Nothing surprising out of the UK, whose economy grew just as predicted, and enough to offset a comparable drop in Q4 of last year. Per Bloomberg: "Gross domestic product rose 0.5 percent from the final quarter of 2010, when it fell by the same amount, the Office for National Statistics said today in London. The result matched the median forecast of 28 economists in a Bloomberg News survey. Services expanded by 0.9 percent, the most since 2006." Now if only inflation could be cut to just double the rate of economic growth... And with the world now looking at the US 1st GDP number due out tomorrow, which will ultimately be revised to sub 2%, we wonder just how a global economy, whose key economies are barely crawling higher, and in the case of Japan, outright collapsing, supposed to lead to a 3.5% global GDP growth in 2011.
It appears the market is in a festive mood today, just 8 hours ahead of the first largely irrelevant FOMC press conference (yes, Bernanke has fielded irrelevant Q&A before, and yes, whenever he met a question he did not like, he disagreed with it and moved on). As a result the long-suffering US Dollar, which continues to be down YTD as much as the market is up, confirming that in real term there has been absolutely no gains in the stock asset class, has just hit a 3 year low low and just a little more to go until the all time low is breached. And this is in addition to the just announced S&P outlook cut on Japan, which has seen some incremental shorting of the Yen which unfortunately now is a secondary carry funding currency, and you can see that while the dollar should be getting at least a modest push higher the EURUSD is now toying with 1.47. The biggest winner in FX land continues to be the USD-backed CHF, which is outperforming every other pair. And elsewhere, after doing its all too usual OpEx shenanigans, gold is also back in fine form, over $1,506 and going higher now that the shakeout of the latest batch of weak holders has taken place. All in all, a perfect day for nobody to ask whether it is US policy to destroy its own currency.
S&P revises Japan's AA- credit rating outlook to negative. The culprit: the Japan earthquake that just as predicted, has become the scapegoat to excuse another quarter of "non-recurring" EPS misses. And while according to Wall Street the economic devastation is GDP positive, Japan may soon be a single A credit, which of course will send it 10 year bond trading with a 0 yield handle. From S&P: "The negative outlook signals that a downgrade is possible if Japan's public finances weaken further over the next two years in the absence of fiscal consolidation to offset them. We believe that uncertainty over the country's fiscal and economic outlook will lessen over the next six to 24 months. If the government's debt trajectory remains on its current course or begins to erode the nation's external position, the long- and short-term ratings could be lowered. If reconstruction costs place less burden on public finances than we expect–either because of lower outlays or increased revenues to cover them–and the government makes progress in strengthening Japan's fiscal profile, we could revise the outlook back to stable."
While the state pretends to protect its people from external threats, it is in fact the perpetrator thereof, the more so the larger the state is. Which is to say, the state does not provide security. Rather, it creates the need for security on a scale that would not otherwise exist, assuring that the more it spends, the more liberties must be sacrificed on the altar of “national defense.” Why else would the American people, for example, find themselves in something approaching lockdown status, despite the fact that their government constitutes nearly half of all military spending worldwide?
With stock volatility having morphed over the past year to FX and commodities, along the lines of what had been expected, some of those trading various ags (and other commodities) have had to literally suffer through days of gutwrenching market halts when a given product hits its daily limit for the day. And over the past two months it has been a veritable limit-a-palooza. Which is why we were not surprised to learn that having appreciated the severity of this artificial "limit" rule, the CME is now considering its revision. From Reuters: "The CME Group Inc is considering widening the daily trading limit in Chicago Board of Trade corn futures to 50 cents per bushel, from the current 30 cents, a spokesman for the exchange said Tuesday...The exchange last expanded the daily limit in corn in March 2008, to 30 cents from 20 cents. At that time, front-month CBOT corn futures
This week all eyes are on the Federal Open Market Committee (FOMC) and Federal Reserve Chairman Ben Bernanke. The FOMC must decide whether to stop monetizing the federal debt issued by the Treasury, which is what the U.S. central bank calls “quantitative easing.” Americans continue to believe — and hope — that the Fed can save us from our collective idiocy when it comes to debt, both public and private. While there are growing signs that the Fed’s zero interest rate policy, or “ZIRP,” is greatly damaging individuals and financial institutions alike, we also need to question whether the Fed can let rates rise without provoking another financial assets collapse. In effect, the Fed and other global central banks are all caught in a “Catch-22? situation, to borrow the phrase from the 1961 novel by Joseph Heller. The Fed’s aggressive easing of interest rates and purchases of trillions of dollars in Treasury debt and other assets has stabilized and even raised the price of financial assets, but in other respects the Fed’s policy of reflation has failed — especially compared with past interest rate cycles.
Gold and silver dip modestly from near all time highs and the momentum chasing brigade is screaming it's the end of the world and all ___bugs should take cover. At such a point it is useful to reanalyze the fundamentals that have brought the two key precious metals to such astronomic heights. Attached, we present a 40 pages special report from Reuters, summarizing all the recent developments in the area, for all those who still may be unsure about the alternatives provided by the metal to the traditional fiat-based monetary system.
There has been a lot of talk about the excessive loose monetary policy coming out of the Federal Reserve. However, most of the arguments concerning the implications take the form of generalizations as opposed to quantifiable relationships. Our objective here is to show, through the historical relationship between short-term interest rates and the economy, that the Fed has been overly generous. Moreover, we will see that the data call for much higher industrial commodity prices before this cycle runs its course. In retrospect, they will make today’s elevated levels look benign by comparison. There are two inescapable conclusions from this data. The first is that interest rates and commodities are headed much higher. The second is that the Libyan no fly zone needs to be extended to include Ben Bernanke’s helicopter.
