iBankCoin
Often in Doubt, Sometimes Right
Joined Nov 2, 2015
42 Blog Posts

Overall The Future(s) Do Not Look So Bright $TLT $ZB_F $GC_F #GOLD #SPX

These last few weeks have left me quiet and consumed with making sense of nonsensical things. I envision settling down and coming up with a long-form note about Renminbi (my short title is “Pay Per View: Pettis vs. Bass” to help me frame it, however it’s so complicated and will take time) but for now I need to take a look at futures charts which have my attention. There has just been too much damn noise and it’s been overwhelming and it helps to take a step back and see price trends. Daytraders’ paradise (not my wheel-house).

First up the Spoos. I see hope for a spring-time bounce into “resistance” and then my worry is that will be it for the year on the long side. I am overly pessimistic and I should not have any sentiment at all in terms of trading, price before feelings.
spx

I am either in $TLT $TLO or the futures themselves when it comes to treasuries. Not reassuring – in fact these charts inspire the opposite sentiment.

UST

30year

One perverse bright spot is the chance to go long something in the next few weeks, sugar.Took long enough.
sc

The Aussie is my proxy for crude oil/china/emerging markets/ebullience.
AUDUSD

The Loonie is facing overlapping challenges – Justin Dollars could be poised for a recovery, wait & see.
USDCAD

Right here is the potential bargain play of the decade or my own personal Waterloo.
WTIC

GOLD, like sugar, seems poised from my slow-frequency, weekly price P.O.V. ready for a comeback after nearly half a decade – right after John Pauson’s flattening of his longs. That seems like perfect timing.
GOLD

ANOTHER ANTI-REASSURING, downright depressing “long” that has come, just like gold and treasuries.
USDJPY

A SHORT. BREXIT, no BREXIT, all I know is the “tape” said sell 3 months ago and has only gotten worse.
GBPUSD

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Pushback: B.O.J. Ready For a Line In The Sand?

Quick notes after BOJ head Kuroda’s meeting with the other powers that be, Parliament and PM Abe. (Keep note that Q4 GDP will be reported next week, Monday, and I read there’s a G20 meeting at the end of the month where there might be more discussion of currency rates. Next Monday, SSEC opens up too, after a week-long New Year’s holiday, just in time to catch up with this past week’s insanity.)

In summary, let the JAW-BONING and OPTICS management commence.

Bank of Japan Governor Haruhiko Kuroda said on Friday he discussed global economic and market developments in a meeting with Prime Minister Shinzo Abe.

“There was no particular comment from the prime minister,” Kuroda told reporters, when asked what they discussed on monetary policy.

NOTHING like photo-ops and “no comments”.

And then Kuroda jaw-boned also at Parliament:

“I don’t think the BOJ’s negative rate policy is behind (the recent market turbulence),” Kuroda told parliament on Friday (Feb 12).

“Excessive risk aversion is spreading among global investors,” he said, adding that he will carefully watch how recent market moves could affect Japan’s economy and prices.

“Since adopting quantitative and qualitative easing, I have consistently said the BOJ will take whatever steps necessary, including additional monetary easing, if needed to hit our price target,” Kuroda said.

That 2 percent inflation “target” feels a bit out of reach for even a Godzilla-sized bazooka.

And Japan’s M.O.F. is a part of this too. From Finance Minister Taro Aso:

“Recent foreign exchange moves have been very rough. I am very nervously watching these moves and will take appropriate steps as necessary”

“We will monitor the developments in the currency market carefully and will respond appropriately when necessary”

From the Wall Street Journal:

“A close adviser to Prime Minister Shinzo Abe said Friday that the Bank of Japan may call an emergency meeting to undertake additional monetary easing if financial markets remain turbulent.”

Meantime, I’m reading that the moneyed are being advised to go long more Yen:

Credit Suisse is advising its private-banking clients to buy the yen against the euro or South Korean won because the Japanese currency remains undervalued versus the US dollar.

