A Good Day: NASDAQ Climbs 98, as Shorts Get Manhandled

Big day for markets, with stocks closing at session highs. Bears were dispatched and hideously disfigured after this morning’s head fake.

Markets feigned weakness, then exploded to the upside and never looked back.

All of the risk assets were higher and bonds were lower: a good day.

I stepped into today fully invested, 75% SPY, 25% TLT. Although my combination didn’t yield FCX type returns, I now find myself without loss for the year, flat at a time and place when destruction is festooned all around me.

Going forward, I expect greater rallies. For now, barring a resumption of negative newsflow, markets should proceed higher through April.

You doubt this prediction, because you’re part of the mortar that has built a wall of worry. Bull runs are fueled by such things.

Don’t be stuck in it. Climb it.

The market has taken a turn for the better, over the past 30 mins or so. I will not pretend to know the ultimate outcome of today’s carnivale show. However, I’d like to point towards a few things.

Breadth is strong.

Most importantly, risk assets are climbing, appreciably.

How can I quantify this assertion? Two ways.

In Exodus, my bubble basket is higher by 2.54%. More specifically, my TWDFM (these will definetely fuck me) basket is vastly outperforming the old and the stodgy FANG plays. I will continue to stress this point, as long as the markets remain in peril.

Here, have a look at the extreme outperformance.

Without question, there is a bullish narrative being inserted into the newsflow. I’ve been curating it for readers of the site, without bias. This newsflow can and will increase as risk assets rise.

This is how sentiment shifts. Humans are very malleable creatures, savage and without decorum.

But I’ll take it. About 75% of stocks are higher today, despite the market softening from the minute it opened.

There are several headwinds to contend with, the first being oil. The absence of production cuts out of OPEC and Russia has the oil market in sell mode.

Second is the dollar trading higher.

European markets have reversed early gains and are now in the red.

We were supposed to rally 200+ today.

Nevertheless, since overall breadth is good, some gains should hold. Coming off a 300+ point rally, anything short of a complete reversal is acceptable, given the malicious tone of this market for the better part of the past two months.

Fed’s Harker, who is a non voting member of the FOMC, but a hawk nonetheless, is changing his tune on absurd Fed rate hikes.

This is all well and good; but not exactly what the market needs now. These words would have provided the market with extraordinary succor, had they been delivered by Yellen herself.

Nevertheless, the Philly cheesesteak man speaks.

“Although I cannot give you a definitive path for how policy will evolve, it might prove prudent to wait until the inflation data are stronger before we undertake a second rate hike,” Harker said Tuesday in prepared remarks to be delivered at an event at the University of Delaware. “Thus, I am approaching near-term policy a bit more cautiously than I did a few months ago. That is part of being data dependent.”

Harker isn’t a voting member this year of the Federal Open Market Committee.

The stock-market selloff will offset “some of the economy’s fundamental strength, but I do not feel it will overwhelm us,” Harker said, adding that he remains “upbeat” about the outlook as “economic fundamentals are sound, and our financial system is in good shape.”

While market turbulence, a strong dollar and weakening growth in China pose risks, “China is not our major trading partner, and it may well be that as the U.S. economy proves its resilience, equity markets are expected to calm down and reverse direction,” he said.

Harker said inflation will return to the Fed’s 2 percent target once energy prices stabilize, predicting an annual average pace of headline inflation of 1.5 percent by the second half of this year. While the Philadelphia Fed’s Survey of Professional Forecasters doesn’t indicate any unanchoring of inflation expectations, he said, Harker noted that market-based measures have eased.

“Hence, it may be worth erring on the side of accommodation to ensure” that consistently below-target inflation won’t lead to a lack of credibility, he said.

At the same time, there’s anecdotal evidence that companies are planning to raise wages, which could translate into faster inflation. Oil prices may eventually also bolster price growth.

“I believe as we move into the second half of the year with economic activity growing at trend or slightly above trend, the unemployment rate below its natural rate, and price pressures starting to assert themselves, policy can truly normalize,” Harker said. “That would not necessarily imply an overly aggressive path for policy.”

