Apple

Credit indices are virtually unchanged in Europe and here. Stocks futures are virutally unchanged in Europe and here. I still see no evidence that the ECB has redeemed its old bonds and received new bonds (the amount outstanding on old bonds should show up as being reduced once the exchange is done - it is is probably just that the trade hasn't settled, though with CAC documentation proceed in Greece, it would be curious to see what happens if the ECB's exchange isn't done when the CAC is implemented).

The fine folks at Street of Walls have been kind enough to provide us with their latest 13F breakdown which looks at the position changes across America's 30 largest and most important hedge funds. While we have already focused on some of the more entertaining ones, and tracked the recent rush back into gold, those curious about what the latest hedge fund hotel stocks are (aside from Apple of course) are encouraged to peruse the following exhaustive report.

• Spiegel: Stop the 130-billion bank transfer! (Spiegel)
• Greece Wins Bailout as Europe Chooses Aid Over Default (Bloomberg)
• Greek pro-bailout parties at all-time low, poll shows (Reuters)
• Eurozone agrees €130bn Greek bail-out (FT)
• Top Banks in EU Rush for Safety (WSJ)
• Medvedev Adviser Says Kudrin Would Be Better Prime Minister (Bloomberg)
• US and Mexico in landmark oil deal (FT)
• McCain calls for US to support Syria rebels (FT)
• Coal Shipments to India Overtaking China on Fuel Shortage (Bloomberg)
• Gillard Shrugs Off Ousting Threat (WSJ)

The ECB and Fed seemed to have pushed Roubini and others into the capitulation. As a rough guess, only about 3 of the up days this year had anything to do with earnings and economic data (the NFP day being the most obvious). The rest were all induced by some political or central bank action. Frankly I’m surprised we weren’t up more in Europe today with the Chinese Bank Reserve Ratio getting cut. At any moment we should get details of all the next steps for the Greek bailouts. We will get to see the ECB swap, the PSI proposal, and retroactive collective action clauses. It will be interesting to see how that works. After the Greek default (yes, bondholders giving up 50% of their notional is a default), it will be interesting to see how Greece does. Hopefully they will actually spend some time trying to figure out alternative ways to finance themselves than the ever more onerous bailout packages from the Troika.

There's a very well-known publisher of market commentary which - like me - has been largely bearish over the past two and a half years. What is irksome to me is that, in the face of a market which has done little but push higher all this time, they keep pointing to a chart showing that in "real dollars" (in their view, gold) the market has indeed been crashing.

Ummm, that's stupid. Gold is an asset, but it isn't used as money in our society. Do you buy groceries with it? Pay your mortgage with it? Pay school tuition with it? I didn't think so.

I could make ANY prediction about ANY market and be correct if you allowed me to choose some kind of "currency" as a benchmark. Over any span of time, you can find something which has gone either up or down in value to support your claim, if that's what you're allowed to use as your divisor.

What a difference a quarter makes: back in Q4 2011, in light of the imploding global economic reality, the only recourse equity bulls had to was to point out that corporate profitability was still at all time highs, and to ignore the macro. Fast forward a few months, when Europe's economic situation continues to deteriorate with the recession now in its second quarter, China's home prices have just slumped for a 4th consecutive month (forcing the PBOC to do only its second RRR cute since November), Japan is, well, Japan, yet where the US economic decoupling miracle is now taken at face value following an abnormally high seasonal adjustment in the NFP establishment survey leading to a big beat in payrolls and setting the economic mood for the entire month (with flows into confidence-driven regional Fed indices and the PMI and ISM, not to mention the Consumer Confidence data) as one of ongoing economic improvement. That this "improvement" has been predicated upon another record liquidity tsunami unleashed by the world's central banks has been ignored: decoupling is as decoupling does damn it, truth be damned. Yet the bullish sentiment anchor has flip flopped: from corporate profitability it is now the US "golden age." How long said "golden age" (which is nothing but an attempt to sugar coat the headline reality for millions of jobless Americans in an election year) lasts is unclear: America's self-delusion skills are legendary. But when it comes to corporate profit margin math, things are all too clear: the corporate profitability boom is over. As Goldman points out: with the bulk of companies reporting, in Q4 corporate profits have now declined by a significant 27 bps sequentially, and an even more significant 52 bps excluding Apple.

In the past week we have seen the Banks of Japan and China join the queue for printing ink along with the Fed, the Bank of England, the ECB and the Swiss National Bank; many other minor central backs have either cut rates or are about to. Admittedly the Chinese have not actually cranked up the Hewlett Packards but PBOC Governor Zhou said that “China will continue to invest in EU countries’ government bonds, and will continue, via possible channels, including the IMF, the EFSF and the ESM, to be involved in resolving the euro-zone crisis”. He added that he hopes Europe can offer “more attractive investment products”. I wonder what he has in mind. With the support he can muster Greek 2 year bonds on a 200% yield should do the trick surely…

