Risk Assets Surge; Banks, Biotech Lag

In spite of the indices up a little, there is significant buying in many risk assets today, stemming from oil to high valued restaurants.

Shares of SHAK are on the move higher today, as well as members of my TWDFM (these will definitely fuck me) stocks.

Taking a look at the broader market, one could easily see there’s interest to buy.

The bulk of the selling is ripping apart both the biotech and banking sectors, with a keen focus on the shares of VRX, whose decline is shattering both the hopes and dreams of many prominent hedge fund managers.

Aside from risk oriented stocks, both bonds and utilities are climbing too. I suppose there is a divergence of sorts taking place today amongst asset allocators. Either way, the market looks strong and should build upon recent gains.

Citi is trying to scare people with this note, pointing to an eerily quiet primary bond market and a total disastrous high yield market, one that has seen a 75% drawdown in issuances.

With $570 billion in maturities scheduled to get refinanced by year end, Citi is fatalistically ominous when it comes to the lack of activity in the best rated credits. Moreover, they declare the ‘no go’ credit shutdown days, over the past 12 months, exceeds that which was endured during the financial crisis of 2009.

“It’s the increased irregularity of the new issue flows that’s concerning, particularly since we may have something on the order of $570 billion of maturities to get refinanced by year-end,” write Citi analysts led by Stephen Antczak. “Throw in the M&A pipeline, and it’s a large number to push through a stop-and-go primary market.”

Indeed, by Citi’s calculations the market for significant new investment-grade deals saw 75 “no go” days over the past 12 months, in which the primary market was essentially shut. That’s a higher rolling 12-month figure than was seen during the depths of the financial crisis in 2008 to 2009.

Citi concludes in the most bearish of ways:

“The second factor is the weakening fundamental backdrop—more leverage, falling profits, downgrades, etc.,” the analysts say. “We’ve seen volatility in recent years that didn’t result in as sharp a rise in no-go days thanks to a healthier fundamental backdrop, or at least [a] more supportive Fed[eral Reserve]. But in the current environment, we really don’t have an offsetting factor to volatility.”

“Given that volatility has ebbed in recent trading, it’s important to monitor how broadly the primary markets open,” Citi concludes.

Brace yourselves for contagion.

I have no idea what this man is talking about. Tom Porcelli, chief economist from RBC, is out with a note saying if the Fed is truly data dependent it will hikes rates in March.

Heretofore, the Fed had a dual mandate, targeting full employment and an inflation rate of 2%. While we’ve accomplished the former, we are still miserably below inflation targets. Moreover, and it goes without saying, all recent turmoil in financial markets are suggestive of further deflationary pressures.

Nonetheless, Porcelli believes the environment is more than ripe for a series of hikes.

He closes his rant suggesting that inaction by the Fed in March means they’ve ceded to the will of markets, fearful of the commodity collapse and its subsequent maladies.

“For all of the effort the Fed has put into communicating to markets that monetary policy decisions are data dependent, a no move at the March meeting (our base case) will prove the exact opposite,” wrote Chief U.S. Economist Tom Porcelli.

“Note that a Fed forecast for core PCE prices to hit 1.6 percent by the end of 2016 and for the unemployment rate to be at 4.7 percent was justification enough to usher in a baseline view of four rates hikes this year,” wrote Porcelli, referencing the projections monetary policymakers made in December. “Not only has the trajectory toward those explicit goals not changed, it has accelerated!”

“A no hike in March reaffirms that monetary policy remains less about U.S. domestic realities and more about the perceived risks from the commodity price collapse and broad global malaise,” the economist wrote.

The man has amassed a net worth in excess of $70 billion through the purchase of stocks. There is little point in asking him if he likes them now, since his bias is obviously skewed to the upside.

Nevertheless, old man Buffett did cast aspersions on stock picking and reiterated his belief that index funds are the preferable method by which investors should approach the market, alluding to his will and how his wife will be 90% in index funds, 10% government bonds.

When asked about the drop in crude, he said it was a bullish event for consumers. However, the prices realized at the pump take time to resonate with the average Joe dressed in a gorilla suit.

Asked whether he’s concerned about the stock swoon, Buffett said “not that much” has changed from his viewpoint in the past five months or so because he’s a more aggressive buyer of stocks when the market is going down.

“We’re almost always a buyer of stocks,” he said. “It’s hard to think about many months when we weren’t a net buyer of stocks.”
Buffett reiterated his mantra that it’s “crazy” to time the market. “In 10 or 20 or 30 years, I think stocks will be a lot higher then they are now.”

“It’s what I tell me wife to do in my will,” he continued. She’s going to be 90 percent in an index fund. And 10 percent in governments.”

