Technically, the USDJPY still has about an hour left of trading, but we will call it early: the dollar yen has closed at the all time lowest level in history. Next week the USDJPY will likely be well beneath 80, especially after the QE2 announcement on Wednesday. At least Japanese exporters are happy that in FX adjusted terms US importers now have the least incentive to buy Japanese TVs and other irrelevant stuff soon to be found all over US landfills.
Will The $426 Billion "Second Lien Monster" Require A New Marshall Plan For Housing? Reuters Special Report On FraudclosureSubmitted by Tyler Durden on 10/29/2010 - 16:40
Reuters' Matt Goldstein has completed a special report on foreclosure fraud, asking rhetorically: "foreclosures are rising; lawsuits are flying; banks are beleaguered; there has to be a better way?" Goldstein looks at fraudclosure from the perspective of the fight between junior and senior liens, a topic Zero Hedge discussed a month ago (The Foreclosure Mess MBS Hate Triangle Emerges: Junior Versus Senior Bondholders Versus Servicers) highlighting that $426 billion in loans are second lien, and, as highlighted previously, sit on the balance sheets of BofA, JPM, Wells and Citi in the biggest circle jerk in this whole mortgage crisis fiasco (always remember: one TBTF's mismarked assets always end up being another TBTF's unfudgeable liabilities). As the chart below shows, the banks have no choice but to come up with a compromise: obstinately keeping their heads in the sand is a guaranteed way for the entire financial system to blow up.
John Taylor, who has not made any friends at the administration with his recent comparison of Ben Bernanke to Hitler, has released his latest letter whose purpose is to disabuse what Traxis flip flopper extraordinaire Barton Biggs (or rather is praying, due to his high single digit negative YTD P&L), as well as many others believe, will be a 10% boom in stocks prices following November 3. Wrong. As this whole rally has been liquidity driven, all that will take to reverse it, is for someone to step between the Chairman and his favorite Hewlett Packard. That someone: anti-Fed crusader Ron Paul, who will see this as his last mandate (and chance) to leave a memorable mark on the Fed's modus operandi: "After the Republican victory things will change. The Fed will be
hamstrung, as Ron Paul, a conservative standard-bearer and harsh critic
of the Fed, will head the sub-committee overseeing its actions.
Liquidity expansion or new programs will probably drop sharply under his
watch. Paul would argue that the Fed’s unfettered ability to “debase” the currency is about to come to an end" Which is why all those who believe "more of the same" will continue indefinitely, may be wise to hedge their bets. Taylor also looks at the game theory between the Fed and the ECB: "As the US authorities turn to a tighter monetary and fiscal policy,
driving the country into a recession, causing the US and its banking
system to withdraw liquidity forcing the dollar higher, the ECB will be
forced to be more accommodative. Our analysis argues that the month of
November will see the flash point that begins to reverse the markets’
Somehow, CLSA's Chris Wood is always correct in the end. The only prediction where he has been wrong, for now, is in his $3,400 gold price target by the end of 2010 (which was set back in 2002). But have no fear: as he explains "There is some surprise here that gold has not already gone higher given
everything that has been going on and given Billyboy’s evident
willingness to keep interest rates at zero for a long period. That gold
is not higher shows that the consensus has not yet appreciated that the
real reason to own gold is not “inflation” but rather the growing risk
that the endgame of the present policy response is the collapse of the
Western fiat paper system." And considering that there is a trader meme going around that every fake bomb is equal to $100 billion in QE, and we are up to something like 8 or 9, not to mention that the T(eleprompter)OTUS is about to make a speech post market close, the dollar is almost certainly about to get the Friendo treatment by the chairman.
One of Goldman's better technical analysts, John Noyce, has released his latest edition of the Charts that Matter. Among these, the most interesting one is that of the 10 Year, which is relevant since in about 48 hours the entire treasury curve could either flatten and tighten by 50+ bps... or widen by double that. Noyce's prediction that based on the break in the 10 Year yield channel, one could "make a case for significantly higher levels", will certainly be put to the test next week. It is Zero Hedge's conviction that the 10 Year will, unfortunately, tighten aggressively post any QE overtures, once it is made clear that the Fed will not allow rates to go up... ever... dollar be damned.
The President was notified of a potential terrorist threat on Thursday night at 10:35, by John Brennan, Assistant to the President for Homeland Security and Counter-terrorism. The President directed U.S. intelligence and law enforcement agencies, and the Department of Homeland Security, to take steps to ensure the safety and security of the American people, and to determine whether these threats are a part of any additional terrorist plotting. The President has received regular updates from his national security team since he was alerted to the threat.
Months of total quiet on the geopolitical front, and then we have bomb threats, a French aircraft carrier joining the US fleet in the Persian Gulf (we have no idea where it will fit), evacuated cars, and now Korean gunfire. Only thing missing is a mushroom cloud (either real or holographic) emanating from one of Iran's nuclear power plants.
Rosenberg Agrees With Goldman: Sees Inventory Surge As Precursor To Negative Q4 GDP Print, "Double Dip Delayed, Not Derailed"Submitted by Tyler Durden on 10/29/2010 - 12:35
Eerlier we pointed out that Goldman anticipated that a surge in the inventory number (which it did, coming at $115.5 billion compared to Goldman expectations of a sub $100 billion change), would simply lead to even more Cash 4 Clunker like forward performance pull, resulting in a collapse in the quarter in which inventory clearances finally took place. It seems the quarter in question is the current one. Indeed, various channel checks have confirmed that inventory levels at assorted businesses have been trimmed aggressively into the year end, and it is not unfeasible that we could see a $30-40 billion drop in inventory levels in Q4. Problem with that is, it will result in a negative GDP print due to the high marginal impact of a swing as seemingly small as the anticipated. Here is Rosie's explanation for why the government can play timing tricks all it wants but at the end of the day, it is inevitable that the economy is now contracting. How long before it is officially disclosed is at this point far more of a political issue than an economic one.
