Posted 2007-10-22 09:08
by Karl Denninger
by Karl Denninger
Amusing overnight action...
Asian markets got whacked Sunday night...... although they did recover considerably from their intraday lows.
Europe followed with a downdraft.
The only economic news was the Fed National Activity Index, down 0.45 from last month's down 0.65. The key here is that its negative - again.
The dollar suddenly got a huge bid early this morning. I've been hearing rumors over the weekend of a potential problem over in Europe with a "big bank", but nobody's putting a name on it or explaining exactly what is going on. But the sudden "dollar grab" is consistent with someone needing dollars - right now - and paying whatever they need to get them.
The problem for equities remains twofold, with the credit issues being a part of it, but the bigger deal, in absolute terms, is that 4Q estimates are not yet being adjusted by the analysts, although they sure as hell are by the companies that are reporting earnings!
It is simply a matter of time before that happens, and when it does it is not going to be pretty.
As things stand right now we're still prancing along in the equity markets on the wish and a prayer that while 3Q was a wipeout, 4Q will be "just fine" and "on plan."
Uh huh. CAT's CEO says that's bull**** and other firms are reporting eating big inflationary input price pressures. The evidence is strong that the economy is slowing - with margins getting squeezed - and that this is going to continue well into 2008. The complaints about high input prices continued today - how do you spell "inflation"? Oh, and book-to-bill in the semiconductor space is well below 1.0 as well (so much for the "tech will save us" mantra.)
This WILL bleed through to analyst 4Q estimates.
Don't be caught on the wrong side when it does.
The particularly pernicious problem is in fact food and energy inflation. Nobody wants to talk about it but refusing to have the discussion doesn't make it go away. Quite to the contrary; its very real and no matter what people will try to tell you its not leaving either. We're facing structural changes in inflation pressures that, at this point, cannot be stopped. The Fed has been going the wrong way and continues to, along with our other political policies - particularly those related to Ethanol and drilling for our own natural resources - and the result shows up in your food and energy bill. While people like myself can manage, if you think I don't notice you're nuts. Just last night I went and bought a grocery cart of "stuff" that a few months ago would have cost me $50 or so. Before the $10 "instant discount" coupon that Winn-Dixie had printed in my last trip to try to keep me out of the WalMart Supercenter, the bill came to $73.56! Aieee! What was in there? Food. Eggs (doubled in the last six months), cheese (ditto), milk (ouch!) - basic staples. A 12 pack of soda that a few months ago was $3.00 was $4.50 (!) How come? Corn syrup - the primary ingredient - has gone up radically in price and it is being passed straight through to the consumer.
You can tell people that there is no inflation but you can't argue with the cash register tape at the grocery store. That tells the truth - and the truth is ugly. This has and will translate into discretionary purchases; we've been seeing since the spring the attempt to keep spending on "crap" via credit cards, but that wall is being hit now for many, and it will increasingly be so for all.
Consumer spending will collapse due to inflationary pressures and The Fed is harming, not helping, this situation with its inappropriate rate cutting scheme!
Chucky is getting ass*****d every day and his ability to absorb it is exhausted. Just wait until crack spreads start to widen out again and gasoline goes to $3.50/gallon - at today's oil prices, it is very likely to do so sometime this winter. This reality is "already here" when it comes to heating oil. Gasoline is not far behind.
The ABX index is hitting all-time lows and there's a huge problem in these CDOs which is not being discussed with any sort of clarity - yet. Many of these instruments are getting dangerously close to a "credit event", which shuts down coupon payments to the "subordinate" tranches - including the so-called "AAA" ones. Once this happens it is typically permanent - this is not just "a missed payment or two", its a "there will be no more coupon payments!"
WHEN that happens the only people who get paid from there on for their coupon are the "senior" tranches - which are NOT in the ABX indices. Typically, those "super-senior" tranches are held by the issuer (nice eh?)
