Friday, November 16, 2012

Twinkies, Ding Dongs Maker Hostess Liquidates Following Failure To Resolve Labor Union Animosity

Hostess Brands, the company better known as the maker of Butternut, Ding Dongs, Dolly Madison, Drake's, Home Pride, Ho Hos, Hostess, Merita, Nature's Pride, and of course Wonder Bread and Twinkies, and which previously survived one multi-year Chapter 11 bankruptcy process, when it operated as Interstate Bakeries, has just made a splash at the NY Southern Bankruptcy court, for the last time, with a liquidation filing. The reason: insurmountable (and unfundable) difference in the firm's collective bargaining agreements and pension obligations, which resulted in a crippling strike that basically shut down the company. In other words, Twinkies may well survive the nuclear apocalypse, but there was one weakest link: the company making them, was unable to survive empowered labor unions who thought they had all the negotiating leverage...  until they led their bankrupt employer right off liquidation cliff. Will attention now turn to that another broke government entity, the Pension Benefit Guarantee Corp (PBGC), which will have to step in to resuscitate some 18,000 pension plans which suddenly vaporized after labor unions took their "negotiating" freedom a step too far. Finally, those 18,500 new initial jobless claims next week? Sandy's fault.

How Fiscally FUBAR Will Your State Be?

We all stand 'fingers-over-eyes and thumbs-in-ears' awestruck at the immense wreckage that the fiscal cliff titan will wreak upon the country. However, deep inside our socially responsible minds, all we can really think about is - what about my needs? The Pew Center On The States has just released a very broad and detailed look at just how the increased taxation and reduced spending will impact each and every state. Here, in two simple charts, is the answer.

The 'Broken' Fed Model In 3 Simple Charts

One of the most commonly cited 'bullish' memes for stocks is the so-called Fed Model (or Equity Risk Premium) or more simply - the fact that earnings yields are not catching up to Treasury yields (i.e. why put your money in government bonds at such low rates when there is a smorgasbord of yummy equities with 'attractive' dividend yields). There are three key problems with this perspective: 1) No concept of 'risk' is imbibed in this return-based differential (as we have discussed before here and here); 2) Longer-term historical context is critical (as we discussed here - must read); and most importantly 3) Financial Repression breaks the 'Fed Model'. As Barclays shows in the following three charts (and we pointed out recently) normalization of the equity risk premium will not occur until Financial Repression ends. Brings a whole new meaning to 'Don't Fight The Fed' eh

Tumbling October Industrial Production And Capacity Utilization Blamed Solely On Hurricane Sandy

Because not one Wall Street analyst could have possible factored in the impact of Sandy into their expectations of the month's Industrial Production, which in October declined by -0.4% to 96.6 from 97.0 in the Fed's index, well below consensus expectations of a 0.2% rise, and down from last month's 0.4% increase, it is only logical to blame it all on Sandy. Sure enough, this is what the Fed just did: "Hurricane Sandy, which held down production in the Northeast region at the end of October, is estimated to have reduced the rate of change in total output by nearly 1 percentage point." So let's get this straight: Sandy - which hit on October 29, or with about 94% of the month of October done and impacted New York and New Jersey, not the entire US, is responsible for 250% of the entire October 0.4% drop?  Can we please get back to the "It's all Bush's fault" excuses already. At least those were idiotic and funny. Blaming everything on Sandy is just the former. And yes, capacity utilization for the entire USA which came at 77.8%, the lowest since November 2011, and well below expectations of 78.3%, was obviously crushed by a tropical storm that impacted New York and New Jersey for 3 days in the month. Brilliant.

Pre-Open Equity Ramp As Algos Track War-Ridden Oil Higher

Each day we wake and look to the markets for guidance. Typically that guidance means - which easily-leveragable asset class can be pulled (or pushed) to move the US equity markets (in their algo-correlated manner) in which ever direction we need (up as much as possible obviously since the status quo requires it). Sometimes, it's EURUSD, other times it's PMs; today, it is oil's turn! There has been no real escalation in tensions in Israel in the last hour, no news of significance; and yet WTI has popped 1.5% and in an almost perfectly correlated manner, S&P futures have chugged along to the highs of the day to run those stops before the US day-session open. Efficient Markets... Pin Risk... OPEX...

Silver To Climb 38% In 2013 - "Possibly Over $50/oz" Say GFMS

Thomson Reuters GFMS has published research that says they project silver prices to rise 38% in 2013 from current levels, as a sluggish global economy increases safe haven demand. The bullish silver GFMS forecast was published on the Silver Institute website yesterday and is unusual as the GFMS have been quiet bearish on silver in recent years despite rising prices. Philip Klapwijk of GFMS said that “a rebound in investment demand stemming from continuing loose monetary policies is expected to drive silver prices towards and possibly over $50 during 2013.”  Spot silver has risen over 17% this year overtaking gold’s 10% gain, and paving the way for its third consecutive rise in four years. "Strong investment demand, higher gold prices on the back of monetary easing, rising inflation expectations and the persistence of ultra-low interest rates," are among the factors that will lure buyers to the safety of silver,” said Philip Klapwijk of GFMS. "We are thinking prices will trend higher next year. I'm not convinced that we are going to $50. I think we will definitely see $40 to $45 prices."