Stamford Management Pte, which oversees US$250 million for Asia’s rich, told clients the yen is set to strengthen to 110 against the dollar as soon as the end of this month. Singapore-based Stephen Diggle, who runs Vulpes Investment Management, plans to add to assets in Japan where the family office already owns hotels and part of a nightclub in a ski resort.

Let’s see how Q1 2016 plays out. I suspect sore jaws and some rich might get even richer as Yen bulls.

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Deutsche Break: $DB is Bad and Needs Cash

Some quick notes on Deutsche Bank. Unbelievable, just months ago everything seemed manageable in Mittle-Europa and then gradually, slowly European Banking in the heart of the Continent is coming apart at the seams, with a “slowly, then all at once” quality.

After seeing the madness over DB, I wanted to take a look at recent coverage on the internets and it has been ugly, ugly, and ugly. Everyone in twitter finance is focused on the stock and the Contingent Convertible, a/k/a CoCo Tier 1 bonds (junior subordinated perpetual bonds yielding 7.5%.) which were intended to “help” with meeting regulatory capital requirements and I wanted to take notes.

BTW, WHAT’S A CO-CO? Via the Bank of International Settlements:

“their primary purpose as a readily available source of bank capital in times of crisis”

“Private investors are usually reluctant to provide additional external capital to banks in times of financial distress. In extremis, the government can end up injecting capital to prevent the disruptive insolvency of a large financial institution because nobody else is willing to do so. Such public sector support costs taxpayers and distorts the incentives of bankers.

Contingent convertible capital instruments (CoCos) offer a way to address this problem. CoCos are hybrid capital securities that absorb losses in accordance with their contractual terms when the capital of the issuing bank falls below a certain level.”

From Bloomberg’s coverage, which cites CreditSights Inc’s CoCo analysis:

Deutsche Bank AG may struggle to pay coupons on its riskiest bonds next year if operating results disappoint or litigation costs are higher than expected, according to analysts at CreditSights Inc. The bank said it has sufficient capacity this year and next.

“While we are confident about 2016 coupons, we are less so about coupon payments in 2017,” CreditSights analyst Simon Adamson wrote in a note to clients

Just as you or I would confirm with our checkbook sometimes to avoid a bounced check, DB has to do likewise with “available distributable items”, and CreditSights’ analyst Adamson, assured about the present is less so by the time President Obama is ready to begin work on his presidential library come 2018. Analyst Adamson sees trouble in the future. Inability to pay in the future comes from troubles in the present.

We can thank DB’s reported 6.8 BILLION EURO loss for the year, thanks to things like a 12B EUR write-off, courtesy of crap I-Banking, “non-core” divestment and litigation. Bad market in fixed income, no shocker given the rates environment, write-downs for di-worsification plays (bye bye Hua Xia Bank, which is being pawned off to help pay the bills according DB, bye bye Postbank and that “private client” business) and last but not least, the settlement and fees for past bad behavior in oh so many matters.

I-Banking, the motor of the bank, has gotten rusty. Business is way off, when looking at the daily “Value at Risk” ( or “VAR”) per day. VAR has round-tripped from the first reported year 2004, going from 70M EUR/day, peaking at 140+M EUR in 2008/9 and now 40M EUR/day – thanks to lower client business and higher regulatory capital requirements. The inflows for asset and wealth management will not save the day anytime soon, as management tries to adjust for increased regulatory age. (Bloomberg Gadfly covered the desire to get a top-five placement, while DB is ranked twelth.)

Meanwhile Mr. Market frets DB will be hard-pressed to pay the bills now.

Some quick and dirty notation of DB’s litany of sins:

Apr. 2015: $2.5B for interest rate manipulation on loans, monkeying around with forex benchmark rates.

Nov. 2015: $258M fine paid for dealing with pariahs including: Iran, Libya, Syria, Myanmar and Sudan

BUT the mortgage market badness did not end, look at this latest development:

Deutsche Bank must face a US lawsuit seeking to hold it liable for causing $US3.1 billion ($4.3 billion) of investor losses by failing to properly monitor 10 trusts backed by toxic residential mortgages (Royal Park Investments SA/NV v. Deutsche Bank National Trust Co, US District Court, Southern District of New York, No. 14-04394.)

