About half a year ago, after it became painfully clear that the BRIC concept was dead (which has since become quite obvious with surging inflation and liquidity tightening across the board, and markets in China, India and Brazil reacting appropriately), the man who was subsequewntly sent to exlie to manage Goldman's cloaca division, the GSAM which carries about the same clout on Wall Street as Bank of Lynch, penned the term "N-11." Supposedly, these were the countries that were expected to carry the world to the next massive leverage induced consumption boom. As a reminder: here are the countries: Bangladesh, Vietnam, Egypt, Iran, Pakistan, Indonesia, Nigeria, Philippines, Mexico, Turkey, Korea. Well... make that N-10 now... And soon to be N-0, as the policies of Jim's drinking buddy, Gen(ocide) Ben, become fully transparent to the developing world. That said, the N-11 list (RIP) is a great indicator of where speculator should be bidding all CDS to the limit up hilt (we jest... obviously CDS has no limit up locks... Unlike rice - which just hit one).
Just in case you were expecting a full recovery on those Greek bonds stashed away under the mattress (ahem ASSGEN) here comes Euro Intelligence to spoil your day (and maybe, just maybe, wreak some havoc with your CDS). In a nuthsell: we are about to see a Brady plan with 35% haircuts. If true, we may be seeing some pretty interesting unintended consequences in the near to very near-term future.
Bank Excess Reserves Projected To Climb By $700 Billion In Five Months As Fed Liquidity Management Becomes UnfeasibleSubmitted by Tyler Durden on 01/31/2011 - 13:58
As Zero Hedge accurately predicted, on Thursday there will be no $25 billion 56 Day Cash Management Bill auction, as part of the just announced roll down of the Fed's SFP (or SFB as it is known elsewhere) program, which will bring down holdings of associated debt at the Treasury from $250 billion to just $5 billion in 8 weeks. Previously we predicted that the impact of this activity will be nothing short of a doubling of POMO but did not discuss the impact on bank excess reserves. Over the weekend, Barclay's Joseph Abate analyzed the impact of the termination of SFP as well as the ongoing QE2, and came to the conclusion that excess reserves, which at last check had been just about $1 trillion (well below where they should be based on recent asset purchases, another topic we have discussed) are about to surge by a massive $700 billion over the next 5 months! What this means is the market will simply factor in even a greater impossibility for the Fed to tighten liquidity when the moment comes (which we believe will be pretty much never) forcing those evil speculators to push all commodities to even greater record highs (yes, rice included), forcing us to get even more bullish on the continuation of the recent round of global food-price hike driven revolutions.
A week ago we speculated how the well documented flash smash in IBM caused a market wide ramp, resulting in another attempt at closing above 1,300. It failed. But the mechanics behind the trade still were unexplained. Below, we present a summary by Dennis Dick which highlights the latest weakness in market structure which the mini melt up in IBM (and, subsequently, in ES) has exposed. The only question: was this trade a glitch, or was someone trading fully aware of the limitations of SEC rule 611. (which, incidentally, has some very interesting exemptions, such as "qualified contingent trades" a topic touched by us tangentially previously).
The March Brent Crude contract has just surpassed $100 for the first time since October 2008. Surely nobody is worried about monetary policy and Middle East contagion. After all, this is just throwing darts at the next disinflationary target.
In today's episode of "Flip That Bond", the Primary Dealers succeeded in flipping a whopping 26% of the just auctioned off 1% of 1/25/2014 (912828PQ7) back to the Fed. Today's POMO has closed with $7.720 billion in bonds maturing between 2013 and 2014 monetized by Sack Frost, of which, and this should come as no surprise to anyone, the bond most put back to the FRBNY, to the tune of $3.7 billion or 48% of all, was PQ7. Keep in mind that the PD take down in this bond was $14.2 billion. Just two weeks later the Primary Dealers have reduced their positions in this most recent auction by 26%. In other news, there is no monetization. And Tim Jeethner pays his taxes.
Dallas Fed Misses Consensus, Comes At 10.9 On Expectations Of 15.0, Prior 12.8, More Input Cost WarningsSubmitted by Tyler Durden on 01/31/2011 - 11:35
The Dallas Fed prints at 10.9 and misses expectations. Stocks ramp as the miss would have been bigger if it had snowed in Texas, and so you must acquit. In the meantime, GETCO buying not just every single INTC share in Level 2 - 200, but moving on to everything not nailed down. Melt up must proceed as planned. Since this index missed and is thus completely irrelevant, here is the only notable extract from the report: "Prices climbed again in January. The raw materials price index jumped from 43 to 62, reaching its highest level since mid-2008. The share of manufacturers who saw an increase in input costs surged to 64 percent, compared with only 2 percent who saw a decrease. Finished goods prices rose for the third month in a row, although the great majority of respondents continued to note no change. Sixty percent of respondents anticipate further increases in raw materials prices over the next six months, while 40 percent expect higher finished goods prices."
