NOVEMBER 2012: GLOBAL MACRO TIPPING POINT - (Subscription Plan III)

RACE TO DEBASE : The "Race to Debase" Accelerates in a "Race to the Bottom"

The November GMTP issue discusses the Regional Macro Economic Issues in Europe, Japan, China and the Emerging Economcis and BRICS countries. The IMF, World Bank and BIS have all warned of heightened economic and financial risk. The IMF cut the grwoth rate of the advanced economies by 25% taken it down to levels not seen since 2009. The World Bank released a study indicating theat 600 million new jobs must be created over the next 15 years to meet economic and social demands. Meanwhile global growth is falling at rates not seen since the early stages of the 2008 financial crisis.

Currency Wars have entered a new stage has global economies fight for a shrinking piece of export/import demand. Any Geo-Politicl event, an unresolved US Fiscal cliff or unexpected corporate financial failure could be the catalyst to push the world into its first global recession.

MORE>> EXPANDED COVERAGE INCLUDING AUDIO & MONTHLY UPDATE SUMMARY

OCTOBER 2012: MONTHLY MARKET COMMENTARY (Subscription Plan II)

RACE TO DEBASE : The Fighting Resumes - The "Race to the Bottom" Monetary Policy Programs Accelerates

THE "UNLIMITED" & "UNCAPPED" SALVO - The macroprudential policy strategy of Financial Repression reached a seminal point last month with the announcement of the Federal Reserve's "Unlimited" QEIII/Operation Twist and the ECB's "Uncapped" OMT. We have moved into the outer limits of Monetary Policy which now forces the accelerated currency debasement of the developed economies against its Asian & BRIC competitors. The 'race to the bottom' has entered another phase which now sets the battle lines for the next set of conflicts.

In case you haven't been keeping score, here is how the "Race to Debase" currently stands. (see right) MORE>>

MARKET ANALYTICS & TECHNO-FUNDAMENTAL ANALYSIS

OCTOBER 2012: MARKET ANALYTICS & TECHNICAL ANALYSIS - (Subscription Plan IV)

The market action since March 2009 is a bear market counter rally that has completed a classic ending diagonal pattern. The Bear Market which started in 2000 will resume in full force when the current "ROUNDED TOP" is completed. We presently are in the midst of of a "ROLLING TOP" across all Global Markets. We are seeing broad based weakening analytics and cascading warning signals. This behavior is typically seen during major tops.  This is all part of a final topping formation and a long term right shoulder technical construction pattern.  - The "Peek Inside" shows the detailed Technical Analysis coverage available this month.

MORE>> EXPANDED COVERAGE INCLUDING AUDIO & EXECUTIVE BRIEF

OCTOBER 2012: TRIGGER$ (Subscription - Plan V)

TRIGGER$ publications combine both Technical Analysis and Fundamental Analysis together offering unique perspectives on the Global Markets. Every month “Gordon T Long Market Research & Analytics” publishes three reports totalling more then 380 pages of detailed Technical Analysis and in depth Fundamentals. If you find our publications TOO detailed, we recommend you consider TRIGGER$ which edited by GoldenPhi offers a ‘distilled’ version in a readable format for use in your daily due diligence. Read and understand what the professionals are reading without having to be a Professional Analyst or Technician.

TRIGGER$ ALERTS (SPECIAL 2 WEEK TRIAL AVAILABLE - TRIAL - 2 UPDATES PER WEEK)

2 WEEK FREE TRIAL Our Inter-Issue Updates and Alerts are Included with a Monthly Subscription to Triggers. Between issue publication receive updates on Technical Analysis, Economic Analysis and anything note worthy for your trading and investing.

• Technical Analysis Alerts would include hitting potential Trigger Points, Pivots orsome progression that requires you immediate attention.
• Economic Analysis Updates alert of any fundamental economic events that may have impact on the markets and what to expect.
• Inter-Issue Updates and Alerts allow us to keep current with the markets and provide a more fluid and stable ongoing market evaluation.

Technical Updates occur twice a week, Alerts as the markets dictate. Sign-up now

	PART I - Understanding FINANCIAL REPRESSION
	PART II - FINANCIAL REPRESSION in Europe
	PART III - FINANCIAL REPRESSION in the US & ASIA
	PART IV - Preparations for FINANCIAL REPRESSION

Password: macro

POST ELECTION - What we can Expect Now

Electile Dysfunction - Market Just Couldn't Keep It Up 11-06-12 Zero Hedge

" the fade into the close suggests risk-reduction was the game plan for the big boys" , even though we end the day in the green in the major indices.

as Citi note - the difference between a Democratic victory and Republican victory is notable...

