Archive - Oct 2010

As Morgan Stanley pointed out earlier, the entire market now revolves around the insanity of one man. Just one man. That insanity has just taken the 2 Year UST to a fresh all time low of 0.4066%, and gold to an all time high of $1,320. Once the record divergence between stocks and bonds collapses, it will be one for the generations. Too bad not many may be left. At least gold "bugs" will have the last laugh over the paper bugs before it all blows up.

I am not an economist or anything of the sort, but the bank loss situation looks an awful lot like it did during the great depression.

Worst ISM of 2010, propped by record high inventory index, as all other components plunge. The survey respondents say it all: "Business continues flat relative to prior month and is expected to remain flat. Commodities continue to be the main concern heading into 2011."; "Our business is softening due to seasonal considerations. Overall, our situation is much better than 2009."; "Customers seem to be pulling back on orders. I suspect that they are trying to reduce their inventory for the approaching year-end." (Transportation Equipment); "Strategic customers reducing order quantities." (Computer & Electronic Products)

Confused yet: a few days ago the Conference Board came out with a confidence number which was a massive miss, and which drove market higher on expectations of QE2. Today, to prove that nothing coming out of the government is even remotely credible anymore, the UMichigan Confidence index came at 68.2, beating expectations of 67.0, and compared to a previous read of 66.6. Once again, our condolences to all those who trade the candles in this joke passing for a market.

Jim Caron has some truly brilliant comments this morning which should be read by all who think they have any handle on the market: "The fixation on QE comes at a price. It is that interest rate volatility will rise due to the uncertainties surrounding QE. And since the performance of interest rates is closely tied to the performance of risky assets, including gold and the USD, then it follows that volatility in those assets may rise as well. Investment decisions across many asset classes today are tantamount to an educated guess on what the Fed decides to do regarding QE. In the near-term this trumps fundamentals, valuations and almost everything else. Thus the risk in the market is man-made, not freely determined by the market. In general, this is not a good thing because it may invite greater risks in the future...If the Fed does not follow through with QE as the market expects, then risky assets may suffer." To put it mildly...

Former Goldman chief economist and current FRBNY and PPT President Bill Dudley has guaranteed QE2: "I conclude that further action is likely to be warranted unless the economic outlook evolves in a way that makes me more confident that we will see better outcomes for both employment and inflation before too long." Dudley's remarks demonstrate the wide opinion rift at the Fed, where those who don't feel like crucifying the dollar (Kocherlakota, Hoenig, Plosser) are directly faced with such middle class monsters as Dudley and the Doves (which does have a rockband like quality to it). Nobody should have any doubt as to which side will ultimately win this argument...

The BEA has released the August Personal Spending, Income and Savings data: in summary spending rose 0.4% on expectations of 0.3%, and 0.2% previously, income increased 0.5% vs a consensus of 0.3%, and 0.2% previously again. The reason for the biggest advance in income this year, "the resumption of extended and emergency unemployment benefits." It appears, the only way Americans can see their incomes now grow is when the goverment loosens the socialism spigot. Both the PCE core and deflator came as expected, at 0.1% and 1.5%, respectively. Finally, due to the relatively bigger growth in Income, the savings rate increased slightly from a previously revised 5.7% (5.9% before), to 5.8%. The Krugmanites out there will vomit all over this number, as the last thing, they will say, the economy needs is a consumer who is saving more just as the government's fiscal stimulus hands are tied, and the effects of the existing stimulus are now non-existent.

One of the more amusing side-effects of the Keynesian system's death throes are the ever greater disconnects between a central bank's lies about reality and its actions. In this case, there is likely no better recent example than the BOJ (our Fed has been less vocal in its minutes recently in extolling the virtues of the US economy, which is the primary reason why the only thing driving the market are expectations of the arrival of "QE the Saviour"). Goldman has compiled a handy table showing how beginning in September 2009 there has been a major divergence between the BOJ's economic assessment and actual policy decisions, confirming that a nation's central bank is nothing but a populist tool to preserve a political system, even as it acts completely in opposition to its convictions.

The perfectly inverse trade of dollar vs gold continues to reach new extremes. Earlier today, spot gold just hit a fresh all time high of $1,317, once again proving that all that inflection point chasers really have no idea what they are talking about, since gold is not trading based on some regression channel, but continues to be the only way to hedge central bank profligacy. It is stunning how many experts still don't get this. As long as daily news of currency intervention bombard Bloomberg terminals around the world, this trend won't end. And neither will the pain for the dollar, which as the attached heatmaps demonstrate has received another fresh round of pain, with the EURUSD hitting 1.3765, as Europe is once again caught in a quandary of how to best punish it own currency without setting off a fresh banking crisis (the whole rock and hard place thing). Yet someone who will certainly be forced to intervene soon or else risk loosing all control is the BOJ, whose currency is now back to pre-intervention levels. Total tally: global central banks have spent tens of billions to keep the dollar low, and have failed, while all Bernanke has had to do is threaten to print another trillion and succeeded.

• BOE won't extend or replace its special liquidity scheme when it expires in early 2012.
• China's Manufacturing expands at faster pace as recovery sustains momentum.
• Crude oil trades near highest in seven weeks on signs of improving demand.
• Ecuador declares state of emergency; dubs protests an attempted coup d'état.
• Geithner says no threat of trade war with China or world currency conflict.
• IMF warned that reducing budget deficits, is likely to cut growth and raise unemployment.
• India's manf activity expanded at a slower pace in September, at 55.1 vs. 57.2 in August.
• ISM-Chicago's business barometer climbed to 60.4 in Sept- beating all estimates.
• Japan Consumer prices fell 1% in August as Yen strengthens, Economy slows.

A heavy day for data, with readings on consumer spending and spending, industrial activity, and construction. Also, a couple of Fed speeches on tap….

RANsquawk European Morning Briefing - Stocks, Bonds, FX etc. – 01/10/10

Retail Traders as a herd are wrong…most of the time (sorry guys its true).

This daily report is designed to help traders find opportunities to trade against this group. The premise is very simple we are looking for 66% of retail traders to be trading either long or short a currency pair, we then look for opportunities to fade (trade against) this group.