Obama Begins "Lifestyle Health Modification" Program, Mandating Behavioural Changes Within US SocietySubmitted by Tyler Durden on 06/13/2010 - 15:30
Last week, with little fanfare, among the ever deteriorating oil spill crisis, the White House quietly noted the issuance of an executive order "Establishing the National Prevention, Health Promotion, and Public Health Council", in which the president, citing the “authority vested in me as President by the Constitution and the laws of the United States of America” is now actively engaging in "lifestyle behavior modification" for American citizens that do not exhibit "healthy behavior." At least initially, the 8 main verticals of focus will include: smoking cessation; proper nutrition; appropriate exercise; mental health; behavioral health; sedentary behavior; substance-use disorder; and domestic violence screenings. Eventually we fully anticipate that the program will also target such wholesome activities as screening for precious metal holdings, monthly minimum usage of available revolving credit (and a minimum threshold thereto) and the susceptibility of an individual to stay current on one's mortgage. Additionally, the president will establish yet another Advisory Group, composed of "experts" picked from the public health field, and one which tracks the successful uptake by the US population of the precepts for a better functioning society that the president deems important. Cosmo culture has just been adopted by the White House, where Big Brother is now in the business of counting calories, and soon, your bars of gold.
Now that the market has decisively entered into correction territory, two of the most bullish investment banks around, Goldman and Deutsche Bank, are long overdue for reports that describe just how this event was dully expected and in fact, priced in, and that investors should in now way draw and conclusions about a potential recession emerging from something as innocuous as a recession. Furthermore, the 10%+ pullback is "perfectly normal", and has no impact on either Goldman's 1,250 or DB's 1,375 end of year target for the S&P. And yet, there is a 'but' - both firms now sound far less confident than they did a few short months ago, and the hedging of year end targets has begun (more so at GS than DB). And while Goldman's report is more focused on the European context, and is thus appreciably more bearish, Goldman's tone is far more subdued than Deutsche's, which is understandable: with assets at two thirds of German GDP, and with a government dead set on minimizing bank bailouts for the foreseeable future, the German bank has far less margin for reality than the primary recipient of Hank Paulson's bailout generosity.
Chiswick's (and, of course, Goldman's) very own European permabull, Erik Nielsen, who just like his other N-11 permabullish colleague is sorely lamenting the Hand of Clod, is back to discuss the merits of flying transatlantic coach, the wonderfully sound economic edifice that is Europe, and the "overblown" concerns over the Swiss National Bank building up an FX reserve position that is approaching one half of Swiss GDP. As Erik observes: "now there is someone – appropriately – not worrying about their balance sheet!" - indeed, why worry. When the time to really worry comes, it will be far too late.
After having contracted notably to only -93,325 net short speculative contracts, it appeared that speculators could be loosening their death grip on the EURUSD. The most recent numbers from the CFTC commitments of traders report, however, indicates that after last week, EUR shorts once again piled back in, after the second largest adverse move in EUR sentiment in 2010. -18,620 contracts were added to short positions, the second largest such move in 2010, following only the -28,576 from March 23, resulting in a speculative Euro FX exposure of -111,945 net short contracts: just a fraction higher than the all time low ever seen of -113,890 on May 11. As this data is for the week ended June 8, the late week shakeout in which the EURUSD climbed all the way back to $1.21 is therefore just a case of all the new weak hands getting shaken out, after ambitions of a quick profit did not materialize. We now expect the net short number to once again drop below the -100,000 mark, and for the EURUSD speculative onslaught to continue.
Another sign of the imminent return of the Deutsche Mark comes this weekend courtesy of BoersenNEWS.de, one of the largest German stock market portals. Due to popular demand, the portal has reintroduced quotations in DEM, alongside those in EUR: "Due to the ongoing Euro crisis many investors expect the return of the Deutsche Mark. A recent survey, showed that 39% of 1,364 börsennews.de users, would like the good old Deutsche Mark reintroduced. Börsennews.de has responded and will immediately display share prices in Euro and Deutsche Mark." The commentary on this symbolic switch is enough to indicate just how the majority of Germany feels about this issue: "With the symbolic reinstatement of the Deutsche Mark Börsennews.de is not supporting to the abolition of the Euro, however the desire of many citizens for economic security. One thing is clear, the German Mark represented the economically strong and healthy Germany. The Euro represents a cracked economic system, not only throughout the world, in Europe, but above all in Germany." We couldn't have said it better ourselves. Suddenly, Jim Rickards' observation that Germany and Russia could be very well considering a new gold- and oil-backed currency, does not seem all that very ludicrous to us.In fact, should the two countries indeed be in such deliberations (and for their literal recent proximity , look no further than the seating chart in this year's Mayday parade in Moscow), the end of fiat could be approaching much faster than previously expected.
