Time for some more theater: at 10:30 am Eastern Paul Ryan will reveal his budget proposal which sees the US government cutting $650 billion each year over the next 10 years. This simply means that even more stimulus will reside with the Fed, and with monetary policy, which also means that not only is QE3 guaranteed, but so is QE33. Watch Ryan live at the below C-Span link.
While the services PMI dropped from 59.7 to 57.3, well below expectations, the broad Business Activity series plunged from 66.9 to 59.7 The surging inflationary Price Paid series dropped from 73.3 to 72.1, or back to January's level. New Orders and Employment also declined from 64.1 and 53.7, from 64.4 and 55.6 respectively. The only growing components were Backlog of Orders rising 4.0 to 56.0, New Export Orders up 2.5 to 59.0 and Inventory Sentiment up 9.5 to 67.0, which the Surve classifies as "Too High" - this means liquidations are imminent. Hope you have your FIFO on.
There is nothing too remarkable in Absolute Return Partners' Niels Jensen's latest letter: it does a good compilation of a recent letter by James Montier posted previously, and juxtaposes it with textbook precepts from the discredited Market Portfolio Theory, in terms of what makes a good investor. Well, indeed: if one does everything correctly according to what works in a textbook definition and combines it with real world success, one will certainly end up making money. On the other hand, Jensen does have an actual trade recommendation: and it is go illiquid. "My favourite example right now is illiquid as opposed to liquid investments. I strongly believe that less liquid investments will outperform more liquid ones over the next few years for the simple reason that the less liquid ones are struggling to catch the attention of investors who, still smarting from the deep wounds inflicted in 2008-09, stay clear of anything that is not instantly liquid. This has had the effect of pushing the illiquidity premium (i.e. the extra return you can expect to earn by investing in an illiquid as opposed to a liquid instrument) to levels we haven’t seen for years." We wonder how ARP will fare if and when the markets seize up once again. But there's at least a few milliseconds until HFTs blow a fuse next and crash the market yet again.
With so much sound and fury out of Washington one would imagine something big must be happening. One would be wrong. The ongoing theatrical strawman between Republicans and Democrats is merely a massive spectacle which has one outcome: a compromise. But why not score some brownie points from the constituency in the meantime by "sticking firm to principles." And of course the spin by the MSM will lead to a huge relief rally in stocks once we get news on Thursday in the 11th hour that the government will not shut down. As if the government would shut down when it prints $100 billion in debt every two weeks. In the meantime here is a summary of the key parts and intermissions for the ongoing DC melodrama for the balance of the week, courtesy of Goldman.
And so with each passing day the veil of lies at Fukushima is being lifted. For all those who had been scratching their heads how it is possible that Fukushima would have a (very high to begin with) radiation level in the millisieverts if indeed the plant had experienced a Chernobyl style meltdown and "inadvertent recriticality", when it should have been far higher, here is your answer. According to NHK, "a radiation monitor at the troubled Fukushima Daiichi nuclear power plant says workers there are exposed to immeasurable levels of radiation." Unfortunately for the workers present, the monitor is not being metaphoric: "The monitor told NHK that no one can enter the plant's No. 1 through 3 reactor buildings because radiation levels are so high that monitoring devices have been rendered useless. He said even levels outside the buildings exceed 100 millisieverts in some places." Perhaps it is time for the discredited Japanese government to form a committee to investigate whether TEPCO, with or without the complicity of the NHK, was counterfeiting radiation reading over the past month, and thus sacrificing the lives of the 50 brave TEPCO workers who are committing an act of suicide by continuing to stay at the plant. Who knows: maybe they would have a different opinion if they actually knew their presence there is a guaranteed death sentence.
- Hilsenrath speaks again: BoJ Considers Measured Quake Response (WSJ)
- Bernanke Says Fed Will Act If Inflation More Than ‘Transitory' (Bloomberg)
- IMF Chief: 'Black Swans' Still Haunt Global Finance (WSJ)
- Will the Real Phillips Curve Please Stand Up? (Hussman)
- China Raises Interest Rates to Counter Inflation Pressure (Bloomberg)
- Japan Food-Supply Issues Raise Questions on Tariffs, Imports (WSJ)
- Fed's Bernanke Downplays Inflation Fears (WSJ)
- U.S. Budget: Demagoguery and Sophistry Reign (RCM)
- Asian Central Banks Aim to Weaken Currencies (WSJ)
The strategy of Mutual Assured Destruction has worked so well in the "developed" world (thank you Hank Paulson, Tim Jeethner, Clearinghouse Association et al), it is time to see it in application in the "developing." In an attempt to preempt US doubts about intervening (on the proper side) in the case of escalations in Saudi Arabia (and with the possibility of Yemen becoming a potential Al Qaeda hotbed rising by the hour, this is non-trivial) the former Saudi oil minister Sheikh Zaki Yamani told Reuters on Tuesday that "Oil prices could leap to $200 to $300 a barrel if Saudi Arabia is hit by serious political unrest." We are confident he was merely talking in a very, very hypothetical scenario. After all why scaremonger in a world in which everything is under control?
