Archive - Oct 4, 2010

The National Association of Realtors is a marketing engine with what some may call (but not I, of course) comedians for chief economists, yet their data and their economist’s opinions are quoted regularly in credible, mainstream financial news shows and newspapers. WHY???!!! On that note… Bloomberg reports the NAR states "Pending U.S. Sales of Existing Homes Increase 4.3%"

Liberals and conservatives, progressives and libertarians should all be up in arms about this.

We have a right to know what we're eating.

Our research on Interoil (IOC) leads us to believe there may be a lot of skeletons in its closet, making it a top choice for our next bearish position.

This weekend's chief financial tragicomedy was without doubt the busted conference call conducted by Citi, in which Ireland finance minister Brian Lenihan ended being heckled openly by a roster of about 200 people, who were a little late in realizing that the operator had forgotten to mute all their lines. This was described previously in painful detail by the Telegraph. And while Ireland is still refusing to acknowledge that anything out of the ordinary happened, and Citi has most certainly deleted any copies of the first part of the conference call, the second part of the call was obtained by Zero Hedge. What is obvious from the call is the extreme sensitivity the operators and organizers have toward any open line, while proffering extreme apologies for the confusion that was prevalent on Part 1 of the call, which apparently lasted for 45 minutes (the entire call ended up being one hour thirty minutes, after it was supposed to be half that duration). Furthermore, if as Ireland claims none of the alleged shenanigans occurred, then why is the first thing uttered by the moderator his "profound apologies for the foul up that the conference provider has had earlier." As for the call itself, we fail to see how someone who claims there is no local deposit drain (like in Greece) due to "Ireland being an island" and thus making deposit evacuation difficult, is supposed to calm investors and result in tightening spreads. Although, as we disclosed earlier, the ECB's €1.4 billion in sovereign bond purchases last week, successfully unraveled that particular mystery as well. For all this, and much more, as well as a rather amusing Q&A, the link to the entire call is attached below.

Another day another falling dollar.

Good thing too or we'd be heading for the toilet this morning.

Mary Ann Bartels, BofA's technical research analyst looks at the NDX large spec positions reported in last week's COT report, and does not like what she sees: "Large speculators aggressively bought NDX futures last week to a net long of $3.2bn notional from $0.8bn notional previously. Readings are in a crowded long. Between mid Feb and early April of 2010, HFs accumulated NDX aggressively into a crowded long position and S&P 500 went up 7.9% for this time period. The market corrected 10.2% from the peak crowded readings in the NDX in later April and May. We are estimating a market pullback of 10%-12%."

Bears I talk to this morning have a pit of a spring in their step this morning. Certainly it's not everyday the market sells-off and spends more than a handful hours in negative territories. Here are a few charts that show that the next few hours will be key / 10 ticks will be key. We need a daily close below 1,130 in S&P futures to confirm weakness. As the charts show, Dax is on support here and need to accelerate lower in order to break the recent uptrend. Similarly, EURUSD and AUDUSD are both weaker today yet still not threatening the uptrend. - Nic Lenoir

Brian Sack, head of the Fed's Open Market Manipulation and Intervention Group, speaks. In a presentation he has given in Newport Beach, presumably so that he is close enough to Bill Gross so that Pimco does not even need to leave a trace in calling up the FRBNY, he tells those who care to buy, buy, buy. Well, that's reading between the lines. What he says on the surface is that asset purchasing is an "imperfect policy tool", and yes, he should know - especially as pertain to Amazon and Netflix. He follows by stating that any Fed asset purchase plan should be flexible, while warning that it is difficult to "calibrate" cost, benefit of Fed purchases. Of course, according to him more asset purchases are "unlikely to complicate Fed's exit" - any why would they: there will be no exit at $2.5 trillion, who is idiotic enough to think the Fed will be able to exit at $4, $40 or infinity... Lastly, in a bid to avoid the unemployment line, Sacks says that asset purchases seem to improve financial conditions, and that the economy is "vulnerable to downside surprises." Luckily, as the WGC pointed out earlier, buying gold is the perfect hedge to protect against more Bryan Sack fat finger-type events.

