In an interview with the FT, Pimco's Bill Gross flatly warned the government, in advance the housing finance conference that will begin deciding the fate of the GSEs next Tuesday, that unless Fannie and Freddie bonds retain their government guarantees, he would cease purchasing GSE debt. On the other hand, Gross may have overplayed his card: he already took the government for the proverbial ride, loading up the flagship TRS fund with GSE debt in early 2009 and riding the surge higher for the entire year, then selling virtually everything: TRS has just 16% of its $234 billion in AUM in mortgage securities as per the latest Pimco Fund update. Nonetheless, the Newport Beach bond pundit's warning is a clear shot across the bow indicating just who is the primary force in GSE decision-making, right after the Treserve.
Gold opened Wednesday’s trading at $1202.8 per 100 troy ounces. While it rallied as high as 1208, the metal could not sustain these gains and fell below 1200 again, closing out the day at 1197.5. Today, August gold was up 5.6 to $1202.4 per 100 troy ounces as of 8:21 AM EST, this morning. The September U.S. dollar index was up .806 to 81.730. October platinum was up 2.3 to $1539.3 per 50 troy ounces. Silver was up 5.2 cents to 18.210. Yesterday Goldman Sachs released its latest commodity recommendation. It is calling for Gold to touch $1300 by year end. The report is pretty sparse in comparison to some of the other serious research we have read from Tudor, Barclay’s and other banks. But that does not mean it is wrong. It means that Goldman has its finger on the pulse and think a tipping point may be near, fundamental, structural, cash flow or otherwise. So they are putting out a red herring. Here it is in the nutshell.
Jobless Claims Deterioration Continues - Print At 484K Versus Expectation Of 465K, Prior Revised To 482KSubmitted by Tyler Durden on 08/12/2010 - 07:31
Continuing claims improved marginally to 4,452MM from 4,535MM expected (previous revised to 4,570), but much of the volatility in this series is due to transitions into EUC and Extended Claims. The one main indicator, initial claims, continues to deteriorate and will soon pass the 500,000 mark which will be the final confirmation the US never left the depression but merely enjoyed an 18 month sugar high courtesy of tens of trillions in incremental debt. And here come the jobless who had fallen off insurance rolls: EUCs surged to 4,493,351: an increase of over 1.15 million! Add the Extended Claims jump of 180K, and those on total extended rolls jumped by 1.3 million in one week. These are votes that surely would not have gone for administration come November if their subsidies had not been returned.
- Former St. Louis Fed president: Say Goodbye to Fannie and Freddie (NYT)
- China PLA warns U.S. over fresh military drill in region (Reuters)
- Debts Rise, and Go Unpaid, as Bust Erodes Home Equity (NYT)
- Spanish Crisis Threatens Second Front as Catalonia Rates Rise (Bloomberg)
- China Shows Further Signs Of Slowing (FT)
- Foreclosure Crisis Spreads Across U.S. as Idaho Defaults Mount (Bloomberg)
- The great false choice, stimulus or austerity (FT)
- The Rubin Con Goes On (The Nation)
- Thousands Crowd Housing Authority For Section 8 WAITING LIST, Fights Break Out (HuffPost)
- Australian Employment Growth Cools, Pushing Jobless Rate Higher (Bloomberg)
- Bank of England lowers UK's GDP growth outlook. Stirs speculation of more intervention.
- Buyers' Credit helped home prices rise in two-thirds of U.S. metropolitan areas in Q2.
- IEA warns of Gulf spill effect on new oil supplies.
- India looks to shake up its banks; Central bank reviews banking ownership rules.
- US trade gap swells to 21-month high; deficit with China more than half of total.
- Advance Auto beats by $0.13, posts Q2 EPS of $1.16. Revs up 7.2% at $1.42B. Plans $300M share repurchase program.
- AIG to sell 80% of its money-losing consumer-lending business to Fortress Investment.
Euribor Declines As Euro Extends Slide To 100 DMA, Europe Poised On Verge Of Relapse Into Full-Blown Crisis ModeSubmitted by Tyler Durden on 08/12/2010 - 07:06
The most stable correlation in recent months continues to persist with the EUR dropping further earlier today to a fresh 3 week low, on more bad news out of Europe, yet coupled with a decline in interbank rates. The EURUSD printed at 1.2811, mere pips away from the 1.2800 100DMA (at the same time as the EURCHF plunged to below 1.36 after hitting a high over 1.38 yesterday). As expected, this has led to a decline in the Euribor rate, whose fixing came at 0.899% (3 Month), versus 0.903% previously. Both 1 Week and 6 Month Euribor also declined. The ongoing macro weakness in Europe is predicated on two big macro events: the confusion surrounding Slovakia's refusal to participate in a Greek bailout, as well as rumors of another round of ECB purchases in the Irish 6 and 9-month (€0.5 Billion each) T-Bill auctions, which priced at 2.458% (previous 1.367%) and 2.81% (previous 1.800%), respectively. The Bid To Cover was 3.6 and 3.1, versus 2.8 and 3.4 previously. Further underscoring Europe's own relapse into a PIGGSy inferno, was Greece's announcement of May unemployment at 12%, versus 9.5% last year, but more relevantly, the country's GDP declined more than expected, coming in at -3.5% from last year, on expectations of -3.3%, and a 1.5% QoQ (-1.0% exp). They should just wait to see what happens when all the strikes are factored in. All in all, it should prove to be another interesting session.
