AAPL had crawled it way into the green in the pre-open, bumping around yesterday's closing VWAP. In the early minutes of the US day session open, we saw very heavy selling volume in AAPL (and surprisingly S&P 500 futures ramped vertically). This smells a lot like someone getting a tap on the shoulder on their 'hedged' Long AAPL, Short ES position. AAPL bounced off yesterday's lows to get back to VWAP and then the real selling began... At $542 now, AAPL is over $160 off the highs and reverting back to the market cap of the entire European banking system. With 230 hedge funds holding this angel of death... small doors and large crowds do not mix... paging Topeka? Widows, orphans, and value investors first...
For those who want to imitate what is once again the world's largest hedge fund (reclaiming the spot from Apple's own prop trading vehicle, Braeburn, first exposed here), Ray Dalio's Bridgewater, which at last check had $138 billion in AUM ($76 billion Pure Alpha, $63 billion All Weather), the path is simple: just recreate the performance shown on the chart below over a period of two decades. (Oh and stop "trading" on Twitter and do some real trading).
Much like the Beige Book attempts to summarize the 'economic conditions' of all the 12 regional Federal Reserve branches, so Goldman's David Kostin screens the companies in the S&P 500 for common themese from their earnings calls. This anecdotal evidence provides critical insight into the current fundamental and thematic trends. The three key findings are (1) Managements delayed capital investment and hiring and gave conservative guidance given uncertainty about the real economy and near-term policy risk from the ‘Fiscal Cliff’; (2) Companies grappled with slow global growth: stagnation in the US, recession in Europe, and an unclear path in China; and (3) Many firms took strong action to protect high margins against tepid revenue growth, rising input costs, and frugal customers. Meanwhile, a near-record percent of small businesses rank government requirements as their biggest challenge!
For all the monotony of today's ECB press release in which Mario "talking in Keynesian circles" Dragi did his best impression of Diane Sawyer, not even the former Goldmanite could deny that the ECB did a mistake on its Spanish collateral haircut as reported previously:
- DRAGHI SAYS COLLATERAL MISTAKE DIDN'T AFFECT ECB LENDING
- DRAGHI: EUROSYSTEM AUDIT COMMITTEE TO ASSESS COLLATERAL USE
Luckily, the ECB has so much credibility that admitting it did not haircut billions in "money good" Spanish bonds will not impact how ze Germans view its monetary flouting prowess one bit. Also, if anyone can explain how ECB lending "was not affected" as a result of flawed collateral calculations we are all ears, because either we really have no idea how crediting works, or Mario Draghi seriously believes everyone out there is a consummate idiot.
Things are rather unsurprisingly going from worse to worserer in Europe. Perhaps it is the anecdotal evidence we see in the now weekly riot-cams from Spain and Greece but just as we warned over a year ago, the truly scariest chart in Europe remains that of youth unemployment. The correlation (and causation) that runs from extreme levels of youth unemployment to general social unrest and anarchy is stunning throughout time (as we noted here and here). With Greek 'youth' unemployment jumping to a disheartening 58% (for August) - by far its highest ever - and Spain rising inexorably at 54.2%, the under-25 populations in these nations is truly set to burst (with overall unemployment rates of 25.4% and 25.5% respectively). Euro-zone youth unemployment overall has risen to 23.3% and while Greece jumped the most, Italy was close behind with a 1.2ppt rise to 35.1%. We are sure the austerity voted for last night by the politicians will 'help' - someone...
Today's initial claims number, as well as that for the next several weeks, will be nothing but noise due to the impact of Hurricane Sandy. This is how UBS' Maury Harris explained the Sandy impact last night: "Hurricane Sandy will undoubtedly cause increased jobless claims. However, as after other hurricanes, there will probably be some lag with many potential claimants either unable to reach the Labor Department or otherwise pre-occupied. Indeed, we expect the hurricane artificially held down claims in the coming report (UBSe 340k, cons 365k after 363k)." Sure enough, today's Claims number came at 355K, below consensus expectations of 365K, and below last week's 353K, driven by the Sandy front-loading distortion as well as Seasonal Adjustments: the NSA claims number rose by 15.5K. No surprise. What is more peculiar is that after over a year of steady declines, those collecting extended benefits continued to rise, increasing by 20K in the past week, which is odd considering these programs have now been largely phased out for new entrants.
The ECB failed to provide anything actionable earlier today. There is some hope that Goldman operative Mario Draghi will shed some additional easing light at the press conference starting momentarily, but don't hold your breath. The focus, if any, will be on how many more months will the ECB pretend Spain is both broke and safe, and how much longer until the OMT, which is really the SMP with the promise of pari passu treatment (which has already been proven to be false following the ECB's refusal to be impaired on its official Greek holdings) is actually put to use.
Greek August unemployment: 25.4%, up from 24.8% in July and up from 18.4% a year earlier. Needless to say, this is a record, and at this rate will be just shy of 30% by the end of the year (sorry IMF). This is, however, good news though: the Greek unemployment is, believe it or not, the second worst in Europe, behind Spain's 25.5%. Yet a category where Greece is the indisputed champion is youth unemployment, which just hit a mindboggling 58%, up from 54.2% in July (more on that shortly).
