Cisco misses and stock drops 5%. In the meantime, futures are now plumbing the day's lows after hours. And the most troubling development from CSCO, worse than the top line miss, is the catch courtesy of Bloomberg's Adam Johnson that Days Sales Outstanding surge from 27 to 41 days. Customers incrasingly refuse to pay on time. We wonder how that will be spun favorably.
Another day, another desperate attempt by GE's propaganda branch to keep its viewers disconnected with reality. Case in point: Bob Pisani, who has now said about 100 times that "volume was very low, no bids were hit, etc, etc." The truth: yes to the latter, and a blatant lie on the former. Exhibit A is below, where you can see that today's ES volume was the highest in 40 days! Maybe CNBC can hire an expert and analyze the chart below and advise us what it uses as the source for its lies, pardon, information.
Schumer To SEC: "Impose Tougher Rules On HFT Traders To Curb Stock Price Volatility And Prevent Another Flash Crash"Submitted by Tyler Durden on 08/11/2010 15:53 -0400
Just in case the consensus was that nobody could have possibly predicted today's market action, here is Jim Cramer... proving the consensus was spot on. From CNBC yesterday: "The “Fed said good things,” Cramer said. “Buy.”"
In Stunning Decision, EU Orders Germany To Start Onboarding "Bad Debt" To Sovereign Balance Sheet: RBS, Fannie, Freddie Next?Submitted by Tyler Durden on 08/11/2010 12:57 -0400
In what could be the most important news of the day, German Die Zeit reports that, in a stunning move, the EU has ordered Germany to count the holdings of WestLB and Hypo Real Estate (the latter of which failed the stress farce from last month which nobody cares about or remembers anymore) as government debt! As Bloomberg notes, "That could raise Germany’s debt to 90 percent of gross domestic product, Die Zeit said." Of course the implications of this decision are massive, as it takes out all the guess work of whether insolvent institutions are or are not on the government's balance sheet. The net result, for Germany alone, is that just the addition of Hypo's debt would push German debt/GDP from 79% to 90%, both of which are well above the Maastricht limit of 60% (not like anyone cares that is - everyone is now aware the EU is a failed experiment). The next question: what happens to nationalized RBS and it $168 billion in debt? Total UK debt is $1.2 trillion meaning a comparable action in the UK would rise UK debt by 15%! And then there is a whole slew of other banks in the pipeline in Europe that are full of trillions in toxic debt: will the sovereign hosts be able to onboard this debt? Most importantly, what happens to our administration's adamant claims that Fannie and Freddie's $6+ trillion in debt should not be counted as part of total Federal debt. America already has its hand full with $13.3 trillion in debt. What will happen when it moves to $20 trillion (140% of GDP) overnight. We are confident that unless this decision by the EU's statistics office is overturned, it will likely set off the next leg in the sovereign debt crisis as suddenly European Debt to GDP ratios will increase by about 15-20%.
Bernanke Central Planning LLC's First Faux Pas - Contrary To Prior Disclosure, Fed Announces Will Also Purchase 30 Year BondsSubmitted by Tyler Durden on 08/11/2010 15:10 -0400
Will someone who read the official Fed statement yesterday, please indicate where it said Liberty 33 would purchase 30 Year bonds? We will spare you the trouble - it was mentioned exactly nowhere. Which is why it comes as a major surprise (and a major loss of P&L to traders who have the misfortune of trading rates), that in the just released schedule by the New York Fed, the Fed has announced it would also purchase 2040 maturities on August 26 and 30 - yes, that would be the very long end. Gotta love the great coordinate and communication between the various branches of the Fed. And yes, this is what happens when you have central planning.
An interesting chart from Goldman Sachs looks at the move in the European "Economic Center of Gravity" (ECG) which currently just happens to be the German city of Oberlauterbach. As a reminder for those who may be confused by terminology, just like in physics, where the centre of gravity of a body is the mean location through which gravity acts, the ECG is the mean location of economic activity, specifically GDP, of a region. Goldman clarifies: "From 1989 to 2009 the European ECG seems to be permanently located in southern Germany. This hardly seems surprising; Germany is the ‘heavy base’ of European economic activity - being both centrally located and a major contributor to overall European GDP. Also, relative to the size of Europe the ECG has not moved much – the distance between its most westerly point (1989) and most easterly point (1999) is only 189 kilometres, a tiny fraction of the greater than 3500 km east-west distance of Europe." And as recent events have demonstrated, "Europe" is pretty much defined by Germany, at least when it comes to export prowess, and explains why today's relentless and massive drop in the EURUSD and all other pairs is cheered on wildly by the Chancellor.
In an apparent example of peak hypocrisy, a Eurozone official told Reuters today that "Forex intervention by Japanese authorities would not be welcome in Europe." Of course, when it was the Swiss National Bank and the BoE (confirmed) intervening, and the ECB (alleged) doing all they can to lower the value of their currencies it is all good, and Europe doesn't care that the JPY will appreciate. However, when others do the same, it's "not welcome." At least the Eurozone hypocrites qualified their statement by saying: "I doubt any sort of coordinated intervention will ever fly" - we will be sure to remind Hildebrand and Trichet of this, the next time they are trying to kill their respective currencies.
