Talking-heads and commission-takers have momentum-chased clients' hard-earned money into Europe's 'what works now' markets - on the basis of what has now proved to be entirely fallacious macro- and micro-fundamental improvement (as we noted here and here). But, while "whatever it takes" has smashed bond spreads lower and has blown stock prices higher; most critically, the 'confidence' has seen the EUR rise almost 15% against the USD from its July 2012 "whatever It Takes" lows. The effect of this EUR strength is to collapse earnings growth expectations as European competitiveness is crushed (core or periphery). Of course, bulls can rest assured, as the following chart shows, 2014 is expected to hockey-stock back to record EPS growth (just like 2013 was supposed to?).
Following several months of disappointing retail sales, and two months of missed expectations, October finally saw the best beat in headline expectations since April, with retail sales rising 0.4% vs 0.1% expected. However, as has been the case in all of 2013, the bulk of this beat was driven by car sales, which rose by 1.3%, leaving sales ex autos beating by the tiniest of fractions at 0.2% vs 0.1% expected, and ex autos and gas +0.3%, vs 0.2% expected. Looking at the components, following month after month of clothing store sales misses, this category finally posted a modest 1.4% rebound, together with an increase in Electronic and Sporting goods sales, amounting to 1.4% and 1.6%, respecitvely. This was offset by the traditionally strong Building materials sales which declined by 1.9% in October.
“This is different" and "this location is different" is the mantra of every property bubble. We will soon see if the London property bubble is truly different or will suffer the fate of the bubbles throughout history. Of the four charts in our market update today, which ones do you think show characteristics of a bubble? Those diversifying and buying gold in the UK will be rewarded in the coming years. The smart money is reducing exposure to overvalued London property and increasing exposure to undervalued gold.
Five years ago it was worth $0. Then, a month and a half ago it went to $150 a piece. On Monday it shot to over $600.
Moments ago JCP announced results for Q3 which were atrocious, with Q3 earnings of -$1.81 coming in worse than already numerously lowered expectations of -$1.74. Comp store sales declined 4.8% with total revenues of $2.779 billion in the quarter, even as margins continued contracting, and dipped to 29.5%. The margin chart below says it all: Q3 margins have followed the following path: 2011- 37.4%, 2012 - 32.%5; 2013 - 29.5%... one can figure out what comes next. But most notably, in Q3 the company once again ignited its cash burn afterburners, with total free cash flow of $898 million, bringing the total cash burn for 2013 to a whopping $3 billion! Luckily for the company, in 2013 it has been able to fund all of this cash burn through a combination of cash and stock, amounting to $3.2 billion YTD. At October 31, the company had $1.2 billion in total cash which should allow it to enter 2014 without filing for bankruptcy, although with a total debt load of $5.6 billion compared to $3 billion a year ago, only very foolish people can possibly see how this story has anything but a very unhappy ending.
- JPMorgan $13 Billion Mortgage Deal Seen as Lawsuit Shield (BBG)
- J.P. Morgan Is Haunted by a 2006 Decision on Mortgages (WSJ)
- World powers, Iran in new attempt to reach nuclear deal (Reuters)
- Keystone Foes Seek to Thwart Oil Sands Exports by Rail (BBG) - mostly Warren Buffet?
- How Would Fed Deal With Debt Ceiling Crisis? Look to Minutes for Clues (Hilsenrath)
- Anything to prevent the loss of prop trading: 'Volcker Rule' Faces New Hurdles (WSJ)
- BOE Sees Case for Keeping Record-Low Rate Beyond 7% Jobless (BBG)
- Obama Backs Piecemeal Immigration Overhaul (WSJ)
- Abenomics Seen Cutting Japan Bad-Loan Costs to 2006 Low (BBG)
What do the following dates have in common: September 12, October 11 and now, November 20? These are all days in which there was a forced gold slamdown so furious, it triggered a "stop logic" event on the CME resulting in a trading halt of the precious commodity. In today's case gold trading was halted for a whopping 20 seconds as the market tried to "reliquify" itself following what was a clear attempt to reprice the gold (and silver) complex lower. Needless to say, there was absolutely no news once again to drive the move. Ironically, this comes just as the London regulator is launching an investigation into London gold benchmark manipulation - we are, however, confident that all these glaringly obvious manipulative events that take places just around the London AM fix will be routinely ignored. After all it is perfectly normal for someone to dump 1500 GC contracts in one trade and suck up all the liquidity from the market with zero regard slippage costs, or getting the best execution price possible. Well, it's normal if that someone is the Bank of International Settlements.
After the DJIA and S&P briefly crossed the key resistance levels of 16000 and 1800, the upper bound on the markets has been looking increasingly more distant and this morning's lack of an overnight ramp only makes it more so. Perhaps the biggest concern, however, is that with both Yellen and Bernanke on the tape yesterday, the S&P still was unable to close green. This follows on Monday's double POMO day when the S&P once again closed... red. Not helping things was the overnight announcement by the Japanese government pension fund, the GPIF, in which the fund announced it would lower its bond allocation further however the new law to reform the GPIF could be written by spring 2015. This was hardly as exciting as the market had expected, and as a result both the USDJPY and the ES-moving EURJPY find themselves at overnight lows. Will the EURJPY engage in its usual post 8 am ramp - keep a close eye, especially since the usual morning gold and silver slam down just took place.
