The two month wait is over and the most overtelegraphed central bank news since November 2012 finally hit the tape when the BOJ announced last night what everyone knew, namely that it would proceed with open-(y)ended asset purchases and a variety of economic targets, key of which was 2% inflation. However, the response so far has been one of certainly selling the pent up news, especially since as was further detailed, the BOJ will do virtually nothing for 12 months, except to increase the size of its existing QE (is the current episode QE 10 or 11?) by another €10 trillion for the Bills component. The USDJPY dropped as much as 170 pips lower than its overnight kneejerk highs hit just after the news.
Now obviously, anyone with any common sense would react to this story with immediate shock and disbelief. The 5 year old child merely discussed "shooting bubbles" with a bubble gun she didn't even have with her, and she is immediately suspended? How does this compute? Have school districts gone completely insane? Actually, I believe they are quite aware and cognizant of what they are doing... This is not just a "zero tolerance policy" on the part of school officials. This is a concerted and directed effort to frighten children away from the whole of American gun culture using negative reinforcement. Like Pavlov's Dog, which was taught to salivate at the sound of a bell, America's youngest generation is being taught to cringe at the mention of firearms.
The recent landslide victory of the Liberal Democratic Party (LDP) on a platform that promised positive change for the long-struggling Japanese economy has thrust a somewhat forgotten Japan back into the headlines. Indeed, as Goldman notes, asset markets have already responded aggressively to the prospective changes with Japanese equity markets climbing to multi-year highs and the Yen declining to multi-year lows against the US dollar and the EUR. But, as Kyle Bass has recently explained, very real questions remain about the ability of the LDP and new Prime Minister (PM) Shinzo Abe to deliver on promises and break the damaging cycle of low growth and deflation that has become well-entrenched in the Japanese economy over the last five-plus years. These doubts are reinforced by concerns about the health of the domestic banking sector and of Japan Inc. in general. "Abe-nomics 'appears' positive, but for how long?" Goldman asks and Hamada's recent concerns over 'going too far' are very real - though in general Goldman's positive 'take' is a useful counter-point to Bass' somewhat more realistic apocalyptic endgame thesis.
To some, today is Martin Luther King day and as a result the US markets are closed, especially since today is also the day when Obama celebrates his second inauguration with Beyonce, Kelly Clarkson and James Taylor at his side (hopefully not on the taxpayers' dime). To others, January 21 is nothing more than the anniversary of the real beginning of the end, when five years ago a little known SocGen trader named Jerome Kerviel could no longer hide his massive futures positions and was forced to unwind them, sending global indices plunging resulting in the biggest single day drop in the Dax (-7.2%), and punking the Fed into an unannounced 75 bps cut. Luckily, today such cataclysmic unwinds are impossible as the market is priced perfectly efficiently, without central bank intervention, price transparency is ubiquitous and the Volcker rule has made prop trading by banks, funded by Fed reserves (which are nothing more than the monetization of excess budget deficits) and excess deposits, impossible.
For much of the twentieth century, the developed world saw a steady march upwards in wages and living standards, due primarily to huge quantities of cheap, high-yielding liquid hydrocarbon. As we find ourselves bumping along the plateau of Peak Oil's apex, suddenly we find that "growth" is a lot harder to come by. Of course, if you follow the news today, this is not the story you are hearing. Talk of an energy bonanza and imminent energy independence (in the U.S.) are everywhere, thanks to gas fracking and tight oil production. What is missing from the headlines is the cost side of the equation and a blindness towards future demand. McDonald begins: "I think the main conversation we are not having is that wages are very unlikely to ever return to a relationship to energy costs that would make the United States economy into a happy economic story once again."
Over the past few months, the perception has been that the risk of a meltdown in Europe (characterized by the loss of market access for Spain and Italy) has grown increasingly remote. The relative calm comes courtesy of the ECB which conventional wisdom has it, began acting "like a real central bank" in September when it announced it was willing to throw eurozone taxpayers' wallets behind theoretically unlimited purchases of Spanish and/or Italian bonds. This promise of course, was meant to discourage so-called "bond vigilantes" (otherwise known as investors who know a bad deal when they see it) from "speculating" on rising periphery bond yields. As it turns out, the effect of the as yet untested Draghi put has been dramatic. Spanish and Italian 10s have tightened by a ridiculous 240 basis points since late July.