Treasuries are set to rally. The rally is even more impressive in election years (blue) relative to all years (green)... DEBT LOVES THE POST ELECTION 'PROMISES' SPENDING.

.. and with DEBT comes further debasement as COMMODITIES spike..

ELECTION REALITIES - Equity Markets 83% Lower SInce 2000 in Real Terms

Four Elections And A Market Myth Funeral 11-06-12 Zero Hedge

Once upon a time there was a myth that the equity market can only go up, year after year, with the average annual return according to such esteemed counting institutions as Ibbotson, at 10% or more. Then, we got the November 7, 2021 presidential election, which took place when the S&P was 1432. Fast forward to today, skipping the second and third elections in the interim, and going straight to today's fourth presidential election. The closing S&P today? 1428. We have now had four presidential elections... and a funeral - that of the "stock market always rises" myth. But wait, it gets worse. The numbers above are nominal.

When adjusting for the real purchasing power lost in the past 12 years, whose best indicator in a regime in which CPI data is constantly fudged and manipulated, is the price of gold, one can see that 3 presidential elections later,

The S&P 500, when priced in gold terms, is now 83% lower.

In other words, how is that wealth effect working out for you? And where will the stock market be in another 3 presidential elections in either nominal or real terms? One can only hope that Japan is not prologue...

1. Since 11/7/2000, the first election of Bush, the S&P 500 is down 0.25%.
2. The USD has lost a remarkable 30% of its purchasing power relative to the world's major currencies (36% Trade-weighted).
3. But it gets better because energy costs (WTI) have risen 65% since then.
4. The Long Bond has gained a remarkable 50%
5. While the clear winners in a Greenspan/Bernanke era has been precious metals - up around 550% since November 2000.

Still - could be worse - could be European stocks which are down 50% since the November 2000 election...

Chart: Bloomberg

POST ELECTION - Now the for the FISCAL CLIFF

Next Steps: Fiscal Cliff 11-06-12 Zero Hedge

Tonight it's all Obama-corns and Biden-faeries but the market is already 'adjusting' to the new old new normal regime. Unfortunately in 'Obama II - This Time Its Different' the odds of going over the Fiscal Cliff just got real. As we noted here (and in more detail here and here), there is now a 55% chance we go over the cliff (given the status quo of no compromise) and the market is a long way from pricing that kind of GDP shock...

Click to Enlarge

As for what comes next, here's a hint: "Extended Alternative Fiscal Scenario"

Click to Enlarge

PATTERNS - Post Bernanke's QE3

Electile Dysfunction - Market Just Couldn't Keep It Up 11-06-12 Zero Hedge

Financials unchanged since QE3 and Healthcare the only sector in the green...

early equity exuberance faded bacdk to reality across the rates. volatility, and credit markets...

S&P 500 futures knee-jerk ramp followed by leak back to VWAP perfectly ..

US TREASURY DEBT - Who is Buying?

Spot The Foreign Demand For US Treasurys Under Obama 11-06-12 TBAC Q4 refunding presentation via ZH

Few charts capture as effectively the shift in foreign demand for US Treasurys over the past 4 years, or under the Obama administration, as the following two, courtesy of the latest TBAC Q4 refunding presentation. They are quite self-explanatory.

Total foreign demand: Bills and Coupons.

And foreign demand for just Coupon paper.

So who is picking up the slack?

And what is another name for Primary Dealers?...think POMO.... Why, the Fed of course.

RISK - Volatility Has Become a Shadow Currency

A 21% Chance Of A 50% Plunge In The S&P 500? 11-05-12 Artemis Capital Management vai ZH

Investors' perceptions of risks, both normal (volatility) and tail (event), have intriguingly run to both extremes at the same time. 'Normal' volatility has been so suppressed by Central-Bank action as to become an almost useless indicator (or at best contemporaneous) -

or as Artemis Capital notes

"volatility has become a shadow currency" with the USD (safe-haven) becoming considerably more correlated with volatility. Extreme volatility concerns are where the 'unintended' consequence has appeared.

