Archive - Oct 2010

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...

If you would like to subscribe to Shadow Capitalism Daily Market Commentary, please email me at naufalsanaullah@gmail.com to be added to the mailing list.

In view of the blistering Q3 9.6% GDP growth rate, it’s time to increase positions in the Middle Kingdom. Look for cash to rotate out of virile, young emerging markets back into the established BRIC’s. We have blasted through the 200 day moving average, suggesting that this move may have the legs of Secretariat. Rumors of its imminent demise are premature by at least a decade. Jim Chanos, please get out of New York and widen your circle of contacts. (FXI), ($SSEC), (EWZ), (RSX), (PIN).

The market rally was back on today with stocks shooting up faster than Ben Bernanke could chant "quantitative easing" over his bubbling cauldron (though he was heard incanting: "Double, double toil and trouble; Dollar burn, and assets bubble")...

First it was the New York Fed, now the FHFA itself (regulators of Fannie and Freddie) is getting involved in putbacks. The WSJ has just reported that the GSEs have hired law firm Quinn Emanuel as the "agency considers how to move forward with efforts to recoup billions of
dollars on soured mortgage-backed securities purchased from banks and
Wall Street firms... The FHFA hasn't disclosed the targets of its subpoenas, though some
banks have acknowledged receiving them, including J.P. Morgan Chase
& Co. The probe is focused on so-called private-label securities
that were originated by mortgage companies, packaged by Wall Street
firms and then sold to investors." Not to be confused with RoboSigning, which is at the heart of the Fraudclosure and could serve as a catalyst to what some claim as the unwind of the multi-trillion MBS market in a worst case scenario, this is a parallel effort that seeks to get banks to repurchase far more of misrepped and miswarrantied mortgages. As we previously disclosed, it is precisely this ongoing action that Bank of America and Wells Fargo have been (under)reserving against: and if the GSEs, together with the FRBNY, Pimco, BlackRock and who knows who else, are sensing the current moment as one of terminal weakness for the mortgage servicers, who knows how many billions in mortgages could be putback to the TBTF banks, who are luckily flush with still fresh taxpayer cash and trillions in excess reserves. Either way, it appears that while the New York Fed is going after BofA, the GSEs are about to dine on Jamie Dimon. Either that, or all this is a smokescreen to promptly settle all current and future possible litigation in an adversarial process involving government entities, and thus streamlined to a mutually amicable resolution.

Part four of David DeGraw book "The Road Through 2012: Revolution or World War III.”: "Now that we have an understanding of how the Global Banking Intelligence Complex ran operations through BCCI, let’s look at how some of BCCI’s key players kept operating after the bank was finally shut down. As discussed in the last chapter, during the 1980s and early ’90s, the CIA worked in partnership with BCCI in what was, at the time, the agency’s largest covert operation ever, pumping an estimated $10 billion into funding the Afghan Mujahideen. Through this operation, Osama bin Laden’s al Qaeda network was formed. Bin Laden had accounts in BCCI and ran CIA/BCCI-funded camps."

Our friends over at Big Macro have put together the latest issue of their periodic newsletter. In this issue they look at the at seemingly inexplicable divergence between the VIX and the EURUSD 3 month implied correlation (never a good sign), the increasing delinquency rates across all consumer loan classes (as in buying but not paying, leading to companies like Netflix which made $7 million in cash in the quarter to have a market cap of over $8 billion), but most notably at the differential between commodity prices and the CPI, superimposed against inflation. What is uncovered is that while when unemployment is below 6% companies can increase prices faster than commodity prices can go up, at current levels of joblessness, it will be impossible to pass through surging input costs (whether these be in wheat, cotton, or rare earth minerals). This leads to the conclusion: "What does this mean for the inflation/deflation debate? If the FEDs QE program will continue to push up prices, companies can only squeeze their margins so much. The reason we are not seeing  inflation today is that there is a lag in the feed trough from commodity prices to consumer prices, partly because companies have been able to temporarily save their margins by aggressive cost cutting. I think we are potentially set up for a big decline in returns for equity investors." The last statement has a linear severity with the amount of free money that Bernanke floods in the market in two weeks.

Canada's pension system is one of the best in the world, though there is room for improvement. Overall, the pension experts judged the US system, as well as those in the UK and Canada, as less sustainable than just a year ago, when they conducted their first joint international study.

Oil prices came roaring back, which is what we have come to expect. The bears really had the bulls on the ropes on Tuesday, and a haymaker on Wednesday could have beaten the bulls decisively and sent them in a complete rout. We have discovered repeatedly this year that the bears no longer have that knock-out punch. The buying started on Tuesday night into Wednesday morning, when the US dollar started to lose ground. As Wednesday continued, the euro made steady progress as the dollar dropped in an almost vertical decline that lasted throughout the session. And equities rallied, putting two big outside factors on oil’s buy side. - Cameron Hanover