How GE Paid A Total Of $5 Billion In Domestic Taxes Between 2002 And 2009 On $639 Billion In Domestic RevenuesSubmitted by Tyler Durden on 10/29/2010 - 12:18
One of the more popular topics recently is the collapse in corporate tax revenues, and the resultant push by the administration to ramp up taxation at the corporate level. As Zero Hedge has been disclosing for two months now, it all has to do with the now discredited concept of the "wall of money", which is mostly accumulated offshore and is thus not only available domestically, but is not taxed by the US. However, one company which has somehow managed to slip through the cracks is the infamous General Electric: the company, that in addition to the banks, has been the biggest beneficiary of Obama's taxpayer largesse. Here are the numbers: in the period between 1991 and 2009 GE's pretax income is cumulatively $293 billion on which however the firm has paid only $25.2 billion in current domestic taxes, or a 8.58% cumulative tax rate. Yet where it gets wild is the narrower period between 2002 and 2009, during which timeframe the firm made a generous $164.4 billion in pretax net income (not to mention $639 billion in domestic revenue, just over half of total revenues of $1.2 trillion) it paid only $5 billion in domestic current taxes, or a 3.17% tax rate! So our question to the administration is how does $639 billion in domestic revenue, and $164 billion in total net income, result in $5 billion in taxes? Perhaps if the desperately broke administration is so concerned about refilling its empty coffers, it should first of all look at the most profitable (presumably) company in America... And perhaps CNBC can share some coverage on the topic of its parent company's taxation strategy.
UPS Cargo Flight From Yemen To Chicago Stopped In London, Found To Contain Ink Toner Cartridge Converted To Bomb, Two Other Bomb ScaresSubmitted by Tyler Durden on 10/29/2010 - 11:35
Update: Officials are concerned passenger flights presently in the air have bombs on them now; Multiple Flights with multiple bombs apparently, just headlines for now.
In addition to a UPS cargo flight from Yemen to Chicago being diverted to London after a bomb was found in a converted ink cartrige, CNN reports of two other planes being checked for explosives, one landing in Philadelphia, and one in New Ark. Was Cashin's prediction earlier of increased terror alerts ahead of Halloween correct? It is unclear as of yet whether the Yemen cartridge was to be delivered to the temporarily empty printer at the Marriner Eccles building.
With the bogey of a minimum QE announcement of $100 billion a month, leading to an in kind purchase of Treasurys, in addition to $30 billion a month from MBS Refis courtesy of QE Lite, a very likely announcement during next week's FOMC meeting, that nobody is talking about, is that the Fed may raise the existing 35% SOMA limit, or abolish it altogether, due to the imminent ceiling hit of purchasable CUSIPs. As a result, as Morgan Stanley suggests, possibly the most profitable Fed frontrunning trade if one wishes to bet on consensus QE, is to buy SOMA excluded CUSIPs as these will be telegraphed to be next in line to be monetized. Of course, in the apocryphal scenario that the Fed disappoints the market and decides to announce a less than $100 billion a month, or, gasp, nothing at all, MS' Igor Cashyn expects a complete bloodbath in rates (and most certainly in risk assets). Then again, the probability of the Fed doing the right and/or prudent thing ever is nil, so we would focus on buying out of favor SOMA issues, because as Morgan Stanley reports: "Net, we like buying what the Fed is buying."And how could one not: after all Morgan Stanley announces that in 2011 net Treasury issuance net of Fed Purchases will be zero!
UMichigan Consumer Confidence Misses, Comes At 67.7 On Expectations Of 68.2, New 2010 Low, As Expectations PlummetSubmitted by Tyler Durden on 10/29/2010 - 10:01
And with that the economic data barrage for the day is over and we can enjoy the calm before next week's storm: UMich consumer confidence comes at 67.7, missing expectations of a slight pick up to the prior 67.9. But what is most important is that the Hopium is finally wearing off: the Expectations component came at 61.9a large miss to both consensus and previous. Traditionally the "hope" component of confidence is what had consumers going. Not so much anymore. And indeed, the Conditions component rose from both expectations of 73.5 and the previous print of 73 to 76.6. Consumers no longer have much confidence in the future. Additionally, both 1 and 5 Year inflation expectations rose, to 2.7% and 2.8% respectively. Is the Fed succeeding in raising inflation expectations.
Chicago PMI comes at 60.6, beats expectations of 58, and an improvement of last month's 60.4. Shares take a step down as traders, like good Pavlovian dogs, have learned that good news is bad. Nothing too notable within the index itself except for Prices Paid which sure from 55 to 68.9.
Veteran PM expert, Sprott's John Embry, whose observations on the lack of a bubble in precious metals we posted recently, and which came just before the CFTC's own disclosure that there may be extensive manipulation in the silver market, as well as a lawsuit filed against JPM and HSBC for silver price manipulation, shares his latest thoughts with Eric King in a traditionally contrarian insightful interview. In a nutshell, Embry is confident the current Fed policy will lead to hyperinflation, and that he would not be surprised if silver hit $50 within the next few months.
Q3 growth in line with consensus expectations-but slightly higher than ours due to faster-than-expected inventory accumulation. Growth in real final sales was a touch weaker than expected, due mainly to another large trade drag. Consumption growth was healthy, though slower than we thought, while federal government outlays and business fixed investment (mainly construction) were higher. Meanwhile, moderation in employment costs reflects budget pressures of state and local sector.