Archive - Oct 14, 2010

While the list of skeptics on either the efficacy or beneficial effects of a new QE2 seemed to grow by the minute, it retained enough true believers to raise the prices of lots of assets. Some compared the belief in the beneficial effects to come from QE 2 to a religious experience. Others saw it as either hypnotic or narcotic. If you have faith – it will happen. It was all about faith; after all, since the Fed had not only not begun the process, they haven’t formally confirmed that there will be a QE 2. Talk about the power of jaw-boning. - Art Cashin

The banks are screwed—again. Because of the same thing as the last time—the fucking Mortgage Backed Securities. People still haven’t figured out what this Mortgage Mess means—but I’ll tell you: If enough mortgage-paying homeowners realize that they may be able to get out of their mortgage loan and keep their house, scott-free? Shit, that’s basically a license to halt payments right the fuck now. That’s basically a license to tell the banks to fuck off. This Mortgage Mess is a hurricane that'll make Lehman's collapse look like a spring rain. —Gonzalo Lira

Taz is once again back on the scene, sending the following letter to the US Attorney in the middle district of Florida, and to FBI Director Mueller, "asking for prosection of banks engaging in illegal activities." The particular catalyst to this action was the much discussed last week mistaken breaking in of Nancy Jacobini's home by a JPM contractor. Grayson will release the attached letter at a press conference today in front of the home of Jacobini. In the letter Tax is up to his usual verbal fireworks: "If perpetrators of perjured affidavits and other systematic criminal activity can get off simply with civil liability -or even less, an insincere bureaucratic apology- the freedom that Americans enjoy will erode quickly in the face of lawless seizure of property... Without clear property rights, and a legal system that insists on clear proof of those rights before transferring ownership by force, the economy will fall apart."

Three months ago we presented the Coto Report's 50 ugliest facts about the US economy. Today, the Economic Collapse has followed up this list with 24 facts of their own, which confirm what Zero Hedge readers know: namely that the US economy has officially entered the "Late Roman Empire" phase of its civilization. Perhaps it is not too late to reverse course yet: As Economic Collapse states: " Urgent action must be taken if things are going to be turned around. It is time to get our heads out of the sand. It is not guaranteed that the United States will always be the greatest economy in the world or that we will even continue to be prosperous. For many Americans, it will be incredibly difficult to admit that our nation has become a debt addict and an economic punching bag for the rest of the world. But if we are never willing to admit what the problems are, how are we ever going to come up with the solutions? What you are about to read below is going to absolutely shock many of you. But hopefully it will shock you enough to get you to take action. We desperately need to change course as a nation." Alas, unless the current ruling oligarchy, in which both parties are merely a front for Wall Street money, and the entire political and financial system are changed drastically, and fast, the decline will merely accelerate until there is nothing left of America's once greatness.

Interview with Vitaliy Katsenelson on the challenges facing China and Japan and the implications to the rest of the world.

We highlighted the following report from St. Louis Fed's Daniel Thornton in today's Frontrunning, but it may bear repeating as it is the first written salvo in the internal Fed trench warfare over QE2. The report is no surprise: as St Louis is the bastion of Daniel Bullard, one of the biggest non-voting hawks at the Fed, a group which is increasingly getting more vocal with such others as Philly's Plosser and Dallas' Fisher, not to mention Atlanta's Hoenig, the paper titled "Would QE2 Have a Significant Effect on Economic Growth, Employment, or Inflation?" is merely an attempt by the sensible undercurrent at the Fed to distance itself from the policies enacted by the supreme madman in charge of it all. While the report says nothing notably new, it does repeat what all QE2 skeptics know all too well: "It is possible – perhaps even likely – that almost all of any increase in the supply of credit associated with QE2 simply would be held by banks as excess reserves. If so, the effect of QE2 on interest rates could be small and limited to an announcement effect – the effect associated with the FOMC’s announcement – independent of the effect of the FOMC’s actions on the credit supply." Which begs the question - why is this report coming out now? Is this the red herring to the lack of a QE2 announcement on November 3? With everyone certain monetization is imminent and inevitable, is everyone about to end up on the wrong side of the trade? And if so, just how far will the market crash, now that at least 150 S&P points worth of QE2 are priced in...