"As part of ongoing quality assurance, Intel Corporation has discovered a design issue in a recently released support chip, the Intel® 6 Series, code-named Cougar Point, and has implemented a silicon fix. In some cases, the Serial-ATA (SATA) ports within the chipsets may degrade over time, potentially impacting the performance or functionality of SATA-linked devices such as hard disk drives and DVD-drives." As a result: "The effects of the chipset issue and these transactions are incorporated into the company’s revised outlook. The company now expects first-quarter revenue to be $11.7 billion, plus or minus $400 million, compared to the previous expectation of $11.5 billion, plus or minus $400 million. Gross margin percentage is now expected to be 61 percent, plus or minus a couple percentage points, compared to the previous expectation of 64 percent, plus or minus a couple percentage points. Spending (R&D plus MG&A) is now expected to be approximately $3.6 billion, compared to the previous expectation of approximately $3.4 billion."
Chicago PMI Prints At Multi-Decade High At 68.8 On Expectations Of 64.5, "Steel Prices Are Going Crazy"Submitted by Tyler Durden on 01/31/2011 - 10:51
Chicago PMI Surges again, hitting 68.8 on expectations of 64.5, compared to the lower revised 66.8. And as recently has become trading, the only indicator everyone is looking at is the Price Paid (i.e., the margin collapse metric) which came at 81.7 compared to 78 previously. The key comment from the survey panel: "Steel prices are going crazy." Nuff said.
At the outset of the last century America was still a vital, free, growing country on the rise. The song of the century began as a joyous ballad and ended as a funeral dirge. The creation of a Central Bank, which could create inflation on demand, and allowing politicians the ability to buy votes through pork spending, paid for with ever increasing taxation, have sucked the life out of the American Dream...The Federal Reserve has not been alone in killing the American Dream. Politicians since 1913 have done their part in suffocating the dream. The tax code consisted of 400 pages in 1913 and tax rates ranged from 1% to 7%. In less than a century politicians of both parties have carved out 70,000 pages of payoffs, entitlements, and bribes for their contributors and constituents. Tax rates now range from 10% to 35%. Those 70,000 pages of rules, regulations and tax breaks do not benefit the average middle class American. They benefit those who had the money and power to buy off a Congressman.The Federal Reserve and the US Tax Code bastardized the American Dream, created barriers to economic advancement, and supported the accumulation of wealth and power by a select few. The ruling elite have used their power and control over the media to convince the majority of Americans that the American Dream is about accumulating material possessions with debt. The American Dream no longer meant attaining the fullest measure of your capabilities, but living in the biggest McMansion, driving the nicest BMW, watching the biggest TV and wearing the latest fashions, all acquired with debt. America is dying.
The geopolitical ramifications of the revolution in Egypt and the likelihood that it will spread throughout the Middle East, North Africa and possibly further afield is leading to volatility in markets. Equity indices in the Middle East and Far East were mostly down (except for China) overnight. European bourses were under pressure this morning but have recovered somewhat. Gold and silver are marginally lower after their strong showing Friday which resulted in silver closing the week 1.7% higher and gold being tentatively lower (-0.14%). Remarks by a People’s Bank of China advisor that the Chinese should diversify into gold and silver are very important (see below).
- Lonely Analyst Warns of 2015 Bank Crisis Amid `Upbeat' Davos (Bloomberg)
- Wall Street's Collapse to Be Mystery Forever (Bloomberg)
- Egypt and Tunisia usher in the new era of global food revolutions (Evans-Pritchard)
- Central Bank Raises Priority of Price Controls (Xinhua)
- Brazil and China Trade Tensions Set to Rise (FT)
- United, Delta Profit at Risk From `Silent Killer' in Fuel Hedges (Bloomberg)
- Home Prices Sink Further (WSJ)
Of today's Personal Income and spending numbers, the most relevant one was the savings rate. Income came unchanged at 0.4%, in line with expectations (previous revised to 0.4%), Spending was higher than expected, at 0.7% compared to 0.5% consensus (an increase of 0.3% from the revised 0.3% November point), meaning that the savings rate as a percentage of disposable income was 5.3%: the lowest since March 2010. The saving inflection point appears to have been 6.3% hit in June 2010. Is it all downhill from here?