Archive - Oct 22, 2010
And now, for that Friday night bomb, when nuking stocks has a tad too much of a Waddell and Reed 'amateur hour' aftertaste, the only alternative - destroy the entire currency market. If this crash in the DXY (seen below) had happened during regular hours, apparently driven not by the dollar but by DXY component EUR (there was no comparable move in other USD pairs), it would have created a complete market collapse. Luckily it happened an hour after close. Weekend collapse averted. And a quick glance at the other pairs shows that the GBP and CHF were solidly impacted as well.
Arguably nothing can ever be quite as amusing as the Michael Pento-Simon Hobbs incident from July in which the now brainwashed Brit told the recent EuroPac addition that he was just "peddling the power of nightmares" (not even Pento getting booted off by Erin Burnett, although the fact that some idiot uttered the now legendary phrase "nothing is in a bubble when people want to buy it" certainly gives the clip brownie points for retention in the annals of CNBC's worst all time bloopers) when all the outspoken critic of the Fed said was the truth. Alas, today's interview of Gary Schilling by the same British H1-B/Green card holder comes nowhere close, however it certainly should be highlighted. Following up on Diana Olick's presentation of Clear Capital surprising announcement that home prices had dipped 6% in just two months (we can't wait for Cramer's take on this development even as housing "bottomed" last June), and warning that fraudclosure will certainly cause prices to dip even more, it is Gary's turn to "peddle some nightmare powers" to Hobbs. To wit: the CEO of Gary Shilling & Co. sees home prices tumbling another 20% over the next few years, and the number of underwater mortgages nearly doubling from 23% to 40% (meaning nearly half of America will likely strategically default as nobody has any initiative to pay down their mortgage when they know there is no equity value left). And even when Hobbs tries to pull the old Pento one-two, and tells Shilling that "you do admit in your own writing that very few people would agree with you" to which the old fox answers: "what forecast is really worth much if everybody agrees with a consensus: it doesn't add much value..." Sorry, Gary, you are preaching to the wrong propaganda station: this is easily the first time they have ever encountered such a radical and subversive idea.
WikiLeaks Releases Iraq War Logs Which Detail Over 100,000 Deaths, Show US Ignored Torture, Expose Routine Friendly FireSubmitted by Tyler Durden on 10/22/2010 17:17 -0400
Wikileaks has lifted the embargo on what it dubs the biggest leak of American documents in history. The Guardian, which is the primary nexus of data collection, notes that almost "400,000 secret US army field reports have been passed to the
Guardian and a number of other international media organisations via the
whistleblowing website WikiLeaks. The electronic archive is believed to emanate from the same dissident US
army intelligence analyst who earlier this year is alleged to have
leaked a smaller tranche of 90,000 logs chronicling bloody encounters
and civilian killings in the Afghan war." The reports will likely do little to raise the US' standing in the eyes of the international community: "The numerous reports of detainee abuse, often supported by medical
evidence, describe prisoners shackled, blindfolded and hung by wrists or
ankles, and subjected to whipping, punching, kicking or electric
shocks. Six reports end with a detainee's apparent death."Additionally, the reports detail how friendly fire from US troops became routine: Americans have shot at their own troops or allies so often that in at least one case a strafed British vehicle didn't even stop. Since this will apparnetly now be the main story this weekend, might as well get a head start.
It's beginning to look a lot like Christmas, at least volume-wise. Hard to think today could have been much slower. So without further ado, here are the key things to watch for technically next week. - Nic Lenoir
RANsquawk Market Wrap Up - Stocks, Bonds, FX etc. – 22/10/10
And guess what, he ain't exactly optimistic either: "So, the world looks to be a better place for now. But it seems to us that rather than solving the underlying final demand issues in the leveraged western economies, this approach just moves the dénouement down the road. And there are, to use the polite economics word, externalities to the Fed’s action which at the very least increase the political tensions around a genuine attempt to rebalance. We think on balance that this sets us up for a bigger fall than otherwise six months out. " Kevin Gaynor, Nomura
11 seconds ...
Bob Janjuah, the only man who had anything remotely interesting to say at RBS, and luckily left, is now back at Nomura, and is a leaner, meaner, kool-aid debunking machine. His inaugural letter is attached below. One complaint: what happened to all the abrvtns? Bob, that was ur sgntre style. The English here is just 2... krct. The pipl dmnd abrvtns.
In his piece today, Dylan Grice returns to his favorite topic: hedging tail risk. That said, he also compares one Ben Shalom Bernanke to Rudolf von Havenstein who singlehandedly increased the German money supply by a few hundred million percent in a few weeks. Yet that is not Grice's focal topic (for those who wish to read Grice's extended thoughts on the von Havenstein-Bernanke comparison, click here), and instead the SocGen strategist goes a few steps ahead and looks at the possibility that if indeed there is a massive bubble being blown, nowhere is it more obvious than in the Emerging Market world. And taking that idea, Dylan, who lately has been very much on a tail risk hedging wave, provides one idea of how to protect against cheap inflation risk originating in the Emerging Markets (or where-ever).
