Archive - Oct 21, 2010

"Philly Fed factory survey improves slightly in October; both it and Conf Board's leading indicators index in line with expectations." Translation: more free money.

And so the chapter of Goldman's prop trading operation comes to an end. As Dealbook reports, "famed New York proprietary trading desk is headed to Kohlberg Kravis Roberts, as the investment bank winds down the operation to comply with new federal regulations for Wall Street." Of course, all those who are left at Goldman prop will be put in "client facing" positions, which means nothing really as they will merely hold inventory based on what Goldman's flow bias is, even as Goldman follows in Morgan Stanley's footsteps and ramps up its VaR to fresh all time highs.

A piece of the entitlement pie.

The CONference Board announced its Leading Indicators increased 0.3 percent in September to 110. This was in line with expectations. What was also in line with expectations is the ongoing revisionist lie that has permeated every single government statistic: the August number was lowered from 0.3% to 0.1%. Of course, at the time it was a beat to the consensus estimate of 0.1% and likely resulted in an other mad rush to cover stocks. Now that it has been fully priced in, the true number can be revealed. And so continues the Chinization of the US economic release complex. As the AP noted: "The index had grown steeply since April 2009 on the strength of the stock market, record-low interest rates and a rebound in manufacturing. But the rate of expansion tapered off this summer as U.S. economic growth slowed." One wonders just how deplorable the state of the economy would be if the truth were actually released.

The FHFA has just released it revised "draw" projections for the GSEs, i.e., money which US taxpayers will have to spend to keep the nationalized securitization monsters alive. The reality: after already receiving $148 billion from Tim Geithner's US Treasury, the FHFA now estimates that its downside case will result in additional $220 billion over the next 2 years, for a total of $363 billion through 2013. And since this is based on Moody's housing price forecasts, two things are certain: (i) the "upside" case of only $221 billion in cumulative draws can be heckled, and (ii) the final cost will likely be well north of half a trillion. Of course, by this point it will become clear that Fannie and Freddie have no idea whose mortgages they own (as they will discover post their subpoenaing of JPM and others), and the real cost will be potentially well in the trillions, and require a second full scale nationalization of what are already nationalized companies. Actually there is one more point: by 2013 the US will long be insolvent, the Fed will be monetizing everything (say in your best Tepper voice), and the NYSE and the Zimbabwe Stock Exchange will have merged in futile pursuit of synergies to generate $0.01 of revenue away from the 99.999% dark pool dominanted marketplace, and so what happens 3 years down the line is completely irrelevant.

We first discussed the topic of cash repatriation (or lack thereof) about a month ago. Since then, more and more seem to be waking up that of the over $1 trillion in cash on the corporate "balance sheet" not only is most of it unusable domestically (without being taxed at the marginal tax rate upon repatriation), but that companies are effectively boosting earnings by not paying taxes (money which should be going to the US coffers to pay for the same corporate friendly policies enacted by the government, that is currently being funded almost exclusively by individual taxpayers, and the Fed of course). And massively so. An expose in Bloomberg details how courtesy of various, perfectly legal, tax avoidance schemes, Google's effective tax rate is 2.4%, which has resulted in $60 billion in less taxes paid to the US, and which has boosted the company's stock price by a whopping $100/share!

Jobless claims "fell" to 452k with the story as usual being in the revision. Last week's 462K number which was originally expected to be 445K is now revised to 475K! But of course it is so much more palatable to get the BLS lie piecemeal instead of in one place. We are now on 25 out of 26 sequential upward revisions, and up to just under 250k Year to Date on initial claims. With this week's number beating expectations of 455k, only means the revised miss will be announced next week, when this week's number is revised to north of the expectation. The same identical story in continuing claims: the print was 4,441K, a deterioration from last week's 4,399K which again was revised to 4,450K (revision 36 out of 37). Lastly, those falling of regular rolls once again jumped, and for the week ended October 2, those on Extended Benefits and EUCs rose by 280K. Since the news confirms the US economy continues to lose workers, this will do nothing for the market's expectations of trillions in free liquidity to be announced in two weeks by the Fed. Then again, none of this matters - as Jim Iurio said earlier: "We are all currency traders."

• Banks Clueless on Foreclosure Mess Severity: Jonathan Weil (Bloomberg)
• New York Fed Faces `Inherent Conflict' in Mortgage Buybacks (Bloomberg) - as we speculated first, the FRBNY gets dragged into this as not pursuing action would be dereliction of fiduciary duties to taxpayers by Maiden Lane
• Geithner suggests major currencies "in alignment": report (Reuters)
• Geithner's Goal: Rebalanced World Economy (WSJ)
• Chinese growth slows to 9.6% (FT)
• On the "cash on the sidelines" BS and on Google's 2.4% effective tax rate (Bloomberg)
• Osborne vows not to backtrack on cuts (FT) as UK unveils dramatic austerity measures  (FT)
• Greek, Portugal Bonds Lead Peripherals Lower After Spanish Sale (Bloomberg)
• We See Totally Surreal Markets (Bob Chapman, h/t John)

• Baltic Dry Index falls for fourth day as rents for all vessel types slide.
• Beige Book: Despite high unemployment and persistent weakness in housing market, consumer spending edges up.
• China’s economy grew 9.6% in Q3 - the smallest gain in a year.
• Euro-zone Oct. composite PMI falls to 53.4 - fresh one-year low.
• US 30-year yields near 1-week low as longer maturities attract.
• Deutsche Bank sells $856.6M in bonds tied to commercial properties.

RANsquawk European Morning Briefing - Stocks, Bonds, FX etc. – 21/10/10

If there is a provable relationship between formal education and intelligence, it is probably an inverse one. The more letters you have behind your name (MBA, PhD, JD, MFA, CPA) the greater level of stupidity one likely possesses, as the attainment of a higher level of education means that one has been exposed for a far longer time period than the average citizen to the indoctrination process.

Retail traders are notoriously wrong at picking market direction/tops and bottoms. Most retail traders very naturally seem to adopt a counter-trend stance and this offers very accurate signals for individuals looking to trade against this group. This daily report is designed to help traders focus their efforts on higher probability pairs. So what are the signals?

I have one question: Are Lloyd Blankfein, Lawrence Summers and Robert Rubin members of the NYC Harvard Club? If not, they should be...

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