AND MOAR LAWSUITS: Including one filed in the Southern District of New York, for DB’s Autobahn high speed trading platform. Apparently, under the direction of management, DB may have misled customers and profit from currency trading fraud.

OTHER WEIRD NEWS related to DB’s ethical house of pain:

“Deutsche Bank AG’s South Korean brokerage unit and one of its employees were convicted of manipulating share prices in November 2010, triggering a one-day rout that wiped out 28 trillion won ($23 billion) in value from the nation’s equity market.

The 43-year-old banker was sentenced to a five-year jail term and his employer, Deutsche Securities Korea, fined 1.5 billion won, according to a ruling released Monday by Seoul Central District Court Judge Shim Gyu Hong. The employee wasn’t identified in court.

The one-day selloff occurred Nov. 11, 2010, in the last 10 minutes of trading when the Kospi 200 Index dropped 2.8 percent, as a result of derivatives positions set by the bank’s Korean employee and three Hong Kong-based Deutsche Bank colleagues, according to government data. The three traders in Hong Kong sold 2.44 trillion won worth of shares, according to the court.”

The punchline in this weird side-story:

The whereabouts of the Hong Kong-based traders — who are citizens of the U.K., France and Australia and have left the bank — are unknown

WEIRD NEWS #2 from DB’s ethical house of pain. Remember that little April 2015 Libor rigging settlement? Check this out:

“Deutsche Bank has been forced by a German court to reinstate a Frankfurt employee whom New York regulators had ordered the bank to fire as part of a settlement over alleged interest rate rigging.

The Frankfurt Labour Court told Reuters on Wednesday it ruled in late 2015 that Deutsche Bank’s dismissal of a Frankfurt-based vice president was invalid and it obligated the German lender to continue to employ the staff member.”

WEIRD NEWS #3 and #4: I won’t even bother to bring up the sub-prime auto loan investigation but this the following, weird news #4, is too rich. The former head of equities for DB in Moscow sued DB for wrongful dismissal but DB attorneys claim the former employee was:

“the mastermind of the scheme for the withdrawal of billions of dollars from the country.”

What that side-show in Russia was about:

“U.S. and U.K. officials are looking at more than three years of so-called mirror trades in which clients bought Russian blue-chip stocks for rubles in Moscow and simultaneously sold them in London for dollars, people familiar with the investigations have said. Deutsche Bank said in October that its own investigation found violations of its internal policies and deficiencies in controls related to the transactions.”

DB is not just a box of ethical non-existence, prompting the resignation by a Co-CEO Anshu Jain for failure to repair the Bank’s culture, it has plain vanilla bad exposure to the worst market on earth right now, ENERGY:

Deutsche Bank may have “significant” energy exposure “that is not investment grade and is not well secured,” Amit Goel and Jag Yogarajah, analysts at Exane BNP Paribas

Moral is down and what will become of talent that walks out the door each and every day? DB CEO John Cryan, retained for his triage and cleanup skills, had to admit on an investment conference call:

“We expect some people to give up the fight,” he added on a conference call with analysts on Thursday.

Cryan, in this same call, points out DB costs for litigation will continue with another estimated $1B EUR to come but hey 2016 looks to be a “peak restructuring year”. Comforting.

CFO Marcus Schenck, in a Jan 28, 2016 CNBC interview is a bit more optimistic:

“I think the vast majority has the fighting spirit and also sees in a way the big reward that is out there at the end. Don’t forget, we are coming from a humongous loss position, if we turn this around over the next 2 years, and we said that 18 is going to be the first quote-unquote “clean year”, if we really make that work and achieve our targets then I think this is a very attractive place to be in.”

BTW, CFO Schenck would disagree about DB’s exposure to energy (in that same CNBC inteview):

“On oil, we have a much smaller exposure to that sector than probably all the other major banks. Which had some downside – we lost a bit of market share in particular in our leverage finance business. But the positive flipside of that is our exposure, we think, on a relative basis is maybe half of what other banks have. So we’re not concerned about that sector.”