A company with already razor thin margins comes out and while it beats revenues, reporting $9.86 billion in sales on expectations of $9.54 billion, it literally shits the bed on the bottom line, reporting $0.44 EPS on expectations of $0.61, proving that this mythical "margin collapse" thing is actually really real. And the icing on the cake: it provides an operating income guidance range for Q2 of $95 million to $245 million. Expectations? $369.5 million. Can you spell Timber? Market sure can.
Buy Stocks, Buy Bonds: Carry Orgy Leads To "Buy Everything" Binge Session, And Today's Compression OpportunitySubmitted by Tyler Durden on 04/26/2011 - 15:50
To think, just as stocks had started to demonstrate some semblance of normalcy we get... today. Whether it is due to some unfounded rumor that Bernanke will say something surprising tomorrow, or disclose something that he is unprepared to disclose, we are seeing another carry fueled binge resulting in a total divergence (or technically convergence) between the two traditionally inversely correlating asset classes: stocks and bonds. As the chart below demonstrates, while the two had been trending in perfect unison yesterday, today we are seeing a substantial decoupling between the 2s10s30s butterfly, which is also indicative of bidding interest focused on the 10 year, and thus is an indicator of a smoothing of the treasury curve: something traditionally associated with stock market weakness. But not today. Which is why at this point a compression trade seems warranted with an up to 40 ES equivalent point pick up.
There has been a LOT of talk recently on the rising price of gasoline at the pump, so much so, that Obama has now jumped in with both feet admonishing the "evil speculators" for causing such a burden upon the American public. Well, that and to promote a clean energy policy that is ill conceived, ineffective and grossly misunderstood...mostly by him. However, as in the famous words of Bill Clinton, "What is...IS" and what "is" right now is that gasoline is rapidly approaching, and has achieved in some states already, $4 a gallon. Therefore, that is what should be concerned with right now and when that additional drain on the discretionary income of the average American translates into the next economic recession.
Krag Gregory's derivative trading desk has had its share of success over the past several years which is why we present the latest compilation packet by the Goldman Derivative traders. While it is not surprising that this particular silo of Goldman is alligned with the prevalent theme at GS, which is S&P500 at 1,500 or bust, which obviously would imply ongoing declines in vol (with or without the assistance of the Fed), there are some obseravtions that deserve to be highlighted...
Since I’ve identified four major rationales for our impending doom, I’ve decided to write a four part series that can be read in small doses, rather than one enormous article. I don’t want anyone to miss tonight’s episode of Dancing With the Stars, get distracted from the Royal Wedding preparations, or skip the best reality TV show ever – Ben Bernanke’s press conference, while reading an 8,000 word article about the end of America. The four part series will have a Clint Eastwood theme. For a Few Dollars More will address the Baby Boomer impact on America’s decline. A Fistful of Dollars will examine how the creation of the Federal Reserve and the income tax in 1913 set us on a path to ruin. Outlaw Josey Wales will scrutinize the looting of America by a small group of powerful, connected, super rich men lurking in the shadows, but pulling the strings on our puppet politicians. Lastly, Unforgiven will detail the impending collapse of our economic system and the retribution that will be handed out to the guilty.
Today's very ironic $35 billion 2 Year Bond with a Cusip identifier QE3 (no joke, check it) just priced at a 0.673% high yield, slightly higher than last month's 0.669%. Yet the notable metric that caught everyone's attention was the Bid To Cover which came at a 3.06 compared to 3.41 previously and 3.2 average. Primary Dealers took down 49%, with 38% left for Indirects and 13% left for the Direct Bidders, a breakdown in line with expectation. What is important is that dealers expressed the lowest amount of bidding interest for this auction in 2 years: the $72.9 billion Primary Dealer bid was the lowest for a 2 Year auction since December 2008. This auction merely brings the total debt that much closer to the now largely irrelevant debt ceiling. And since there are another $64 billion in auctions over the next two days, it is about to get very tight in there. As a reminder, tomorrow's 5 year auction will close early at 11:30 am due to the Fed press conference.
While in the US speculators and speculators alone are blamed for surging oil prices, in China we get an example of precisely what happens when speculators get caught on the wrong side of the trade. "Farmers across China are suffering from unmarketable vegetables since the arrival of spring, hurt by an increase in output following speculation last year’s surge in demand would continue in 2011... Many farmers blamed oversupply as the main reason for the poor market. Due to climate factors, leaf vegetables from northern and southern China came onto the market almost at the same time, making the supply much higher than last year...Speculators also played a major role in the price collapse, as they dumped vegetables that they had been hoarding onto the market." That's a new one: so speculators are now to blame for a plunge in prices? Of course, the "speculators" themselves merely took their losses, some went out of business, and the PBoC did not rescue any of them. This way the more incompetent of them are now out of business. In the US, on the other hand, where we are now urgently holding our breath for an ES margin hike to hit the tape any second now from the Globex because the silver bubble has now moved back to the S&P ("where it belongs" - unnamed Fed official), all those who would have placed idiotic bets either way would be promptly bailed out by the Fed, especially if they were the prop trading operation of a TBTF toxic laden monstrosity (here's looking at you mother Merrill). Does one see an issue here?