In a somewhat stunning market realization, options markets currently suggest a 1 in 4.7 chance of a greater-than-50% drop in the S&P over the next year. That is more likely than the lifetime risk of a heart attack. The question then is, are tail-risks over-priced? Or are investors willing to overpay for that kind of 'deflation' insurance since we now know that the impossible is possible!

[look at the skew of the distribution of returns since 2008 - the light blue section - show upwardly biased it has become...]

and through time... the chart below shows the chart above through time, and the rise in extreme tail risk pricing since the crisis began...

Source: Artemis Capital Management

RISK - CREDIT SUISSE: "Extremely Elevated"

Credit Risk Appetite On Cusp Of 'Euphoria' 10-24-12 Credit Suisse via ZH

Presented with little comment except to note that the ebullience (pre-crisis spread levels and dramatically rising PIK Toggle issuance?) driven by flow/technicals and financial repression - even in the face of releveraging and fundamental deterioration will see an over-crowded euphoric group of investors knocking at Ben's door when this turns to dysphoria as the credit cycle inevitably does...

Click to Enlarge

Chart: Credit Suisse

RISK - BARCLAYS: Close to Extreme Levels

Risk Appetite At Extreme Highs Signals Risk-Off To Come 10-22-12 Barclays via ZH

While Tom Lee may well spit out his morning tea at yet another one of his truisms smashed  in front of his eyes, it seems that not only is the market the most net long it has been since the top in 2008, but now Barclays proprietary risk appetite index has reached extreme bullish levels - signaling contrarian-wise, consolidation at best and a more significant sell-off typically. It is oh-so-annoying when the facts get in the way of a good wall-of-worry-climbing, money-on-the-sidelines-spewing, beta-performance catch-up chasing market rally that appears to have stalled - especially when your year-end target is inexorably rising...

Click to Enlarge

Source: Barclays

PATTERNS - GSAI's BOttom-Up was Bad (44.1) and Now Getting Worse (32.9) in a Hurry

Is This Why Markets Can't Catch A Bernanke Bid? 11-03-12 Goldman Sachs via ZH

While top-down macro headlines, anchoring-biased surveys, and election-oriented government-aided statistics suggest a world of unicorns and teddy bears where everyone and their pet rabbit 'Dave' should be buying stocks with both hand and feet for the 'upside' when

1. The fiscal cliff is 'solved' and
2. 'Bernanke has got your back';

Why-oh-why is every rally faded? In Size? Perhaps this is the answer? Goldman Sachs Analysts Index (GSAI) - a quantified bottom-up look at firm-by-firm views of the current and expected economic reality aggregated across all of the company's analysts - is bad and getting worse in a hurry.

The main index slumped to 32.9 in October from 44.1 in September, with all sub-components falling 'suggesting depressed business activity from the bottom-up'. Perhaps worse, the employment index remains weak and price indices suggest a deflationary future. This index of real economic activity is its lowest since the 2008-9 recession and sends a considerably more pessimistic message than many of the business 'surveys' from the Philly Fed or Chicago PMI. Perhaps it is this reality on the ground that is stalling the wealth-building stock-levitation that is so economically required by our central planners - as it seems the broad improvement in September was transient.

It's all going so well? The Sisyphean Market...

Goldman Sachs Analysts Index suggests the economy is deteriorating rapidly...

Via Goldman Sachs:

The GSAI tumbled 11.2 points to 32.9 in October from 44.1 in September. This is the lowest level since the end of the 2008-09 recession, and the underlying components fell broadly as well. The sharp deterioration in the headline and underlying components seems consistent with the predominantly negative sentiment from disappointing Q3 earnings (especially on the revenue side) thus far. Compared to other business surveys such as the Philadelphia Fed and the Chicago PMI, the GSAI sends a more pessimistic bottom-up message and suggests downside risks to ISM (Exhibit 1 above). (As a reminder, we construct the headline GSAI using the following weights: 30% for new orders, 25% for sales/shipments, 20% for employment, 15% for materials prices, and 10% for inventories. These weights parallel the Institute for Supply Management’s pre-2008 practice, substituting our materials prices index for their supplier deliveries index. The GSAI includes service as well as manufacturing industries. As with the ISM indexes, a reading above 50 theoretically signals growth while an index level below 50 signals contraction. However, our analysis suggests that a GSAI of 50 appears more consistent with trend growth than with no growth.)

