Earlier this week two former Merrill colleagues, since separated, were reunited on several media occasions, and allowed to spar over their conflicting views of the world. The two people in question, of course, are Gluskin Sheff's David Rosenberg, best known during the past 3 years for not drinking the propaganda Kool-Aid, and systematically deconstructing every "bullish" macroeconomic datapoint into its far more downbeat constituent parts, and his ebullient ex-coworker, Richard Bernstein, formerly head of equity strategy at a firm that had to be rescued by none other than Bank of America and currently head of RBA advisors, who just happens to be bullish on, well, everything. And since any attempt at holding an intelligent conversation on CNBC is ultimately futile (as can be seen here) and is constantly broken up by both ads, and interjecting anchors and show producers who care far less about facts than keeping the presentation 'engaging' (and going to such lengths to even allow Jim Cramer to have his own TV show), Rosenberg decided to dedicate his entire letter to clients today to "providing a rebuttal" of the slate of reasons why according to Bernstein the "we are on the precipice of a 1982-2000 style of secular market." What follows is one of the most comprehensive "white papers" debunking the bullish view we have seen in a while. Read on.
On this day (+1) in 1987 (that's 25 years ago, if you are burdened with a graduate degree), the NYSE had one of its most dramatic trading days in its 220 year history. It suffered its largest single day percentage loss (22%) and its largest one day point loss up until that day (508 points). No one who was on the floor that day will ever forget it. While it was an unforgettable single day, there were months of events that went intoits making. The first two-thirds of 1987 were nothing other than spectacular on Wall Street. From New Year to shortly before Labor Day, the Dow rallied a rather stunning 43%. Fear seemed to disappear. Junior traders laughed at their cautious elders and told each other to "buy strength" rather than sell it, as each rally leg was soon followed by another. One thing that also helped banish fear was a new process called "portfolio insurance". It involved use of the newly expanded S&P futures. Somewhat counterintuitively, it involved selling when prices turned down.
- Germany will pay Greek aid (Spiegel)
- Spain Banks Face More Pain as Worst-Case Scenario Turns Real (Bloomberg)
- China’s Growth Continues to Slow (WSJ)
- Executives Lack Confidence in U.S. Competitiveness (WSJ)
- Poor Market Conditions will See 180 Solar Manufacturers Fail by 2015 (OilPrice)
- Wen upbeat on China’s economy (FT)
- Gold remains popular, despite the doubts of economists (Economist)
- Armstrong Stands to Lose $30 Million as Sponsors Flee (Bloomberg)
- IMF urges aid for Italy, Spain but Rome baulking (Reuters)
- EU Summit Highlights Financial Divide (WSJ)
- FOMC Straying on Price Target, Former Fed Officials Say (Bloomberg)
- Putin defiant over weapons sales (FT)
- Obama takes offensive against Romney in debate rematch (Reuters)
- Obama Says Romney Words Aren’t ‘True’ in Second Debate (Bloomberg)
- Obama takes Romney head-on in debate (FT)
- And another joins the club: Thailand Unexpectedly Cuts Rate as Global Outlook Worsens (Bloomberg)
- PBOC Injects Less Cash (WSJ)
- Japan to Hold Special Cabinet Meeting After Economy Downgraded (Bloomberg)
- Greek Coalition Duo Reject Labour Moves Proposed by Troika (WSJ)
- Opposition wanes to Spanish aid request (FT)
- RBS to Exit U.K. Asset Protection Plan After $4 Billion Fees (Bloomberg)
- Spain Retains Investment Grade Credit Rating From Moody’s (Bloomberg)
- US diplomat asks Japan, ROK to resolve islands spat (China Daily)
- Stagnation not due to austerity, says OBR (FT)
Reports that the housing sector is recovering has generated more than a little irrational exuberance among investors regarding financials.
- Romney dominates presidential debate (FT)
- What Romney’s Debate Victory Means (Bloomberg)
- Obama Lead Shrinks in Two Battlegrounds (WSJ)
- "Everything will fall apart unless the Spanish conditions are extremely tough" German policy-maker (Telegraph)
- Draghi Stares at Spain as Brinkmanship Keeps ECB Waiting (Bloomberg)
- RBS facing loss after Spanish property firm collapse (Telegraph)
- Burdened by Old Mortgages, Banks Are Slow to Lend Now (WSJ)
- The Woman Who Took the Fall for JPMorgan Chase (NYT)
- European Banks Told to Hold On to $258 Billion of Fresh Capital (Bloomberg)
- Europe Weighs More Sanctions as Iran’s Currency Plummets (Bloomberg)
Ultraluxury NY Real Estate Market Cracking As Legendary 740 Park Duplex Sells 45% Below Original Asking PriceSubmitted by Tyler Durden on 10/03/2012 11:43 -0400
Even as the media desperately tries to whip everyone into a buying frenzy in an attempt to rekindle the second housing bubble, the marginal, and less than pretty truth, is finally starting to emerge. Over the weekend we presented the first major red flag about the state of the housing market - in this case commercial - when we exposed that "New York's Ultraluxury Office Vacancy Rate Jumps To Two Year High As Financial Firms Brace For Impact." What is left unsaid here is that if demand for rents is low, then, well, demand for rents is low: hardly the stuff housing market recoveries are made of. Today, on the residential side, CNBC's Diana Olick adds to this bleak picture with "Apartment Demand Ebbs as ‘Avalanche’ of New Units Open." In other words rental demand for both commercial and resi properties is imploding. But at least there is always owning. Well, no. As we have shown, the foreclosure, aka distressed, market is dead, courtesy of the complete collapse in the foreclosure pipeline as banks are effectively subsidizing the upper end of the housing market by keeping all the low end inventory on their books (who doesn't love the smell of $1.6 trillion in fungible excess reserves to plug capital holes in the morning. It smells like crony capitalism). But at least the ultra luxury, aka money laundering market was chugging along at a healthy pace. After all there are billions in freefloating dollars that need to be grounded in the US, courtesy of the NAR which is always happy to look the other way, another issue we discussed this weekend. Now even that market appears to be cracking, following the purchase of a duplex in New York's most iconic property: 740 Park, by, who else but a former Goldman partner, at a whopping 45% off the original asking price.
