All day and every day, some of the stock market's best and
brightest traders and money managers share their ideas, insights,
and analysis in real-time on Minyanville's Buzz & Banter.
Here is a small sampling of this week's activity in the Buzz.
A Rocky Road Ahead
When I was a kid, the local news used to ask, "It's 11:00. Do you
know where your children are?" Now for Treasury bond holders, it
might be worth asking, "It's Sunday night. Do you know where your
I've been talking about the importance of SHIBOR for the past month
and trying to understand the relationship between it and US
Treasuries, which I have been saying has a good chance of getting
caught up as collateral damage in a Chinese deleveraging cycle. But
t by ZeroHedge, complete with charts from a recent report by
) really takes the cake for connecting the dots.
First, they point out there's a forthcoming
of Chinese debt, and nobody really knows how much debt will be
reported. An audit conducted two years ago found local government
authorities had RMB10.7 Tn ($1.8 Tn) of debt, so you know this
number is going to be higher than that. The IMF has already
expressed concern about the levels of debt in the Chinese economy
and its potential to hamper growth. Clearly, this is becoming an
issue. In fact, former Finance Minister Xiang Huaicheng said in
April there could be as much as RMB20 Tn.
But the real issue isn't debt levels, but the ability to service
it. Here, ZeroHedge says some things that should make folks take
notice, if they are confirmed (emphasis mine):
In other words, China is preparing to admit that the
level of problem Local Government Financing Vehicle debt is double
what was first reported just two years ago, something many
suspected but few dared to voice in the open. But not only that:
since the likely level of Non-Performing Loans (i.e., bad
debt) within the LGFV universe has long been suspected to be in 30%
range, a doubling of the official figure will also mean a doubling
of the bad debt notional up to a stunning and nosebleeding-inducing
$1 trillion, or roughly 15% of China's goal-seeked GDP! We wish the
local banks the best of luck as they scramble to find the hundreds
of billions in capital to fill what is about to emerge as the
biggest non-Lehman solvency hole in financial history (without the
benefit of a Federal Reserve bailout that is).
If those numbers are accurate, I think the Chinese banks and other
financing vehicles are going to dump every liquid asset they can
get a bid for, part of which is bound to be US Treasuries. And with
that, we'll see more bloodletting in emerging markets as well since
prices for bonds and emerging markets have been positively
correlated in this wacky QE world we find ourselves in.
In the weeks and months to come, Sunday night is going to be really
important for bond investors and it won't be because Sunday Night
Football is on.
Something to keep your eye on --
) could come under pressure due to buzz around the documentary
, which is apparently a damning attack on SeaWorld's Orca whale
treatment practices in the wake of whale attacks at the park. It
was released on 7/19, but the negative publicity is really picking
Activists are starting to
at SeaWorld locations. This could turn into a real PR mess. Google
Trends is showing a huge spike in activity for
-related searches. Meanwhile, the financial media is not really
covering this. When searching the ticker SEAS in Yahoo! Finance,
the coverage is pretty light.
SeaWorld has been
is spreading misinformation, but at the end of the day, I think
people really have a soft heart for animals and SeaWorld is not
looking so hot right now.
I don't know about you, but discussion of
lit up my Facebook page over the weekend, and it seems the critics
are liking it as it has a 97% positive rating on
has only made $123K in box office receipts playing in just five
theaters, according to
(and data for this past weekend doesn't even exist),
has nearly 1 million views on YouTube. So don't be surprised if it
gets wider distribution in a jiffy.
Note that the company reports earnings on August 13.
Bullish Behavior In AAPL
Following last weeks gap above its 50 DMA,
) turned its Daily Swing Chart down on Friday and tailed up to
close near session highs.
This morning, Apple is following through.
It looks like the double-bottom square-outs noted in this space in
April and June underlie higher prices.
See this daily chart of AAPL from April.
Click to enlarge
Fertilizer Shares Being Dumped
The breakdown of a joint venture has occurred between Russian based
OAO Uralkali, the world's largest potash producer at nearly 20% of
global production, with Belaruskal,
citing a violation of their export agreement
. Together they accounted for 43% of global exports. This seems to
be a gambit for Urakali to grab market share, particularly to
China. This is expected to lead to significant drop in prices -
possibly as much as 25% to $300 a ton down from the current $400
per ton level. The breakup has been perceived as a cartel
Shares of fertilizer makers such as
) are getting crushed, down 25% in pre-market. Shares of
(CF), which is also in the fertilizer business but produces mainly
nitrogen based products rater, is moving down in tandem, off some
$10 or 5%. This comes a day after shares of CF surged more than $20
on news that Loeb's Third Point had taken a stake and would be
agitating for change. I'm sure Loeb is in at lower prices, but this
certainly serves as a reminder not to blindly follow what a well
known hedge fund is doing especially on news that brings you late
to the game.