Portugal’s downgrade has sent markets negative this morning, with more tightening in China and rising oil prices not helping the situation. Republicans in the House of Representatives today will release a budget plan set to shave off $6T from President Obama’s plan through the next ten years. The proposal will include a phase out of Medicare and an overhauled tax code. During a speech yesterday, Fed Chairman Ben Bernanke described the U.S.’s current level of inflation as “transitory.” The European Commission has reported that no short term loans would be made available for a country without a full rescue fund request, thus it remains to be seen whether loans can be made without austerity measures being accepted. The news was sobering for Portuguese government officials that have been calling for a bridge loan to get them through steep upcoming maturities. Tomorrow will see the first of five T-bill auctions designed to push the country through upcoming maturities and is planned to raise between €0.75B and €1.0B. PMI data out this morning. China saw another 25bp interest rate hike today. The 1Y lending rate now stands at 6.32% and the 1Y deposit rate at 3.25%. Further tightening is likely.
The biggest news this morning in corporate land is certainly the acquisition of National Semi by Texas Instruments. Which is why we were not surprised to see that Goldman was moving to "Not Rated" rating on both companies. What did surprise us, however, is that up until yesterday afternoon, Goldman had a Sell Rating on National Semi, and, define irony, Buy on Texas Instruments. But the kicker undoubtedly is the following...
TEPCO Knew Radiation In Seawater Is 7.5 Million Above Normal Before It Started Dumping Radioactivity In Sea On MondaySubmitted by Tyler Durden on 04/05/2011 - 07:44
This time nobody will be blamed for not carrying the decimal comma. While a few weeks back TEPCO scrambled to lie to the public that a reading 10 million times higher than normal was really just 100,000 times above threshold, today TEPCO, whose stock hit an all time low in overnight trading, finally admitted the truth that radioactive Iodine 131 readings taken from seawater near the water intake of the Fukushima No. 1
nuclear plant's No. 2 reactor reached 7.5 million times the legal limit. This means Godzilla is most likely very close to hatching. But it gets worse: "The sample that yielded the high reading was taken Saturday, before
Tepco announced Monday it would start releasing radioactive water into
the sea, and experts fear the contamination may spread well beyond
Japan's shores to affect seafood overseas." In other words, as TEPCO was dumping 11,500 tons of radioactive water in the sea, it already knew, but kept away from the public, the radiation was nearly ten million times higher than legal limits. At this point we truly marvel at the stoic ability of Japanese people, and most certainly its east-coast fishermen, whose jobs are finished as nobody will want to buy any fish in the foreseeable future for fear of radioactive toxicity, to accept such lies, very often with an intent to hurt, day after day, without anger spilling over in some form of violence.
A quick look at today's market action confirms that we get even more purposeful obfuscation from Fed pundits whose only strategy continues to "baffle with bullshit." We also have the Services ISM, an episode of Flip that Bond, and the FOMC minutes.
One hour ago the PBOC announced the most recent Chinese rate hike, second in 2011, and fourth since October 2010, in the country's ongoing fight with excess-liquidity driven (both courtesy of the Fed and the PBoC itself) inflation, which has been running near a 28-month high of 5.1% hit in November. Benchmark one-year deposit rates will be lifted by 25 basis points to 3.25 percent, while one-year lending rates will be raised by 25 basis points to 6.31 percent, the People's Bank of China said in a statement on its website. The hike will be effective beginning Wednesday, April 6.
In what could easily be the biggest news of the day, even more important than the most recent Chinese rate hike, the one stock that determines the broader stock market level more than any other, Apple, may well get crushed today as index arbs dump it following news that the Nasdaq 100 intends to announce a rebalancing which will see AAPL drop from a 20% to a 12% weighing. According to the WSJ, the move is akin to what various exchanges do when they hike margin rates to prevent commodity prices from surging: "The rebalancing was driven in part by the seemingly unstoppable rise in Apple shares, which are up more than fourfold in the past two years. The tech company's big weighting means that a change in fortune for the maker of iPhones, iPods and iPads has a huge impact on one of the most heavily traded indexes in the market. After the rebalancing, which takes effect May 2, Apple will make up 12% of the Nasdaq-100." Whether this will be the end of the company's relentless rise remains to be seen although any impairment in the sensitive ecosystem of technical factors that has so far prevented any fund from selling the company may well be impaired at this point, leading to the first bona fide sell off in the name in the past 3 years.
RANsquawk European Morning Briefing - Stocks, Bonds, FX etc. – 05/04/11
Courtesy of the Village Whisperer, we are happy to present BMO's latest comprehensive report on silver titled "A new paradigm for silver." While we suggest readers skip the part about price expectations for gold, silver and other metals, which at this point nobody save for the Chairsatan has any clue where these will go (and Bernanke's mind is made up for him by Jan Hatzius, so as always pay attention to Goldman buy/sell signals on PMs), the report does have a very extensive section on the key supply and demand drivers, which for anyone new to the metal, is a must read. Additionally, the report covers virtually all the key silver miners of note (incidentally for those wondering, the San Critsobal strike was lifted earlier today).