Click to Enlarge

In addition to the headline index, most of the underlying components of the GSAI also fell sharply. The sales index gave back its gain in September, falling 12 points to 36.4 in October from 48.4, registering the fifth consecutive month below the 50 mark. Similarly, the new orders index fell 15.4 points to 26.3 from 41.7, contributing 4.6 points alone to the headline drop. The inventories index saw the lone gain, rising 1.6 points to 43.3. Consequently, the orders-inventories gap fell back into negative territory at -17.0 versus flat in September. The sharp reversal in the sales, new orders, and orders-inventories gap measures suggest that the broad improvement in September was likely transient, and that activity and demand will likely remain depressed despite tight inventories.

The employment index fell for the second consecutive month to 39.3 from 45.3 in September. This is the lowest index level since February 2010, and—similar to weakness in the employment component in the Empire State and Philadelphia Fed surveys—continues to point to a slow recovery in the labor market. While the September employment report showed encouraging improvements particularly from the household side, the pace of improvement is unlikely to sustain.

On the inflation front, all three price indexes dropped sharply. The materials prices index fell 16.7 points to 25 from 41.7 in September. The output prices index fell 7 points to 38.2 from 45.2. The index for wages and labor cost fell 5 points to 60.0 from 65.0. While the wages index continues to look high relative to the materials and output prices indexes, it has reverted from a high of 66.7 in August. This week's Q3 employment cost index further suggested no inflationary pressure from the wage side. Overall, the trends in the three price indexes continue to support our view on slowing core inflation through 2013.

Qualitative comments in October reflect more pessimism than those from September. In particular, companies across sectors noted weaker than expected earnings and/or lowered guidance amidst the disappointing Q3 earnings season. The European crisis and the upcoming US "fiscal cliff" resurfaced as the two key risks weighing on business outlook and the broad economy. For instance, some industries such as Communication Services and Defense cited pressure specifically from heightened fiscal uncertainty and government spending cuts.

JAPAN - BOJ Being Pressured to "rip up government debt"?

October 14th, 2012 Gavyn Davies in the FT wites "Will Central Banks Cancel Government Debt?" (See bottom article)

October 20th, 2012 Business Insider reports "People Are Talking About A National Debt Solution That Might Actually Make Your Brain Hurt" (See 2nd article)

Now we read the following (see immediate article):

Bank Of Japan Takes A Surprise Step That Could Change The Future Of Central Banks 11-04-12 BI

Over the past few weeks, there's been a growing buzz about central banks playing a greater role in explicitly serving as funders of government.

The idea that people (journalists and Wall Streeters, mostly) have been talking about is the notion that central banks could buy government debt (as they do in quantitative easing) but then just rip up those bonds, and cancel the debt, with few consequences, except perhaps some inflation (which central banks wants, anyway).

This kind of blatant monetization seems unlikely (especially in countries like the UK and the US, which are borrowing at super-low rates) but the idea of central banks working more closely with their government to stimulate the economy may be on the road to happening.

While the US was distracted by all of the Sandy and election news this week, the Bank of Japan took a shocking step in this direction, according to David Zervos of Jefferies, who notes that the latest easing announcement was a joint production between the Bank of Japan and the Ministry of Finance, a move that never happens:

BoJ policies, by virtually any measure, have been an abject failure. The institution has consistently remained too tight in the face of worsening economic conditions for over 2 decades. And while the economy has had to pay a horrible price for these errors, the tables look like they are about to turn in a nasty way on the institution itself.

Accompanying the depressing standard BoJ statement on 30-Oct was this very curious additional release - http://www.boj.or.jp/en/announcements/release_2012/k121030b.pdf. Here we have the BoJ governor, the Minister of Finance and the Minister of State for Economic and Fiscal Policy jointly issuing a press release on the BoJ website entitled - "Measures Aimed at Overcoming Deflation". A press release of this kind is completely unprecedented. And it was published in the "Monetary Policy Releases" section of the BoJ website.

So here we have two executive branch government ministers issuing declarations on the monetary policy portion of the BoJ website regarding price stability. Can anyone imagine if Tim Geithner, Ben Bernanke and Hillary Clinton were to issue a joint statement on fighting deflation that was in turn prominently displayed under in the monetary policy section of the Fed's website? It would be mutiny!