While this may seem another nail in the commodity the bull market
or a sign the "supercycle" is over, it may actually present
long-term opportunity. I'm of the mind that consumables such as
agriculture and energy sector will still benefit from growing
emerging market demand over the next decade. By comparison the
infrastucture build out that uses recyclable materials, such as
steel and copper, are likely to continue to see suffer from over
capacity and a deceleration in demand.
(GNRC) reported very strong results and raised its second half
outlook. From my perspective, few companies have benefited from the
socionomics of weak social mood like this back-up generator
manufacturer. When mood is weak, we crave certainty and products
that offer "just in case" local solutions - like home generators.
Over the past three years Generac is up four-fold.
But just for fun, consider what has happened to the stock of what
is arguably the most "just-in-time" global solutions provider out
(FDX). Over the same three-year period, that stock is up just 25%
and still below its peak-of-confidence, 2007-high price of $121.
Social mood matters, and knowing where mood is headed can be a
powerful advantage to investors.
So where do I think Generac is headed from here?
While I am not involved in any way with Generac, I always get
nervous when companies up their outlooks. Positive extrapolation of
performance is something you see at peaks in confidence - by
company managers, equity analysts and investors. Given the
universal praise I see by all this morning, I'd offer that caution
may be best.
And in that regard, I'd note that over the past twelve months, we
have seen the peaking of a lot of weak social mood "me, here, now"
stocks - like
Sturm, Ruger & Co.
(CSH) and even Apple (with all its "i" as in "me" products). And I
think the same argument could be made for the peaking in high
dividend paying mega-corporations too - another weak social mood
To everything there is a season, and I would be cautious to assume
that the "safety" trade can go on forever. Even more, I would
encourage you to consider what happens to investor psyches should
heretofore "safe" assets, like bonds, fall in price along side
supposed "unsafe" assets. The teeter-totter of "risk on" to "risk
off" could quickly become a very one-side "risk out" trade.
Is Europe Getting Better?
Yes, Spanish jobless claims fell but to 26.20% from 27.16% in the
previous quarter. Any improvement is good, but let's cobble
together more than one month before we start calling for a change
in trend. Anyone that pays attention to employment data points
knows that there is a myriad of ways to manipulate the data.
The media is so desperate to put a good face on what's happening
that they often intentionally misrepresent data to make it sound
better than it is.
France is not only a problem, but it very well may be the "pale
horse" of the continent. I've stated for months now that people are
wildly underestimating the problems that will come from France. Now
we see that French jobless claims are hitting record levels. Almost
3.3 million French are out of work, and this is indicative of the
vast majority of Europe.
To be sure, there are some pockets in and around Europe that aren't
doing poorly, but like any puzzle, we must step back to see the
full picture. What strikes me as interesting is how any piece of
data that is "less bad" is immediately heralded as the sign of a
bottom or a nascent recovery. Just because something is declining
at a slower rate doesn't mean there is improvement. It likely means
that it's difficult for things to get much worse without some
exogenous event. Based on the data I'm about to present, I believe
that things in Europe are actually worse than they've ever been.
Beginning with the PIIGS, Greek GDP is expected to contract by 7%
by year's end. Industrial output is down 4.6% year-over-year, and
the little manufacturing they have was also down 1.8%. Lending to
businesses continues to fall, deposits are still leaving banks, and
unemployment is a stifling 26.9% (under 25, it's over 55%).
The IMF has handed down a -1.8% forecast for Italian GDP, which is
now down ~10% since 2007. PMI's are still in contraction -
manufacturing in June ticked higher, but services fell and both are
below 50. Unemployment is over 12% (great compared to the rest of
the periphery), and its debt has ballooned to 130% of GDP in the
last year (up 650bps from 2012). The YTD deficit is now 7.3% from
just 2.9% in 2012, and S&P downgraded their sovereigns to one
notch above junk, saying that Italy needs to run a surplus equal to
5% of GDP just to stabilize the debt ratio.
