Archive - Oct 13, 2010

It appears that the next round of the trade war is imminent: per Reuters, Senate Finance chair Baucus has said that the Senate is "poised to follow" the House in passing China currency legislation. Expectations were that this law would not pass for a while and certainly not before the mid-terms. It appears the Senate, in its own attempt to generate some populist Brownie points, and unable to grasp that the whole point with the weak CNY is an even weaker USD. What this is certain to do is escalate an already tenuous situation, and lead to even more jawboning in US-Sino relations. We are confident that the decreasing indirect participation in the recent 3 and 10 year auctions is a direct consequence of what China's retaliation will ultimately look like.

Ben Bernanke should be relieved of his post. I say this in response to Jon Hilsenrath's latest article in the Wall Street Journal on the Fed, "Fed Chief Gets Set to Apply Lessons of Japan's History." I would re-entitle the article, "Fed Chief Gets Set to Repeat Mistakes of Japan's History."

Today, the Fed withdrew a whopping $260 million in liquidity from the market via a Treasury-backed 5 day reverse repo at a 0.20% stop out rate, which is pretty much what banks earn on their excess reserves confirming that this operation was nothing but a travesty. Much more importantly, minutes ago the Fed announced the POMO schedule for the next month: there are 9 liquidity drowning events coming up in the next month. Expect another $32 billion in AMZN, NFLX and AAPL purchasing power to appear magically out of Brian Sack's left pocket. As is now common knowledge shorting on any day, but especially on these days, is suicide. Which is why all natural shorters will continue piling into gold which has become the only way to formally oppose the Fed. Instead of looking at POMO days as stock melt up days, consider them days in which gold will soar even more (due to the recently discussed higher gold melt up beta compared to risk). Trade accordingly.

Life imitating the art of fraud?

In case you haven't had enough, just a bit more Ben bashing

Today's $21 billion 10 Year bond closed, as expected, without a glitch, which is normal as the Primary dealers and the Directs once again account for nearly 60% of the take down. The 2.475% high yield was the lowest in 2010, and approaching the lowest on record from early 2010. Yet what was most troubling is that like in yesterday's 3 Year auction, both the Bid to Cover and the Indirect participation have started to decline. At 2.99 the BTC was the lowest since the May 2010 auction, following which every BTC was over 3. Additionally, and more troubling, the Indirect takedown was just 41.5%, a major drop from last auction's 54.7%, which caused both the Primary Dealer back up bid, and the Direct take downs, to jump materially, to 47.8% and 10.7%, respectively. Since the 10 Year should be one of the most preferred spots on the curve for foreign investor interest, the sudden drop is certainly troubling, and may be an early shot of how China plans on retaliating for recent trade war escalations in the US.

The inception of the mortgage fraud crisis has been extensively documented by pretty much all media outlets now. The question that everyone is grappling with is what happens next. Janet Tavakoli writes in with some suggestions, more at the thought experiment level, as to what the next steps in fraudclosure/fauxclosure may be.

What is to stop U.S. banks and their customers from creating $1 trillion, $10 trillion or even $50 trillion on their computer keyboards to buy up all the bonds and stocks in the world, along with all the land and other assets for sale, in the hope of making capital gains and pocketing the arbitrage spreads by debt leveraging at less than 1% interest cost? This is the game that is being played today.

The NBER tried to pull a fast one on America a few weeks back when out of the blue it concluded that the recession ended in June 2009. Alas, Google Trends shows otherwise. The attached chart demonstrates the average use of the terms "food stamps", "I need a job", "unemployment claim" and "government assistance" via google trends. Either Americans are really clueless and are completely unable to get the memo that it is now all clear to spend, spend, spend, or the BLS, as John Lohman has suggested, aka the US version of the Ministry of Truth has infiltrated the corpulent and proud NBER Ph.D.s flagbearers.

JPMorgan Chase's CEO says the bank has stopped using the electronic mortgage tracking system used by major financial institutions. Lawyers have argued in court proceedings that the system is unable to accurately prove ownership of mortgages. And after the effective foreclosure moratorium is about to cripple the RMBS market, here comes the collapse in CMBS.

RANsquawk US Afternoon Briefing - Stocks, Bonds, FX etc. – 13/10/10

The Maricopa County Sheriff's Office bomb squad is at the Palo Verde Nuclear Generating Station investigating a suspicious package. The plant is on lockdown right now and access to and from the station has been halted while the package is examined. The lockdown is causing some traffic issues on Interstate 10 right outside the plant.

The Department of Finance released their latest economic and fiscal budget projections up until 2015, and to no one’s surprise, it is extremely optimistic. There are many positive data points in the report, highlighting the positive employment situation, the strong fiscal position ‘relative’ to other G-7 nations, and solid growth in GDP.

Officials in 49 states have launched a joint investigation into allegations that mortgage companies mishandled documents and broke laws in foreclosing on hundreds of thousands of homeowners. Alabama was the only state not to join the investigation. "This group has the backing of nearly every state in the nation to get to the bottom of this foreclosure mess," Iowa Attorney General Tom Miller, who is leading the probe.

What has 60% of the nation’s residential mortgages but 0 employees?