WITH 9,000 people about to go out the door, that’s really tough to read and agree with. 200 out of 700 branches to shutter before 2018. Tough to agree with.

LEST YOU THINK there’s a TARP to the rescue?? Maybe, maybe not according the internets, via the Financial Review’s Philip Baker:

It was August 2014 when Paul Schulte, the chief executive of SGI Research, warned Australian investors that all was not well at Deutsche Bank and he still thinks the bank has several problems to deal with.

First, he said that more than any other global investment bank Deutsche
had too many leftover assets from the global financial crisis – more than $US10 billion ($14.1 billion) by his estimates – that are very illiquid and simply too hard to value.

With regard to all the financial scandals mentioned at 2015’s annual meeting, he also thinks there are further fines to come, while Deutsche also seems to have a large book of commodity-related derivatives that are under stress from the collapses in most commodity prices.

Schulte says there is still too much leverage at Deutsche and it is in the centre of a sclerotic system of Euro-paralysis, which prevents any dramatic sort of “TARP” program.

HERE’s A KICKER QUOTE regarding who to blame. It’s NOT the PIIGS:

“This has been brewing under everyone’s nose, because while people thought that the problem was periphery banks in Ireland or Spain, the actual problem is that Deutsche Bank, and the French banks with lots of toxic debt in commodities, are over-stretched, badly run, have no sense of risk management and are organs of state capitalism,” Schulte says.

From the Financial Times, “FastFT” coverage:

Meanwhile Markit’s iTraxx financial indices, which track financial groups’ CDS and serve as a proxy for credit risk in the sector, have jumped to new two-and-a-half-year highs today. The subordinated debt index has jumped 110bps year-to-date to 172bps, while the senior debt index has climbed 52bps since the start of the year to 89bps.

Armin Peter at UBS said:

Is the iTraxx financials trying to tell us something? You don’t get moves 21bp without something factual lying beneath the woodwork.

Deutsche BREAKING BAD. You just know there’s a desire for someone to come to the rescue.

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Gold Trying For A Comeback

I was ready to consign this trade for the generational dustbin and let my useless holdings sit in a bank safe doing nothing but NO, world events conspire to make things more friendly for media scary headlines. I am NOT a fan of what might follow, for if the yellow dog becomes a “thing” again, we have problems spilling over into sentiment and valuation. This is one of those end of the world narrative plays and those of you with out-of-country bunkers and a few decades worth of tinned goods and ammo must be chortling knowingly. At least Hedgie John Paulson gets a last laugh if his last possessions don’t get repo’d first, I believe he’s still long and strong in gold. Einhorn too right? Ugh, I want Martian rocket-ship tours, talking robocars who you can go on roadtrips with and bioengineered celebutantes live-streaming 24/7 not end of the world Mad Max-ism. I want ebullience and systemic waste from malinvestment which spills over into real innovation and higher standards of living, not Malthus and meatless Mondays morphing into meatless March (and April, May and so-on).

gc_f

Like I said, NOT a fan but we’ll see. The moving average monkey lines remain headed from upper left to lower right with recent prices bumping up against the 50 week.

Corollary will be the KING DOLLAR narrative. So much for cheap tours in Europe and elsewhere. More on that later, right now, not loving this but price is price.

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Hedge Fund Hotel Moves Onto Next Big Short, the Renminbi

NOTES on a monster trade: According to the internets, Hedge Fund behemoths and up-and-comers alike are setting their sights on short Renmenbi. The Wall Street Journal, via reporters Juliet Chung and Carolyn Cui, just reported something that feels like the “new new thing” in terms of a Big Short:

“Kyle Bass’s Hayman Capital Management has sold off the bulk of its investments in stocks, commodities and bonds so it can focus on shorting Asian currencies, including the yuan and the Hong Kong dollar.”

