Deep Fried Black Swan Lands As China Admits It Has A Food Inflation Problem, Releases Corn, Rice From Reserves

Last week we wrote an article that to many was anathema: namely an explanation why everyone is deluding themselves in their expectation that the PBOC would ease, soft, hard, or just right landing notwithstanding. The reason? The threat that food inflation is about to read its ugly head which is "Why The Fate Of The Global Equity Rally May Rest In The Hands Of Soybeans." This was merely a continuation of our observations from a month ago that as a result of the Black Swan being "deep fried" in 2012, that the threat of food inflation will keep key BRIC central banks in check for a long time. As of today the threat has become fact, because as China Daily reports "China will release corn and rice from state reserves to help tame inflation and reduce imports as the worst US drought in half a century pushes corn prices to global records, creating fears of a world food crisis...The release may prompt Chinese importers to cancel shipments in the near term and take some pressure off international corn prices, which set a new all-time high on Friday as the US government slashed its estimate of the size of the crop in the world's top grain exporter." Sure, as every other short-termist measure the world over, it may help with prices in the short-term, but will merely expose China, and thus everyone, to the threat of a much greater price spike in the future. Because just as the strategic petroleum reserve release did nothing to help gas prices, nor the short selling ban in the US and Europe did anything to help the underlying broken financial system, so this will merely force the local population to scramble and ration whatever food they can get asap, now that the government has admitted there is, indeed, a food inflationary problem.

Volume Crashes As S&P 500 Breaks Winning Streak Even And VIX Plunges To Five Year Lows

The cash S&P 500 closed very modestly in the red - but tried its best into the end of the day-session to get green to make it seven-in-a-row. After-hours, amid heavier block size, S&P 500 e-mini futures (ES) pushed up to the overnight highs and tried to hold green but failed. NYSE volume plunged - almost unbelievably to be frank - to its lowest non-holiday-trading day volume in over a decade. Intraday ranges remain tiny and average trade size unremarkable as ES is still suffering from the post-Knight slashing in volume (down 45%!!). Are we witnessing Gross' death of equities?

Group Selling In Groupon After Hours

At last check, one of the final remnants of the second coming of the dot com bubble was trading down 15% after hours following its Q2 earnings report which while beating on the bottom line at $0.08/share (including a one time $0.04 gain) on expectations of $0.03, missed the top line forecast of $575 MM, instead reporting $568.3 MM in revenues. Also spooking the market is the company's Q3 revenue forecast of $580MM - $620MM vs estimates of $607.4 MM. Company also adds that "income from operations for the third quarter 2012 is expected to be between $15 million and $35 million, compared with a loss from operations of $0.2 million in the third quarter 2011." Considering the market cap is just shy of $5 billion one may be excused to ask just how the company will grow its net income to anything remotely resembling a rational valuation, even when taking that company's $1.2 billion cash, all of its as a result of fundraising. Finally, what would a GRPN release be without the now traditional recasting, adjusting, and otherwise proformaing of some historical core line times. Sure enough: "The second quarter 2012 marked the first time that direct revenue was material to the Company’s consolidated performance. As a result, beginning in the second quarter 2012, third party and other and direct revenue are presented separately. Third party revenue is related to the sales for which the company acts as an agent for the merchant. This revenue is recorded on a net basis. Direct revenue is related to the sale of products for which the Company is the merchant of record. These revenues are accounted for on a gross basis, with the cost of inventory recorded in cost of revenue." Uh... Ok. Have fun with that..

Gold Daily and Silver Weekly Charts - Zzzzzz

SP 500 and NDX Futures Daily Charts

Housing: Look Out Below

Dave in Denver at The Golden Truth - 2 hours ago

*The July employment and unemployment numbers published today, August 3rd, were worthless and likely misleading. What has been done in the last couple of decades to the reporting methodologies for monthly labor data, compounded by distortions introduced into the system from the economic collapse of the last five years, has left the heavily-followed employment and unemployment series seriously impaired as to significance, and potentially subject to direct political manipulation* - John Williams, Shadow Statistics I thought I would briefly summarize where I think we stand with the... more » 

 

 

 

Gold Retreats from the Top of its Trading Range

Trader Dan at Trader Dan's Market Views - 2 hours ago

Nothing doing on gold being able to break out from its consolidation pattern. Last week I showed a chart with gold right at the very top of that range and working into a heavy resistance level. Today it failed to better that resistance and was shoved back lower meaning that the odds favor it working lower within that range from here as we wait for the next round of buying support to surface. It should be able to garner buying near $1600 initially on down towards $1585 should that not hold it. Keep in mind that this market must have a spark to take it up and out of this range. Until ... more » 

 

 

 