Are you seeing a recovery yet?
I'm not either.
Wednesday, July 31
First post-Fed move is often wrong, and we saw an initial move
higher before a bounce back down (both stocks and bonds).
-No rate hikes, obviously.
-Notes housing strength but mortgage rates ticking up.
-No change to 6.5% unemployment target.
-Still purchashing $85 billion/mo in MBS and Treasuries.
-Will continue buying "until the outlook for the labor market has
improved substantially in a context of price stability."
-Esther George was lone dissenter.
Looks like tapering is off the table for now, which some may
construe as a sign of legitimate weakness.
Utilities Vs. Interest Rates
(NYSEARCA:XLU) -- has been one of the sectors lagging today as the
10-year Treasury yield
(INDEXCBOE:TNX) is rising and because of
(EXC) weaker-than-expected earnings results.
Below, a daily YTD chart of XLU versus TNX shows the two have been
inversely correlated. Investors will look for safer returns as
rates increase and move some of their money from conservative
equities like utilities to treasuries. Utilities bounced in July as
rates lowered slightly, but it looks like utilities will keep going
lower if rates continue higher post-Fed today.
Click to enlarge
This second chart shows the same inverse relationship over a 5-year
Click to enlarge
Clear & Present Markets
(BCS) is raising $8.9 billion in capital. This is important as it
signals that the European banks remain under capitalized, and they
need to tap the markets while they can. Keep in mind that things
are being held together in Europe because the individual countries
are all working together, but if/when that cooperation ends, things
will break down and the first one out will be the winner. I am not
suggesting that a capital raise is a signal that things are
breaking down, but the German elections in September are a source
of great uncertainty and contention and raising money ahead of
potentially destabilizing events is a very good idea.
2. Along the same lines, we have seen two major German companies
announce changes to their CEO position.
(SAP) ended its co-CEO power split, by consolidating power behind
Bill McDermott, who is based in the US.
(SI) had an "emergency supervisory meeting" Saturday to oust its
CEO. The European economy has struggled for years now, and it
appears to be taking its toll on the management ranks.
3. Russia's Uralkali, the world's largest potash producer, broke up
the international cartel that had fixed potash prices. Uralkali
also announced plans to increase production by 40% over the next 2
years. The increased production it expected to be directed to
China, India, and Brazil, and the production is expected to lower
costs by as much as 25%. Potash is the potassium fertilizer needed
to grow food, but it is only produced in a few parts of the world.
From a global power perspective, this clearly marks increased
cooperation between BRIC nations. It will be interesting to see
whether the lower price of fertilizer flows through to lower food
prices, improving margins for the food manufacturers, or if the
seed companies and farmers capture the profit for themselves.
4. Interesting social mood indicator: There are conflicting reports
about the company, but
(HAS) is considering removing jail from a new version of the game
Monopoly. As John Oliver astutely observed on the
(GS) use of metals warehouses to manipulate aluminum pricing, "now
the game is just about moving metal around in a circle, collecting
money whenever you want, and there is absolutely no possibility of
anyone ever going to jail."
(CYH) is buying
Health Management Associates
(HMA), to create the largest US hospital company. The hospitals
will play a key role in shifting the health care system from a
"fee-for -service" model to a "capitated" reimbursement model. As
hospitals consolidate regional physician practices, their
purchasing power increases and competition for patients declines.
This consolidation is negatively impacting the makers of health
care equipment like
(VAR). Business model transitions are not easy to navigate, and
hospitals are notorious for ineffective management, but the
transition has begun and if you watch, you can pick the winners
from the losers.