If I understand what I read, Bass’ bet is targeted for fruition circa 2020, in a three to five year bet that the Princelings Bank of Cash will eventually, one way or the other, like it or not, have a devaluation of devaluations. Was I mistaken in recalling that China HAD a 4T+ USD forex reserve now down to 3.5+T USD? I read also that the actual practical forex liquid reserves may in fact amount to only $1T USD, possibly up to $2T USD. And Bass has company. That billboard sized shot across the bow against Soros made everyone remember the $1B profits made from breaking “cable” a generation ago. The piece goes on to note other hedge fund hotel residents, including Druckenmiller, Tepper, Einhorn are in on the trade too but I’m not sure if it’s to the tune of “all in” with Bass’ 85% weighting.

There are etfs, futures and forex trades that could be constructed. The mind reels at the magnitude of the potential return. This will be one lumpy return with a huge payoff, no annuity-like ATM machine cash machine for anyone impatient and impecunious. You better have the time frame and bankroll for this one.

There’s a paywalled link to the WSJ report: WSJ report of Currency War on Yuan

 

 

 

 

 

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Amazon’s Q4’15 Earnings: A Miss

Q4 $1.00/share report below $1.56/share estimate and Q4 Top-line $35.7B vs. $35.9B estimate. Q1 2016 sales forecast between $26.5 to $29B, with consensus around $27-28B. Shares dipping after hours. So much for those “3 Million” Prime sign-ups, whatever that meant. AWS continues to grow but not fast enough. I wonder if “buy the dip” is finally going to stop here?

 

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Rumor: Russia and OPEC Lovefest Coming?

Just saw this on the internets and the timing is apt. With some grades of oil selling for nothing or in fact less than zero, energy high yield ready for reorganization and with macro-calls for the end of petrodollar – the empires of oil muse and consider a cut-back in production. Now, it’s JUST in the RUMOR stage and may fall apart further down the line, but in point in fact this may be the rescue package American energy needs. Well, not all would survive. Even assuming a production cut follows anytime soon, many operators are going to be pressed into bankruptcy and assets will be auctioned off. In fact there have been cutbacks and layoffs – there is tragedy going on at a personal level for rank and file. Strength begets strength and Icahnites may yet have their day.

I am currently reminded about hedgies Kyle Bass and Pierre Andurand – they are well aware that nothing cures low prices like low prices.  I lump in Zachary Schreiber, Druckenmiller’s protege in this camp, another hedgie who shorted oil and is probably now on the other side of this hunting for bargains. It could be in three to five years, assuming we haven’t imploded for one reason or another, they could become some serious oil bulls. By then Gartman will declare $100+ oil and the move will have ended. By then iBC and other affiliates will be on orbital laser cannons, picking targets between sips of overpriced drinks.

 

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Boeing Earnings Break

Some quick notes about Boeing’s break.

Boeing shares cracked almost 10% shares this morning, courtesy of fewer planes to be delivered in 2016, or about 740 to 745 planes, versus’ 2015′ delivery of 762 birds. 747-8 orders have been cut due to weaker demand and a production transition to 737 MAX models. Not only will less money be made with fewer 747 deliveries going forward, there was also a pre-tax $885M charge, for the 747 production cut, shoving earnings to $566M for Q4. With Q4’15 earnings per share coming in at $8.15-8.35, over a dollar below average Street per share estimates, it’s no wonder shares are down.

The former flagship 747 has aged from premier civilian passenger to cargo transport, becoming a kind of barometer regarding economic activity. It’s less about the storied past of the model and more about demand for cargo transport. It was only a few days ago that the market was informed about the 747’s continued production decline, down from one plane to half a plane a month.

747-8 Order Cuts

“The new rate is below the one a month that had previously been regarded as a bare minimum. It suggests the company is maintaining production only because the 747 has been selected for the new fleet of US presidential aircraft — known as Air Force One — for later this decade. Ray Conner, chief executive of Boeing Commercial Airplanes, insisted that global air passenger traffic growth and demand for aircraft remained strong. But a recovery in the air cargo market had stalled, slowing demand for the 747-8 freighter that had been expected to produce most orders for the latest version of the aircraft. ”

A tidbit, which appeared to confirm these things happen slowly and then suddenly all at once. It almost seems as if all company commentary about the 747-8 was about seeking consolation prizes, since there were no booming cargo transport sales to trumpet.