The Witching Hour

The October Double Witch lit the match that precipitated the bulk of the 8.6% slide in the S&P 500 from its September highs.  Massive and unexplainable changes in open interest for the futures most of that week as well as an unusually large Market On Open imbalance for index expiration that morning hinted that the final days of the rally were artificial and susceptible for a sharp reversal. We have arrived at the third Friday in November licking our wounds after a precipitous drop in equities since the Election. Reminded of last month’s inflection point, traders, however, who have far better memories than given credit for, may expect something out of the ordinary especially with the curious drop in the VIX over the past several days albeit I chalk up this suppression of implied volatility to the selling of $6B in notional SPY puts centered on the 140-41 strikes.  On the other hand, one could easily argue that the critical 1350 level for S&P 500 options held up the market yesterday such that the removal of such a protective barrier could reengage the aggressive selling from the past two weeks.

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Fiscal Cliff Can About To Be Kicked Into 2013?

With precisely 13 working sessions left for Congress in 2012, it is time to ratchet up the can kicking rhetoric a bit. Sure enough, here comes the White House, via the Wall Street Journal, doing just that.
Because when unable to reach a compromise over anything, what is the best option? Just stick head in sand, and demand that the Mr. Chairman gets to work. As for the news above, this is largely irrelevant for the actual fiscal cliff negotiations and the futures buying algos are once again in for a rude awakening.

Name The Author: "How The Capitalists Are Trying To Scare The People"

Name the author: "No socialist has ever proposed that the “tens of millions”, i.e., the small and middle peasants, should be deprived of their property (“made to abdicate their property rights”). Nothing of the kind! Socialists everywhere have always denied such nonsense. Socialists are out to make only the landowners and capitalists “abdicate”. To deal a decisive blow at those who are defying the people the way the colliery owners are doing when they disrupt and ruin production, it is sufficient to make a few hundred, at the most one or two thousand, millionaires, bank and industrial and commercial bosses, “abdicate” their property rights. This would be quite enough to break the resistance of capital."

Bullish On Southeast Asia

Admin at Marc Faber Blog - 26 minutes ago
In this "Squawk Box" excerpt, Marc Faber of the Gloom, Boom & Doom Report, says there is one area of the world that he is optimistic about. * **Marc Faber is an international investor known for his uncanny predictions of the stock market and futures markets around the world.* 

Retirement 'Perfect Storm' Coming in 2013

Eric De Groot at Eric De Groot - 2 hours ago
Anyone building a short list of the most over-hyped economic buzz words of 2012, might want to consider adding: Fiscal Cliff Balanced Approach Perfect Storm George Clooney's agent has to smelling a sequel with so many perfect storms on the horizon. Headline: Retirement 'Perfect Storm' Coming in 2013 An estimated 7 million Americans will reach the age of 65 by the start of... [[ This is a content summary only. Visit my website for full links, other content, and more! ]]

Big Jump in Federal Reserve MBS Debt Purchases

Trader Dan at Trader Dan's Market Views - 11 hours ago
After questioning last week where the Fed's QE3 had gone, it seems as if we got an answer this week. This afternoon's report on the Fed Balance Sheet shows a sharp increase in Mortgage-Backed Securities holdings on their Balance Sheet, $37 Billion to be exact. Keep in mind that the Fed had announced monthly purchases of $40 billion in MBS debt each and every month so it looks like they just made a big chunk of that for November. Based on what I am seeing in the US equity markets, that $40 billion is not going to do much good as the stock market continues reeling from the election r... more » 

Directionless Drift Marks Eventless Session

There was precious little in terms of actionable news in the overnight session, which means that, like a broken record, Europe falls back to contemplating its two main question marks: Greece and Spain, with the former once again making noises about the "inevitability" of receiving the Troika's long delayed €31.5 billion rescue tranche. The chief noise emitter was Italian Finance Minister Vittorio Grilli who said he was "confident that euro-region finance chiefs will reach an agreement on aiding Greece when they meet next week." He was joined by Luxembourg Finance Minister Frieden who also "saw" a Greek solution on November 20. Naturally, what the two thing is irrelevant: when it comes to funding cash flows, only Germany matters, everything else is noise, and so far Schauble has made it clear Germany has to vote on the final Troika report so Europe continues to be in stasis when it comes to its main talking point. In fundamental European news, there was once again nothing positive to report as Euro-area exports fell in September as the region’s economy slipped into a recession for the second time in four years. Exports declined a 1.1% from August, when they gained 3.3%. Imports dropped 2.7%. The trade surplus widened to 11.3 billion euros from a revised 8.9 billion euros in the previous month. Global trade, at whose nexus Europe has always been at the apex, continues to shrink rapidly. Elsewhere, geopolitical developments between Israel and Gaza have been muted with little to report, although this will hardly remain as is. Providing some news amusement is Japan, where the LDP opposition leader Shinzo Abe continues to threaten that he will make the BOJ a formal branch of the government and will impose 2% inflation targeting, which in turn explain the ongoing move in the USDJPY higher. This too will fade when laughter takes the place of stunned silence.