A few days ago, we penned The BlackRock - Bank Of America Ownership Catch 22, in which we discussed the incestuous cross-onwership relationship between the two companies. Then we said: "It is well known that Bank of America owns 34% of BlackRock via a legacy
position inherited from Merrill Lynch, arguably the most valuable part
of the business. As of today, the stake is worth around $11.5 billion.
Yet what may be a little less known is that BlackRock has also returned
the favor, and is now the largest holder of Bank of America, owning 5.35% of the outstanding BAC shares, for a total value of $6.6 billion. Does
that mean that there is a wash in there somewhere? Who cares. But one
thing that certainly is involved, is a massive conflict of interest,
especially in the context of litigation. And a big question mark - to
claim that BlackRock is willing to impair a nearly $7 billion investment
is naive. Instead, due to the incestuous nature of Wall Street, and the
cross pollination of MBS holders, is today's action merely a ploy to
get some of the more "impacted" parties to promptly settle and eliminate
any possible future litigation? PIMCO, for one, and the FRBNY fir
another, have the most to lose if the MBS crisis escalates, and if all
MBS are unwound. Which means that somehow this is simply another
diversion, with the real action taking place somewhere." The action is indeed "elsewhere" - Charlie Gasparino has just reported that Larry Fink is seeking a partner to buy 35% of Bank of America. What better way to sweep all the problems underneath the rug than to just buy them all up...
That’s the word from US Treasury Secretary Tim Geithner as he seems to forget that people follow him around with notepads and microphones as he begins the game of "Survivor - Global Currencies" although Tim seems to be following the very interesting strategy of trying to be voted out first so maybe there’s a method to his madness after all.
Here we go - the rating agencies are now officially in the game. Next up - collateral calls and other nasty stuff: "Today, Fitch Ratings issued a number of separate press releases placing on Rating Watch Negative most U.S. bank and bank holding companies' Support Ratings, Support Floors and other ratings that are sovereign-support dependent. The two companies mostly impacted by this announcement are Bank of America Corporation and Citigroup, Inc." BBB+ coming up.
A few months ago we linked up to a Bloomberg interview with Boston professor Lawrence Kotlikoff who provided his justification for why the US is currently bankrupt (something about a few hundred trillion in off-balance sheet liabilities). Back then Koltikoff, aiming squarely at a specific NYT Op-Ed columnist, said "some
doctrinaire Keynesian economists would say any stimulus over the next
few years won’t affect our ability to deal with deficits in the long
run. This is wrong as a simple matter of arithmetic. The fiscal gap is
the government’s credit-card bill and each year’s 14 percent of GDP is
the interest on that bill. If it doesn’t pay this year’s interest, it
will be added to the balance. Demand-siders say forgoing this year’s 14
percent fiscal tightening, and spending even more, will pay for itself,
in present value, by expanding the economy and tax revenue. My reaction?
Get real, or go hang out with equally deluded supply-siders. Our
country is broke and can no longer afford no- pain, all-gain 'solutions'." And just because nothing has changed, the professor is back to the crime scene this time making an even stronger case of bashing America's oligarchy for not daring to set off on the much needed path of austerity, something even the stereotypically more "fear-prone" French are willing to do (and strike every day along the way). Kotlikoff says: "This massive Ponzi scheme is turning the American Dream
into the American Nightmare" adding that what the Fed is doing now is equivalent to "child abuse" and adding "If things continue as we adults have planned, our nation’s
debt, measured as a share of gross domestic product, will reach
Greek levels just when the grandkids start heading to work. At
that point, simply stabilizing the debt-to-GDP ratio will
require raising taxes by 50 percent, thereby lowering the
grandkids’ living standard from 74 to 61." And it gets much worse. Read on for Kotlikoff's view on why the Fed should be banned by the Geneva Convention.
Few commentators realize what the BIG story is for the financial markets today. The BIG story is not the mortgage fraud, the corruption, or the computerized trading (although the last one dominates US stock markets’ daily action). No, the big story is the monetary actions of the massively indebted US vs. the credit cooling China.
The biggest non-event this weekend will be the upcoming peace crack pipe pow-wow between the world's most demented Keynesians when a bunch of bloated politicians and economists (except for their much smarter Brazilian colleagues who will instead be frolicking on Ipanema beach and enjoying the fruits of the most artificially-enhanced population on earth) sit down in Seoul and pretend they can come to some resolution over the globalized attempt to destroy all world currencies all at the same time as trillions in shadow money disappears each and every quarter. If this feels like a deja vu, it is - every single G-20 meeting in recent history has had an underlying FX focus, the result ends up being some token agreement, and the very next day the sell off in the dollar continues, as 20 other banks proceed to buy dollars in an act of futility against Ben Bernanke's death star fiat printer. In other words nothing will change. Even JPMorgan agrees: "On Saturday the G-20 may deliver their first statement on FX, and they may incorporate language which many countries have never collectively endorsed, but such a statement may not change much in practice. The status quo, whereby countries manage a dollar decline as best fits their circumstances as long as they don't deliberately strengthen the dollar, will probably persist for lack of a better option...The euro too would fall initially, since less intervention implies less reserve recycling. It would later rally as the dollar broadly declined." In other words - US middle class, a hotdog in Europe will soon cost about as much as it does in Disney Land.