Boeing’s 747-8 Production Cuts (Dec. 2014)

Boeing had announced over a year ago about cut-backs for the cargo carrying variant of the 747-8 but also noted that “…demand for the passenger-carrying version of the 747-8 has failed to pick up the slack. In July, Boeing revealed proposed design changes that could allow the 747-8 Intercontinental to fly from Asia to the US east coast or from the Middle East to the US west coast non-stop.”

There are other newer, most cost-effective passenger planes available. This about making sure the next President gets to fly in style and so 747-8 production continues, with less and less lift from more pedestrian cargo plane sales.

 

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Caterpillar Shares Keep Burning Down $CAT

No-one should be surprised at Caterpillar’s decline, regardless of the recent Goldman Sachs’ downgrade and the nearly 4 percent dip for the current session. The narrative has been in place for a while, at least for Jim Chanos almost 3 years ago. Chanos has been short since 2013, having assessed that “once in a generation, if not once in a lifetime” Chinese infrastructure investment was at an end, hitting CAT’s top-line. $CAT had been vulnerable to this fin de siecle, observed Chanos, when almost 1-in-every-3 dollars, at the time of his short, was exposed to global mining-related cap-ex spending.

CAT

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Soros And Europa’s Collapse

I can’t think of material that couldn’t be a better contrarian signal for a “bottom”, at least in the near and mid-term.

Excerpts from the Great Reflexivitist about Europa, via the “February 11, 2016” New York Review of Books, in an interview by Gregor Peter Schmidt via publication WirtschaftsWoche (German for “Economic Week”), entitled “The EU is on the Verge of Collapse”. The title should suffice but I tucked into this statement and wanted to see what was going on with Druckenmiller’s old boss.

Soros’ thesis:  “There is plenty to be nervous about. As [Chancellor Angela Merkel] correctly predicted, the EU is on the verge of collapse. The Greek crisis taught the European authorities the art of muddling through one crisis after another. This practice is popularly known as kicking the can down the road, although it would be more accurate to describe it as kicking a ball uphill so that it keeps rolling back down. The EU now is confronted with not one but five or six crises at the same time.”

The basket of vipers plaguing the continent include: “Greece, Russia, Ukraine, the coming British referendum, and the migration crisis” and “the conflict in Syria…[and the] effect that the terrorist attacks in Paris and elsewhere have had on European public opinion.”, and courtesy of the current leadership in Hungary and Poland: “a mix of ethnic and religious nationalism in order to perpetuate themselves in power. In a sense they are trying to reestablish the kind of sham democracy that prevailed in the period between the First and Second World Wars….”

And Soros opines on the world Ex-Europa:

On the UK: “The managements of the multinational corporations that have built up their manufacturing capacity in Britain as a springboard into the common market are reluctant to say that they oppose a Brexit publicly… But ask them privately, as I did, and they will readily confirm it.”

On China: “China is exhausting these [foreign currency] reserves very rapidly. It also has an incredibly large reservoir of trust from the Chinese population…But the reservoir of trust is also being exhausted at a remarkably fast rate because the leadership has made many mistakes…China will exert a negative influence on the rest of the world by reinforcing the deflationary tendencies that are already prevalent.”

On Russia (and Turkey): “You could almost say that by shooting down a Russian fighter jet, Turkish president Recep Tayyip Erdoğan did Obama a favor. Putin had to recognize that his military adventure had run into serious opposition and he now seems ready for a political solution.”

On Donald Trump: “Going back many years Donald Trump wanted me to be the lead tenant in one of his early buildings. He said: “I want you to come into the building. You name your price.” My answer was, “I’m afraid I can’t afford it.” And I turned him down.”

http://www.nybooks.com/articles/2016/02/11/europe-verge-collapse-interview/

 

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