Bob Doll is not too happy with Bob Doll's investment in APOL this morning. Neither are Lee Ainslie or Chase Coleman. And Michigan Dept of Treasury which just put in $100MM in the company two quarters ago is feeling particularly stupid.

The hard news is that there is no "Plan B": the future is likely to be more chaotic than you probably think. This was the primary conclusion I came to after attending the most recent Association for the Study of Peal Oil & Gas (ASPO) in Washington DC in October, 2010. The impact of peak oil on markets, lifestyles, and even national solvency deserves our very highest attention - but, it turns out, some important players seem to be paying no attention at all.

After a tumultuous 2009, oil has been one of the least volatile assets of 2010. It now appears that this crucial commodity is stretching its muscles, limbering up, and getting ready for a serious move. The net effect of the BP oil spill will be a cut of one million barrels a day of Gulf production, about 5% of US consumption. A serious run on the dollar is adding fuel to the fire. (USO), (XOM), (CVX), (OXY), (RSX)

Baton-toting police have stormed the Acropolis clashing with government workers and blocking Greece's most sacrosanct archeological site for a second day. So, aside from Waddell & Reed, what else caused the flash crash again?

The chart pretty much speaks for itself. Voodoo economics at its best. Speaking of, where's Krugman?

Today's economic data avalance is a trifecta of horror: the August trade balance came at - $46.3 billion (deficit, duh), on expectations of $-44.0 billion, with the previous revised to ($42.6) billion. This is the second highest trade deficit in years. This also means the Q3 GDP will be revised lower again. Oh yes, and Schumer is currently frothing in the mouth as the trade deficit with China was at a record $28 billion, as expected based on the reverse lookup from yesterday's China trade surplus (which dropped). Elsewhere, PPI came in at 0.4%, on expectations of 0.1%: congratulation Ben, you have your inflation, as the bulk of the increase was in food and gas. PPI ex Food and Energy was 0.1%, in line with expectations. Lastly, jobless claims surge from 445K to 462K, with the prior number revised higher for the 24 out of 25 times. And speaking of revisions, the prior week Continuing Claims number was revised from 4,462K to 4,511K: yes stunning, we know. Those on Extended and EUC claims plunge by 340,000 for the week ended September 25, taking away a few more pips from GDP. All in all, this further cements the economic suicide that is QE2.

• The Fed itself says QE2 would have little/no effect (St Louis Fed) - then again this is not FRBNY, but the ultra hawkish St Louis Fed. Trench warfare within Fed is intensifying
• Dollar Slide Causes Fresh Scramble for Risk (FT)
• U.S. is currency war's "tomb maker": China economist (Reuters)
• This will make China happy: Germany Warns of Trade War Over Yuan (WSJ)
• The Next Bubble (NYT)
• Fed's Lacker Says Making Jobs an `Imperative' Risks Inflation (Bloomberg)
• The Fed seeks to boost jobs, but it could have bad side effects for consumers (Barrons)
• Yuan Bond Sales Climb to Record Led by Railways: China Credit (Business Week)
• China's Leaders Prepare to Meet as Elders Slam Censorship of Wen (Bloomberg)
• Spain's Santander Funds at Higher Rate to Inferior Banks (Bloomberg)
• LVMH Sales Rise 23% Confirming Luxury Recovery (WSJ)

The heavy flow of data begins with the trade balance and producer prices in addition to unemployment claims. Later in the day, we hear again from the Fed…

• Gold hits fresh highs, taps $1,388.10 on Globex.
• API shows surprise oil inventory decrease of 4 million barrels for the wk ended Oct. 8.
• Asian stocks advance as economic, earnings reports boost recovery optimism.
• Bank of Korea leaves benchmark interest rate unchanged at 2.25%.
• China’s foreign reserves rise by $194B, adding pressure on value of renminbi.
• Dollar was quoted at 81.23 yen- 15-year-low against yen.
• Dubai’s worst office buildings will be empty forever, CBRE says.
• Fed to buy $32B in Treasury debt in next month.
• Foreclosure filings up 3% in September over last month.