The Treasury's Borrowing Advisory Committee, chaired by such luminaries as JPMorgan and Goldman Sachs, which according to some (and by some we mean anyone who cares about such things) is the brains behind the decision-making process of US debt issuance has released its quarterly minutes, in which it has issued one of the most stark warnings about the fate of the US Dollar to date. While it is now a daily occurrence for China and Russia to bash the dollar, for the most part still powerless to provide an alternative (but rapidly gaining), the same warning coming from Jamie and Lloyd has to be taken far, far more seriously. Which is precisely what happened today. As Bloomberg reports, "The Treasury Borrowing Advisory Committee... said the outperformance of haven currencies and those from emerging nations has aided in the debasement of the dollar’s reserve status, according to comments included in discussion charts presented ahead of the quarterly refunding. The Treasury published the documents today. “The idea of a reserve currency is that it is built on strength, not typically that it is ‘best among poor choices’,” page 35 of the presentation made by one committee member said. “The fact that there are not currently viable alternatives to the U.S. dollar is a hollow victory and perhaps portends a deteriorating fate.”"
As always happens, about a week after Goldman telegraphs the need for QE3, which they did last Friday, the WSJ's Fed mouthpiece Jon Hilsenrath reaches out to the media and proceeds to give the secret QE handshake. Now in its third iteration. In an "exclusive" interview with the Fed's last tree monetary affairs committee, Donald Kohn, Vince Reinhart and Brian Matigan, Hilsenrath observes that according to these masters of the universe the chance of another recession is 20-40%, which we are confident is a given at 100%, but more importantly, he quotes Don Kohn who "said the Fed still has some options to support the economy, but "they're kind of limited." He said he expects the central bank, which holds a policy meeting Aug. 9, to wait and see whether the recovery is really losing steam before taking any action. If that's the case--and inflation is coming down--then he would give "very serious consideration" to a new round of bond purchases, he said." Well, the 30 Year is at 2011 lows, TIPS are screeching, and stocks are plunging: all indications that the market anticipates deflation. Looks like the only wildcard is whether the FOMC will determine next Tuesday that the economy has slowed down. Which it has. We believe the August 9 statement will be very interesting to most, and will result in some quite serious market volatility, as ever more are pricing in hints of an imminent resumption of LSAP or, in the least, Operation Twist with the confirmation likely to come at this year's Jackson Hole meeting, as we predicted back in April.
Volume Surges, 63% Above Average, On Way To Hit 1 Year High, 3 Days Away From All Time Longest Consecutive Down Day RecordSubmitted by Tyler Durden on 08/03/2011 - 12:06
For all those lamenting the disappearance of stock trading volume in 2011, that would be Goldman Sachs first and foremost if only one of the stocks sold off the most wasn't GS, today you get a reprieve. In anticipation of a 9-th consecutive down day, which will be the longest losing streak since 1978, composite trading volume through 1:00 pm is about 63% above the 30 day moving average, and 30% higher through this time yesterday. Run-rating today's volume over the remaining three hours of trading would imply a whopping 12 billion shares, which would be the highest since June 25, 2010, when 13.9 billion shares traded (the catalyst being the Congressional watering down of the financial reform bill; this time the catalyst is the ending of the Ponzi). Incidentally, the longest losing streak in US markets history is 12 days, recorded in both 1941 and 1968. This means we are just three more days of Eurocontagion from making history.
As if we needed another confirmation that the US consumer is running on empty, here comes Bloomberg with valuable disclosure from an internal, and supposedly confidential, Wal-Mart memo on store traffic patterns which indicate that in US store locations open for at least a year have seen a 2.6% drop in traffic in the February to June period compared to a year earlier. While this may not sound huge, keep in mind the company is massively leveraged to even the smallest marginal moves in traffic, courtesy of already razor thin margins. Specificall, the Wal-Mart stores in question had "82.8 million fewer visits through the first five months of the company’s fiscal year." More than anything this is an indication of just how exhausted the US consumer is becoming if even the most beloved, widespread and cheapest option for purchases is now being shunned outright. Bloomberg continues: "Wal-Mart’s plan to recapture customers by returning thousands of products to U.S. store shelves has failed to reverse a decline in foot traffic at the world’s largest retailer, said Jeff Stinson, an analyst at Cleveland Research Co. That’s primarily because Wal-Mart’s core low-income customers are shopping less and going to other retailers more often, according to two recent shopper surveys." This should not come as a surprise to anyone, since frequent Zero Hedge readers will recall the post in which the CEO of Wal Mart America said that "shoppers are running out of money"; and there is no sign of a recovery." When it comes to marginal traffic, it appears shoppers have just run out of money. And that includes those who no longer pay their mortgage and pay for everything with their now well maxed out credit cards.
The case for "buying and holding" stocks boils down to four words: don't fight the Fed. Forget moral hazard and all the fancy stuff; the reason to load the truck with stocks is that the Fed is invincible, and its mighty machinery of manipulation can drive stocks higher no matter what else is happening. Put another way: when the Fed succeeds in driving the dollar to near-zero, the value of stocks will be near-infinite. The case to dump stocks now and not even look at the market for two years is based not on worship of the Federal Reserve's infinite wisdom and power but on the charts. The abject, pathetic, remarkably complete failure of QE2 has driven a stake through the heart of the Fed's political power and its reputation for wisdom; it has been revealed as a clueless cabal, basing policy on textbook models of what "should happen when we do this." Alas, real life doesn't follow moldy old PhD theses, and it doesn't worship the Fed or listen to the cargo-cult incantations of the Keynesians.
