The greed ranch is to the bunny ranch is to……
Comments »Monthly Archives: March 2012
DYLAN GRICE: Greece Is Merely A Thunderclap Ahead Of The Storm
“The latest from Dylan Grice at Societe Generale discusses gold and the most important question that any investor involved in a big bull market seeks the answer to: when is the time to sell?
Grice says the time to sell gold will be during the NEXT big government crisis. Not just any event. He says the problems in Dubai and Greece were just appetizers for what is an inevitable tornado in the global credit crisis:
“What causes the political winds to change? A government crisis. In 2008, Ireland came very close to going the way of Iceland. They had their crisis. And historians today still refer to the “inflation fatigue” in Britain by the end of the 1970s. This was our crisis. So what we learn from these experiences and others like them is that a fiscal crisis is required to force a majority acceptance of the implications of an overleveraged government.
But the political winds in countries with central banks are a long way from blowing in the direction of fiscal rectitude. And while it’s true that more people are at least talking about it, talk is very cheap and no one is yet close to walking the walk. Such steps remain politically unpopular because we haven’t had our crisis yet. Given the clear unsustainability of government finances and the explosive path government leverage is on, a government funding crisis is both inevitable and necessary. Dubai and Greece are merely the first claps of thunder in what is going to be a long emergency.
Eventually, there will be a crisis of such magnitude that the political winds change direction, and become blustering gales forcing us onto the course of fiscal sustainability. Until it does, the temptation to inflate will remain, as will economists with spurious mathematical rationalisations as to why such inflation will make everything OK (witness the IMF’s recent recommendation that inflation targets be raised to 4%: IMF Tells Bankers to Rethink Inflation – WSJ). Until it does, the outlook will remain favorable for gold. But eventually, majority opinion will accept the painful contractionary medicine because it will have to. That will be the time to sell gold.”
Sounds a bit doom and gloomish, but he’s probably right. The time to sell gold will be when fear about government debts reaches a crescendo. Grice (incorrectly in my opinion) implies that developed markets are at risk (you can imagine the usual suspects – konichiwa!), but I still think the more likely issues will resurface in Europe where the crisis is far from being resolved and instead merely kicked down the road….”
Comments »JP MORGAN: CHINA’S ECONOMY IS EXPERIENCING A HARD LANDING
“One of the hottest and most important debates about the global economy is whether China’s slowing economy would experience a hard or soft landing.
For the most part, experts have argued that the landing would be soft. In other words, the deceleration in growth would be moderate and manageable.
However, speaking at a conference, JP Morgan’s Adrian Mowat said that the slow down has been much more severe and would characterize a hard landing. From Bloomberg’s Weiyi Lim:
“If you look at the Chinese data, you should stop debating about a hard landing,” Mowat, who is based in Hong Kong, said at a conference in Singapore yesterday. “China is in a hard landing. Car sales are down, cement production is down, steel production is down, construction stocks are down. It’s not a debate anymore, it’s a fact.”
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“One should be concerned about what’s happening in the China property market,” Mowat said at yesterday’s conference. “People are too complacent that the government can turn what’s going on in this market.”
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“What you can look forward to is to see a pickup in property demand that will clear up the inventory; that doesn’t appear likely,” Mowat said in an interview after the conference yesterday. “I don’t see any evidence of a policy move that will cause the economy to reaccelerate.”
FLASH: Apple Hits $600 a Share
U.S. Equity Preview: WVAX, VRA, RUE, LVLT, GES, COF, AAPL, & AMD
Advanced Micro Devices Inc. (AMD) gained 2.4 percent to $7.95. The second-largest maker of processors for personal computers was moved to buy from hold at Jefferies & Co., which increased the 12-month price estimate to $10.50 from $7.
Apple Inc. (AAPL) increased 1.3 percent to $597.20. The world’s largest technology company had its share price estimate raised to $718 from $670 at Piper Jaffray Cos.
Capital One Financial Corp. (COF) dropped 0.8 percent to $51.90. The McLean, Virginia-based credit-card issuer said it’s selling $1.25 billion of its shares to help fund the acquisition of HSBC Plc’s U.S. credit-card portfolio. Morgan Stanley, Barclays Plc, Citigroup Inc. and Credit Suisse Group AG are working on the offering, Capital One said.
