Archive - Oct 28, 2010

In today's note by Goldman's Robin Brook, the analyst takes an inverse approach of looking at what a dollar drop implies for CPI and general prices, in an attempt to settle a debate whether the expected drop in the USD as a result of QE2 will have a meaningful impact on both inflation, currency wars, and other derivatives of monetary policy.  As Goldman concludes: "the ‘pass-through’ from Dollar declines to US consumer price inflation
is small. This in turn means that – if indeed the Fed sees the Dollar as
one of its key policy levers for preventing inflation from staying
below its mandate for a prolonged period – the Dollar needs to fall a lot further from here." The quantification of  "lot" is not provided but is sufficiently indicative from a qualitative standpoint. Of course, the biggest issue here is with the construction of CPI itself, which is driven far more by a collapse in leveraged input prices specifically as pertains to shelter, then spiking prices in items most see as critical in day to day use. Nonetheless, as Goldman is one of the Primary Dealers whose opinion is now a part of the "reverse inquiry" methodology in determining monetary policy, the fact that the hedge fund is comfortable with a substantial drop in the USD implies that the Fed should be just as comfortable with a shock and awe approach to QE2, as a pronounced effect on the dollar would likely have to come from a stepwise drop as opposed to a gradual wear down which would be intercepted by other central banks. The key question remains: what level on the DXY is Goldman, and thus the Fed comfortable with as ""modestly inflation stimulating, and what will the price of jeans be, gold, and other commodities be, not to mention what the final level of excess reserves and margins for Chinese exporters, once that level is finally attained.

One look at the market indicates that the tent in the futures confirms PDs are very excited about today's POMO. Just as they are excited to be able to determine not only monetary but fiscal policy, thanks to Ben Bernanke. For everyone else, here is your chance to bid up the specific bonds in the 2012-2013 range that the Fed will most likely end up monetizing. Out of hundreds of CUSIPs, here are the ten most likely issues to be repurchased.

Earlier, the Japanese government approved the BOJ decision to monetize in addition to the traditional JGB securities, also ETFs, REITs, and BBB and higher-rated bonds. In other words, the BOJ is now permitted to do what the Fed will have authority to do with a few months: buy virtually all risk assets, as buying ETFs is the same as buying the general market courtesy of the most traded security in the world, SPY, to push and pull the entire market in whatever direction it goes. There are two questions at this point: is the BOJ allowed to buy foreign (read US) assets that fall under the above buckets, and whether the FX currency swap line recently established with the BOJ will allow the Fed to use Japanese proxies to monetize various US assets. Or will the Fed first seek input from the BOJ on how to proceed with sending the Dow to 36k.

• Banks: U.S. Solicitor General Blocked Fed Appeal to Supreme Court (WSJ)
• Barney Frank fights for survival (Reuters): three words: Vote. Him. Out
• As expected, Wells Fargo lied: bank erred in thousands of foreclosures (AP)
• Desperation time: Banks `Want to Sit Down' With States to Discuss Foreclosures (Bloomberg)
• For foreclosure processors hired by mortgage lenders, speed equaled money (WaPo)
• Anglo Irish bondholders seek to block offer (Reuters)
• In Spain, Homes Are Taken but Debt Stays (NYT)
• Stocks Rise or Sink on QE2's Expected Size (Barrons)
• Here comes Chinese HFT: China Wrests Supercomputer Title From U.S. (NYT)
• China Needs To "Say No" On Rare Earths (Reuters)

Since the current week claims number is irrelevant and will be adjusted higher next week, we first point out last week's 27 or so consecutive revision, which was pushed higher from 452K to 455K. This also brings the total YTD prior revision at 34 up and 6 down. The current week number of 434K was below expectations of 455K. Look for the next week's revision to meet or beat the actual expectation but who will care then. In the meantime, with the last number before QE2 announcement, we expect the Primary Dealers to immediately tell the Fed no more POMOs are needed. And as an aside, continuing claims were revised from 4441K to 4478K. This is 40 up revisions, and 2 down. Probably the most important data from an economic perspective is that 400k people dropped from EUCs and extended claims.

Recently, in regard to the banker silver manipulation schemes, the CFTC's Mr. Chilton’s stated, “Under existing law, to prove manipulation, the government is required to demonstrate not only specific intent; we also need to prove that as a result of the intent and market control, that activity caused an artificial price.” I believe that the huge pricing anamolies in gold markets that existed on a regular basis during July, August, September of 2008 and that still occur today between the futures markets in Asia and those in London/New York intraday, as well as the significant anomalies between gold pricing in the futures markets and gold pricing in the physical markets is proof that the bankers’ price suppression schemes against gold create an artificial price.

• BoJ decided to leave its super-easy monetary policy unchanged; cuts growth estimates.
• Agricultural Bank of China, Bank of China Q3 profits beat est. on higher credit demand.
• Carlyle acquires CommScope for $3.36B.
• Comcast's Q3 net fell 8.2% on summer slowdown in subscriber growth.
• Conoco's profit doubled to $3.06B on gains from asset sales and lower writedowns.
• Dassault's Q3 net jumps 44% to €55.4M on 38% higher revenue.
• Daimler's Sept. profit surges from EUR56M to EUR1.61B.

Just the weekly stuff today—claims at the beginning of the day, Fed balance sheet at the end. And of course, POMO. Look for the accepted to submitted ratio to determine how much higher stocks will close.

RANsquawk European Morning Briefing - Stocks, Bonds, FX etc. – 28/10/10

I have maintained for several years now that bankers invented the SLV and GLD ETFs as part of their overall price suppression schemes enacted against gold and silver. Can we now leverage CFTC’s Bart Chilton’s recent allegations of silver manipulation to spur the SEC's heretofore immovable Chairman Mary Shapiro to action and investigate possible fraud in the GLD and SLV by the bankers?

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?

"In fairness, Larry [Summers] did a heck of a job," --Barack Obama-- "You don't want to use that phrase, dude."--Jon Stewart