Those wishing to watch the guaranteed comedy that is Berlusconi address the lower house of Italy's parliament can do so here. As a reminder, the time of the original address was strategically rescheduled to after the Italian market close. Too bad the US market will be open for the duration of the entire address unless of course it is rescheduled to after 10 pm local time (oops, it may impact Asian trading then...)
Q. What is the last thing that panic driven market plunges need? A: The Truth, this time brough to you by the only credible rating agency: Egan-Jones.
- Banca Monte dei Paschi: EJR lowered BBB to BB+ (S&P: A-) (BMPS IM)
- Intesa Sanpaolo SpA: EJR lowered BBB- to BB+ (S&P: A+) (ISP IM)
Here we go again...
Norway's tragic episode from two weeks ago may be starting to spread. Next target: the heart of the Eurozone: Luxembourg. From Wort.lu: "There was great commotion in Luxembourg City between Place Guillaume II and the Grand Ducal Palace just before 3pm on Wednesday with police arriving en-mass. According to information obtained by wort.lu from the police, at 2:40pm bomb threats located at points were announced by an unknown caller on “Place Guillaume II with explosives hidden near the bank, at the post office building, at the main station and in the underground Aldringen Centre”. The bomb threats sparked a major police operation. Wort.lu reporters and several readers at the scene state that many armed police in protective clothing are performing searches. A canine unit with dogs specialised in bomb detection were also at the scene. The traffic in the City which is particularly dense around the Place Guillaume II, has come almost to a complete standstill and many streets blocked. At the time of writing this update (4:30pm) the station area is still blocked off. If you are travelling through the City expect disruption for the next few hours." We will bring more as we see it.
If there is one thing the Italian Bourse needs to stop the relentless bleeding, it is the uber-credible Silvio Berlusconi addressing the country and the various vacuum tubes that trade on the MIB and putting an end to all this selling silliness. Lucky for them, this is precisely what is happening, although not at the originally scheduled time of 3 PM Italian Bailout Time, but only after the market closes, or 5:30 pm. We can't wait to see the limit down in everything tomorrow if indeed someone is pricing in any good news to come out from ole' Silvio whose days are now very much numbered. Reuters reports "Prime Minister Silvio Berlusconi will address parliament on Wednesday seeking to calm escalating market fears that Italy may be dragged into a Greek-style financial crisis that would threaten the euro zone. Italy's Economy Minister Giulio Tremonti met the chairman of euro zone finance ministers, Jean-Claude Juncker, for emergency talks as the yields on Italian and Spanish 10-year bonds flirted with new 14-year highs. Berlusconi, weakened by scandals and largely silent over the past weeks, delayed his address to the lower house, originally scheduled for 3.00 p.m. (1300 GMT), to 5.30 p.m. after the close of the Milan bourse." And the kicker: "It is not clear, however, whether he will have any major new structural reforms or one-off tax measures to announce." In other words this will be merely a Ponzi pep talk...and nothing else.
Joining the Manufacturing ISM in the disappointment column is the just released Non-Manufacturing ISM which printed at 52.7 below consensus of 53.5, down from 53.3 previously. This is the lowest reading since January 2010. The employment index dropped from 54.1 to 52.5, the New Orders index missed contractionary territory barely at 51.7 down from 53.6, and lastly, the Prices Paid was down from 60.9 to 56.6, potentially opening up the way for QE3, even more that is. Elsewhere, June factory orders dropped by 0.8% in line with expectations, down from 0.6%, meaning no dramatic revisions to the already abysmal Q2 GDP, and Durable Goods was revised from -2.1% to -1.9%. Altogether another ugly economic data set, with the bounce in stocks most likely dictated by even higher QE3 expectations.
Claiming he wasn't afraid to let everyone in attendance know about "the real mess we're in," Federal Reserve chairman Ben Bernanke reportedly got drunk Tuesday and told everyone at Elwood's Corner Tavern about how absolutely fucked the U.S. economy actually is.
Italy and Spain, and now France, CDS hitting all time highs? Been a few hours since Unicredit was last halted? Europe looking like it is about to implode all over again (and nobody even remembers Greece any more)? Have no fear. President (he was elected?) Barroso is here, telling us all the imploding sovereign bond markets of Italy and Spain are "unwarranted." All this and many more jokes in the full just released statement which confirms that Europe is starting to freak out all over again.
For more than 3 years - since gold rose above its nominal high of $850/oz in February 2008 - there has been much talk about gold being a bubble. Nouriel Roubini, professor of economics at New York University's Stern School of Business, is one of the more prominent financial and economic experts who said gold was a bubble and many other experts internationally echoed his sentiments. On December 10th, 2009, with gold at $1,100 per ounce, Roubini, said, "all the gold bugs who say gold is going to go to $1,500, $2,000, they're just speaking nonsense". Roubini went on to say ,"I don't believe in gold." Gold has now risen 50% since then and Roubini has been silent on the gold price. We believe that he was wrong regarding gold as he, like many in the western world, is simply not aware of the facts and the fundamentals driving the gold market. He also is not aware of gold’s diversification benefits. The fundamental drivers of the gold market are not appreciated by most and rapidly get forgotten by many due to the daily barrage of noise and fear emanating from the markets. The facts and charts below strongly suggest gold is not a bubble. However, even if it were a bubble, those calling gold a bubble should acknowledge the diversification benefits of owning gold and urge diversification rather than vainly trying to predict the future and the future movement of asset prices.