Archive - Oct 20, 2010

The tech trifecta reporting after hours. E-Bay beats across the board, Seagate misses, Netflix misses EPS, FCF plunges and has Q4 guidance below consensus, but new subscriber adds seem to be all that matters as computers lift every offer inciting a short covering rush.

After major gains were seen in the USD on Tuesday following the surprise decision by the PBOC to hike rates the greenback staged a swift reversal and retraced nearly the entire move as investor focus returned to the potential for the Fed to embark on additional quantitative easing (QE). Sources indicated on Wednesday that a major US think-tank believes the Fed maybe be siding on the opinion of purchasing USD 500bln of treasuries over the next 3 to 6 months with the possibility of extending the program over the next 12 to 18 months depending on economic data. Although the analysis would be logical in its proposed method it will likely fuel expectations in the near-term that the Fed will pull the 'QE trigger' in November so the weakening trend looks set to continue. In sympathy with the USD move the commodity linked currencies such as the AUD and CAD have also staged an impressive rebound with AUD/USD reclaiming the 98.00 handle midway through the US trading day, a gain of over 100 pips on the session. - Talking Forex

The good news: title insurers may be getting back into the game. The bad news: they will demand indemnity and warranties from the issuing bank assuring their paperwork is sound before backing sales of foreclosed homes. At least this is what the largest title insurer in the US, Fidelity National, will do going forward (which makes one wonder just what exactly FNF's job function is if the mortgage issuing bank, such as BofA, now caught in too numerous RoboSigning scandals to mention, essentially takes over the title guarantee process...) From Bloomberg: "An indemnity covering “incompetent or erroneous affidavit testimony or documentation” must be signed for all foreclosure sales closing on or after Nov. 1, the Jacksonville, Florida- based company said in a memorandum to employees today. The agreement was prepared in consultation with the American Land Title Association and mortgage finance companies Fannie Mae and Freddie Mac, Fidelity National said." And what happens if the bank is once again caught to be, gulp, lying? Who foots the bill then? Why the buyer of course. All this does is to remove the liability from companies like Fidelity National and puts it back to BofA, which is already so much underwater it has no chance of really getting out without TARP, contrarian Goldman propaganda notwithstanding.

Geithner’s strong dollar comments, China's surprise rate hike, and worries about the U.S. mortgage market led a flight by investors into U.S. Treasuries. Some analysts believe that there may be a currency accord right before the G20 meeting. However, from all indications, China and Geithner appear to be acting under totally separate agendas however “coordinated” they might seem.

And here come the US taxpayers to bail out the world's biggest and most toxic bank. Reuters reports that Bank of Countrywide Lynch has sued the FDIC, and is demanding $1.75 billion from US taxpayers to recoup investor losses over a rather interesting spin on foreclosure gate. Bank of America, as trustee for failed Taylor Bean's Ocala Funding Unit, is angry that the FDIC has denied claims by Ocala noteholders to recover from Colonial Bank and an
Illinois lender also in receivership, Platinum Community Bank. The FDIC had previously served as received for Alabama's Colonial BancGroup and Taylor Bean which Zero Hedge wrote about last year. In its lawsuit BofA said Ocala used proceeds from note sales to Deutsche Bank and BNP Paribas to buy Taylor Bean mortgages, but is no longer able to repay noteholders. Yet, as Reuters reports, here is the kicker: "Bank of America accused executives at Taylor Bean, Colonial and Platinum of having fraudulently schemed to "double- and triple-pledge mortgages and steal assets" to hide their faltering conditions as the housing market declined." Ironically, this is precisely what some are accusing BofA itself of having done. And to a much greater degree.

Last week I thought the dollar was bottoming and I stand by that as it’s an important time to stay flexible and take those BS long profits off the table before the market takes it for you!

A little reality about the job situation in this country is in order. The unemployment rate reported by the Bureau of Labor Statistics and parroted by the mainstream media is currently 9.6%. Once you stop counting people who have given up looking for jobs and “left the workforce”, discouraged workers, marginally attached workers and workers forced to work part-time, you magically get a 9.6% rate. Using the method of measuring unemployment used during the Great Depression and reproduced by www.shadowstats.com, the real unemployment rate is a depression-like 22.5%. The peak unemployment rate during the Great Depression was 25%. There is no doubt that we are in the midst of 2nd Great Depression, but where are the bread lines and the lines of unemployed winding around the corner? No need. This is the electronic Great Depression – iDepression 2.0. Your 99 weeks of unemployment and food stamps are direct deposited into your bank account so that you don’t have to leave the comfort of your McMansion that you haven’t made a mortgage payment on in the last 14 months. There were no credit cards in 1933. Without a job or a house, you needed to move to where there might be a job. Hence the mass migration from the Midwest to California – ala The Grapes of Wrath. Today, a neighbor in a matching McMansion down the street, with the perfectly manicured lawn, could be unemployed for three years and no one would ever know. They could sustain themselves on unemployment payments, food stamps, and credit cards. Welcome to the iDepression 2.0.