July Budget Deficit Hits ($165 Billion), Slightly Better Than Expectation Of ($169), Longest String Of Monthly Deficits On RecordSubmitted by Tyler Durden on 08/11/2010 14:17 -0400
The FMS has released its July monthly budget: on receipts of $156 billion and outlays of ($321) billion, the total budget deficit was ($165) billion, on expectations of ($169) billion. This marks the 22nd straight month of budget deficits and is the longest string on record. The comparable numbers in 2009 were receipts of $152 billion, or roughly comparable to this year, while outlays were $11 billion higher at ($332), for a total deficit of ($180) billion Total YTD receipts now amount to $1.752 trillion. With just two months left the in the fiscal year, the budget estimate is for total revenue of $2.132 trillion. On the outlays side, the US has spent $2.922 trillion YTD, and budgets total outlays of $3.603 trillion. More importantly, with 22 months of deficits, it is now increasingly clear that America will never have a monthly surplus ever again. And the more debt is issued, the riskier the budget picture becomes, as the second rates begin increasing, now that the duration of US debt has increased by one year in the past 18 months, the interest payments are sure to explode, requiring even more borrowing, and so on, in true subprime borrower fashion, ad inf.
Today's task before the Fed and the Direct bidders was the clean, calm digestion of $24 billion in 10 years. And as expected, this passed without a glitch at a 2.73% high yield, the third lowest yield in history, following just auctions in December 2008 and January 2009. Yet unlike yesterday's 3 Year auction, which also posted the highest Bid To Cover in history, today's BTC was not as strong as in the previous two auctions. Is the yield on the 10 Year becoming so low as to not be attractive for the Primary Dealers? Indeed, the takedown by primary dealers dropped to 43.6% from 48.6%, and an average 46% in 2010. Direct bidders accounted for 10.6% of the auction, while Indirects took the biggest portion of the auction since November 2009, or 45.8%. It also appears the real yield on the auction would have been lower as the allotted at high was only 10.57%, while the median yield was even lower, or 2.669%, suggesting interest in the Dutch auction was even higher than demonstrated by the end result. Yet all eyes are focused on tomorrow's 30 Year: as the 10 Year is now actively to be gobbled by the Fed, the 30 Year is the only orphan left in the curve without the Fed's explicit purchasing, and as such, surprises are not unlikely.
Nassim Taleb is out making waves once again, this time at the Discovery Invest Leadership Summit in Johannesburg today, where he said he was “betting on the collapse of government bonds” and that investors should avoid stocks. To be sure this is not a new position for Nassim, who in February had the same message, when he said that "every single human being" should be short U.S. treasuries. Indeed since then bonds have gone up in a straight line as the bond bubble has grown to record levels, and with the ongoing help of the Fed, is it any wonder. The only question is when will this last bubble also pop.
Earlier, we posted a link to Boston University's Lawrence Kotlikoff who penned an OpEd for Bloomberg titled simply enough "U.S. Is Bankrupt and We Don't Even Know." In it Kotlikoff took a direct stab at Krugman and all the other hard core Keynesian paradise or bust demagogues: "Some doctrinaire Keynesian economists would say any stimulus over the next few years won’t affect our ability to deal with deficits in the long run. This is wrong as a simple matter of arithmetic. The fiscal gap is the government’s credit-card bill and each year’s 14 percent of GDP is the interest on that bill. If it doesn’t pay this year’s interest, it will be added to the balance. Demand-siders say forgoing this year’s 14 percent fiscal tightening, and spending even more, will pay for itself, in present value, by expanding the economy and tax revenue. My reaction? Get real, or go hang out with equally deluded supply-siders. Our country is broke and can no longer afford no- pain, all-gain 'solutions'." To hammer his critical point in that delaying the inevitable crunch will only make things worse in the end, Kotlikoff also appeared on Bloomberg TV with Erik Schatzker. Koltikoff's argument is anchored by the IMF's July report that notes the US needs to grow at 14% in perpetuity to "grow into" its balance sheet. Obviously, we will be lucky to get a tenth of that.
RANsquawk US Afternoon Briefing - Stocks, Bonds, FX etc. – 11/08/10
Fundamental analysis is no longer relevant as Alpha has just done one more revolution in its grave: today 1 Year Implied Correlation hit a new all time record, at 79.84 (out of 100 maximum possible), meaning the inverse of the metric, stock dispersion, or the measurement of the variation in individual stock prices, or broadly speaking alpha, is now completely irrelevant. As we have been saying for a year, "investing" is now all about a levered beta bet, using the maximum possible leverage, and sacrifices to Moloch, that the market does not turn before price targets are hit. At this rate we anticipate the next broad or acute selloff, will take us to 100 in implied correlation, at which point there will be no benefit whatsoever to trading individual stocks: the entire market will be one big ETF.