The entire rest of the chain - including the so-called "AAA" credit pieces - get NOTHING.
This of course is catastrophic for all of these CDOs - and their holders. After all, the point of buying them was not just "return of capital" but also the coupon - promised at something beyond Treasuries. Now the spectre of them being "dead money" at best and "lost money" at worst is starting to rear its ugly head.
This is being presaged by the downgrade tsunami which is now hitting all of these instruments. Moody's, S&P and Fitch, late to the party and stuffed full of conflict of interest, sure as hell didn't bother warning anyone before they bought did they? This is a scandal bigger than Watergate by far, yet I'll bet there won't be any meaningful regulatory response until millions of Americans see their pensions go "poof". The time to fix this was three or four years ago!
NOW, when its too late for you to do anything about it if you're one of the "suckers" who bought this trash, you're fixing to find out that the supposed coupon payments aren't going to be made and you were sold toilet paper.
"AAA" toilet paper, but toilet paper nonetheless - its all good for only one thing - wiping your ass!
Where is this crap? Pension funds. Overseas banks. Asian investors. All of whom are sitting on zeros and not all of them are smart enough to know it yet. They will figure it out when the coupon money stops coming in and they rush for the door.
I've been warning of this for months and yet nobody wants to listen. Believe me - they will - and as this unwinds it is going to murder the funds who will be forced to sell whatever they have that's still "good" to cover the losses - especially if the buyers were dumb enough to lever up, and many of them were. Hedgies are in for a big (and ugly) surprise; this is also a big part of where the "SIeVe stress" is coming from.
Oh, and was today a "strong rebound"? Ha! Go tell that to Gold. This was Quant-unwind, oversold bounce and margin driven; why do you think Gold and Silver got murdered at the open and kept being sold off all day long? Gee, I wonder - NOT! I warned that this was likely to happen, which is why I got out of my metals positions last week. Its not over either.
Of course Hank Paulson wants us all to think that "super-SIeVing" all this crap will make it "ok". Uh huh. Amazing how when you take a picture of this clown his "true colors" come shining through in the finished print....
(credit for this one to "Foxymoron" on the forum..... and by the way, you owe me a keyboard!)
AXP came out with 90 cents in earnings; the street expected 85 cents. The real question is charge volumes, which appears at first blush to be up significantly, but their provisions for losses are also up 24%. That's not small! In addition they took a big tax benefit during the quarter...... hmmmm...... Revenue wasn't anywhere near forecasts (6.94 .vs. 7.29B) and loss reserves up - that doesn't look good from a consumer perspective. The market is churning on their price aftermarket; I'd call this mixed at best; the revenue number is a pretty big miss. This points to a weaker consumer sector - exactly what we've been seeing in other readings. It will be interesting to see how the market treats this in the morning.
Apple claimed $1.01 in EPS, 2.16M Macs shipped - but the "whisper" was over 2.2. They also claim they expect 42% higher EPS next quarter? That'd be amazing if they hit it - I'm not buying on that. 1.2 million iPhones, heh, not bad there. But 42% growth in EPS? I'm not sure if I believe that given a slowing consumer (you didn't read the AXP release did you?)
Texas Instruments (TXN) appears to have beat by 4 cents with the beat coming from an asset sale - revenues inline. Forecasts are light compared to what the street wanted to see. The market didn't like their numbers at all and is punishing them after-hours.
So let's see if we got this right - Apple claims they can sell anything to anyone and they're pretty much all consumer sales. Texas Instruments says their chip demand isn't what it should be, and American Express says that consumer charge volume is down and charge-offs are up.
Hmmm...... who's right? I guess we'll find out eh? But you certainly have balls to be issuing a 42% EPS growth number into what is clearly a slowing consumer, when virtually all of your sales are to that very same consumer!
Oh, market internals? Nice strong advaice - and 28 new highs - 178 new lows. Tech led you say? 29 new highs on the 'Daq, 193 new lows.