• Manufacturing continued to expand in most districts
• Consumer spending steady to up slightly, purchases mostly limited to necessities
• Housing markets remained weak and house prices seen stabilising, commercial real estate subdued and construction weak
• Home inventories elevated or rising in most districts
• Input costs, notably for agricultural commodities and metals rose further but not passed on to consumers
• Prices of final goods and services mostly stable and says wage pressures minimal
• 'Lending activity was stable at low levels' in most areas

Goldman's Richard Ramsden looks at Bank of America and concludes that it is a buy based on his total expectation for put back losses ($25 billion), how much is provisioned ($7 billion), and tax netting ($6 billion). The total after tax-losses of $12 billion presumably compare favorably compared to the $17 billion in market cap lost prior to earnings. And presto: you must now buy. Stunningly there is no such highly technical tea leaf reading-cum-analysis as to just what the FRBNY is now involved. Oh well - when needed, the Goldman report will merely be updated, and a non-decimal zero inserted here or there as appropriate.

For some ungodly reason, various so-called sophisticated investors still peg their hopes that gridlock in Congress/Senate will be good for stocks. Of course, never before has gridlock been the primary force preventing a new multi-trillion fiscal stimulus which is ultimately what is needed to provide the economy with a fresh sugar high (of course it won't do anything for the economy in the long run, but we will let you read Krugman for that) and as such the current situation is unlike anything else in history (and is why America's last resort for a short-term bounce continues to be the Fed and its monetary policy). Yet for all the technical pundits, here is a bit of trivia via Art Cashin's letter today, which confirms that in a split Congress regime stocks perform worse than when either party was in control. "The worst stock performance came under a split Congress (up +6.2% per year) regardless of which party was in command of the White House."

Here's how to explain the developing "mortgage put-back" mega confrontation to your family and friends, using "Rock 'Em, Sock 'Em Robots" as a handy visual aid...

After outperforming pretty much every asset class, most certainly stocks, and even gold, year to date, the "poor man's gold" may surge even more. The reason: China may cut silver exports by as much as 40%. As Bloomberg reports: "Shipments may decline from about 3,500 metric tons in 2009, said Feng
Juncong, chief analyst at the state-owned Antaike, without providing a
specific forecast. Customs data show exports plunged almost 60 percent
to 970 tons in the first eight months. Cancellation of an export rebate
in 2008 is also hurting shipments, she said." This is in line with recent expectations from the World Gold Council which has previously stated that China will likely become an increasingly greater buyer of gold both institutionally and at the retail level. And while we have discussed the impact that China's (temporary) ban on exports of rare earth minerals will have on prices (hint: not down), this will also end up driving silver prices higher. The catalyst, as usual, inflation: "There are Chinese investors now hoarding silver, along with other
resources, amid anticipation of higher inflation. China is
short of resources so these investors believe the metals will be more
valuable in the future." These investors are correct.

Today's very remarkable analysis from Albert Edwards presents a stunning spin on the China-US Nash Equilibrium, concluding that wholesale tariffs with China are now inevitable: "If another round of credit-fueled investment is about to be unleashed onto a global economy, already on the verge of deflation " it will simply not be tolerated. Watch the trade data closely. Watch the US unemployment rate closely. The US public is on the verge of revolt which is increasing likely to end in across-the-board tariffs." Why has the SocGen strategist come to this conclusion? Simple - he now believes that "China is becoming a malevolent influence (my words) on the global economy and strong action is necessary." As to who gets to buy US bonds should China start a boycott or outright dumping? Who else: "Why, Mr Bernanke is just waiting for his chance."

RANsquawk US Afternoon Briefing - Stocks, Bonds, FX etc. – 20/10/10

With all the hoopla around fraudclosure, it appears that pundits seem to be forgetting one important thing: namely, the fact that in addition to the $6.8 trillion in loans and leases in bank credit (per latest H.8) which is kept on the ponzi books (those afforded the mark-to-unicorn treatment by the FASB), there is also this little thing known as off-balance sheet securitization. And while the Fed was good enough to force the reclassification of around $400 billion in securitized consumer loans to bank books in March, the question of why a far greater number of securitized real estate loans continue to be carried off the bank books is (or should be) suddenly rather timely. Especially since the number is rather large: some $1,387,796,500,000 as of October 6 (seasonally adjusted) which also represent the bulk of off balance sheet holdings. Perhaps some of those very vocal advocates of how this whole mortgage crisis is nothing but a storm in a teacup can provide for a definite accounting method of how these nearly $1.4 trillion in securitizations will not be impaired. As otherwise the investing public may get some very nasty ideas that not all is well in off-balance sheet world and that this whole overture is nothing but a way to streamline the implementation of TARP 2...