by Phil Davis - September 24th, 2012 8:22 am
That's right, Chancellor Angela Merkel and President Francois Hollande underlined Franco-German disagreement over the weekend as they clashed on a timetable to introduce joint oversight of the region’s banking sector, with Merkel rebuffing Hollande’s appeal to activate it “the earlier, the better.” “Complacency seems to have affected European policy- makers,” Joachim Fels, chief economist at Morgan Stanley in London, wrote yesterday. “One case in point is the disagreement between governments about the nuts and bolts of a banking union, which remains crucial to break the negative feedback loop between banks and weak sovereigns.”
Chancellor Angela Merkel and President Francois Hollande’s appeal for German-French unity to tackle Europe’s ills lasted all of three hours as they disagreed over closer integration of the region’s banking system. The two leaders, marking Franco-German reconciliation after World War II, delivered back-to-back speeches in which they hailed their mutual ties, tried out each other’s language and pledged to work together for a more unified Europe to defeat the financial crisis. The bonhomie broke down at a subsequent press conference when they failed to mask their differences on a planned “banking union” meant to achieve that end.
French President Francois Hollande's approval ratings have tumbled to their lowest level since he first took office in May, a new poll showed on Sunday, as France's grinding economic stagnation and record unemployment show little sign of easing. But at least he'll still have a country to withdraw from public life to – not so much Spain – where 25% unemployment (50% for youths) has as many as 1.5M of 7.5M total Catalans protesting in the street, demanding independence.
Out-of-money Catalonia had to ask the central government for a bailout. Catalans are frustrated. They claim that under the current fiscal setup, Catalonia transfers €16 billion annually to the central government, and that these transfers bankrupted the region. Now, in exchange for the bailout, the central government has imposed austerity measures that cut into health care, education, and other services.
On Thursday, Catalan President Artur Mas met with Prime Minister Mariano Rajoy, originally to beg him for a new tax deal. But the massive demonstration in Barcelona had added independence to the agenda. Rajoy brushed him off, with references to the constitution that didn’t allow regions to secede. “Constitutions may or may not be modified, but they do not subjugate the will of…
by Phil Davis - September 21st, 2012 8:15 am
2.8% – that's what QE3 has bought us so far.
Last Options Expiration Day was August 17th and the S&P was at 1,420 and a month later we're testing 1,460 – 2.8% higher after Bernanke pledges to spend at least $600Bn and, of course, the ECB pitched in their own $600Bn and China dropped $400Bn and the BOJ added $200Bn of their own. All that for 40 points.
So what's the problem? Of course there was front-running, QE2 had front-running as well, with the S&P running up from 1,040 to 1,250 (20%) ahead of the actual announcement. That didn't stop us from heading up to 1,361 the next year – up another 9% before collapsing all the way back to 1,100 last fall (down 20%) into Operation Twist, which took us all the way to 1,422 (29%) before falling back to 1,266 this June (down 11%) when the Fed announced Twist would be extended and rumors of QE3 did the rest, running us all the way to 1,440 just ahead of the announcement (up 14%) and, as I mentioned, up to 1,460 now (up 1.4%).
As John Lennon would say, we need to give QEs a chance but clearly this is a little disappointing so far – especially with such massive, coordinated central bank action AND, did I forget to mention, the new IPhone is here! That's right, today is new IPhone day and, in the Appleconomy, what could possibly be more important than that?
Lines like the one on the left are in front of almost every AAPL store on the planet as getting a new phone on the first day it's shipped is really, Really, REALLY important to some people. We discussed the potential for upside in AAPL (we're already long) in yesterday's Member Chat and there seems little likelihood that AAPL will be holding back the Nasdaq NEXT Quarter, but this Quarter (AAPL's 4th) ends on the 29th and it remains to be seen how and when AAPL chooses to recognize these early revenues.
Earnings are on Oct 15th so we'll see what they have to say but, of course, we'd see any dip as another buying opportunity there. We took the dip in gasoline (/RB) to $2.80 as a buying opportunity as well and buying gas futures into the weekend is often a good bet and, at…
by Phil Davis - September 20th, 2012 8:18 am
It's PMI time again and again it's pretty grim.
China's PMI languished at 48.7, up very slightly from 47.6 last month and, although well into contraction (below 50), it's NOT worse and that means the news is not even bad enough to be good (begging for more QE) and so, it's bad news that is bad in China's 11th consecutive month of contraction in manufacturing and the Shanghai Composite index dropped 2% this morning, to re-test the 3-year low at 250, down from 307 in April and down from 388 in April of 2011 – not a good trend.