European equities have made tentative progress this morning, led by the technology and basic materials sectors. The European morning was relatively peaceful until a flurry of activity on the back of European sources commenting that Spain are unlikely to seek ESM aid until the end of the year, and the ECB are not in a rush to commence bond-buying using their OMT facility. The delay of expectations of purchases has taken its toll on the Spanish debt markets which, despite completing their 2012 issuance smoothly today, show signs of strain as the 10yr yield breaches 5.81%, and the yield spread approaches 450bps against the German benchmark – the level at which LCH begin to review margin requirements. The pain in Spain has also impacted the EUR currency, with the major EUR/USD pair printing a two-month low of 1.2720 this morning.
At today’s meeting the Governing Council of the ECB decided that the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will remain unchanged at 0.75%, 1.50% and 0.00% respectively.
In what may be the most disturbing news of the day, moments ago the BOE announced it is halting its own version of QE3, and capping the asset purchase program at £375 billion after "some policy makers questioned its effectiveness in supporting a recovery that remains lackluster." Could it be that even that peculiar Homo Sapiens subspecies known as "economist" is starting to realize that when applying the same "remedy" time after time to absolutely no avail, and where even the market no longer responds to unlimited injections of liquidity, then perhaps it is time to end said "remedy" altogether? And how long until the voodoo shamans in the dark lit room at Marriner Eccles follow through? Sadly, if Japan, and its 9 (so far) rounds of easing, is any indication, we have a lot more pain to go before what has been glaringly obvious to every hotdog vendor and shoeshine boy is also understood by Economics Nobel prize winners.
- Obama First Since FDR Re-Elected With 7.9% Joblessness (Bloomberg)
- China Party Meets to Anoint Next Leader (WSJ)
- Hu Sets China Income Target for Xi as Communists Gather (Bloomberg)
- Hu Jintao dashes hope for political reform (FT)
- Spain Sells $6 Billion Debt, Placing Longest Bond Since 2011 (Bloomberg)
- Japanese Politicians Move to Steer Away From Fiscal Cliff (Bloomberg)
- Hu says graft threatens state, party must stay in charge (Reuters)
- Weidmann in Defeat Still Influences ECB Bond-Buying Plan (Bloomberg)
- Spain Said to Consider Palace Sales to Raise Cash (Bloomberg)
- First-term headwinds look set to turn (FT)
- Focus Shifts to 'Fiscal Cliff' (WSJ)
- Obama Victory Paves Way to Continue Fed Policies (Hilsenrath)
- Swiss, Greeks Begin Talks on Tax Deal (WSJ)
Trish Regan and Adam Johnson do their best to hold themselves together in this sublime rant by 'Gloom, Boom & Doom's Marc Faber on Bloomberg TV as he sees Obama's re-election as "very negative for the economy". From his view that the market should be down at least 20% - and maybe 50%, to the implied ignorance of both of the candidates, he believes fervently that the "standards of living of people in the western hemisphere will continue to decline." Faber views Obama's re-election as one of many unintended consequences of market manipulation (since Democrat attacks on the wealthy were 'enabled' by their profiteering from Bernanke's money printing) and sees the need to protect one's assets "with a gun, a machine gun... or perhaps a tank." He concludes with a stunner as he exclaims his view doubting Obama will make it through the whole four-year term because "there will be so many scandals" since "there is so much smoke, there must be some fire!"
The much anticipated Greek vote on "self-imposed" austerity came, saw and passed... and nothing: the EURUSD is now well lower than before the vote for one simple reason - the vote was merely a placeholder to test the resiliency of the government, which following numerous MP terminations, has seen its overall majority drop to 168 of 300, which includes the members of the Democratic Left who voted against the Troika proposal. Which means any more votes on anything split along austerity party lines and the vote will likely no longer pass. And, as expected, Germany already picked up the baton on kicking the can on funding the Greek €31.5 billion payment (due originally many months ago) when Schauble said that it will still be too early to make a Greek decision net week. Market-wise, Europe is limping into the US open, with the EUR weaker again due to a report that Spain may not seek an ECB bailout this year (as said here over and over, Spain will not seek a bailout until the 10 Year SPGB is back at or above 7%). Paradoxically, Spain also sold €4.76 billion in 2015, 2018 and 2032 debt (more than the expected €4.5 billion) at muted conditions, thereby the market continues to encourage Spain not to request a bailout, although this may not last, as promptly after the bond auction Spanish debt tailed off, the 2Y and 10Y both sold off, and the Spain-Bund spread is back to 445 bps, the widest since October, and means Spain can finally be getting back in selloff play: and probably not at the best possible time just as everything else, which was in suspended animation until the Obama reelection, also hits the tape. Today we get two key, if largely irrelevant, central bank decisions come from the BOE and ECB, both of which are expected to do nothing much. Finally, the most important event going on right now, is the Chinese Congress. For those who missed it, our previews are here: The Far More Important 'Election' Part 1: China's Political Process and The Far More Important 'Election' Part 2: China's Market Implications.