Guess? Inc. (GES) (GES US) plunged 11 percent to $32.49. The clothing retailer forecast fiscal 2013 earnings of no more than $2.65 a share, below the average analyst estimate of $3.16 a share, according to a Bloomberg survey.
Level 3 Communications Inc. (LVLT) rose 2.7 percent to $25.60. The broadband-services provider was raised to buy from neutral at Bank of America Corp.
Rue21 Inc. (RUE) : The teen specialty retailer forecast first-quarter earnings of 42 cents a share to 44 cents a share. That compares with the average analyst estimate of 44 cents a share, Bloomberg data show.
Vera Bradley Inc. (VRA) fell 7.1 percent to $34.50. The seller of women’s fashion accessories forecast first-quarter earnings per share of no more than 29 cents, missing the average analyst estimate of 32 cents.
Wave Systems Corp. (WAVX) : The provider of products to help businesses with online commerce and security postponed its 2011 earnings announcement because of accounting errors in the statements of its Safend Ltd. subsidiary, which it acquired on Sept. 22.
Comments »Gapping Up and Down This Morning
Gapping up
ORCC +18.2%, AIXG +10.1%, AERL +4.4%, TSPT +4%, TWER +21.2% , ORCC +18.2%, YONG +5.9%, AERL +4.4%, TSPT +4%, AFFY +0.6% ,
AEG +5.9%, IRE +1.1%, RF +1%, BAC +1%, GS +0.9%, CS +0.6%, C +0.4%, MT +1.9%, VALE +1.8%, SWC +1.4%, AU +1.2%, BHP +1%, AUY +0.9%,
RIO +0.8%, SLV +0.8%, GLD +0.4%, PBR +1.6%, NBL +1.4%, E+1.1%, SDRL +1.1%, RIG +1%, NCT +17.6% , HOGS +2.3% , IDCC +1.3%, BWLD +0.5% ,
AIXG +10.2%, AMD +3.1% , LVLT +2.7%, OMG +2%, AAPL +1.2%,
Gapping down
GES -11.2%, VRA -5.8%, RUE -5.4%, ROYL -3.8%, COF -1.5%, ROYL -13.1%, GES -11.7%, VRA -6%, RUE -5.4%, VVTV -2.2%, COF -1.5%, PER -4.5%,
XPO -2.2% , APU -1.1%, JOY -1.3%, EBAY -0.7%,
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Upgrades and Downgrades This Morning
Advanced Micro Devices, Inc. (NYSE: AMD) Raised to Buy at Jefferies.
Aixtron SE (NASDAQ: AIXG) Raised to Buy at Deutsche Bank.
Celgene Corporation (NASDAQ: CELG) Started as Buy at Stifel Nicolaus.
Dendreon Corporation (NASDAQ: DNDN) Started as Hold at Stifel Nicolaus.
Digital Realty Trust (NYSE: DLR) Cut to Hold at Jefferies.
eBay Inc. (NASDAQ: EBAY) Cut to Neutral at Credit Suisse.
IntercontinentalExchange, Inc. (NYSE: ICE) named Bull of the Day at Zacks.
Joy Global, Inc. (NYSE: JOY) Cut to Neutral at UBS.
Level 3 Communications, Inc. (NASDAQ: LVLT) Raised to Buy at BofA/ML.
Norfolk Southern Corporation (NYSE: NSC) Cut to Equal Weight at Barclays.
RadioShack Corporation (NYSE: RSH) named Bear of the Day at Zacks.
SeaCube Container Leasing Limited (NYSE: BOX) named as value stock of the day at Zacks.
Veeco Instruments Inc. (NASDAQ: VECO) Raised to Buy at Deutsche Bank.
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In Play and On the Wires
Nomura Explains What’s Behind The ‘Seismic Break’ In The US Treasury Market
“Let’s start this post with a chart we’ve probably run about 20 times this year.
If the year ended now, it would easily be chart of the year.
It’s a 5-year look at 10-year Treasury yields (red line) vs. the S&P 500 (blue line).
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What should be instantly obvious is that for a long time, the two lines moved very closely together.
When the stock market would rally, yields would move higher. When the stock market fell, yields moved lower.
And the explanation is fairly simple in that a rising stock market indicates growth and confidence, and when people are feeling growthy and confident, they take money out of risk-free assets like Treasuries, causing rates to rise.
So it’s been a headscratcher that since late last year, the pair of lines have become divorced.