Overall EU PMI was 46, up from 45.1 in August but composite output fell to 45.9 from 46.3 and that is a 39-month low. "The eurozone downturn gathered further momentum in September, suggesting that the region suffered the worst quarter for three years," says Markit. The flash PMI is consistent with GDP of -0.6% in Q3, "sending the region back into a technical recession." France, which had been one of the stronger EU nations, dramatically turned sour with a drop from 46 in August to 42.6 for September. Manufacturing hit a Greece-like 39.8 (down from 45.3) with France's composite at 44.1. While private-sector output plummeted, "new business and employment also showed accelerated declines," says Markit. "Yet more weak PMI data points firmly towards a contraction in Q3."
Retail sales in the U.K. fell 0.2% in August as the Olympics took center stage in the nation. Despite the sporting distraction being over, economist Samuel Tombs forecasts more decreases for retail sales over the next few months with consumer confidence in the nation still weak. Back in Asia, Japan's and China are continuing to threaten each other and it's hurting companies who do business in both like Komatsu, who make 15% of their sales in China. That Nikkei stock was down 3.1% this morning and Japan once again ran a trade deficit for August.
The Euro remained lower against the Yen, adding to evidence that the region’s debt crisis is sapping growth. “We think at these levels, Euro is a sell because of the state of the European economy," said Joseph Capurso, a strategist at Commonwealth Bank of Australia (CBA) in Sydney. “The lessons of the last decade have shown that the Bank of Japan’s asset purchases are simply not…
by Phil Davis - September 19th, 2012 8:15 am
As expected, the BOJ intervened this morning.
Not as expected, they didn't do much, merely increasing their existing asset-purchase program to ¥80T ($1.01Tn) from ¥70T, and lengthening the program by six months to the end of 2013. This is, of course, having very little effect on the Dollar, which barely managed to hang on to 78.50 yesterday, but should be bottoming out around here nonetheless. The weak dollar did not prevent oil from heading even lower, touching our $94.50 target this morning as the only explanation NOT discussed by the MSM – that oil trading is a fraud on committed against the the American people – is the one that is explaining the action perfectly:
|Current Session||Prior Day||Opt's|
by Phil Davis - September 18th, 2012 8:30 am
Do we need more cowbelll?
After 48 hours of market euphoria last week have the markets already sobered up over the weekend and need another fix? We had a minor pullback (so far – see Dave Fry's chart) in the US and Europe but China's Shanghai Composite index has fallen 3% in the first two days of the week, giving up all of the gains of QE3 (not to mention China's own generous stimulus last week) and falling back to levels not seen since 2009.
Our own data continues to come in terribly, with yesterday's Empire State Manufacturing Survey a disaster at -10.41, putting us steeply into contraction with another round of Global PMI reading coming later in the week to possibly confirm the Global Recession.
Of course with no manufacturing activity it's the materials sector that's priced way too high. Gold and oil were two of our remaining short positions in the $25,000 Portfolio (see Friday's Post) and yesterday morning I mentioned how excited we were to short oil at $100. That worked out very well already as it plunged back to $95 yesterday afternoon – paying futures players (/CL contracts) $5,000 per contract in one fell swoop.
At PSW, we find it very amusing that "Analysts scrambled to explain Monday's dramatic plunge" when this is exactly the plunge we've been waiting for based on our premise that the NYMEX traders are nothing more than con men running a shell game and faking demand for hundreds of millions of barrels contracts they have no intention of accepting delivery of in order to drive up prices and rob the American people of hundreds of Billions of Dollars each year. In that context, yesterday's move was EXACTLY what we expected since last month.
For all those "confused" analysts, we are happy to point out the only chart that matters and that's how many open October contracts remain on the NYMEX, which expire on Friday – forcing traders to accept delivery of barrels (1,000 per contract) that they have no actual use for, no authorization to buy and no intention of owning.
In fact, despite trading over 6Bn October contracts back and forth in the past month, in the end, traders will only accept delivery of about 30M barrels – reflecting the ACTUAL demand – the rest is just faked…
by Phil Davis - September 17th, 2012 8:24 am
The US has been put on negative credit watch.
Small but respected Egan-Jones' Vice-President, Bill Hassiepen said "We are not receiving QE3 positively. The fiscal situation is a nightmare. While the Fed is seeking to support economic growth through its quantitative easing, the central bank’s massive monetization is instead causing sluggish to stagnant economic growth.” In fact, he expects growth to become stagnant within six months as a result of the Fed’s policy. The reason the country does not have a weaker rating, he said, is that it remains “the only viable reserve currency in the world.”
