May 28. All aboard the pain train
–The decline in premium levels continues in dollars, with heavy selling of Short (red) Dec and March puts. One week ago 0EZ 9912^ was 37.5, shortly after yesterday’s open it was 34/35 but settled 35. As Izzy Mandelbaum would say, “All aboard the pain train”…(from FT) Citi warns trading revenue may fall 25%…RBS slashes US mortgage business. More cuts would appear to be looming. We’ll find all the Mandelbaums in hospital beds when things really start to unravel and the press bemoans the lack of liquidity.
–At the same, time stocks are levitating to new highs (ZH reports that company share buybacks are near record $160b in Q1, representing the biggest buyers), and corporate debt is reaching new highs, in large measure to fund said buybacks, while the WSJ runs this story: New Stars Ride Junk Bonds to Top. Never mind junk bonds, the 30 yr UST has gone from 3.97 to 3.36 this year. To the untrained eye, it seems that our current run to a permanently high plateau is being fueled by the substitution of debt for equity, and the illusion of liquidity.
–Precious metals were hit yesterday with gold down $26 to 1267, lowest since mid-Feb. The dollar index has strengthened, also to a level from mid-Feb and has now closed just above its 200 day moving avg. The Chinese yuan is making a new run for recent lows (6.255 this am).
–While some companies are simply issuing debt to buy shares, Amazon is investing in traditional capital expenditure, ramping up use of robots in its warehouses from 1000 to 10000. Probably not good for wage growth…http://www.geekwire.com/2014/amazon-will-10000-robots-warehouses-years-end-10-fold-bezos-says/ Also, data on total miles driven in the US has shown a small increase, but on a population adjusted basis, miles driven are down 9.3% from the high in June 2005 and back to the level from Dec 1994! http://advisorperspectives.com/dshort/updates/DOT-Miles-Driven.php Can we really continue expect auto companies to move 16 million units a year?