China’s monthly data dump was the main macro update overnight, which however with ongoing mockery of the Chinese data "goalseeking" and distribution methodologies, most recently by the likes of Goldman, UBS and ANZ, had purely political window dressing purposes for the new Chinese politburo. Sure enough, that all the data came precisely Goldilocks +1 was enough to put a smile on everyone's face. To wit - Q4 GDP growth came in just higher than consensus (+7.9%yoy v +7.8%). On a full year basis the economy grew by 7.8%, also a tad above expectations. Then we got industrial production, also just higher than expected (+10.3% v +10.2%) and retail sales - just higher as well (+15.2% v +15.1%). Much more important than meaningless, jiggered numbers, was the announcement from the PBOC that in light of the entire world going "open-ended" on easing, China - which now can't afford to lower rates for fears of rampant inflation together with importing everyone else's hot money - announced it will start short-term liquidity operations as additional tool for controlling liquidity, engaging in a reverse repo on a daily basis, which will have a maturity of less than 7 days. This way the central bank will be able to reacted almost instantly to any inflationary spikes across the economy, as it too has no choice but to ease although not by the conventional inflation targeting methods now used by everyone else.
Stocks surged (apart from AAPL) gloriously out of their super-narrow recent range, driven by recycled JPY rumors and some potential 'give' by the Republicans, and the rest of the risk-on complex tracked higher with it. Treasury yields pinged back to higher on the week as the S&P took out recent highs amid a very large surge in average trade size - something that often marks a climax in trend. It seems the selling of vol has hit its short-term limit (as VIX flatlined in general today) and so FX and credit were the levers today. Gold and Silver also surged on the day as Oil popped on the growing tensions in Algeria. In a premature release, Intel exposed an EPS beat, revenue miss, and weak guidance which sent algos scurrying and the share price snapping up and down into the close (and falling after). The bottom-line seems to be that the BoJ joining the infinite print brigade (and some very mixed US macro data) was enough to break us out of a narrow range - but the VWAP reversion into the close appears anything but follow through for the next leg up - as trade size suggests short-term trend change.
Same overnight pattern, different day. After a late day ramp in the US market, followed by a selloff in the futures after hours, taking the ES to trading session lows, we get the European trading crew which day after day sends the EURUSD soaring as Europe opens, pushing futures to unchanged or even green and easily negating the key news event of the day, in this case the full grounding of the entire global Boeing fleet which will once again weigh on the stock and DJIA. In the meantime, the big rotation behind the scenes in FX land continues, with the ongoing and very sudden pounding of the Swiss Franc taking the EURCHF to 1.2450, or the highest, since 2011. Same with the USDJPY which after another attempt to fall, rallies on more of the same regurgitated rumors. Not to mention the EURUSD of course, which as mentioned above has surged some 100 pips since the European open. In other words the overnight beating of the USD is enough to push the US stock market high enough in nominal terms, avoiding that there is no incremental cash flow. Then again, who needs cash flow when you have "multiple expansion."
Those who went long Boeing in the last few days on hopes the "smoking battery" issue had been resolved, especially following Ray LaHood comment's he would fly the Dreamliner, which is rapidly becoming the Nightmareliner for Boeing, anytime anywhere, are about to be grounded, as is the entire 787 fleet of All Nippon Airlines and Japan Airlines following yet another incident forcing an emergency Dreamliner landing. This happened after ANA "alarms indicated smoke in the forward area of the plane, which houses batteries and other equipment, the airline said, and there was a "burning-like smell" in the cockpit and parts of the cabin. The plane landed at Takamatsu airport in western Japan, where the 129 passengers were evacuated using the plane's emergency chutes. The plane also carried eight crew members. ANA said that the exact cause was still undetermined. The event was designated as a "serious incident" by Japan's transport ministry, setting off an immediate investigation by the Japan Transport Safety Board, which dispatched a team to the scene." The result - a 4% drop in the stock so far premarket, and if any more airlines are to ground their fleet the implications for the backlog could be devastating, it will only get far worse for both the company and the Dow Jones average, of which it is part.