Does any of that sound wrong to you? Hassiepen is just the first of many who are lining up to point out that the US economy has no clothes. Retail sales data was terrible, industrial production was terrible but consumer confidence was unnaturally boosted by a 10% rally in the stock market due to QExpectations. Which report does the MSM latch on to? Consumer Confidence – of course! Why bother going over silly data facts when people have opinions we can discuss?
The Federal Reserve’s “money printing,” Hassiepen said, has not “really contributed to the improvement in the general economy” so far. Instead, all it has done is increase inflation and the cost structure in the general economy, as will the new round of QE just announced Thursday. “We actually think this is going to cause unemployment, not employment,” he said. the Fed’s policy will reduce household’s disposable income and raising costs will also “lead companies to lay off people,” he said.
I'm not saying we shouldn't enjoy our free money that the Fed is doling out but let's take it with a grain of salt and not assume it's going to be a cure-all. As you can see from the chart above, after a VERY brief moment of euphoria post QE2, we did drop 5% the following two weeks. While we did get a nice pop last week – this week is the expiration of September options contracts and, as you can see from our Global Economic Calendar (thanks StJ!), it's a major data week with lots of Fed speak as well as potential economic mine-fields.
As noted in Friday morning's post, we shifted our short-term positions to neutral in the face of overwhelming monetary easing (see post for updated $25KP positions) but, during Friday's Member Chat, not only were we unable to find things to get bullish about, but we…
by Phil Davis - September 14th, 2012 8:28 am
$85Bn a month!
Oh boy was I wrong when I said Ben Bernanke wasn't crazy enough to ease into a bull market. Yesterday, he exercised the full power of the Federal Reserve to confiscate your wealth and hand it over to the bankers. That's right, by engaging in what many consider reckless money-printing practices and announcing there is no end in sight, Bernanke caused the Dollar to fall below 79, down from 84 (6%) before all this QE talk began.
That's like taking all $100Tn worth of US Assets – everything you worked for your entire life – and just devaluing them by 6%. Many of our Conservative friends decry the 1% tax on wealth imposed by the French – but at least they are honest about it. At least they debate it and vote on it. Not Bern Bernanke – the Federal Reserve Chairman simply decrees that you will contribute 6% of your dollar-denominated assets towards more bank bail-out and there's no cut-off if you are below the top 2% – this is a confiscation from every man, woman and child in America.
How far down will Dr. Bernanke take your Dollars? That's the beauty of it – there's no limit! He warned Corporate America yesterday that he will continue to give them FREE MONEY as long as they keep refusing to hire more workers. The less American workers they hire – the more money he will give them. Sure, they can hire and spend overseas (most are) because that won't affect US unemployment rates but, if they start hiring Americans – THAT's when he will begin to take away the punch bowl.
See how this scam works?
It is hard to see how another round of QE would help the economy. Long-term interest rates are already at historic lows. With rates this low, even if QE put effective downward pressure on rates — a dubious proposition — the economy would be unlikely to benefit. If a 3.5% mortgage rate is of little consequence, there is no reason to believe that a 3.4% or even 3.3% rate would suddenly produce results.
Nor would quantitative easing result in a burst of money creation, as per traditional monetary policy, because the Fed now pays a quarter-point interest on excess bank reserves. With little growth in the demand for…
by Phil Davis - September 13th, 2012 8:03 am
What will Ben Bernanke do?
I've been predicting nothing so this will be a great day for all the Phil bashers if he does. My logic is that, although clearly insane, the Fed Chairman is not so irrational that he will engage in any form of additional Quantitative Easing while stocks and commodities are near all-time highs.
The FOMC will announce their decision at 12:30 and lack of QE language there (which would be a huge change from last to add it) may, by itself, cause the market to drop until 2:15 just after we get the Fed's GDP outlook and then Uncle Ben's press conference, when it's almost a sure thing that he will leave the door open for more QE but, without specific discussions of targets, time-frames and triggers – I'm not sure the same old song and dance is going to do it for markets – who have already had such a huge run-up in anticipation of this event.
As you can see from the chart on the left, QE has come at S&P 800 (no arguing with that one) in November of '08, S&P 1,200 in November of '10 and S&P 1,100 in November of last year, which was extended this June at S&P 1,300.
