Archive - Oct 2010

The war of words continues, this time with Dallas Fed's Fisher. More quotes from the fourth spoke in the Kocherlakota, Plosser, Hoenig, hawk sanity quadrangle. In his just released speech we read this stunner: "In my darkest moments,
I have begun to wonder if the monetary accommodation we have already
engineered might even be working in the wrong places." Aside from adding Fisher to the Shirakawa, Hildebrand suicide watch, it is notable that the Fed is finally doubting the actions of the Fed, and realizing it is creating neither employment, nor moderate inflation, but just bubbles, bubbles and more bubbles. And here is why Fisher may soon be looking to resign: "A great many baby boomers
or older cohorts who played by the rules, saved their money and
migrated over time, as prudent investment counselors advise, to short-
to intermediate-dated, fixed-income instruments are earning extremely
low nominal and real returns on their savings. Further reductions in
rates earned on savings will hardly endear the Fed to this portion of
the population." Hardly indeed. And next time it won't be the Pentagon.

The Democrats do the same nothing about this scam that the Republicans did while the American people pay tens of Billions of dollars every month to speculators like GS, JPM, C and other market manipulators who buy oil they have no need of and store it on tankers to fake demand and wait until the last minute to cancel contracts to make sure supplies are in a constant state of disarray - all in order to reach into the American consumer’s pocket and steal as much as they can from one of the few things you can’t do without.

One of the worst top tickers in the history of Wall Street, Goldman's FX team, has come out with a tactical short EURCHF call. Like every other time Goldman says to do something, the prudent thing to do is the opposite. Of course, this means more weakness for gold, as the Swiss Franc is simply the safest equivalent of gold in the monetary realm. Oh well - if better cost bases are to be had, than so be it. Of course, if Goldman is right, this means that today's short-term reversion in gold is just that, and nothing more. On the other hand, we wonder how Goldman reconciles this call with its bet from two weeks ago that the euro is going to $1.55 from the firm's previous target of $1.38, which incidentally was our indicator that the EUR has top ticked.

As always, some very entertaining and enlightening musings from Art Cashin, with an emphasis on Black Monday, modern-day Edgar Allan Poe remixes, and, last and certainly least, the Tepper Corollary.

Sheila shows a weak hand.

If you’re worried about the future of the stock market and have yet to take steps to prepare for the Second Round of the Financial Crisis… I highly suggest you download my FREE Special Report specifying exactly how to prepare for what’s to come.

I call it The Financial Crisis “Round Two” Survival Kit. And its 17 pages contain a wealth of information about portfolio protection, which investments to own and how to take out Catastrophe Insurance on the stock market (this “insurance” paid out triple digit gains in the Autumn of 2008).

Again, this is all 100% FREE. To pick up your copy today, got to http://www.gainspainscapital.com and click on FREE REPORTS.

RANsquawk US Afternoon Briefing - Stocks, Bonds, FX etc. – 19/10/10

The Pentagon’s main building was struck by several bullets about 5 a.m. Washington time today and officials are looking for the shooter, a Defense Department spokesman said.

Increased Competition begets more pressure on margins. It's simple business 101. But "Apple's margin pressure came from growth so rapid that they couldn't source the components fast enough" you say. I say you should just take a closer look at that story before you go around repeating it... Maybe the Android will listen to it?