Meet the man, who many say (most of whom correctly) has been running pretty much everything from deep behind the scenes.
Curious why nearly 4 years ago to the day Ben Bernanke and Hank Paulson told Ken Lewis to purchase Merrill Lynch "or else" (but to make sure everyone gets paid their bonuses bright and early with no cuts)? It certainly had to do with the stock price and preserving the wealth of the shareholders. It had little to do with making the company viable in the long run, unfortunately, as the just announced news of a massive tsunami of 16,000 imminent terminations at the company confirms. All BofA did then was to take on dead weight at gunpoint, which it now has to shed. It also shows that despite rumors to the contrary the US economy is not getting better, the US financial system is not getting stronger, faith in capital markets is not returning (based on future staffing needs at banks), US tax revenues by the highest earners will go down, and the closed loop that is a procyclical economic move will just get worse as there are fewer service providers providing financial services, in the process taking out less consumer debt to keep the GDP "growing." What will also happen by January 1, 2013 is that BofA will no longer be America's largest employer, with the total headcount of 260,000 at year end being the lowest since 2008, and smaller than JPM, Citi and Wells.
What Do the Experts Say? Are People Actually ACCEPTING Gold As Money?
On Wednesday the German constitutional court, aka the KKK (Krimson Kardinals Of Karlsruhe, any association with other acronyms is purely accidental), will decide if Europe stays or goes. There is some possibility Karlsruhe may delay the September 12 decision even further, following a new complaint by a Merkel conservative, Peter Gauweiler who said in a statement on Sunday the fund should not be ratified unless the ECB rowed back on its plans to make unlimited purchases of sovereign bonds, since that he said, posed a major risk to Germany's own national budget. The Constitutional court is expected to opine on this latest hurdle today or tomorrow at the latest. However we doubt it. So what does the binary outcome ahead of Wednesday look like? Here are some Wall Street pundits opining. Curiously, while the market is also pricing perfection as the outcome to this event, there may be gray skies forming.
XAU/EUR Exchange Rate Daily - (Bloomberg)
Gold at €1,355/oz, just 2.5% from the record high of €1,390/oz, is a sign of a continuing lack of trust in the euro and in Draghi’s stewardship at the ECB.
- Must be those evil speculators' fault: Oil price inflates as speculators bet on stimulus (Reuters)
- Need moar stimulus: UK Coalition plans housebuilding stimulus (FT)
- Paul Ryan brings fundraising prowess to Romney presidential bid (Reuters)
- Chinese serial killer shot dead after massive manhunt (Reuters)
- Silver Hoard Near Record As Hedge-Fund Bulls Recoil (Bloomberg)
- World powers eye emergency food meeting; action doubted (Reuters)
- Clegg Said to Have Role in Picking King Successor as BOE Chief (Bloomberg)
- Standard Chartered CEO takes charge of Iran probe talks (Reuters)
- Risks must not hide positive China trends (FT)
- BOJ should not rule out any policy options: July minutes (Reuters)
- India Says Growth Sacrifice Needed in Inflation Fight (Bloomberg)
While we already presented, courtesy of Nanex, the modus operandi of the Knight berserker algo, there was one outstanding question. What was the bottom line. And no, not how much the loss on Knight's Income Statement would be as a result of this glimpse into what really happens in the market: we already knew that would be $440 million. The question is what is the notional amount of stock that this algo bought in the 45 minutes in which it was operational. We now know: $7 billion. Or $155 million per minute. Or $2.6 million per second. Or, assuming the algo impacted just 150 stocks as previously reported, it was buying on average $17,333 in each name every second. Or, assuming an average stock price of the universe of 150 stocks of $30/share, the Knight algo lifted the offer roughly 600 times each second. For 45 minutes straight! That's right - the market making algorithm of a designated market maker which is responsible for 10% of the order flow in the US stock market, entered a pre-programmed mode (because the computer was told to do whatever it did by someone, and not without reason) that saw it buy up $2.6 million worth of stock every second.
From the just released Bank of America 10-Q: "During the three months ended June 30, 2012, positive trading-related revenue was recorded for 95 percent, or 60 of the 63 trading days of which 75 percent (47 days) were daily trading gains of over $25 million and the largest loss was $11 million. These results can be compared to the three months ended March 31, 2012, where positive trading-related revenue was recorded for 100 percent (62 days) of the trading days of which 95 percent (59 days) were daily trading gains of over $25 million. There were no daily trading losses recorded during the three months ended March 31, 2012." This vaguely reminds us of the JPM's trading performance. Just before they got busted for hiding a $350 billion hedge fund in the firm's "risk hedging" aka CIO/Treasury division that is. Also, if anyone else has problems believing that BofA's trading desk, with or without Merrill, both of which are better known as the C-grade (and that is being generous) of Wall Street traders, could generate profits on 122 of 125 trading days, please lift your hand.