With daily geopolitical, natural resource and sovereign liquidity crises suddenly becoming the norm, it is easy to get sidetracked from other very important issues, in which, at least until recently, moderate progress had been achieved. Primary among these is the seeming disconnect (at least when compared to other banks such as Bear Stearns and Lehman Brothers) in the preferential treatment of Goldman Sachs. Now that Goldman is a household name, courtesy of a variety of litigation overtures, both in the civil and criminal arena, demonstrated by Goldman's popularity among the broader population, the firm has been kind enough to publicize its "Code of Business Conduct and Ethics" in an attempt to placate the concerned populace, and demonstrate that Goldman has a whopping 4 pages dedicated to promoting legal behavior amongst its nearly 30,000 employees. What confuses us is the placement at the very end of this document of the following section, Waivers of This Code, in which one reads: "From time to time, the firm may waive certain provisions of this Code." In other words, Goldman's activities comply fully with legality until such time that Goldman decides it is in the name of the greater good to "waive" this compliance. We are confused that in light of this glaring loophole, not one question has been asked of Mr. Blankfein as to what specific circumstances have necessitated the invocation of the "ethics waiver", by either executive and non-executive employees: something which none other than former Goldman CEO Hank Paulson recently used in order to pursue the full taxpayer-funded rescue of precisely this firm. Which is why, in the absence of others doing so, we have decided to ask this question directly of Goldman head of PR Lucas van Praag.
BP As Schrodinger's Cat: Simmons Upgrades Firm To Buy, Seeing It As Both Bankrupt And With $52 Stock Price At Same TimeSubmitted by Tyler Durden on 06/12/2010 - 21:15
Ever wonder who may have been buying up every share of BP stock earlier this week, especially when it plunged to 14 year lows on June 9 amid media frenzy based on a Fortune story in which Simmons & Co.'s CEO Matt Simmons was quoted as saying that BP "has about a month before they declare Chapter 11. " Why, Simmons & Co. itself, of course. In a note released to clients on Friday, Simmons & Co, upgraded BP from Neutral to Overweight, in which Mr. Simmons amusingly notes, "the kitchen sink of headlines have been thrown at BP shares over the past 2 weeks, thereby partially desensitizing the shares to the news." With his dire warnings of an imminent bankruptcy just two days prior to the upgrade, Mr. Simmons surely did his fair share to contribute to kitchen sink. It is only fair that after creating a near-panic in the name, that the firm would now suddenly be stuck in a Schrodinger's Cat world, in which BP is seen as both bankrupt, and having a $52 price target at the same time.
Bernanke Says Fed Does Not Engage In Stock Market Or "Individual Stock" Manipulation; Some Loose Ends On FX SwapsSubmitted by Tyler Durden on 06/12/2010 - 20:27
In a response letter sent to Alan Grayson, the Fed chairman has the following brief retort to the question of whether "the Federal Reserve- alone or in concert with the Treasury Department or any part of the government- ever taken any action with the purpose or effect of supporting the stock market or an individual stock": "The Federal Reserve has not intervened to support the stock market or an individual stock." Shocking. And we are confident that the fine people at Liberty 33 just sit all day, twiddling their thumbs now that the Fed is no longer in the MBS and UST monetization business. Furthermore, anyone who reads anything into the fact that the FRBNY is continuously ramping up its hiring of traders, both credit and equity, as posted in assorted public venues, is simply paranoid and does not understand that this is only due to Brian Sack's fascination in being surrounded by 400 traders daily. On the other hand, at this point pretty much everyone is aware of the sad state of FRBNY intervention, whether it is in the FX market or the gold market, and indirectly via the discount window and the repo system, in which banks purchase bonds at auction, using discount window or other zero cost capital, only to repo it back, and to use the proceeds to bid up stocks. Maybe Mr. Grayson can ask the Chairman whether the Fed is actively endorsing primary dealers to bid up risky assets to create the impression that since the market is ramping higher (on no volume, mind you, but who cares) that the economy is doing so as well (we will shortly have something to say that refutes this thesis, compliments of none other than Goldman Sachs). All cynicism aside, Grayson at least still continues to ask the right questions: among these are 1) How does the fed plan on dealing with the $1.7 trillion in MBS on the Fed's balance sheet, 2) Why Greenspan and Bernanke were so wrong in keeping the FF rate for so long, and how does the Chairman plan to reconcile the same bubble creation that blew up the economy last time ZIRP was around, with the deflationary threat to the economy, 3) Why does the Fed think a Tobin tax is bad (and, incidentally, why does the Fed even have an opinion on tax policy), 4) Why is the Fed failing at pushing unemployment lower even with ZIRP and QE, 5) How the Fed is lobbying on behalf of its, and Wall Street's interest, 6) How much gold should the US government own, and many others.