The root cancer at the core of the U.S., and indeed global economy, is cronyism and an absence of the rule of law when it comes to oligarchs. In the U.S., this cronyism is best described as an insidious relationship between large multi-national corporations and big government to funnel all of the wealth and resources of the nation to themselves at the expense of everyone else. In a genuine free market defined by heightened competition and governed by an equal application of the rule of law to all, the 0.1% does not aggregate all of a nation’s wealth. This sort of thing only happens in crony capitalism, which is basically nothing more than complete and total insider deals to aggregate newly created money into the hands of the few. The following profile of Washington D.C.’s so-called “boom” from the St. Louis Post-Dispatch pretty much tells you all you need to know.
Overnight repo rates are spiking once again in early trading as the typically smaller banks that are more desperate bid aggressively for whetever liquidity they can find. 5Y Chinese swap rates have also reached a record high as the Yuan reaches its highest since Feb 2005. Chinese authorities are clearly stepping up the rhetoric:
- *CHINA SHADOW-FINANCE RISKS WILL SPREAD TO BANKS, FANG SAYS
- *VERY BIG CHANCE ONE OR TWO SMALL CHINA BANKS WILL FAIL: FANG
- *SOME CHINA TRUST INVESTMENT FIRMS MAY FAIL, SELL ASSETS: FANG
- *CHINA MUST PLAN FOR BANK-FAIL SCENARIOS TO MANAGE RISKS: FANG
- *CHINA NEEDS TO PAY MORE ATTENTION TO CORPORATE LEVERAGE: HU
The gambit between the PBOC's liqudity provision and the growing dependence on their "spice" is clear - the question is, of course, will banks send a message (via the markets) to the PBOC or will they self-select (on first-mover's advantage) eradicating the weakest.
My personal guess is that the U.S. market, especially the non-blue chips, will work its way higher, perhaps by 20% to 30% in the next year or, more likely, two years, with the rest of the world including emerging market equities covering even more ground in at least a partial catch-up. And then we will have the third in the series of serious market busts since 1999 and presumably Greenspan, Bernanke, Yellen, et al. will rest happy, for surely they must expect something like this outcome given their experience. And we the people, of course, will get what we deserve. We acclaimed the original perpetrator of this ill-fated plan – Greenspan – to be the great Maestro, in a general orgy of boot licking. His faithful acolyte, Bernanke, was reappointed by a democratic president and generally lauded for doing (I admit) a perfectly serviceable job of rallying the troops in a crash that absolutely would not have occurred without the dangerous experiments in deregulation and no regulation (of the subprime instruments, for example) of his and his predecessor’s policy. At this rate, one day we will praise Yellen (or a similar successor) for helping out adequately in the wreckage of the next utterly unnecessary financial and asset class failure. In the meantime investors should be aware that the U.S. market is already badly overpriced. This market is already no exception, but speculation can hurt prudence much more and probably will. Ah, that’s life. And with a Fed like ours it’s probably what we deserve.
The operative model of "growth" in America: rapid expansion/overbuilding in pursuit of poaching customers from existing competitors, a strategy that leads to massive overcapacity/redundancy and declining profits that then leads to mergers and shuttering hundreds of redundant outlets. Why has this doomed model of overbuilding and poaching sales become so dominant? Look no farther than the cheap-money policies of the Federal Reserve.
Jim Rogers hope-driven wish is that the politicians were smart enough at some point to say (to the central bankers), "we've got to stop this, this is going to be bad." He adds, on the incoming QEeen, "she’s not going to stop it, first of all she doesn't believe in stopping it, she thinks printing money is good." However, Rogers warns in this excellent interview with Birch Gold, "eventually the markets will just say, "We're not going to play this game anymore", and we'll have a serious collapse." The world is blinded by central bank liquidity, and as Rogers somewhat mockingly notes "if everybody says the sky is blue, I urge you to look out the window and see if it's blue because I have found that most people won't even bother to look out the window..." Rogers concludes, "everybody should own some precious metals as an insurance policy," because as he ominously warns, when 'it' collapses, "there will be big change.
USDJPY and Nikkei futures don't know what to make of tonight's data. Is it bad enough that we buy stocks (sell JPY) on the basis that Abe and Kuroda will have to do more or is it so bad that it 'proves' no matter what they do, the gig is up. It seems, by the reaction the latter as Japan's trade balance collapses to the 3rd worst on record. Exports rose 18.6% (more than expected) but it is the imports that soared higher (26.1% vs 19.0% expectations) on the back of surging fuel costs. So, Abe got his inflation - on the cost push side (crushing margins) and not the animal-spirit-competitive exuberance demand-pull side. Perhaps it is time to rename it Abe-wrong-ics. Of course, we await Goldman's blessing of the number as just wait one more quarter for the J-curve to turn up on this devaluation cycle... we wait patiently...
If you are still of the belief that the stock "market" is a market of stocks idiosyncratically valued based on the aggregate of investors weighted expectations of future earnings potential, we highly recommend you look away from the chart below. If, however, like Rick Santelli's "something is wrong" comment or Carl Icahn's "it's all a mirage" perspective, you have some doubts, take a glimpse at the 'fundamental' reality you are betting your retirement on...