Meet The New China - Same As The Old China?

Just before the US election, we laid out the details and implications of the 'other' major 'election' occurring in the world - that of China's Supreme Leader of Awesomeness. Last night the details were announced of the makeup of the new Politburo Standing Committee. As Bloomberg notes, the panel - the most powerful decision-making body in China - was reduced from nine to seven members and will be led (unsurprisingly) by Xi Jinping. Perhaps, in a lesson for our own politicians, the 'new' committee is 'bipartisan' with five members from Xi Jinping's own Jiang Zemin faction and two members from Hu Jintao's faction (more a balance of reformers and reactionaries). But, in a similar vein to the US, as The Diplomat's David Cohen notes,"If Xi is to achieve even the economic policy goals that already appear to enjoy consensus support in Beijing, he will need to find ways of overcoming some of the largest entrenched interest groups in contemporary China.  To do so, he may have to set about creating new entrenched interest groups."

Frontrunning: November 16

  • Israel Mobilizes Troops as Hostilities Escalate (WSJ)
  • FHA Sets Stage for Taxpayer Subsidy With 2012 Deficit (Bloomberg)
  • On eve of fiscal cliff talks, positions harden (Reuters)
  • Japan PM Noda contradicts challenger Abe on BOJ (Reuters)
  • Regulators cut JPMorgan's ability to trade power (Reuters)
  • EU Should Reach Agreement on Greek Aid Next Week, Grilli Says (BBG)
  • Moscovici rejects talk of French crisis (FT)
  • Egypt Urges Push for Gaza Peace as Rockets Hit Israel (BBG)
  • Leading Japan politicians draw election battle lines (Reuters)
  • Fed Push to Tie Zero-Rate to Economic Goals Faces Doubts (BBG)
  • China’s commerce minister voted out in rare congress snub (Reuters)
  • China’s new leaders could have reform thrust upon them (Reuters)
  • Both Sides of Gaza Border Brace for Further Conflict (WSJ)
  • Fed Sees Hurdles in Housing Rebound (Hilsenrath)
  • The Complete 2012 Business Schools Ranking (Bloomberg)
Today’s Items:

Euro Zone Slips Into Second Recession Since 2009
Mired in violent protests and massive strikes, the EU is now again in recession.    As if you could not tell by the austerity, protests and bank runs.    At any rate, the 17-country euro zone fell 0.1% in the third quarter.    Since this was the second quarter of declines, the 9.4 trillion euro economy is officially in recession.

Global Gold Production To Plummet
Rick Rule states that while industry spends more money each year looking for gold deposits, they are coming up fewer, of lower grade, and quality.    Many of the today’s gold production is from mines discovered and put into production 20-to-25-years ago.    This translates to a diminished gold production over time.

Could You Live On Social Security?
Here are some facts about Social Security – While it lasts…
1. The average monthly social security benefit is about $1130.
2. Almost 1 in 5 recipients live on Social Security income alone.
3. For nearly one-third of elderly recipients, social security makes up 90% of their income.

GMO Labeling
Proposition 37, which would have forced food manufacturers to identify if their foods were made with GMO’s, was defeated in California.    Now, 30 other states, like Arizona, Connecticut, Florida, and Vermont are pursuing GMO labeling.    If just one of these thirty states mandates labeling of GMO food, this will transfer across all 50 states.    An example of this policy is the fact that your bottled water has an expiration date because of a California law.

FEMA Camps
Weeks after Superstorm Sandy, tent cities, set up by FEMA that resemble prison camps, house thousands of New Yorkers and New Jersey residents still reeling from the loss of their homes and property.    These people are treated to Blackhawk helicopters flying over and movement of heavy equipment all day and night.   Yes, these people may be the first in America to see their future.    No doubt that more manufactured goods in the future will say “Made in USA” thanks to coming FEMA Prison System.

BP Expected to Admit to Criminal Misconduct in 2010 Spill
BP is expected to plead guilty to criminal misconduct in the 2010 Deepwater Horizon disaster through a plea agreement with the U.S. Department of Injustice.   The Deepwater Horizon disaster killed 11 workers and fouled the shorelines of four Gulf Coast states in the worst offshore spill in U.S. history.    Expect the penalty to virtually be nothing more than a slap on the hand.

22 Signs of Voter Fraud
Here are a few…
1. 10 counties in Colorado had greater than 100% vote.
2. Obama did not win a single state that required an ID to vote.
3. In Ohio, two election judges were caught allowing unregistered voters to cast ballots.
In short, the election was a sham.

Obama’s Fiscal Plan
Obama will begin budget negotiations by insisting on $1.6 trillion in new taxes.  Understand this, the GDP of the US is a little over $15 trillion.   Obama and Democratic leaders  have not clarified how they would potentially raise the $1.6 trillion in revenue.    Can you say Carbon Tax?

Finally, please prepare now for the escalating economic and social unrest.    Good Day!

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