Archive - Aug 2009

While Congress is still in recess, it is relevant to remember that one of the most critical pieces of legislation, Ron Paul's HR 1207 Bill is still waiting in the corridors, compliments of several individuals who for some reason or another are trying to do all they can to prevent a bill which has a guaranteed passage, with 282 co-sponsors, the second it goes to a vote. And yet the heat is already rising in the Senate, with Bernie Sanders' S. 604 Bill aka the "Federal Reserve Sunshine Act of 2009" already receiving increasing endorsement, with 23 co-sponsors at last check. We suggest readers contact their Senators and voice their endorsement of this critical measure which many are trying to drown out in a whole lot of noise.

A new proposal by MIT professors seeks to involve the Fed directly in the wholesale selling of CDS. According to recent TIC data, perhaps the Fed is doing this already.

Momos still unable to read anything beyond the misleading headline in today's housing numbers. Let's give them another few hours.

"Don't ever use the term "un-American" again for protesters who love this country and are exercising their rights upon which this country was founded. By the way, while I served in the Army, I was spit on by the same type of lunatics who support you and who you probably supported in the 60's and 70's. You are an embarrassment to all of us who served so that you would have the protected right of free speech to call us un-American. But at the same time, I have to right to write you to notify you that I consider you to be un-American, as do the majority of the people of this formerly great country. You are a true disgrace to most of the people who served this country by offering themselves for public service in the United State Congress." - Dennis L. Guthrie, Esq.

The most recent BLS State unemployment data is out. State by state unemployment increased by 1.0% on average (unweighted) from June to July.

In a dramatic reversal to the moderating trend from the past several months, Mass Layoff Events surged from 256,357 in June to a whopping 336,654 in July, a 31% increase, and surprisingly the second highest reading for the year since January's 388 thousand. Actual MLE increased by 21% from 2,519 to 3,054. The primary weakness was focused in the manufacturing sector, where claims jumped from 85 thousand to 154 thousand, an 81% increase.

In essence what is going on, is that the brief pick up in German and US GDPs on the trade balance side, are being facilitated exclusively by the credit bubble in China. By dint of China being able to recognize GDP at production instead of expenditures (like normal Western countries), China is now trying to back fill into the trade void left from the collapse of Western economies by promoting the same kind of irresponsible lending (and borrowing) that lead the US economy to its current sorry state. This will eventually end very, very badly.

Last week's $300 million decline in Foreign Holdings was promptly reversed and this week saw an increase of $7.2 billion. Yet, like last week, the comparison between domestic and foreign weekly securities purchases is trivial: $7 billion versus $86 billion: the US is promptly becoming its own largest debtor... by a factor more than 10x.

• 6 S.Korean banks to take $4B worth problem loans from financial institutions' books.
• Asian stock markets were lower Friday on report China might tighten bank lending.
• Australian spot iron ore cash price to China slumps 9.3% on steel decline.
• China said to plan tightening of bank capital requirements as stocks rally.
• China's economy may grow 8.5% this quarter: State Information Center.
• Mexico’s GDP contracted 10.3% last quarter - fastest pace in more than 25 years.

• Now comes that hard part (Value Expectations)
• In new phase of crisis, securities sink banks (WSJ)
• The new dollar carry trade doing miracles for futures, European manufacturing pulls a Philly Fed ...(Bloomberg)
• Just in time for China to pull the plug on all excess manufacturing demand (Bloomberg)
• As even Morgan Stanley sees little hope for fast Euroland recovery (Morgan Stanley)
• While China's 2% inflation estimate baffles economists as prices fall (Bloomberg), with all the free credit going into the stock market, not purchasing products already accounted for in GDP
• And as Stiglitz sees risk to dollar, need for reserve system (Bloomberg)

The Japan External Trade Organization has released its latest trade figures, which paint a grim picture for foreign trade by the world's second largest economy. Year to date imports have dropped by 31.9% to $252.9 billion, while exports have plunged 36.8% to $252.2 billion. Most stunning is the disclosure on trade flows with the United States: exports to the US have dropped by 43.5% to $40.5 billion, resulting in Japan's largest positive trade balance. Another development is that China has now replaced USA as Japan's primary trade destination. However that is not saying much: trade with China has declined for the 8th consecutive month. The last fact is among the primary reasons why the Chinese Central Bank has blown a credit bubble of epic proportions in order to mitigate the unprecedented collapse in Chinese trade with its traditional trade partners.

Wall Street and FRE come up with another bright idea. A nothing for nothing swap. The folks at FHFA should be congratulated.

The Association of American Railroads released its latest traffic data, and both the weekly and cumulative traffic originations are down significantly, however this is likely another data point that would be cheered by the wildly optimistic Philadelphia Fed as yet another piece of information that can only go up from here. Total carloads originated was down -17.1% for the week ending August 15, while the cumulative decline was -18.9%. Also the number of ton-miles has declined by 18% from 1,094 billion to 898 billion. This is probably as good a proxy for the real collapse of the US manufacturing complex and implicitly why any inventory bounce, outside of direct government subsidies, will be very slow in coming (and likely delayed due to increasingly artifical capacity added by the central planners).

Discount retailer Dollar General, which KKR acquired in March 2007 for $7 billion is about to be sold to a new batch of investors who believe in top ticking the market.

No volume all day? No problem - luckily there is after hours to trade. The entire cumulative volume below average caught up to the normal in less than 30 minutes of AH trading. And guess what - all the volume to the downside. But no big surprise there.