As we anxiously await the titanic announcement about to spew forth from Menlo Park, we thought a look at 2013's +20% performance was worthwhile. We would expect to hear a plethora of 'monetizing mobile' and a cajillion eyeballs must mean something. Will the Facebook phone replace the Obama-phone? Will being 'liked' provide external stimulus? Will they be merging with Dell (or Radioshack?) Feeling bullish? Be wary, implied vol is at its most expensivce to realized vol in 7 months... Rest assured, we will bring the critical headlines as they break...
*FACEBOOK SAYS IT'S A PRODUCT ANNOUNCEMENT :FB US
*FACEBOOK ANNOUNCES GRAPH SEARCH :FB US
FB stumbling now -1.7%
And so the consequences for Europe of accommodating the US, and the rest of the world, in having the EUR soar following ECB intervention while everyone else's currency is diluted to death, comes to the fore, following today's announcement of German 2012 GDP which came below expectations of 0.8%, printing at 0.7%, with government adding a substantial 1.0% to this number, while plant and machinery investment tumbled by a whopping -4.4%. And while the specific Q4 data was not actually broken out, a subsequent report by the German stat office indicated that Q4 GDP likely shrank by 0.5% in Q4. All that is needed is one more quarter of sub zero GDP, which will almost certainly happen in Q1 absent a massive surge in government spending which however will not happen in tapped out Germany, whose resources are focused on keeping the periphery afloat, and thus the EURUSD high, and Germany's exports weak. Confirming this was a Bild report which stated that the government now sees 2013 GDP growth of a paltry 0.4%, which assumes growth in H2. One wonders just how much longer Germany will opt for a currency regime that punishes its primary GDP-driver: net exports, at the expense of nothing beneficial but making tourist trips to Greece far more expensive than under the Drachma.
At precisely 14:04:08 a flashing red Bloomberg headline hit that "DELL IS SAID TO BE IN TALKS TO GO PRIVATE." Moments later the stock slammed higher by 10% triggering a circuit breaker. Whether or not there is an actual deal behind this is unknown: considering the "two sources" used by Bloomberg gave virtually no details on who the buyers are, or what the vision for the pro forma private company will be, we are inclined to assume this is nothing but a big, and successful, fishing expedition by a party that sought to make a quick buck. What we do know, is something completely unrelated. Courtesy of Nanex, who have broken down the trades from the pre-headline prices of $10.90 to the halt price of just under $12.00, it appears that today's robotic algo brains take no more and no less than 4 seconds to fully process flashing red headlines. This is how long it took to send the stock in a straight line from the bottom of the range to the top, because all along the ride there were offers, until finally the offer stack was exhausted at the circuit breaker price. To anyone who blinked and missed the move: condolences - just get a collocated algo and any future LBO announcements - real or fake - will be far more lucrative courtesy of an electronic trigger finger located right on the exchange.
We are back to that phase in market euphoria where no news is good news, good news is better, and bad news is best. While there was little news over the weekend, and overnight, what news there was uniformly negative: northern China drowning in smog, the Apple fad bubble bursting, European Industrial production printing below expectations (-0.3%, exp.-0.2%, down from revised -1.0%), and ever louder rumors that the debt ceiling debate may metastasize into an actual government shutdown for at least a few days, which means the first technical default in US history. Yet nothing seems able to faze the risk on mood, still driven by a relentless surge in the EURUSD which touched on 1.34 overnight before retracing, and the EURCHF, which too has soared by over a 100 pips in recent trading action, which according to some is a result of Swatch buying the Harry Winston watch and jewelry brand for $1 billion, and an aggressively selling of CHF into USD by the company. Eventwise, today will be a quiet day in the US, although the action will pick up tomorrow as more companies report earnings as well as the all important retail sales report will put to rest all debate over just how good or bad this holiday shopping season (pre and post seasonal adjustments) truly was.
The Constitution of the United States is an undeniably powerful document. So powerful in fact, that it took establishment elitists with aspirations of globalized governance over a century to diminish the American people’s connection to it. It’s been a long time coming, but in the new millennium, there is now indeed a subsection of the masses that not only have no relationship to our founding roots, they actually despise those of us who do! There are a number of reasons for this dangerous development in our culture...