Thursday, August 1
Click to enlarge
Yesterday, the nation's advance 2Q13 GDP estimate was released by
the Bureau of Economic Analysis (BEA). It is the first time the BEA
has included "intangible capital" in the figures. The BEA has also
rejiggered the GDP figures back to 1929 reflecting the impact of
In yesterday's report the inclusion of said intangibles had a de
minimis effect on the overall numbers. I think that will change in
the future given the fact that there is more investment going into
intangibles than into tangibles. Nevertheless, yesterday's GDP
report, at +1.7% versus the +1.0 consensus estimate, was stronger
According to the BEA, "The increase in real GDP in the second
quarter primarily reflected positive contributions from personal
consumption expenditures, exports, nonresidential fixed investment,
private inventory investment, and residential investment that were
partly offset by a negative contribution from federal government
spending. Imports, which are a subtraction in the calculation of
GDP, increased. The acceleration in real GDP in the second quarter
primarily reflected upturns in nonresidential fixed investment and
in exports, a smaller decrease in federal government spending, and
an upturn in state and local government spending that were partly
offset by an acceleration in imports and decelerations in private
inventory investment and in PCE." The bad news was that 1Q13 real
GDP growth was revised much lower to +1.1% from the previously
Subsequently, I received this email from a portfolio manager,
"Everyone on the planet thought 2Q GDP would be lower than 1Q,
companies were saying that as well, S&P revenue growth has been
negative two quarters in a row, and now we get a first print of 2Q
GDP at +1.7%. This will probably be revised lower than the 1Q13,
and so then we have three quarters of sub-1% growth. It feels like
we are sinking back into a recession with trillion dollar deficits,
while we continue to spend $85 billion a month in QE."
Plainly I do not agree, and yesterday neither did the stock market,
possibly because the FOMC statement was more dovish than expected.
The result saw a multi-swinging session that left most of the
indices I follow in the red. I would note that the
(INDEXSP:.INX) (SPX/1685.73) has only had one substantive close
above my July 19th timing point, and that was the next day! So as
long as the SPX stays above 1684, I think a short/intermediate top
is being built where we could get an overshoot into the often
mentioned 1700 - 1730 zone. However, a close below 1684 triggers a
short-term downside objective of 1644, and probably more. This
morning, however, China shows signs of an expanding economy,
European banks are reporting decent earnings, and Euro zone
manufacturing is growing for the first time in two years; and that
has the SPX preopening futures up by about 12 points as thing are
getting curiouser and curiouser . . .
Major Crossroad for ZN
has closed yesterday's NVPOC at 125'230 on ISM and claims (chart
1). This level could be support today, but we have retraced a good
portion of yesterday's frenzy bounce. Longer term, yesterday's
monthly close held the trendline in place since 2006 (chart 2), but
we lost that level today after hitting shorter term trendline
resistance (chart 3) once again. If you are confused, don't worry
you are not alone. This is a daytraders market for bonds and
treasuries, but the next fib level of resistance for TNX is at
2.846% - the potential impact of the inverted head and shoulder
Click to enlarge
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As for equities, FOMC rallies tend to last into Fridays, with the
first of the month and NFP a bit of a heavy skew. Next week is a
whole new ballgame.
I have no edge on tomorrow's NFP but as someone just asked "What
could possibly get them (stocks) down tomorrow?," I figured I would
respond on the Buzz.
The answer, in my view, is a
better than expected number, as bull phases tend to end on good
news, not bad. I have no basis with which to expect a much better
than expected number, but as I thought it, I figured I would share
it. That, and $2.50, will get you on a NYC subway.
Is this 2003, 1987 or 2000? Hard to tell; I will say that anything
less than an Ã¼ber-bullish take on the tape is being mocked, for
lack of a better word. That won't matter until it does but if and
when it does, it will be telling with the benefit of hindsight. We
say the chart of
consumer confidence in 2007 vs. present day
yesterday; keep that in the back of your crowded keppe.
I am hearing stories of large asset allocations (out of Treasuries
into mid-caps) but flow, quite obviously, is second hand
information, for what it's worth.
Fare ye well into the bell and have a mindful night.
Friday, August 2, 2013
Payroll Seems Weak Across the Board
The NFP report was a miss for this month with downward revisions
for the prior 2 months. The household survey was better overall,
but it showed 174k part-time jobs versus 92k full-time jobs, which
The labor participation rate dropped, making the unemployment rate
decline less impressive.
The PCE deflator remains at 1.3%, giving the Fed leeway as yet
another inflation indicator is below their 2% target - though this
one is increasing, which could make some hawks nervous.
Buy bonds and sell stocks on the back of this.
SPDR Gold Trust
(NYSEARCA:GLD) traded down to 124 and in so doing tested its 20-day
moving average prior to a thrust and stab back up though
The early sell off also satisfied Gapfill from July 22.
The presumption is that following a consolidation/intraday bull
flag, a continuation higher should play out…probably today.
The big picture looks like the rubber band is being pulled back for
an attack over the 50 DMA.
See 10-min GLD for 2 days and daily GLD from June here w/50 dma and
Click to enlarge
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