Overnight-In to the open

We started off the afterhours session with a GOOG beat, but a dividend that's not really a dividend, but a 2:1 share split for new GOOG non-voting shares that will carry a new ticker. I can't say it hasn't happened before, I'm just not aware of it. I don't see how this is good for GOOG in the long run.

Next up, ES moved up well and saw a little bump as the North Korean rocket fell in to the sea. I do wonder whether all of the deployed Patriot batteries and Aegis anti-missile destroyers, whether Japanese or South Korean had anything to do with the failure or if North Korea will use the two countries as a scapegoat for the failure.

Shortly thereafter as reported last night, Chinese GDP missed, coming in at 8.1 rather than 8.4 with the whisper number being a ridiculous 9.0! I didn't think too much about the China GDP before the number came out because the country's political system is so corrupt that it's hard to trust any economic data coming out of China, which again makes me wonder if the number was actually much worse then the reported 8.1. There have been report of power grabs, attempted coups and uprisings, all sources reporting such have been shut down. China is parciluar in their human rights record, yet their greatest and most feared enemy are the Chinese population themselves. Food inflation is running high, there's a housing bust, and when I do think about what the real Chinese GDP, I merely look at commodities and that tells me all I need to know; it isn't pretty.

Speaking of which, I'm glad I sold my USO calls yesterday upon the first sign of a negative divergence, looking to perhaps re-enter the at a lower price as the Chinese GDP did not help oil's gains overnight; USO is set to open lower.

Moving right along to Europe, the mood there is sour as I predicted weeks ago after months of quiet on the E.U front. We all know that nothing is fixed in the EU and it likely can't be fixed. Greece has a sticky thorn in the side of the EU, the real danger is and has always been Spain, where overnight a report was released showing Spanish bank borrowing from the ECB jumped by 75 bn Euro in one month, this happened last Friday as the market was closed on the NFP print in Italy too, the same amount $75 billion. It's more than obvious that the EU banking sector, particularly in the PIIGS countries in is grave danger.-$75 BILLION in 1 month! For perspective, these are the highest ever month-to month borrowing from the ECB. Yields on 10 year Spanish paper jumped on the report to 5.92%, 6% is the number that sent Greece looking for its first bailout as the yields at that rate are unsustainable. The problem is the EU does not have the "Bazooka" as it has come to be known, to save Spain should they falter. Yields in Italy which have been above 6% in the past and had dropped considerably after the ECB's LTRO are now on the rise again and hit 5.47% overnight.

To make matters worse, news has broken that the ECB is looking to support countries' yields directly through the secondary market rather than lend to banks. It's a reasonable plan from the ECB as LTRO money has not been used to support yields as the ECB had hoped, so they may be cutting off the lifeline that is keeping EU banks alive.Look for absolute carnage in the EU banking sector, not that it hasn't already been underway for the last several weeks.

In the US, JPM beat on headline earnings, however look under the sheets and it's not as pretty as the headline beat would have us assume. The beat can be largely attributed to reduced loan loss reserves and a bevy of one time charge offs-a simple accounting trick banks use to pump up the bottom line, at the same time JPM saw its first increase in non-performing loans in years. How the reduced loan loss reserves squares with a rise in non-performing loans, well there's simply no good answer other than JPM wanted or needed a beat; probably after having issued the recent dividend which in retrospect might look a little irresponsible considering the rising non-performing loans.

This mornings's US CPI looked like this...

Released On 4/13/2012 8:30:00 AM For Mar, 2012

Prior Consensus Consensus Range Actual CPI - M/M change 0.4 % 0.3 % 0.1 % to 0.5 % 0.3 % CPI - Y/Y change 2.9 % CPI less food & energy 0.1 % 0.2 % 0.1 % to 0.2 % 0.2 % CPI less food & energy - Y/Y change 2.3 %

There were no big surprises there, however as noted in the report,

"The indexes for food, energy, and all items less food and energy all increased in March. The gasoline index continued to rise, more than offsetting a decline in the household energy index and leading to a 0.9 percent increase in the energy index. The food index rose 0.2 percent as the index for meats, poultry, fish, and eggs increased notably. The index for all items less food and energy rose 0.2 percent in March after increasing 0.1 percent in February. Most of the major components increased in March, with the indexes for shelter and used cars and trucks accounting for about half the total increase for all items less food and energy. The indexes for medical care, apparel, recreation, new vehicles, and airline fares increased as well, while the indexes for tobacco and household furnishings and operations were among the few to decline in March." 


In other words, CPI looks o.k. if you don't count food and energy, the two things we use every single day. ES bumped up a bit on the report.


The overall decline in ES looks worse than it is at least from yesterday's close.

From the overnight highs, the decline looks fairly substantial, but ES closed at 4:00 p.m. yesterday at $1382.75 , so from the NY close, a loss of about 3.5 points. The market will gap a bit lower, but not horribly so. 


As usual, we'll be on the lookout for signs of the reversal to start moving in to short positions.