Giving investors an idea of his commitment to the market, he said he bought stocks after the Sept. 11 terrorist attacks, and after the 1987 stock market crash. “The country is not going to go away,” he said. “The country will grow in value over time.”
The billionaire investor said he bets on American business doing well over the long term, though he acknowledged that businesses have been “a bit softer” than they were four to five months ago.

Buffett said low oil prices “without a doubt” are good for consumers, but the benefits at the gas pumps come very slowly, while the capital values in the American oil patch go away immediately.

The cherry Coke swigging Warren Buffett did one of those marathon interviews with CNBCs Becky Quick this morning. When asked about the adoption of a negative rate policy being thrusted on people worldwide, his tone was a bit less sanguine, saying he’d prefer to place Berkshire’s Euro denominated cash under a mattress than have it sitting in one of their stupid banks losing value.

“We are doing something the world has never seen,” he said. “We do not know how this movie plays out.”

“Berkshire Hathaway is sitting with billions of dollars of euros in an insurance company … in Europe and they will bear a negative rate,” Buffett told CNBC “Squawk Box,” two days after issuing his highly anticipated annual letter.

“We would be better off with a big mattress in Europe that we just stick all this stuff in, if I could just find a person I trusted to sleep on that mattress,” he said. “It distorts everything.”

This Chinese yuan is dropping again, after the PBOC announced it was cutting the reserve requirements for their banks by 0.5%.

This, of course, is complete horseshit, as the Chinese have done this 5 times in a year.

With this move, most large Chinese banks will need to hold 17% in reserve. This, for some odd reason, is being viewed in a positive light on Wall Street this morning, sending Hong Kong futures up by 0.7% in what has hitherto been a wretched market throughout 2016.

But Michael Pearson is back at the helm, back from a very suspicious and delayed leave of absence–thanks to ‘medical reasons.’

Shares of VRX are plunging once again this morning, following conference call comments alluding to a delay in earnings and lack of guidance.

The losses absorbed by Bill Ackman’s Pershing Square, long VRX in its various forms, hitherto, should amount in excess of a billion dollars.

But who’s counting?

News out this evening regarding a planned liquidation of the Chinese coal and steel sectors has investors less than enthusiastic regarding Chinese shares. As such, they’re selling off accordingly.

Yin Weimin, minister of human resources and social security, said capacity cuts will lead to some layoffs in 2016, but added that he was confident of keeping employment stable this year despite downward pressure on the economy.

No timeframe was given for the 1.8 million figure cited.

To combat this massive reduction in the Chinese jobs market, China’s Premier Li Keqiang said a fund valued at 100 billion yuan has been established to succor the soon to be jobless workers.

As you read this, Dow futures are off by 73, Chinese markets are getting ransacked, and Leonardo DiCaprio is shining up his brand new Academy award for best actor. Aside from the well deserved Leo, there have been many winners, some of the surprise varietal worth nothing. Some of these stocks are merely up because they were buried alive in 2015. Nevertheless, it is my duty to report.

I will sort them by sector and not mention stocks that you’d expect to be up, like consumer staples or gold. Fuck that. I am going to show you carnival show acts of magnificent glory.

Basic Materials

CENX +53%

TCK +46%

STR +27%

AKS +22%

EQGP +21%

INT +20%

Consumer Goods

KORS +41%

ANFI +39%

SWFT +29%

FOSL +28%

REV +25%

CREE +18%

GNRC +17%

Financials

GDOT +27%

BAP +21%

O +14%

GLRE +13%

Healthcare

BITI +74%

EDIT +48%

ALR +37%

WX +36%

ANIK +21%

WCG +17%

Industrials

BIN +27%

BGG +22%

TEX +20%

TREX +13%

CMI +12%

FAST +12%

Services

MSO +46%

JCP +44%

ZUMZ +35%

BURL +33%

BGFV +33%

DDS +29%

NDLS +24%

M +24%

Tech

STRP +92%

VHC +90%

GLUU +58%

GRPN +46%

ROVI +35%

CRAY +31%

DDD +19%

DLB +18%

Utilities

BKH +22%

KMI +21%

UIL +18%

EXC +15%

EIX +13.6%

ATO +12%

The Chinese markets are down 2.7% this evening, just in time for some late night, hollywood styled (double entendre!), drama. It’s nice to see China sinking into the oblivion, as other asian markets do fairly well. For example, the NIKKEI is higher by 0.4% and the all unimportant KOSPI is flat.

Separately, gold is up 0.48%, which means people are scared shit.

Portuguese-German spreads continue to narrow, which is bullish, to 283bps.

Lastly, European futures are down 0.4%.

There is nothing to be learned from tonight’s helter skelter session.

As you were.