Go long here? Are you nuts?
Here's your technical!
Asian markets got whacked Sunday night...... although they did recover considerably from their intraday lows.
Europe followed with a downdraft.
The only economic news was the Fed National Activity Index, down 0.45 from last month's down 0.65. The key here is that its negative - again.
The dollar suddenly got a huge bid early this morning. I've been hearing rumors over the weekend of a potential problem over in Europe with a "big bank", but nobody's putting a name on it or explaining exactly what is going on. But the sudden "dollar grab" is consistent with someone needing dollars - right now - and paying whatever they need to get them.
The problem for equities remains twofold, with the credit issues being a part of it, but the bigger deal, in absolute terms, is that 4Q estimates are not yet being adjusted by the analysts, although they sure as hell are by the companies that are reporting earnings!
It is simply a matter of time before that happens, and when it does it is not going to be pretty.
As things stand right now we're still prancing along in the equity markets on the wish and a prayer that while 3Q was a wipeout, 4Q will be "just fine" and "on plan."
Uh huh. CAT's CEO says that's bull**** and other firms are reporting eating big inflationary input price pressures. The evidence is strong that the economy is slowing - with margins getting squeezed - and that this is going to continue well into 2008. The complaints about high input prices continued today - how do you spell "inflation"? Oh, and book-to-bill in the semiconductor space is well below 1.0 as well (so much for the "tech will save us" mantra.)
This WILL bleed through to analyst 4Q estimates.
Don't be caught on the wrong side when it does.
The particularly pernicious problem is in fact food and energy inflation. Nobody wants to talk about it but refusing to have the discussion doesn't make it go away. Quite to the contrary; its very real and no matter what people will try to tell you its not leaving either. We're facing structural changes in inflation pressures that, at this point, cannot be stopped. The Fed has been going the wrong way and continues to, along with our other political policies - particularly those related to Ethanol and drilling for our own natural resources - and the result shows up in your food and energy bill. While people like myself can manage, if you think I don't notice you're nuts. Just last night I went and bought a grocery cart of "stuff" that a few months ago would have cost me $50 or so. Before the $10 "instant discount" coupon that Winn-Dixie had printed in my last trip to try to keep me out of the WalMart Supercenter, the bill came to $73.56! Aieee! What was in there? Food. Eggs (doubled in the last six months), cheese (ditto), milk (ouch!) - basic staples. A 12 pack of soda that a few months ago was $3.00 was $4.50 (!) How come? Corn syrup - the primary ingredient - has gone up radically in price and it is being passed straight through to the consumer.
You can tell people that there is no inflation but you can't argue with the cash register tape at the grocery store. That tells the truth - and the truth is ugly. This has and will translate into discretionary purchases; we've been seeing since the spring the attempt to keep spending on "crap" via credit cards, but that wall is being hit now for many, and it will increasingly be so for all.
Consumer spending will collapse due to inflationary pressures and The Fed is harming, not helping, this situation with its inappropriate rate cutting scheme!
Chucky is getting ass*****d every day and his ability to absorb it is exhausted. Just wait until crack spreads start to widen out again and gasoline goes to $3.50/gallon - at today's oil prices, it is very likely to do so sometime this winter. This reality is "already here" when it comes to heating oil. Gasoline is not far behind.
The ABX index is hitting all-time lows and there's a huge problem in these CDOs which is not being discussed with any sort of clarity - yet. Many of these instruments are getting dangerously close to a "credit event", which shuts down coupon payments to the "subordinate" tranches - including the so-called "AAA" ones. Once this happens it is typically permanent - this is not just "a missed payment or two", its a "there will be no more coupon payments!"
WHEN that happens the only people who get paid from there on for their coupon are the "senior" tranches - which are NOT in the ABX indices. Typically, those "super-senior" tranches are held by the issuer (nice eh?)
The entire rest of the chain - including the so-called "AAA" credit pieces - get NOTHING.
