Archive - Oct 29, 2010

A note to those banks that have blocked the access to popular blogs. Wall Street has been BLINDED by the “revenue at all costs” mentality! These deals, products, services and structures are a lot more than potential bonus checks and wide girth swinging dick bragging rights! They are life lines for the mentally disabled, widows retirement funds, potentially life saving programs for AIDS victims, domestic abuse victims, orphans, etc. Hey, I’m all for making money (a lot of money even), and I know that in order for you to make money someone else has to lose it, but there must be boundaries drawn. Attempting to block employees access to my blog (in vain) does little to improve things...

Q3 growth in line with consensus expectations-but slightly higher than ours due to faster-than-expected inventory accumulation. Growth in real final sales was a touch weaker than expected, due mainly to another large trade drag. Consumption growth was healthy, though slower than we thought, while federal government outlays and business fixed investment (mainly construction) were higher. Meanwhile, moderation in employment costs reflects budget pressures of state and local sector.

Sunday is Halloween and that means next week the “sell in May and go away” cycle is replaced by its bullish opposite. Traders, however, will also note that it marks the beginning of a new tax sale fiscal year for mutual funds. Traditionally, trading profits taken by mutual funds before Halloween result in a taxable event for the fund holder in the same year. Profits taken after Halloween are not taxed until the following year. So, are mutual funds sitting on a batch of profit-taking sales starting next week? There may be more to think about than elections and QE2. - Art Cashin

Total Q3 GDP of $13,260.7 billion, an increase of $65 billion, of which $23.7 billion are personal current transfer receipts. The underlying data is not good, as the meet was driven by inventories, which increased by $115.5 billion in the third quarter, following increases of $68.8 billion in the second quarter and $44.1 billion in the first. This is a forward growth "draw" because as Goldman noted a higher than expected inventory number "becomes a negative risk factor for Q4 or Q1." Other indicators: US GDP Price Index (Q3 A) 2.3% vs. Exp. 1.8% (Prev. 1.9%); Home building fell 29% by 2 points, investors add 1.44 points; US Q3 consumer spending rises 2.6%, most since Q4 2006; US Personal Consumption (Q3 A) Q/Q 2.6% vs. Exp. 2.5% (Prev. 2.2%), highest since Q4 2006; Core PCE (Q3 A) Q/Q 0.8% vs. Exp. 1.0% (Prev. 1.0%); Employment Cost Index (Q3 A) Q/Q 0.4% vs. Exp. 0.5% (Prev. 0.5%)

Is the world about to see a new Chinese export ban? Is it time to buy assorted new bubble ETFs all over again? Looks like China just refuses to let things go, and Japan is not going to get access to those rare earths any time soon.

• Japan "damaged atmosphere" with China at summit by raising disputed islands - Chinese official
  
• Japan "released untrue information" that Japanese, Chinese Premiers would meet - Chinese official
  
• Japan "responsible for everything" in diplomatic row with China - Chinese official

Unlike Morgan Stanley whose calls on the shape of the yield curve have been pretty much wrong all year, and which have changed consistently, Goldman has been rather quiet on what it expects the curve to do. Today Francesco Garzarelli has come up with expectations that, unlike MS, the bulk of the buying will be concentrated at the 5Y locus, even shorter than the MS-preferred 7-10 Y. While this does make sense as there are far more bonds of shorter duration available for purchase, it also means the average holdings of the Fed will soon be cut in duration even more, which will eventually become a sufficiently large political factor that we expect Congress to soon get involved in discussions over the viability of the Fed's balance sheet (think massive asset-liability duration mismatch). Goldman also notes that it expects the 30 Year to be purchased and that the 10-30s will flatten, even as the 5s10s steepens. In other words a 5s10s30s butterfly may be the right way to play the Goldman trade... or to, inversely, fade it as so often is the right way to trade Goldman recos.

• Asian stocks decline as Sharp, Samsung Electronics stoke earnings concern.
• Japan Factory Output slide, deeper deflation are 'negative surprise' for economy.
• Tokyo Stock Exchange said there has been suspicious trading activity in shares of companies that have recently announced capital raising plans.
• AIA shares climb 11.5% in debut trade in Hong Kong, after raising $17.8B in IPO.
• AutoNation's Q3 net dips 12.4% to $56.9M on higher advt exps. Revs up 13%.
• Bunge Ltd.'s Q3 profit slid 8.6% to $212M on debt repayment, other one-time charges.
• Cliffs Natural Q3 profit $2.18 a share vs 45c; revs at $1.3B vs $666.4M last year.
• Enel Green Power IPO price cut to €1.60 apiece vs. prevs price range of €1.80-2.10.

Preliminary GDP for Q3 - the datapoint which Fed members said would be critical in determining QE2, also employment costs, the Chicago purchasing managers’ index, and the final Reuters/Michigan confidence read for October. Most importantly, no POMO today.

Far too many people equate the pursuit of advanced educational degrees with intelligence and an increased likelihood of success. I know this is conventional thinking, but I highly disagree with this theorem. As an entrepreneur, it is my sincere belief that the much safer route for young adults to seek during the next decade will be realized through the entrepreneurial pathway versus the traditional pathway of “climbing the corporate ladder”. This means skipping the traditional business academic process may become in vogue in future years.

RANsquawk European Morning Briefing - Stocks, Bonds, FX – 29/10/10

But taking into consideration the somewhat disquieting news from China, I am wondering just how fast is a petaflop, exactly how fast is a high frequency trade (take automated scalping for example) and how does one visualize it in comparison to the processing speed of the average SEC porn surfer.

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 pair

As of October 27, the Fed's balance sheet was $2.3 trillion, of which the $837 billion in Treasury debt is of course a fresh all time record, soon to be eclipsed by the tens of billions added weekly as per QE2. There is roughly $13 billion left under the current POMO program ending in the second week of November, which by then will be supplemented by a new and improved almost daily POMO. In the past week, bank excess reserves increased by $16 billion after declining by $34 billion the week prior: total reserves stood at $1,008 billion, up from $993 billion the week before. And once again foreign holdings of agency/MBS debt dropped to a new 3 year low, dumping over $100 billion agencies in the Fed's custodial account over the past two months. Last, we take a look at the one topic that will soon be the most talked about subject by every pundit in the econosphere: the duration distribution of Fed holdings.

China plans to cut rare earth export quotas by 30% next year. As China controls 97% of the world’s rare earth production, and consumers are desperate to lock in supplies so they can build everything from hybrid cars to IPods to heat seeking missiles. Is this the first shot in the coming resource wars?