January 14, 2013 Update

DJIA:13,488 NASDAQ:3,125 10-YR TRS: 13/32 yield 1.871% Oil:$93.56 EURO:$1.3343 YEN:89.19

Micro

• Apple (NASDAQ: AAPL) is trading down -3.4% premarket after the company reporter weaker-than-expected demand for the iPhone 5, which has caused Apple to cut component orders.
• The Detroit Auto Show begins today, but GM (NYSE: GM) has already introduced its recently developed Chevrolet Corvette Stingray sports car; which is a lightweight version of the original with improved fuel efficiency. 
• Transocean’s (NYSE: RIG) management could potentially be facing a shake-up after Carl Icahn acquired a 1.56% stake and is waiting regulatory approval to acquire stock worth over $682.1M (which would boost his position in RIG to 5%).
• Japan’s government is investigating Japan Airlines Boeing (NYSE: BA) 787 after two separate incidents of value-related fuel leaks (the second of which occurred today).  
• The European Commission told UPS (NYSE: UPS) that it is working on a decision that would block the company’s €5.2B acquisition of the Dutch rival company TNT Express. If this plan goes into operation, UPS will be required to pay a  €200M termination fee and have to withdraw the offer.
• Crude oil futures trading rose $0.63 to $94.62 a barrel in electronic trading.
• Gold futures are trading up $7.90 to $1,668.50 an ounce. 

Macro

• SPZ: trading in a tight spread as investors wait for earnings releases from major banks and a speech from Bernanke. 
• Asian Markets: the Chinese stock market is the biggest winner trading up more than 3% after an announcement from regulators that it will soon be easier for foreigners to access the equity markets.
• European Markets: mostly in the green with French banks in the lead because of a broker upgrade. 
• The Czech National Bank has sufficient funds to prevent unwanted firming of its currency, and may actually intervene in forex markets within the next six months.
• According to Guo Shuqing, the chairman of the China Securities Regulatory Commission, China could boost quotas for foreign investment in its own capital markers by 9-10 times. 
• Industrial production for November in the Eurozone is down -0.3% from October’s decline of 1%. On an annual basis, November saw a -3.7% decline vs October’s 3.3%. Output fell in sixteen countries and rose in five. Lithuania, Estonia, and Malta are the healthiest countries compared to Italy who suffered a -7.6% decline. 

The Irony of Financial Regulation

U.S. politicians tacked on the role of regulatory sticklers after succumbing to taxpayer bailouts of 2008's sub-prime mortgage crisis. While these power-hungry legislators continue to pass laws trying to tame risk in the normal banking system, the unregulated shadow banking system is growing at a faster rate than the system they are trying to control. The investors that are looking to increase leverage and reach for yields have chosen to conduct their investment activities in this less regulated system. By focusing on taxpayers’ demands, law makers have created a huge regulatory arbitrage that investors find more profitable. Yet, the shadow banking system was not bailed out by taxpayers. Therefore, it is harder, if not impossible, to properly regulate. This would not be a problem if investors were not using similar investment techniques that caused the 2008 crisis to achieve a higher a rate of return in the unregulated market. If the $67T SBS market fails, the government cannot afford to bail it out- which is why looser fiscal policies is crucial to attract market participants to invest in the normal banking system. Our elected officials are focusing on fabricating strict financial regulation, which is ironic because it is resulting in a growth of the unregulated SBS which could lead to another crisis.