One popular theory is that it has to do with the Fed engaging in operation twist, and perhaps threatening to do QE3, but this theory isn’t that compelling. For one thing, we’ve already had two rounds of QE, and in neither instance did the lines divorce like this, and it’s not totally obvious what it is that’s new and different now.
But something has changed in the last few days. You can see it easily on the above five-year chart, but yields on the 10-year have really started to surge. Here’s a look.
Last week, 10-year yields were below 2.00%. Today they got close to 2.30%. The yield would still have to shoot a lot higher to catch up with stocks in the above chart, but the gap is narrowing a little bit.
So what’s happened?
Well, we really like the theory put forth by Nomura’s rates strategist George Goncalves in a note titled: The Perfect Storm to Push us to Even Higher Yields?
He writes:
UST yields had a seismic break and have finally moved this week, and boy did they move. The market blew through the range it had held for the past four months, our near-term targets and through several important technical levels, all in the space of two trading sessions. The market traded with significantly negative convexity, as four months of bad positions (“trapped longs”) started to get washed out. This was coupled with a break of the general complacency in broader markets where EM and MBS spread investors were under-hedged for their duration exposure, and they were forced to cover too. In that light, a pullback or consolidation is not a given by any means, and the possibility for a rapid move to the fair value of 2.40% (and an overshoot higher) is possible.
So what’s his explanation for the “seismic break”?
Basically, he sees the clouds continuing to lift in Europe.
EUROPE HEDGES UNWOUND: While stocks sold off on the day, the key markets we were monitoring were the peripheral bond markets in the eurozone. One of the themes we have repeatedly mentioned has been the sizable investment by euro-area money managers into USTs while being underweight their domestic bonds. We find it instructive that the significant selloff started during European hours and was accompanied by spread tightening across peripheral and semi-core sovereigns (despite supply), and welcome early signs that these flows have started to reverse.
So the basic gist here is that while things have been improving for awhile — arguably since the announcement of the first LTRO late last year — the world has been ‘overweight’ US Treasuries, while investors have been underweight their own markets.
That’s starting to shift, and that’s causing some of the permanent bid to come out of US Treasuries.
And again, that theory is consistent with what we’ve seen elsewhere. The big selloff lately in the Japanese yen is consistent with hedge funds, who are inclined to borrow in yen as part of the carry trade, extending their borrowing, and re-risking their portfolios (this is a concept that was explained in a recent note by hedge funder John Taylor).
So basically, the most crowded safe-haven trade in the world is coming unwound, and people are getting back to buying more normal, risky assets. The move might be described as “seismic” but it doesn’t mean it’s bad.”
Comments »Goldman Is Furious Over Op-Ed Piece; Stock Gave Up $2.2 Billion Yesterday
Cisco Offers $5 Billion for NDS To Boost Digital TV Software Division
“Cisco Systems Inc. (CSCO), the largest maker of equipment for computer networks, agreed to buy NDS Group Ltd. (NNDS) in a deal valued at about $5 billion to add software used in next-generation video services.
The purchase price includes debt and retention-based incentives, San Jose (GSJ), California-based Cisco said in a statement today. The boards of both companies have approved the transaction, which is subject to regulatory review and will be completed in the second half of 2012, it said.
NDS, which makes software for paid-television channels used by British Sky Broadcasting Corp., Canal Plus and DirecTV (DTV), is co-owned by Rupert Murdoch’s News Corp. and London private- equity firm Permira Advisers LLP….”
Comments »The Yen Hits a Fresh 11 Month Low Against the Dollar
“The yen weakened to an 11-month low against the dollar as U.S. 10-year Treasury yields rose for a seventh day before reports that analysts said will indicate the American economy is gathering momentum.
The yen declined against 13 of 16 major counterparts after Asian stocks advanced for a third day, curbing demand for the lower-yielding Japanese currency. U.S. data today will show initial jobless claims decreased and a regional index of manufacturing improved, according to economist estimates in Bloomberg surveys. Bank of Japan (8301) Governor Masaaki Shirakawa this week indicated the central bank will keep using monetary policy as a tool to tackle deflation….”
Comments »Ernst & Young Reduces Euro-Area GDP Forecast on Austerity
Initial Claims: Prior 362k, Market Expects 355k, Actual 351k…PPI & Empire Manufacturing
Empire Manufacturing: Prior 19.5, Market Expects 15, Actual 20.21
PPI : Prior 0.1%, Market Expects 0.5%, Actual 0.4%
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