For the soccer fans out there, attached is a World Cup calendar by Marca.com which provides an instant view of every day, match, team, group and stadium. By far the best one stop shop of catching up with everything happening during the tournament. And with that, there is only two hours left until the US-England game...and many, many BP halftime commercials.
David Kostin just does not give up: the seer of seers, prognosticator of prognosticators, A. Joseph Cohen of A. Joseph Cohens is a ruthless long-only pitching machine, and will not relent until ever last single human being is fully invested (and on margin) in the raging bull market. In today's "weekly kickstart" piece, in which he notes that the current investment debate fulcrum is the "tug of war" between a strong micro and weak macro. That the former is just a lagging indicator of the latter, and that now that the stimulus effects are over, and that the micro is about to roll over, for some reason does not cross the economist's mind. In addition, we present another pitchbook by Goldman, "Where to Invest Now- the path to 1250" in which his conclusion is that it is irrelevant where one invests as long as one invests. Biased commentary aside, some pretty charts.
“This is another example of regulatory capture at its worst. It is one thing for Wall Street firms to hire SEC staff for their general knowledge and expertise. It is quite another, however, when the leading high frequency trading firm, Getco, reaches into the SEC’s Division of Trading and Markets and hires a senior official who presumably has been close to, or perhaps substantially involved in, a major ongoing Commission review of a broad range of market structure and high frequency trading issues in the equity markets -- a review that should lead to additional rulemakings that will have a direct bearing on Getco’s trading strategies." - Senator Kaufman
"The role of gold in society was succinctly summed up by J.P. Morgan in 1912 when the renowned financier stated that “Gold is money and nothing else.” Ironically, he made that comment one year before the U.S. Federal Reserve was created. There have been long periods (1980- 2000 being one) when this immutable fact was dismissed. The fact remains, however, that every fiat currency system in history has ended in ruins. Our current experiment seems to be headed down the same disastrous path, thus allowing gold to reemerge as a currency once again. The fundamentals for gold are impeccable, the long term technical picture is exceptional and gold remains very inexpensive when compared to almost every other alternative. I expect gold to trade at several multiples of the current price before this bull market breathes its last breath." John Embry, Sprott Asset Management
Oil prices were lower on Friday as traders continued all day to brood over retail sales figures. It showed an unexpected decline and Capital Economics said about it, “The sharp 1.2 m/m decline in US retail sales in May dramatically weakens the outlook for consumption growth in the second quarter … “ As is typically the case, Capital Economics (CE) got it right and the market responded accordingly. Traders also saw these figures as a sign that the consumer is in pain and that retail sales have suffered as employment has failed to gain any real traction. CE went on to note the potentially negative impact of lower retail sales on future GDP. It noted, “… real consumption in the second quarter as a whole may grow at an annualized rate of less than 2.0%, down from 3.5% in the first.” It suggested that a previous growth outlook of 4% now seems “very challenging.” And it added, “…these data suggest 3.0% now looks more plausible.” For a major economic think tank to reduce its GDP forecast by 1% is hardly usual, but that seems to have been their message. This report was unexpected and changes the picture rather significantly.
Spreads were mixed this week with indices modestly tighter but intrinsics notable wider as our view of the overlay unwinds into idiosyncratic derisking appears to be playing out in cash and synthetic credit. Europe outperformed US this week with help broadly from FINLs and Sovereigns but the same theme of underlying name underperformance against index outperformance was evident everywhere (especially at the HY/XOver end of the credit spectrum). Watch this week for further bond underperformance and/or skew compression - there is much more going on down here in the weeds than is evident at the aggregate levels and we suspect sooner rather than later this sentiment will spread back up to the indices (and the realities of short- and longer-term funding markets).