About a month ago, when discussing the debunking, for the latest time, the biggest lie in modern history, namely the massive exaggeration about the corporate cash on the sidelines, we noted: "Our advice to all those who like blind lemmings follow the advice and chase the "cash hoard" - think, and do your homework first. If indeed over a third of the record cash holdings are foreign, they are as good as useless to shareholders." The reason for this: a major portion of the billion or so dollars in cash is held abroad and "repatriating this cash to the good old USA would cost companies hundreds
of billions in US corporate taxes. That's right: even though companies
are taxed abroad, the issue of double taxation is resolved by
subtracting foreign taxes paid from the US tax liability. However,
because foreign corporate taxes are typically lower there is an adverse
tax consequence associated with remittance to the parent company.
In other words, of the $1.2 or however many trillions in total
corporate cash on balance sheets, a good 30% chunk of this belongs to
Uncle Sam if these companies wish to use it for domestic IRR purposes.
And yes, just so there is no confusion: using foreign cash to pay dividends or share repurchases is considered repatriation from the perspective of US tax regulations." And now that the cat is out of the bag that the huge cash hoard is really about 30% less, here come these very same multinationals begging Obama for tax amnesty so they can actually bring the cash home and, gasp, use it. Too bad this request will never fly, and why even CNBC may soon (with a few cartoons), understand just how stupid they sound in pumping the hollow cash on the sidelines argument day in and day out.

Luckily the banks don't care about that $3 trillion footnote on their balance sheets known as CRE. Because if they did, they would all be insolvent: the Moody's REAL/Commercial Property Price Index index dropped by 3.3% in August, and is now 45.1% lower compared to the October 2007 peak. The attached chart says it all, or almost all - it actually says nothing about why banks are still trading at positive equity values.

Today's attempt to ramp Apple into the green no matter what (and with 20% of the NASDAQ, and thousands of ETFs creating a massive feedback loop, bidding up Apple generates the biggest bang for the buck), which, if unsuccessful, will see dozens if not more funds scream at EOD once the margin calls start rolling in (yes, many are "all in"), has resulted in yet another complete collapse in all correlations. Note the simply ridiculous divergence between the AUDJPY and the ES. This is all on account of the glaring ramp undertaken by virtually everyone whose livelihood depends on the aforementioned AAPL green close. We would argue that a long AUDJPY, short ES trade makes sense, but with the market as broken as it is, only idiots would hope for anything to make sense any more.

Stephen Roach, chairman of Morgan Stanley Asia, has penned one of the most unapologetic letters bashing the central banking climate we have ever read from an institutional insider (he is still technically part of MS). And Roach should know: From 1972 until 1979, Roach served on the research staff of the Federal Reserve Board in Washington, D.C., where he supervised the preparation of the official Federal Reserve projections of the U.S. economy. As a result he is all too aware of the quality and caliber of Fed individuals. Which serves as the groundwork for this stunning speech presented on October 12 before the World Knowledge Forum in Seoul. The topics covered include the creation of, and asset bubble "resolution" authority , the collapse of America into a Japanese deflation death spiral, the general destructive worthlessness of the Fed, and other such pleasant issues. Most importantly, Roach speaks out in all too clear terms against another "hyper stimulus" round: "Whether it’s the latest round of quantitative easing now under way by major central banks or the polarizing tax cut debate in the US, there is a limited likelihood these measures will achieve meaningful traction in the real economy. The authorities would be much better off not wasting the next stimulus on policies that won’t work and better disposed toward taking actions that are  directed at providing support to the true victims of this recession— namely, the structurally unemployed and underemployed." Roach's dire warning: "I fear that unless regulatory reform is accompanied by a rethinking of monetary policy, another crisis is far more likely than not."

As if we needed any further confirmation that the Fed is now willing to risk an all out bout of hyperinflation, here it comes courtesy of Chicago Fed's Charles Evans, whose comments that inflation is "acceptable", and welcome, and is the only way to battle the "liquidity trap" the US finds itself in, mirror those of NY Fed's Dudley who earlier confirmed Zero Hedge expectations that $100 billion is too low a QE2 number. Which means that very soon the Fed will buy up every single Treasury in existence. It will also kill the dollar absent Europe continuing on its path from earlier today, and saying the stress test was, in fact, a lie.

Episode QE3 of the Scam Trek Series takes ZH readers on a guided tour of select "Garage Mahals," "Hummer Houses" and "Faux Chateaus" located on postage stamp lots somewhere in the verdant Northern quadrant of the Borough of Queens, New York City. Ahead Warp 3 Mr Zulu...