Now the S&P is up 10% from June and jobs and housing are somewhat improving – do we really feel the Fed now feels the NEED to support S&P 1,430 and, are things so dire that the Fed will now act to ease for the 3rd time in 12 months? They didn't do that 600 points ago and they didn't do that 300 points ago but, if you listen to the MSM – now they HAVE to. Really?
Of course, Central Banksters can remain irrational longer than their countries can remain solvent. Take the Swiss, for example, who just this morning pledged to support the Euro with "unlimited quantities" of currency purchases in order to keep the Franc low – even while cutting both their inflation and growth forecasts. There are just so many things wrong with this combination statement that I don't know where to start…
The SNB's benchmark interest rate is already zero so, unless they are going to pay us to borrow money (and, if they are, I'll take $30Bn please), there's nowhere to go from there. The Swiss make Bernanke look like a…
by Phil Davis - September 12th, 2012 8:27 am
Europe is getting a $650,000,000,000 bailout!
The German courts approved the ESM and the markets are up almost half a point in all the excitement. Stimulus really works, doesn't it? As I have been saying, all this stuff is baked in – the only shocker you'll see is if Uncle Ben fails us – again – tomorrow. For those of you with very short attention spans, he just failed to provide QE3 at Jackson Hole two weeks ago but the markets have rambled higher, unperturbed, because he didn't say he WOULDN'T give us QE3.
What should really worry the bulls this morning is that the Dollar dipped all the way to 79.64 on this fantastic news out of Germany and all the futures managed was to get back to yesterday's highs. Oil had a good old time rocketing to $98 but has already crossed our shorting spot at $97.50 (/CL) and we'll likely take the money and run on any turn back up and short them again AHEAD of inventories, which should show a nice build as the shipping channels re-open.
As noted in Member Chat this morning (among many other things), there are over 600M barrels on order at the NYMEX and as of the 20th, 165M of those barrels have to be rolled to the next 3 months that already have over 500M barrels on pretend order so we can expect some real scrambling out of oil longs between now and next Thursday (we're short on oil with SCO Oct $37 calls, now $2.45 in addition to our Futures targets).
What's keeping oil prices from tanking (also discussed this morning) is another round of "Israel Willl Attack Iran By Lunch" articles that seem to crop up every time NYMEX traders find themselves faking demand for more contracts than they can comfortably unload. Usually, that number is 500,000 contracts (1,000 barrels per contract), not 600,0000 and usually the new month they are rolling into only has 40M open barrel orders – not stuffed with 110M barrels already like January is.
Clearly demand for crude has fallen off the cliff – as evidenced by the chart on the right which illustrates how a combination of the recession and Obama's rising CAFE standards are causing a very steady drop in US demand by as much as 2Mbd less than we used in 2007.
by Phil Davis - September 11th, 2012 7:50 am
Once again we're waiting on the Fed.
As you can see from the chart on the right, while we had a very impressive break-out last Friday, it was only impressive when you price the indexes in Dollars – priced in Euros, we were unable to break over the 50 dmas, which are in decline in a constant currency. The Dollar stopped going down yesterday and the markets stopped going up – it's a pretty straightforward relationship.
To be bullish on stocks and commodities here means you are bearish on the Dollar at 80 and, of course, bullish on the Euro at $1.28, which just so happens to be its own 50 dma ($1.2827). Should gold be higher than $1,750? Should oil be higher than $96.74? Should AMZN be higher than 260 with a p/e of 313?
It's not just AMZN, of course but that's one of our favorite shorts because, even with the most bullish of forward projections – they are still priced like dot com mania never left us at 8x the valuation of AAPL, who make 41 TIMES more money than AMZN. AAPL makes $25Bn a year on $108Bn in sales, AMZN make $600M on $48Bn in sales. AMZN has been around since 1994 – it's not like they just started doing this stuff. If AMZN doubled their bottom line without increasing sales, then they'd make $1.2Bn on $48Bn in sales, still 1/20th of AAPL's profits.
In order for AMZN to match AAPL's $25Bn in profits, even giving them a free double on margin, they would have to sell $1.8Tn worth of merchandise. That's 4 times bigger than WMT and would essentially mean that AMZN is the only retailer in the United States, with over 90% of the total retail market share. And that's JUST to get to AAPL's valuation! Isn't that completely ridiculous? The suckers buying AMZN don't seem to think so.
It's not just AMZN that has completely unrealistic pricing, of course, with the consumer taking it on the chin, much of Retail is way overpriced for realistic forward prospects. In fact, the p/e ratio of the entire S&P 500 is up to 15 again – about the value at which we usually get our market corrections, while, at the same time, 2012 consensus earnings estimates have fallen off sharply.