification of international tensions into full-on regional and global wars. In the late 20th century the threat of nuclear war proved a highly-effective deterrent which limited the potential for all-out-war between the great powers, offsetting much of the risk of the hyper-fragile treaty system. Yet the potential for magnifying small regional problems into bigger wars will continue to exist for as long as NATO and similar organisations prevail. We do not know exactly what arrangements Syria has with Russia and China — there is no formal defensive pact in place (although there is one between Syria and Iran) though it is fair to assume that Russia will be keen to maintain its Syrian naval assets, a view which is supported by the fact Russia heavily subsidises the Syrian military, and has blocked all the UN-led efforts toward intervention in Syria. After the Cold War, the Warsaw Pact was allowed to disintegrate. Until NATO is similarly allowed to disintegrate, the threat of magnification will remain large. Could a border skirmish between Syria and Turkey trigger a regional or even global war? Under the status quo, anything is possible.
The last few days have seen high-yield credit markets remain remarkably resilient in the face of an equity downdraft. Both HYG (the high-yield bond ETF) and HY18 (the credit derivative spread index) have remained notably stable even as stocks have lost over 3% - and in fact intrinsics and the underlying bonds have improved in value modestly. HY bonds are much less sensitive to interest rate movements (especially at these spread levels) and so, in general, this divergence in performance is aberrant (especially with equity volatility also pushing higher in sync with stocks and not with credit). So why is high-yield credit not so weak? The answer is surprisingly simple. As we argue for weeks from the end of LTRO2, credit markets were far less sanguine than stocks and have leaked lower ever since. This 'relative' outperformance of high-yield credit over stocks appears to be nothing less than the last of the hope-premium bleeding out of stocks and re-aligning with credit's more sombre 'reality' view of the world. Given the sensitivity of HYG (and HY) to flows, and the weakness in risk assets, we would suspect that outflows will now dag both lower as they resync at these higher aggregate risk premium levels.
In a no-holds-barred interview with Bloomberg TV's Francine Lacqua, the increasingly droopy-faced George Soros remains as sprite-minded as ever in his clarifying thoughts on Europe. His diagnosis is spot on: "Basically there is an interrelated problem of the banking system and the excessive risk premium on sovereign debt - they are Siamese twins, tied together and you have to tackle both" and summarizes the forthcoming Summit 'fiasco' as fatal if the fiscal disagreements are not resolved (and as of this afternoon, we know Germany's constant position on this). His solution is unlikely to prove tenable in the short-term as he notes "Merkel has emerged as a strong leader", but "unfortunately, she has been leading Europe in the wrong direction". His extensive interview covers what Europe needs, the Bund bubble, GRexit, post-summit contagion, and Mario Monti's impotence.
While the extreme polarization of our political parties has been discussed often, the upcoming Presidential election is perhaps more notable in another way. Given Obama’s experience as a Senator and Romney’s single term as Massachusetts governor, the 2012 election is as light on 'high-level public sector experience' as we have seen in many decades. The implications are subject to debate, but as JPMorgan's Michael Cembalest points out: there’s no question that it’s an anomaly; or at a minimum, a throwback to the elections of the 19th century, when this kind of thing was more common. At a time when confidence in all institutions (non-financial business, banks, Congress, the Fed, etc) are close to multi-decade lows, this is not a surprise. Why should experience count for anything? Throw the bums out and hand the reins over to outsiders! Still, Michael (like us) finds this chart disconcerting, even though it’s hard to explain why. Do politicians who have not wielded substantial power underestimate the consequences of being wrong? It’s easy to be dead sure about something if you haven’t created a public policy train wreck of your own.
Turkey Claims Syria Fired On Second Turkish Jet, Says "Act Won't Go Unpunished", Has Invoked NATO Articles 4 And 5Submitted by Tyler Durden on 06/25/2012 13:17 -0400
At this point even those who have never heard of the Gulf of Tonkin know where this is headed:
- SYRIAN ACT 'WON'T GO UNPUNISHED,' TURKEY'S ARINC SAYS
- SYRIAN ACT 'HOSTILE,' 'COLD-BLOODED,' ARINC SAYS
- SYRIA SHOT DOWN TURKISH JET WITHOUT WARNING, NULAND SAYS
- TURKEY INVOKED ARTICLES 4 & 5 FOR NATO MEETING, ARINC SAYS
- TURKEY TO PROCEED AGAINST SYRIA USING LEGAL RIGHTS, ARINC SAYS
- TURKISH JET SHOT DOWN IN INTERNATIONAL AIRSPACE, ARINC SAYS
- TURKISH JET 'MISTAKENLY' ENTERED SYRIAN AIRSPACE, ARINC SAYS
- TURKISH JET WAS IN SYRIAN AIRSPACE ONLY 5 MINUTES, ARINC SAYS
Just the tip, eh?
It seems, as JPMorgan's CIO Michael Cembalest notes, that ahead of yet another EU Summit; everyone understands now why Europe matters (even the once-bloviating decoupling diehards). The summit is likely to focus on bank recapitalization, easier repayment timetables for Greece, bank deposit guarantees and an alleged “roadmap” for EU integration. The challenge, Cembalest confirms, is that Germany cannot afford a blank check given debt levels already over 80% of GDP. However, if policymakers don’t do something about growth in the Periphery (bailouts primarily designed to aid German and French banks don’t count), the North-South divide will continue to widen, putting pressure on the ECB and EU taxpayers. Sometimes there are no easy answers. Italy, Spain, Greece and Portugal are contracting at a 2%-5% annualized pace, and unemployment in Spain and Greece is sky-rocketing (1st chart). These levels are notable from an historical perspective. As shown in the 2nd chart, 20%+ unemployment was the level at which National Socialists in Germany began to take seats away from liberal democratic parties during the 1930’s. If the jobs picture does not improve, other EU policy decisions may not matter much (as we noted six months ago)!
This has to be a record:
GREEK FINANCE MINISTER RAPANOS RESIGNS; PRIME MINISTER ACCEPTS
This is the same guy who was appointed last week, and who fainted after seeking the official Greek numbers. In fact we are not sure he ever got an official appointment. And elsewhere:
CYPRUS REQUESTS EU AID
CYPRUS SEEKS EXTERNAL FINANCIAL ASSISTANCE FROM EURO AREA: China just said NEIN
Prepare the bath salt firehose.