China Is Going To Slow Down Considerably

Admin at Marc Faber Blog - 3 hours ago

The growth rate we had in the last 10 years, which was around 10 percent annually, is going to slow down considerably. I would rather wait to buy Chinese stocks until we see the result of the stimulus packages. - *in Bloomberg Surveillance radio interview today * *Related: iShares FTSE/Xinhua China 25 Index (ETF), iShares MSCI Emerging Markets Index ETF (EEM)* * **Marc Faber is an international investor known for his uncanny predictions of the stock market and futures markets around the world.* 

Thai Senator "Accidentally" Kills Secretary With Submachine Gun, Has Arrest Immunity, Faces $636 Fine

We had great hopes that following the return of Merkel from vacation, the VIX would finally post an uptick. Alas, it appears that the Fed's new market desk head will not relent until the VIX is at or below 0 (alternatively, stock volume will hit 0 first, in either case confirming the death of equities as anything resembling a discounting mechanism, and validating it as a plaything of central banks). Which means that until reality does come back first slowly and then very fast, we have to focus on more "off the beaten path" news. Such as this one courtesy of BBC: Thai MP Boonsong Kowawisarat 'accidentally kills secretary.' With a submachine gun. In a restaurant. Has yet to be arrested. And faces a $636 fine if convicted.

Charting The Lost Generation Of Investors

There is a segment of the Baby Boomers that will never return to investing in equities because the last 12 years has produced a lack of returns with relentless volatility and scary headline news. BofAML's Mary Ann Bartels notes that equity holdings as a percentage of financial assets peaked in 2000 and have been declining ever since. This same behavior occurred last time the market traded sideways from 1966-1984 (16 years) and we clearly face the risk of more years of sideways trading to come as cumulative bond and equity flows show no sign of letting up at all.

How Badly Does Wall Street Want A Romney Presidency?

Does Wall Street really want a Romney Presidency? Or could Wall Street not care less, because they know that both sides will gladly do their bidding? After all it’s not like Obama has tried to jail corrupt bankers — Corzine, who after raiding segregated accounts is surely up there with the most corrupt guys on Wall Street — has been bundling for Obama as recently as April. Ignore the chickenshit donations. If markets fall significantly between now and November — 1300, 1200, 1100, 1000 — the powers that be on Wall Street want a Romney presidency. After all, it’s not only possible but extremely easy to deliberately crash the market. No S&P crash? They’re happy to stick with Obama.

Forget Sentiment 'Surveys'; Investors' 'Positioning' Has Never Been So Bullish European Credit

While every investor you ask is vehemently concerned about any and every risk and sentiment surveys suggest there is a 'wall of worry' to climb, once again the truth is in the positioning. Based on DTCC data, via Morgan Stanley, investors' net bullish CDS positioning in European investment grade credit has never been higher - having surged recently. Critically, note that that investment grade credit index has a major exposure to European financials. Adding to the reality of positioning and self-deceiving biases of all those so afraid to miss the CB rally or look like fools in the face of momentum, bond markets are even more ebullient (as European bond spreads trade back under CDS spreads) and European credit implied volatility trades below realized vol - an even more unusual occurrence than in VIX currently. It seems the real pain trade is a risk flare in European financials once again - as opposed to all those who 'hear' everyone's bearish.

Bill Gross Takes On Paul Ryan

GROSS: Do bond markets take heart from Ryan selection? Not me. He talks lower deficits but really believes in lower taxes – exact opposite.
— PIMCO (@PIMCO) August 13, 2012

With Both Presidential Candidates Full Of Hot Air, El-Erian Warns Of Populist Anger Returning

As the 'new' normal limps on, PIMCO's Mohamed El-Erian focuses his attention on the political dysfunction that roils the 'new new' normal in an excellent op-ed in Foreign Policy today. The economic and financial system risks breakages that the political system will be increasingly incapable of mending rapidly enough," he opines as he fears sluggishness in economic growth, unacceptably high youth unemployment and long-term joblessness, redoubled debt and deficit concerns, and worsening inequalities between rich and poor leading the US down a path towards Europe's disruption. Sadly, neither Obama nor Romney has yet offered a meaningful, forward-looking economic reform program to address problems such as a malfunctioning labor market, unsustainable public finances, a broken credit system, inadequate infrastructure, and a lagging education system. The warning bells are ringing, and they are ringing loudly. We've already allowed bad economics to lead to bad politics. Now, it's high time to put a stop to the cycle where bad politics undermines an already fragile economy.

LCH Hikes Spain, Italy Margins

Another day, another LCH margin hike on Spanish and Italian bonds. Spanish SPGBs which will have to post more margin beginning tomorrow are all bonds with a maturity between 0.75 and 3.25 years, as well as bonds between 10 and 15 years, as well as all short-term Italian bonds between 3.25 and 7 year, in effect offsetting Draghi's "reverse Twist" house of cards. Expect to see more flattening in the Spanish and Italian 2s10s curve, followed by more promises of imminent action by the ECB, which however, may finally be realizing that for Spain to actually demand a bailout, its 10 years will have to be closer to 10% than to 5%. Finally, if this ratcheting up in asset encumbrance in Europe doesn't send the VIX to single digits nothing will.

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