In my view, the evidence suggests that the expansion of the securities portfolio to date has helped to foster more accommodative financial conditions, and further expansion would likely provide additional accommodation. Of course, whether the FOMC decides to take such a step will be determined by its assessment of whether the benefits of additional policy stimulus outweigh the perceived costs of expanding the balance sheet.

David Rosenberg debunks the five main "recovery" myths that have gripped the mainstream media, which, of course, always eager to put three extra layers of lipstick on the piggy truth.

A question that has become very prevalent recently is whether in a world denominated in fiat ponzi equivalents, in which central banker intervention is hell-bent on devaluing this very system, whether gold (with a recent Sharpe ratio most portfolio managers can only dream of) is not currently the best hedge against tail risks. Conveniently, the World Gold Council has just released a paper, and, for those with a shorter attention span, a video clip, which provides an affirmative answer to that question. From the WGC: "In the analysis the WGC shows that during the period between October 2007 and March 2009—the height of the global financial meltdown—an investor with a portfolio of US$10 million experienced an additional US$500,000 financial loss simply by not maintaining a position in gold. The study used a composition similar to a benchmark portfolio, which included an 8.5% allocation to gold, to show that total losses incurred during the period reduced by 5% relative to an equivalent portfolio without gold." But before we get into the WGC paper's findings, we would like to point out a special report by Reuters which confirms what all the "goldbugs" have known all along: "The world's
wealthiest people have responded to economic worries by buying bars of
gold, sometimes by the ton, and moving assets out of the financial
system, bankers catering to the very rich said on Monday... A banker said, "We had a clear example of a couple buying over a ton of gold ... and carrying it to another place."" Guess why JPMorgan is doing all it can to preserve as much physical gold within its system before it all runs out, and all those demands for physical delivery skyrocket (even more).

RANsquawk US Afternoon Briefing - Stocks, Bonds, FX etc. – 04/10/10

After dropping to a modest €134 million last week, ECB purchases of sovereign debt exploded tenfold in the last ended week to €1.384 billion, confirming that the ECB continues to bid up all Portuguese and Irish bonds available for sale, so the market does not crash. As Reuters notes, this is the highest weekly amount purchase since early July. Once again it is up to the European Fed-equivalent to be the buyer of only resort. And Europe's continued central bank facilitated life support comes on the heels of the latest joke in recession timing: per Dow Jones, the Center for Economic Policy Research Monday said its Euro Area Business Cycle Dating Committee had determined that the currency area's recession began in January 2008 and ended in April 2009, lasting a total of 15 months and reducing gross domestic product by 5.5%. Some recovery there, when half the PIIGS have no access to capital markets, have their Prime Ministers mocked during conference calls, and are fighting with an exchange rate last seen long before Greece, Portugal, Spain and Ireland had to be rescued. We wonder what the CEPR's timing on the end of the European depression will end up being?

Realtor.org has released the August pending home sales, which increased from a SAAR of 78.9 (of course, downwardly revised from the previous reading), to 82.3 in August, a 4.3% rise on expectations of 2.1%, mostly on a jump in South and West transactions, which increased by 6.7% and 6.4% respectively. And add this to the plethora of data series which consistently see prior numbers revised adversely: July data was revised from a 5.2% increase to 4.5%. NAR chief economist, Larry Yun, once again tried to put some lipstick on the bottom-bouncing pig: “Attractive affordability conditions from very low mortgage interest rates appear to be bringing buyers back to the market. However, the pace of a home sales recovery still depends more on job creation and an accompanying rise in consumer confidence.” And yes, throw one more party praying eagerly each night for QE2.

Ever heard of the oxides of Lanthanum, Cerium, Neodymium, Praseodymium and/or Samarium? With price surges between 250% and 600% in one quarter, you may wish you have. The recent pissing contest between Japan and China, which culminated with a temporary export ban in rare earth metals such as those named above, translated in ridiculous price jumps in some compounds most have never even heard of, let alone traded, yet which would have made not only the year, but the decade for hedge funds invested in them. And with China producing more than 90% of the world's supply of rare earth minerals, coupled with increasing probability of escalating global (and regional) trade wars, it is distinctly possible that the gains recorded recently in gold will be dwarfed by the imminent Samarium Oxide bubble, which 3 months ago was trading at $4/kg and is now over $30.

An aid for visualizing the full ponzinomic spectrum.