The executive branch politicians in Japan have, for the first time ever, infiltrated the mother ship. BoJ independence is now under explicit political attack. This should be a warning to all central bankers with "sound money" religion - if you don't let the inflation dogs out and crank up the printing presses as the economy deteriorates, the politicians will come and shut you down. What we are witnessing is the beginning of the end for independent Japanese monetary policy.

Zervos was far from the only analyst to notice the big news.

FT Alphaville has a good note from Bank of New York-Mellon’s Neil Mellor, who writes:

Japan’s failure to emerge from its deflationary mire has been both a tragedy and testament to the hazards of asset price booms; but it has also encouraged an entertaining verbal interplay between successive governments (yearning a constant drip of palliative policy easing) and central bank (keen to enforce its own independence.) The interplay, at MOF’s instigation, has ranged from mild insinuation (per the need for more policy easing) to outright threats to the Bank’s independence; but today’s policy decision perhaps shows that the BOJ board’s current incumbents are keen to keep the peace.

...

The question that inevitably arises in the wake of today’s asset-purchase top-up therefore is to what extent government pressure, and the presence of economy minister Maehara, influenced the decision? In view of the unwavering emphasis that Shirakawa has placed upon reform (as recently as last week in fact) and upon the impotence of monetary easing in its absence, it is very difficult to believe that politics was not a factor. Yet if keeping the peace was an element in today’s decision, then Maehara and co may be forgiven for looking to leverage this ‘susceptibility’ between here and the as yet undeclared date for the next general election. Indeed, note that when Seiji Maehara emerged from today’s meeting, he said, “We have confirmed that we will make the utmost efforts to achieve the common goal with a strong sense of responsibility.” ‘Will’, ‘common goal’, ‘strong sense of responsibility’? The BOJ’s next meeting on November 19th and its aftermath could well be very interesting.

So it's possible that this presages a change in central bank policy around the world, but it's worth noting the idea that it's pressure from the Ministry of Finance that's pushing the BoJ to act, whereas in the US, the current winds prevail in the opposite direction, towards less easing. Still, for a country that's been mired in deflation, it will be fascinating to watch whether there's any beneficial impact from this kind joint Ministry Of Finance/BoJ action.

People Are Talking About A National Debt Solution That Might Actually Make Your Brain Hurt 10-20-12 BI

CANARIES - A Snap Shot of Reporting - Worse then Ugly!

CANARIES - Caterpillar

CATERPILLAR CUTS FORECAST AND REVENUE MISSES 10-22-12 BI

CANARIES - DOW

Dow cutting jobs, closing plants as growth slows 10-23-12 Reuters

Dow Chemical Co, the largest chemical maker in the United States, said on Tuesday it plans to cut 5 percent of its workforce and shutter 20 plants as part of a restructuring program aimed at countering a slowing global economy.

Dow and other chemical companies face slipping demand for products around the world. Rival DuPont slashed its earnings forecast and announced 1,500 job cuts. "The reality is we are operating in a slow-growth environment in the near-term and, while these actions are difficult, they demonstrate our resolve to tightly manage operations..." Andrew Liveris, Dow's chairman and chief executive, said in a statement. The company, which hopes to save $500 million a year, said the cuts would result in a loss of around 2,400 positions worldwide.

Dow Chemical Earnings Leak, Management Announces 2,400 Layoffs, Blames Economy 10-24-12 BI

CANARIES - DuPONT

DuPont's Earnings Report Is One Of The Ugliest We've Seen Yet 10-23-12 BI

DuPont to Cut 1,500 Jobs as Profit Misses Estimates 10-23-12 Bloomberg

CANARIES - JAPAN -- Consumer Electronics & Auto

PANASONIC

Panasonic Plunges by Daily Limit on Loss Forecast 10-31-12

Panasonic Corp., Japan’s second- biggest TV maker, plunged by the daily limit in Tokyo trading after forecasting a loss 30 times bigger than analyst estimates because of restructuring costs and falling demand.

Panasonic Falls to 37-Year Low on Wider Loss Target 11-05-12 Bloomberg

Panasonic Stock Tumbles 10-31-12 WSJ

HONDA

Honda Earnings Leak, Management Slashes Guidance 10-29-12 BI

Honda Motor Co., Japan’s third- largest carmaker, cut its full-year profit forecast after Chinese consumers shunned Japanese brands amid a territorial dispute between Asia’s two-biggest economies. The shares fell. Net income will probably reach 375 billion yen ($4.7 billion) in the year ending March, 20 percent lower than its forecast in July, the Tokyo-based maker of the Accord sedan said in a statement today. Honda, the first major Japanese automaker to report this earnings season, also lowered its projections for operating profit and revenue.

