Presented with little comment except to give some context for the current weakness in what was the world’s largest market cap stock a few days ago. In the last 11 days, Apple has dropped over 12.5% – the largest such drop since January 2009 – as today sees the stock’s fall continue to yesterday’s lows down over 2.7%. With just a few hours to the event-horizon, options traders are active and stock volume run-rates are high as selling pressure dominates.
“The eternal optimists would have us all believe that China will awaken from its slumbers amid a blaze of new, debt-fuelled spending initiatives and so buy up all the goods we find so hard to sell at home (without offering a substantial concession in price)” is how Sean Corrigan begins his assault on the non-reality that is China’s ‘save-the-world’ protagonists. It is worth noting, however, that those who actually invest in the place seem to be too busy selling their equities to pay much attention to the Panglossians and Polyannas. With a 10% slump in the past 12 sessions in the main indices (retracing a major fib interval of the 2012 rally), there seems little enthusiasm there for clinging on in the hope that the PBOC will bail anyone out – and the wedge is closing on something big in the chart. Plain vanilla economics might well be correct in telling the bulls that they may rely on a Zhou Xiaochuan Put to spare them too much future pain, but the law of the political jungle, red in flag, tooth, and claw, may well dictate otherwise. As we write, it seems beyond dispute to say that the Chinese hierarchy is battling it out behind closed doors to determine the long term future of the regime and, by implication, the direction of the entire nation. In such momentous times, we would perhaps be foolish to think that the routine application of short?term countercyclical policy will bear overmuch weight in their counsels. Simply out, there is too much political infighting for any large-scale action to be taken as “Having moved against the state-capitalist left of old man Jiang and his Chongqing bruisers, surely the last thing Hu & Co. would want in their final months in office would be to unleash another oligarch?enriching orgy of speculation of the kind such a mass stimulus would be almost bound to foment.”
Anecdotal evidence continues to belie the highly suspect official statistics upon which so many blind macromancers routinely base their case. Growth in Shanghai port traffic has slowed to a virtual crawl – under 4% YOY – as have rail freight ton?miles ? a sub?5% increase in the first two months which is less than half the trend rate from before the crisis – while electricity use for the first two months (unseasonably cold ones full of residential heating demand, at that) was only 6.7% above the like period in 2011, the smallest increment (excluding the Crash itself) in a decade.
As the S&P 500 reaches new multi-year highs and VIX touches multi-year lows, there is one rather large and risk-appetite-proxying market out there that is not as excited. The high-yield bond market has seen record in-flows dropping off recently and for the last four-to-six weeks high-yield spreads, yields, and bond prices have been very flat as stocks have surged ahead. Despite US earnings yields at near-record highs relative to high-yield bond yields, we see little pick-up in LBO chatter suggesting a notable preference for higher-quality junk credit (and/or lack of belief in sustainability of earnings yields) and the recent ‘dramatic’ outperformance in investment grade credit is a notable up-in-quality rotation (as well as early spread-compression reaction to Treasury weakness recently) that strongly suggests less risk appetite among real money managers (given how ‘cheap’ high-yield appears across asset classes). Lastly, the ratio of HY bond prices to VIX is near its extreme once again, something we saw occur before the risk flares of 2010 and 2011 surrounding the end of the Fed’s QE sessions.
The S&P 500 (Blue line) has stormed higher from its October lows and extended gains recently despite signals that QE3 may not be so imminent. Investment grade credit (dark red) has pushed higher with it as size and quality was preferred (and the last week or so of outperformance likely reflects the initial spread compression impact as Treasuries blew higher in yield but corporates remained bid from safety up-in-quality rotations). What is most clear is the HYG (green line) and HY (red line) have flat-lined in the last 4-6 weeks while stocks have accelerated. We have seen this pattern before and the old saw that ‘credit anticipates and equity confirms‘ has been extremely useful a number of times over the past few years.
Here is the market moves heading into the end of QE2…obviously HY became anxious first and proved correct once again…
There are plenty of technical reasons for why HY may be struggling including negative convexity at such low yields but the slowing flows and relative decompression far outweighs the stickiness of bond prices and their callability here.
And so Steve Jobs legacy is now gone as Apple goes Jamie Dimon. At least Apple was not part of the stress test. And as announced yesterday, we for one, can’t wait to find out if it was JPM that advised Apple, to pull a JPM. Finally, we hope that AAPL’s cash creation rate remains the same, as $45 billion in 3 years may put quite a large dent on the company’s onshore cash, which according to reports is one-third of total.
Full PR:
Apple Announces Plans to Initiate Dividend and Share Repurchase Program
The storm clouds gathering behind Charles Biderman, CEO of TrimTabs, are a perfect analogy for his fascinating treatise on the key to long term bull markets and why the Dow will be cut in half. Bringing together the critical fundamental driver of P/E multiples – income growth in his view – and the historically most critical secular shift of this fundamental driver – communications breakthroughs, Biderman remains calm (for once) in his explanation for why the current low levels of income growth mean that should a new reality of less Fed exuberance (or a belief in less Fed exuberance) occur, the Dow will go to 6000 as he sees little evidence of technological innovations of the scale needed to lead the next 25 years secular bull market.
When in doubt – buy. When in doubt what – everything. As the chart below shows starting with the open of the US market, literally everything has been bought: stocks, bonds, crude, gold, and ‘logically’, the VIX. It took the market virtually no time to remember that when trillions in liquidity are being injected into the market courtesy of central planners, a downtick is verboten. Next up: waiting for WTI $110. Should take a few minutes at most.
“I felt a great disturbance in the Bourse, as if 216 hedge funds suddenly cried out in terror and were suddenly silenced. I fear something terrible has happened.”
What happened? Cook is speaking at the Apple shareholder meeting, and the topic of a dividend of the company’s $100 billion in cash has come up.
COOK IN ‘ACTIVE DISCUSSIONS’ ABOUT WHAT TO DO WITH APPLE CASH
COOK SAYS APPLE’S CASH IS ‘MORE THAN WE NEED TO RUN A COMPANY’
Of course, if there is a dividend, the magic is over. In the meantime, a drop in the stock is still inconceivable.
Next up: iBook?
APPLE CEO COOK SAYS FACEBOOK `FRIEND,’ NOT FOE
APPLE CEO SAYS APPLE, FACEBOOK `COULD DO MORE TOGETHER’
Or maybe facebook merely helps Apple create an app that helps it run Twitter?
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