While we have long-argued that the discussion over the use of Apple's cash pile is somewhat circular (lower cash equals higher risk, less ability to withstand any shock, and investor perception growth/value shift) in its 'value' for the company, Bloomberg's always-sharp Jonathan Weil has a slightly different tack on the mega-firm's accounting conventions and why it may not be so cheap. As he points out, analysts (and talking heads) persistently argue that the firm's value is cheap at 14.3x T12M earnings (in line with the S&P) in spite of far higher growth (revenues and earnings). Competitive threats are often cited, future uncertainty of the consumer comes up, and the use of the cash argument we already mentioned but as Weil highlights, it seems that Apple's less than conservative accounting methods (that they lobbied for and heaven forbid Obama would re-consider a tax-the-rich opportunity) with regard to booking the revenues of bundled products more quickly than it used to (which caused, for instance, 2009 revenue to jump 44%). So while there may indeed have been record demand for the i-everythings, record 'blow-out' earnings is as likely a symptom of accounting inflation as unpaid mortgage cash being put to work. It seems the market realizes this and so the next time we are told to 'buy-the-dip as Apple is cheap', remember there is a reason for that 'cheapness' - that, as Jonathan so eloquently points out "not all iEarnings are created equal" as economic and accounting realities diverge once again.

One of the redeeming features of the failed experiment known as Europe, at least to date, was that while everyone else may bicker, squabble and posture, Germany, or the true core of the Eurozone kept a cohesive front, and at least pretended to have a unified view vis-a-vis daily events. This is no longer the case, as the approach as pertains not only a broke Greece but every other insolvent European country has now caused a schism at the very top, and created a rift between Angela Merkel (whose political position was dealt a huge blow today with the resignation of German President Wulff) and Finance Minister Wolfgang Schauble. Goldman explains.

• German president resigns in blow to Merkel (Reuters)
• China central bank in gold-buying push (FT)
• Germany Seeks to Avoid Two-Step Vote on Greek Aid, Lawmakers Say (Bloomberg)
• Eurozone central bankers and the taboo subject of losses (FT)
• Bernanke: Low Rates Good for Banks in Long Run (WSJ)
• Cameron and Sarkozy to test rapport at talks (FT)
• Chinese Enterprises encouraged to invest in US Midwest (China Daily)
• Goldman Sachs Group Inc. and Morgan Stanley have reduced their use of "mark-to-market" accounting (WSJ)
• Regulators to raise trigger for rules on derivatives (FT)

• Europe Demands More Greek Budget Controls in Bid to Forge Rescue (Bloomberg)
• Moody's Warns May Downgrade 17 Global Banks, Securities Firms (Reuters)
• Officials at Fed Split on More Bond Buys (Hilsenrath)
• Greek deal delays pressure periphery (Reuters)
• Talk, but No Action, to Break US Grip on World Bank Job (Reuters)
• Greek Rhetoric Turns Into Battle of Wills (FT)
• Greece Seeks Monday Bailout Deal, EU Questions Remain (Reuters)
• US Lawmakers Announce Payroll Tax-Cut Deal (Reuters)
• China Leader-In-Waiting Xi Woos and Warns US (Reuters)
• China's FDI falls 0.3% in Jan (Reuters)

Europe has moved into the “pound of flesh” stage of negotiations. Everyone just wants to make their point and the probability of a deal is dropping by the day. Europe is running out of time, and is just clueless. Yesterday has to confirm that even for the most optimistic person out there. They decided they should wait until the elections. Then they realized they had to deal with the March 20th bonds. Then they came up with a “bridge loan”. Clearly they didn’t bother to look up the definition of a bridge loan. A bridge loan is a loan that is meant to be temporary and has such punitive rates over time that the borrower is heavily encouraged to pay it back with new debt. This is just a “small” loan but one that is permanent and probably never getting paid back. I’m not sure if they asked the contributors whether they wanted to put up €16 billion which is somehow now “small”. Then noise came out that maybe Greece just shouldn’t have elections. The Troika and Greece have been negotiating all this time and no effort was spent on figuring out a plan in the event of default. They are scrambling to come up with one. I remain convinced that Greece could do well in default if it is managed properly, but the chances of them doing anything properly is low.

UPDATE 2: AAPL bouncing from the lows even as Mac Rumors now reports that iPad 2 has been pulled from Amazon China. Recall this story on the recently contentious relationship between Apple and China. 

UPDATE: AAPL now $502.08 lows for day -$24 from highs

Chatter of a QQQQ rebalance (Apple is up ~50% from the last rebalance compared to 10% for NASDAQ) seems to be stumbling the iEconomy as AAPL goes red. Now, which of the 209 funds will be first out of the door? and which last? Volume is picking up for sure and options (especially short-dated) are getting very excited. Of course, broad indices are losing their bid implicitly as ES drops below the pre-China rumor and post-Samaras pop levels. Perhaps it is the recognition that we sold off 7% in a week after the last QQQQ rebalance (April 2011) and the pre-move was nothing compared to this...

Anyone who has dared question the infinite strength of the Apple juggernaut has had their liver eaten daily by a hawk. (My own view last week that Apple would get a little above $500 then reverse didn't quite work out, although I'm willing to give myself a little wiggle room here). But it really seems to me we are just about at the peak of how high the QQQs are going to be able to go.

The divergence between credit markets and equities accelerated today in Europe (and the US) as Senior and Subordinated financial credit spreads have increased dramatically in the last week. While risk has risen over 25% in financials, European stocks have gone sideways since the NFP print. The Subordinated financials spread has risen the most (in percentage terms) over the last 4 days since Nov2010 - and of course the broad equity markets are flat. It would seem that every trader and their mom is selling European financials and buying AAPL.