CANARIES - CHINA - All Sectors

China 'Addicted To Credit' 11-03-12 James Parker via The Diplomat,

Whilst the economic data shows at least some signs of an anaemic turnaround, China’s corporate results are demonstrating just how difficult things have been.   China’s companies are busy reporting their 3rd quarter 2012 results and there have already been some disappointing results – pretty much explained by the general slowdown. Connected to this however, a worrying trend is developing on many companies’ balance sheets.

Some big names have already seen disappointing profit growth. State owned-Sinopec,  China’s (and Asia’s) largest oil refiner, saw its 3rd quarter profit fall 9.4% and January-September profits slump by 30%. Sinopec is trapped between high crude costs and government mandated price ceilings on sales to consumers.  Oil giant PetroChina also suffered, with its 3rd quarter net profit down 33% compared to last year, driven in part by a $6 billion refining loss over the year-to-date (YTD), and part by a similar squeeze on its natural gas import business (in which its YTD profits have fallen 93% compared to 2011).

China Southern Airlines saw third quarter (3Q) net profit fall 29%, whilst China Life, the largest Chinese insurer measured by premiums, swung to an outright loss in the July-Sept. period.  Meanwhile Sany Heavy Industry Co. Ltd, China’s largest maker of heavy machinery and construction equipment, was hit by 59% fall in 3Q net profit.  Baosteel, one of the largest producers of the metal, saw net profit down 4.88% from a year earlier.

The auto industry in China is undergoing stresses too. Compounded by the fallout affecting Japanese automakers over the island dispute, data shows that overall national auto sales at the end of September fell 1.8% compared to the end of September 2011. BYD, the Chinese company famously backed by Warren Buffet, reported its 3Q 2012 profit sliding 94% compared to 3Q 2011. 

Indeed the auto making sector was put on notice by the Ministry of Industry and Information Technology last week when the latter warned in a statement that the industry required some serious downsizing or consolidation. The statement contained the shocking news that nearly a quarter of China’s nearly 1,300 automobile makers are on the verge of bankruptcy, and hinted that involuntary bankruptcy may be forced onto some of the smaller players.

Most worrying is a drastic rise in the amount of “accounts receivable” (A/R) on the balance sheets of Chinese companies.  Accounts receivable is an item of money owed to the company (from customers) which has not yet been paid. Many transactions are done on credit, and it is normal for companies to have these items on their accounts.  However, Chinese firms’ accounts receivable are estimated to have risen by 45% year-on-year (YOY) according to reports filed so far, whilst sales have climbed by less than half that rate. 

During a slowdown, it is common for payments to be delayed as everyone hangs on to cash. Some companies, though, can be tempted to avoid curtailing production by offering reluctant customers much easier credit to encourage sales, the hope being that the slump will soon end and “natural” demand will pick up again. The trouble of course is that if the slowdown is prolonged, or the recovery weaker than expected, these accounts receivable might turn “un-receivable”, and thus have to be written down as losses.  An increase in A/R is expected, but such a large increase suggests that some companies have been staying in operations through this vendor financing.

In the struggling coal sector, at the end of June, accounts receivable had jumped 52.8 % for the 90 biggest coal firms. YOY Sany’s tally increased 83% over the first nine months of this year, outpacing a still worrying general trend in the heavy machinery sector.  The steel sector is also under stress, as are some parts of the country’s export industry.

China’s economy, as explored previously, is addicted to credit. These large rises in accounts receivable show that it is not only financial institutions and the shadow banking sector which are involved in credit creation.  A payment delay or failure by one company can resonate through an entire supply chain, as each entity feeling the cash pressure then delays payments of its own. The need for a stronger turnaround is becoming more and more urgent.