This of course is catastrophic for all of these CDOs - and their holders. After all, the point of buying them was not just "return of capital" but also the coupon - promised at something beyond Treasuries. Now the spectre of them being "dead money" at best and "lost money" at worst is starting to rear its ugly head.
This is being presaged by the downgrade tsunami which is now hitting all of these instruments. Moody's, S&P and Fitch, late to the party and stuffed full of conflict of interest, sure as hell didn't bother warning anyone before they bought did they? This is a scandal bigger than Watergate by far, yet I'll bet there won't be any meaningful regulatory response until millions of Americans see their pensions go "poof". The time to fix this was three or four years ago!
NOW, when its too late for you to do anything about it if you're one of the "suckers" who bought this trash, you're fixing to find out that the supposed coupon payments aren't going to be made and you were sold toilet paper.
"AAA" toilet paper, but toilet paper nonetheless - its all good for only one thing - wiping your ass!
Where is this crap? Pension funds. Overseas banks. Asian investors. All of whom are sitting on zeros and not all of them are smart enough to know it yet. They will figure it out when the coupon money stops coming in and they rush for the door.
I've been warning of this for months and yet nobody wants to listen. Believe me - they will - and as this unwinds it is going to murder the funds who will be forced to sell whatever they have that's still "good" to cover the losses - especially if the buyers were dumb enough to lever up, and many of them were. Hedgies are in for a big (and ugly) surprise; this is also a big part of where the "SIeVe stress" is coming from.
Oh, and was today a "strong rebound"? Ha! Go tell that to Gold. This was Quant-unwind, oversold bounce and margin driven; why do you think Gold and Silver got murdered at the open and kept being sold off all day long? Gee, I wonder - NOT! I warned that this was likely to happen, which is why I got out of my metals positions last week. Its not over either.
Of course Hank Paulson wants us all to think that "super-SIeVing" all this crap will make it "ok". Uh huh. Amazing how when you take a picture of this clown his "true colors" come shining through in the finished print....
(credit for this one to "Foxymoron" on the forum..... and by the way, you owe me a keyboard!)
AXP came out with 90 cents in earnings; the street expected 85 cents. The real question is charge volumes, which appears at first blush to be up significantly, but their provisions for losses are also up 24%. That's not small! In addition they took a big tax benefit during the quarter...... hmmmm...... Revenue wasn't anywhere near forecasts (6.94 .vs. 7.29B) and loss reserves up - that doesn't look good from a consumer perspective. The market is churning on their price aftermarket; I'd call this mixed at best; the revenue number is a pretty big miss. This points to a weaker consumer sector - exactly what we've been seeing in other readings. It will be interesting to see how the market treats this in the morning.
Apple claimed $1.01 in EPS, 2.16M Macs shipped - but the "whisper" was over 2.2. They also claim they expect 42% higher EPS next quarter? That'd be amazing if they hit it - I'm not buying on that. 1.2 million iPhones, heh, not bad there. But 42% growth in EPS? I'm not sure if I believe that given a slowing consumer (you didn't read the AXP release did you?)
Texas Instruments (TXN) appears to have beat by 4 cents with the beat coming from an asset sale - revenues inline. Forecasts are light compared to what the street wanted to see. The market didn't like their numbers at all and is punishing them after-hours.
So let's see if we got this right - Apple claims they can sell anything to anyone and they're pretty much all consumer sales. Texas Instruments says their chip demand isn't what it should be, and American Express says that consumer charge volume is down and charge-offs are up.
Hmmm...... who's right? I guess we'll find out eh? But you certainly have balls to be issuing a 42% EPS growth number into what is clearly a slowing consumer, when virtually all of your sales are to that very same consumer!
Oh, market internals? Nice strong advaice - and 28 new highs - 178 new lows. Tech led you say? 29 new highs on the 'Daq, 193 new lows.
Go long here? Are you nuts?
Here's your technical!
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