I found it somewhat disconcerting that Harker said China wasn’t our major trading partner, when in fact the statistics suggest otherwise. We do nearly $600 billion in trade with China, second only to our counterparts to the north, Canada. Moreover, China offers us what no other country in the world does: extreme growth opportunities.

Is it possible that this man’s head was firmly sandwiched in a Philly cheesesteak when making these ridiculous remarks?

This is a singular lawsuit. A customer of in flight WIFI provider GOGO, American Airlines, is suing them for essentially sucking, citing VSAT as a superior service.

“After carefully evaluating the new technology and services in the marketplace, American has decided to exercise its rights under the Agreement and recently notified Gogo that ViaSat offers an in-flight connectivity system that materially improves on Gogo’s air-to-ground system,” the suit says.

American says ViaSat offers a faster service that is currently installed on United Airlines, Jet Blue and Virgin America planes. American currently uses Gogo for its regional aircraft and on domestic flights, primarily Boeing 737s.

“American continually evaluates in-flight connectivity service to determine what best meets our customers’ needs and wants,” American said in a statement on Monday. “We’ve notified Gogo of a competitor’s offering, and we will evaluate all of our options.”

Gogo said American notified it earlier this month that a competitor’s service is an improvement over Gogo’s early generation air-to-ground service that is used on about 200 of American’s aircraft.

“We have no comment on the merits of this litigation, but we would like to note that American is a valued customer of ours and that we look forward to resolving the disagreement regarding contract interpretation that led to this declaratory judgment action,” Gogo said in a statement late Monday night.

According to its contract, Gogo is allowed to submit a competing proposal which Gogo said it intends to do related to its satellite technology, 2Ku.

“We believe that 2Ku is the best performing technology in the market and look forward to discussing our offer with American,” Gogo said.

As such, shares of GOGO have been decapitated by more than 40%.

As for VSAT: is it possible to get better publicity than a major airline suing for the rights to do business with you, based on the merits of your superior service and technology?

Shares are soaring.

Add Deutsche Bank and UBS to the list of investment banks out with research notes today, attempting to create a panic amongst short sellers. I find it interesting that these notes are coinciding with a much more effervescent market, if you will.

The Deutsche Bank notes is, essentially, suggesting the bear case for systemic risk due to oil collapse is completely without merit and that the US labor market is very robust, hardly a harbinger of recession of significant broad economic slowdown.

“The bears have a problem,” asserts Torsten Sløk, chief international economist at Deutsche Bank. “The problem is that the challenges in the energy sector are not spilling over to the broader economy and the macro data is not deteriorating.”

Growth in consumer spending may not be as robust as hoped, but it’s also nowhere close to recessionary levels. And the labor market hasn’t rolled over, either.

“Since 1960, the median increase in the unemployment rate in the year before a recession is 0.4 percentage points,” wrote UBS Deputy U.S. Chief Economist Drew Matus. “The past year has seen a drop of 0.8 percentage points.”

“The Federal Reserve Bank of Atlanta is tracking 2.7 percent for Q1 GDP on the back of strong consumer spending,” added Neil Dutta, head of U.S. economics at Renaissance Macro Research. “Ex-trade and inventories, the two most volatile sectors of the GDP accounts, real GDP is tracking 2.8 percent. Yep, call in the IMF.”

Meanwhile, the epicenter of the bear case for the U.S. economy—a general, across-the-board decrease in credit provided to businesses and consumers—has shown no signs of materializing.

On the contrary, UBS’s Matus tracked core bank loan growth (a composite of commercial and industrial, mortgage, and consumer credit flows) and found that rather than decelerating amid the crumbling commodity complex and swelling credit spreads, loan growth has been picking up steam:

“Core bank lending also does not suggest we are close to recession,” he explained. “Typically core bank loan growth decelerates heading into a recession on both a 3- and 12-month basis.”