CANARIES - US -- Consumer Retail

AMAZON

AMAZON DIVES AFTER EARNINGS MISS 10-25-12 BI

The company missed on estimates for sales, earnings, AND forward guidance

BEST BUY

Best Buy warns on profit; U.S. unit head to leave 10-24-12 Reuters

"the company grapples with the rising trend of shoppers who treat its stores like showrooms for cheaper online retailers"

CANARIES - US -- Technology

AMD

AMD Can't Fire Workers Fast Enough Amid Cash Crisis 10-25-12 BI

Chief Executive Officer Rory Read is firing workers to pare expenses as the chipmaker’s sales slide. Still, he can’t cut costs fast enough to head off his next looming challenge: shrinking cash reserves. Cash declined to $1.5 billion in the third quarter, shedding $279 million from the previous period.

If the trend continues, cash levels may drop to $600 million by this time next year, according to an estimate by Sanford C. Bernstein & Co. That compares with the $1.1 billion in reserves the company said it requires, and a quarterly operating expense target of $450 million. AMD has $2.04 billion of debt.

“I’d never been worried about cash flow; I am now worried,” said Stacy Rasgon, an analyst at Bernstein.

Read said the decline of the PC market -- which provides 85 percent of AMD’s sales -- happened faster than he expected and left him with less time to remake the company.

Amid a squeeze by the weak economy and changing consumer tastes, the global PC market will contract by 1.2 percent to 348.7 million units this year, according to IHS ISuppli. That would be the first annual decline since 2001

AMD Faces Looming Cash Crunch Amid Quest for New Markets 10-25-12 Bloomberg

TEXAS INSTRUMENTS

Texas Instruments Cuts Q4 Revenue And Earnings Forecast 10-22-12 Zero Hedge

CapEx will be the first thing let go, here is TXN announcing it is slashing its full year growth spending forecast by 30%: TI SEES YR CAPEX $0.5B, DOWN FROM PRIOR VIEW $0.7B

ELECTION DAY - 2012 -- Post Election Risk

It's Unbelievable How Similar This Market Is Compared To The Average Election Year 11-05-12 BI

ELECTION DAY - 2012 -- Post Election Risk #2

From "Buy The Presidential Election" To "Sell The Dividend Tax Hike" 11-05-12 Goldman Sachs via ZH

As so often happens, the conventional wisdom said to buy every day ahead of the election day because the S&P would surge and peak with the election. Conventional wisdom was wrong. Which is to be expected: in the New Normal one should take any technical signal or old trader wives tale, and do the opposite. Needless to say, the market now is unchanged from where it was two months ago, and from the day Barrons' came out with its latest top tick cover (as we said "here comes that patron saint of all contrarian indicators") page praising the "Teflon Market." So now that the "buy the election" meme is over and done with, what is there to look forward to for the rest of the year? According to Goldman, here comes the "sell ahead of the coming dividend and capital gains tax hike."

From Goldman's Kostin:

Capital gains and dividend taxes have garnered less attention than other parts of the Fiscal Cliff. However, with those taxes scheduled to rise at year-end based on current law, our conversations with clients show a renewed sense of urgency as the deadline  approaches.

What is the best case scenario:

Based on current law investment taxes will rise from their current 15% at year-end. The dividend tax rate would rise to 39.6%, the rate of ordinary income, and capital gains tax would rise to 20%. Each rate would also include a further 3.8% tax associated with the Affordable Care Act (ACA).

Our Washington, DC-based economist Alec Phillips believes a more likely outcome is for both capital gains and dividend taxes to rise to 20%, remain tied at the same rate, and include the ACA add-on for an all-in rate of about 24%. It is also possible those rates will be higher for upper income tax payers or that the two rates will de-couple.

We expect the capital gains tax rate to rise for upper income investors regardless of who wins the election. President Obama supports an increase in the tax rate and believes the current 15% is a historical anomaly relative to a maximum rate of 28-29% from 1987 -1996 and rates at or above the 23.8% potential 2013 rate from 1934 -1980. While investors believe Governor Romney is more likely to defend lower top rates, he has placed greater emphasis on eliminating capital gains taxes  for those making $200,000 or less as part of broader tax reform.

How about worst, or in this case, realistic:

The two primary concerns of investors are that (1) the dividend tax rate could rise to 43.4% as in the President’s February budget proposal and (2) high dividend stocks carry a premium valuation that will correct if taxes rise.

Dividend taxes could alter the mix of shareholder cash return. If the tax on dividends rises to 43.4% but capital gains taxes are below 25% it could impact investor, as well as corporate, preference for dividends vs. buybacks. In October, five S&P 500 companies announced special dividends and 23 stocks raised regular dividends by an average 14%. Our Equity Research colleagues have identified companies that may pay large special dividends before year-end to avoid the potentially higher tax rates.