After having declined for 4 months in a row, July foreclosure activity once again took a leg up, increasing by 4% from the prior month to 325,229 in July according to RealtyTrac. There was deterioration across all three foreclosures categories: default notices, foreclosures auctions and bank repossessions (REO). “July marked the 17th consecutive month with a foreclosure activity total exceeding 300,000,” said James J. Saccacio, chief executive officer of RealtyTrac. “Declines in new default notices, which were down on a year-over-year basis for the sixth straight month in July, have been offset by near-record levels of bank repossessions, which increased on a year-over-year basis for the eighth straight month.” Of note is the ongoing increase in bank repossessions as banks seems increasingly less motivated to put foreclosed properties in auctions lists. Per RealtyTrac: "Lenders foreclosed on 92,858 U.S. properties in July, a 9 percent increase from the previous month and a 6 percent increase from July 2009. July’s bank repossession (REO) total was the second highest monthly total since RealtyTrac began tracking REO activity in April 2005 and was 1 percent below the monthly REO activity peak of 93,777 in May 2010."
RANsquawk European Morning Briefing - Stocks, Bonds, FX etc. – 12/08/10
Goldman dedicates 9 pages to a regime change in which it goes openly bullish on gold. The report is attached, which we present without commentary but as always, if there is one flashing red light saying the peak price for any asset has been hit, it is a Strong Buy signal by Goldman. The report will likely result in a brief pop in spot over the next 24 hours as the idiot money rushes into the latest Goldman trap. Alas, it also means that GS is now offloading. Be very wary of market dynamics over the next month.
TrimTabs does a simple yet elegant analysis that seeks to explain why US final demand is not only sluggish but declining, and is ultimately the reason why the US government needs to consistently pump more and more capital in the economy to keep GDP at best flat. TrimTabs focuses on the "consumer spendables" indicator - It consists of the sum of three components: 1. After-tax income from wages and salaries; 2. After-tax income from non-wage sources, such as capital gains, dividends, and interest; 3. Cash harvested from home equity when mortgages are refinanced. As TrimTabs shows, and this should come as a surprise to nobody, "much of the economic growth in the middle of the previous decade was fueled by an explosion of consumer debt. Consumers treated their homes like automatic teller machines—cash-out refinancings topped out at $804 billion in the four quarters ended in Q2 2006—and they borrowed freely on low-rate auto loans and credit cards given to almost anyone who could fog a mirror. Now that the era of easy consumer credit is over, the economy is resetting to a lower level of activity. We believe the interventions of the Fed and the government to try to head off this adjustment will do more harm in the long run than the adjustment itself." In other words the ongoing debate on whether the US is undergoing inflation or deflation is moot - the primary driver continues to be deleveraging, as Rick Santelli likes to shout on occasion. And all the other monetary phenomena are merely a side-effect. Alas, as long as deleveraging is the primary driver in the economy, nothing else matters: it has long been our contention that deleveraging must run its course. However, the Fed will not let that happen, and in doing so, it will attempt the last thing in its arsenal - in essence, suicide the economy, by destroying all faith in the actual medium of monetary exchange. At that point inflation, deflation and/or stagflation will be the last thing on anyone's mind.
Our expected economic groupthink revision by the sellside "strategists" is accelerating, as now even permabullish CNBC permaguest Joe LaVorgna "takes the knife" to his Q2 GDP estiamte. Yet despite presumably seeing the light, he only cuts Q3 and Q4 estiamtes to 3.0% and 3.3%, still hundreds of bps higher than Goldman, and even worse when compared to reality. David Bianco and his stratospheric GDP will stick out like a speedoless nudist in the middle of the liquidity ocean when the economic tide finally goes out. Luckily, Bianco has no credibility to begin with so the concept of discrediting surely does not apply.
As we pointed out earlier today, today's latest deterioration in yet another overoptimistic assumption by the BEA, in the form of the balance of trade, means that the next GDP revision will likely be sub 1%, and may ostensibly drop to negative, confirming that the double dip, at least for NBER purposes, started sometime between April and June. Confirming our skepticism is JPM's Michael Feroli who now believes that real Q2 GDP is trending at a 1.1% rate, less than half the official 2.4%, which, as readers will recall was expected by a battery of Ph.D.-clad optimists to come out to 2.7%. Less than two weeks after the announcement, it becomes clear that the world's "smartest" economists were off by 60%. And we are confident this is not the end of the downward revisions.
Cisco misses and stock drops 5%. In the meantime, futures are now plumbing the day's lows after hours. And the most troubling development from CSCO, worse than the top line miss, is the catch courtesy of Bloomberg's Adam Johnson that Days Sales Outstanding surge from 27 to 41 days. Customers incrasingly refuse to pay on time. We wonder how that will be spun favorably.
Another day, another desperate attempt by GE's propaganda branch to keep its viewers disconnected with reality. Case in point: Bob Pisani, who has now said about 100 times that "volume was very low, no bids were hit, etc, etc." The truth: yes to the latter, and a blatant lie on the former. Exhibit A is below, where you can see that today's ES volume was the highest in 40 days! Maybe CNBC can hire an expert and analyze the chart below and advise us what it uses as the source for its lies, pardon, information.