“In plain English, the reason why we are seeing no signs of a slowdown in bank lending or consumer borrowing is likely that the losses in the energy sector are not located inside the banks but instead among investors globally, which have essentially no leverage and are well diversified, and hence much better able to shoulder energy sector losses,” he wrote.

Naturally, these analysts aren’t taking into account the fact that a vast amount of unprofitable oil producers are still alive, only because of access to cheap capital and that those spigots, once turned off, will yield an indelible decline in economic activity and a spate of joblessness in oil rich regions. Moreover, we haven’t seen a large amount of oil centric debt mature yet, which is scheduled to occur after 2016.

In short, these notes, while not entirely false, are merely trying to evoke panic in shorts to perpetuate a squeeze. There’s a lot of bad blood between Deutsche Bank and short sellers, especially since the bank has been singled out as “the Lehman of this era”, broadly derided for its China and energy exposure, amongst other things.

I imagine if Janet Yellen were to write a research note, it’d sound almost exactly like this.

They aren’t reducing production, only freezing at the already too bountiful January 11th levels.

Moreover, the Saudi minister said that low oil prices have no effect on the Saudi economy.

Qatar, Venezuela and Russia have also agreed to this accord.

Reuters reported that the meeting had echoes of a 2001 encounter between OPEC and non-OPEC producers when Saudi Arabia pushed through a global deal to curb output in which Russia agreed to participate. But Moscow never properly followed through on its pledge to curb exports.

The fuck?

This is having to opposite effect of what the Saud intended. Prices ran up in anticipation of a possible production cut.

The absurdity of the House of Saud is unparalleled. The crude market remains oversupplied.

Goldman is out with a note today that is sure to be making the rounds, suggesting to fade gold and the idea that the collapse in oil will result in systemic risk to the banking system.

There’s “nothing to fear but fear itself,” the analysts entitled the seven-page note, channeling comments from Roosevelt’s 1933 inauguration when the U.S. economy was being ravaged by the Great Depression. “It’s time to sell the fear barometer,” the bank said, and recommended shorting gold.

Gold jumped to highest since February 2015 last week as sinking equity markets, weaker oil prices, and diminished bets for higher U.S. borrowing costs spurred haven demand. Prices were further boosted by the spread of negative interest rates and concerns about a crisis in Europe’s banks. Goldman said it still expected rates to rise, putting the odds of U.S. recession at just 15 to 20 percent, and rejected the notion that a re-run of the crisis was likely.

‘Not Justified’

“We believe that these new fears, like past fears, are not justified,” the analysts wrote in the e-mailed report, which didn’t cite the president’s name alongside the headline. “Systemic risks stemming from the collapse in oil and commodity prices are extremely small.”

Gold is sharply lower in the overnight session, off by more than 3%. Equity markets are in full fledged global rally mode.

There is no rational explanation for this meteoric increase in lending, other than it being another cock-eyed scheme by the PBOC to try to jumpstart a very flaccid economy.

China’s broadest measure of new credit surged to a record on a seasonal lending binge and as companies paid back foreign currency loans.

Aggregate financing rose to 3.42 trillion yuan ($525 billion) in January, according to a report from the People’s Bank of China on Tuesday, compared with the median forecast of 2.2 trillion yuan in a Bloomberg survey. New yuan loans jumped to 2.51 trillion yuan, compared with the median estimate of 1.9 trillion yuan.

The strong figures were helped by banks front loading their 2016 lending targets and as companies switched foreign currency loans into yuan ones. To be decided is whether the acceleration in lending will translate into a sustained pick up in economic growth.

“We expect the new loans for the real economy to pick up,” Morgan Stanley analysts Sun Junwei and Zhang Yin wrote in a note before the data release.

M2 money supply growth was 14 percent from a year earlier, compared to the median estimate for 13.5 percent.

Let’s see if it works.  What’s a little more debt for the most indebted nation in the world? The Shanghai composite is higher by 2.3% at the moment. Dow futures are up by 265.

Sara Hewin, Chief economist at Standard Chartered, sees another round of easing coming, due to Draghi’s recent coming. Reason being: falling inflation expectations and the fact that Draghi rarely says things without following up.