Which means that...

Capital gains could drive year-end tax selling based on previous history. The capital gains tax rate is scheduled to rise to 23.8% from 15% based on current law. That increase would be similar in magnitude to the 9 pp rise starting in 1970 and the 8 pp rise in 1987. In both cases the S&P 500 posted negative returns in the December prior to implementation as investors locked-in the lower rate. The market fell 1.9% in Dec-69 and 2.8% in Dec-86 running counter to trend as December has the second highest average monthly return (1.5%) and a 75% hit rate since 1928.

Bottom line is that the net cash to dividend receivers can decline by up to 33% (from 15% tax rate to up to 43.4%). The implication is that with uncertainty about the cliff and the tax treatment of dividend and capital gains still prevalent, those who are unable to take advantage of offshore tax havens (so everyone but hedge funds) will wait until the last minute then pull a reverse E-Bay and dump into the bid. Because someone will surely be there propping the bid as the torrent of selling begins and investors seek to hedge ahead of a surge in stock-related taxes. Or maybe not.

Finally, Kostin still has a 1250 year end target on the SPX.

RISK On-Off - Signs of Market Fragility Indicate Potential Flash Crash

Stock Market Fragility Fast Approaching "Flash Crash" Levels 10-21-12 Zero Hedge

This past Friday, on the 25th anniversary of Black Monday, Bill Gross warned that in the current centrally-planned market "central bank puts" are the modern day equivalent of "portfolio insurance", and he is right. By sending complacency to record levels, and essentially forcing investors to no longer worry, hedge and generally ignore tail risk, the central planners, in their futile attempts to reflate stocks at all costs, are guaranteeing that the market will experience just the type of fat tail event they promise will never occur. As for the catalyst that will make sure of it is none other than our old friend: high frequency trading. Because while central planning is the mechanism by which investing is dragged away from mean reversion, price clearing and fair value discovery, it is HFT that is Bernanke's analogue in the millisecond trading world (as all those who had stop limit orders (that did not get DKed) on May 6, 2021 very well remember). Because when the next Black ___day does happen, it will be due to central planning, but it will be enacted courtesy of HFT (which will never go away until the next and probably final market crash: too much exchange revenue depends on the perpetuation of this parasitic liquidity drain).

Which is why it is only appropriate to warn readers that when it comes to system market fragility, at least according to Nanex, whose work ZH first presented nearly two years ago and has since gone mainstream now that HFT is the universal scapegoat of even such legacy media venues as CNBC (it is always better to bash the vacuum tubes than the people who profit, or those who have made a mockery of the stock market - it is not like anything will change anyway), the frequency and magnitude of "wild price spike" events (to put it simply) are now both rising at an exponential rate, and fast approaching Flash Crash levels.

From Nanex:

Below is a chart showing the daily counts for all NMS stocks of prices that exceeding NxCore filter level 6. Filter levels range from 2 (lowest) to 7 (highest). Stock prices flagged at these levels are almost always canceled or corrected by the exchange later in the trading session.  The chart below indicates that wild price spikes are happening with greater frequency and magnitude. The highest peak on the right side of the chart is from the October 9, 2021 "Mini-Knight" event.

1. Daily Count of NMS Stocks with Prices Exceeding NxCore Filter Level 6 Since the Flash Crash.
The  Flash Crash had 1,361 of these events, which would skew the scale.

Remember: with just two months left until the Fiscal Cliff deadline, and Congress not one picometer closer to a compromise resolution, there are just two catalysts which can get the House to cross the aisle and do what is in this nation's interest: i) a "rally behind the flag" war (which is certainly an option), or ii) a massive market crash that wakes everyone from their "the Chairman will get to work and fix everything" stupor and forces the cliff to be resolved or else everyone's political career will be cut short.

So keep a close eye on the Nanex core feed and abnormal market activity. At this rate, the next wholesale stock market flash crash can not be too far away...

P.S. for those curious about macroeconomic implications of systemic instability and macro stress tresholds, we urge re-reading ""Trade-Off": A Study In Global Systemic Collapse" - because in today's 'just in time' world, an "equilibrium phase shift" is always just at most minutes away, and no, you cant hedge 'after' the event.