Archive - Nov 1, 2010

A King World News contact out of London has confirmed that, “Massive Asian buying is going to squeeze the shorts in the silver market.  Any reactions in the price of silver will be heavily purchased, and these buyers will take delivery of physical silver.”  The source who wishes to remain anonymous agreed with Eric Sprott that this squeeze could take the price of silver to $50 in a matter of months.

Major beat by the Chicago Manufacturing ISM, coming at 56.9, on expectations of 54, compared to 54.4 previous, and the highest since May 2010. Yet not all is rosy, as the majority of respondents still find conditions deteriorating: "The dollar is weakening again, which is resulting in higher costs
for our materials we purchase overseas. It is hurting our profit
margins"; "Currency continues to wreak havoc with commodity pricing"; "Customers remain cautious, placing orders at the last minute, making supply planning a challenge." Exports contribute substantially to resounding beat as somehow every country is now seeing surging exports to everyone else, and nobody admits to actually importing. Lastly, inventories, the key contributor to the Q3 preliminary GDP beat declined. Go figure. 

What can we say: Rick is one of the lucky ones. Of course, once we move beyond the sarcasm, here is what Rick Santelli says on the Krug's solution (and cause) to all of life's problems (that would be spend, spend, spend and then spend some more to the uninitiated): "How dare we take away their spending privileges, those chosen few with letters after their name who say the only problem with the medicine is that we didn't give a big enough dose." Luckily, Krugman already has set up the "Worst Economist In The World" column placeholder. We are just waiting for him to actually start discussing the most worthy candidate in the category....

Ambac was the walking dead 3 years ago, but nobody wanted to admit it. Well, as they skirt with bankruptcy today, the same story applies to the big US banks, and again nobody wants to admit it. What are the chances you will be reading a bankruptcy blog post like this one about the big banks in a year or two?

Just headline for now from Reuters:

• Greek police says 2 unexploded parcel bombs found on suspects, one addressed to Belgian Embassy
• Greek police believes blast not linked to Al Qaeda, suspects may be linked to leftist Guerrilla
• Greek police says one of package bombs intercepted in Athens addressed to French president Sarkozy
• Greek police say both bombs are now diffused by controlled explosions

Deja vu of a certain archduke frolicking in southeast Europe and some such? No news if package originated in Yemen.

Back on April 13, when Abmac hit over $2/share as the HFT swarm of locusts decided to make the insolvent mortgage insurer its plaything, we highlighted Cramer's call that even though the company is bankrupt, investors should "chase it" there. To wit, the CNBC pumper said: "The purists out there have spurned these points. I could care less about purity. I could care less that someone might be able to say Cramer likes worthlessness.  But the !@#$% animal spirits have it going, and a worthless stock can be worth something if it moves up that much and starts offering equity or bonds against it." We are not going to say that Cramer likes worthlessness. For that to be the case, Cramer should be able to voice a reasonable argument for or against over/under-valuation. He has proven time and again that he is completely unable to do that. Instead, all Cramer does is recommend stocks that go up or down, and throws his viewers into the lemming vice, while constantly hiding behind his disclaimer. Unfortunately for those who listened to Cramer, as he predicted that his situation is "real. [It is] happening. [It has] happened. And this is one of them that I feel is destined to happen again" are now facing yet another complete loss, as the stock opens trading at pennies in anticipation of Chapter 11, and as Cramer esposued momentum trading is proven once again to be lead to nothing but financial ruin.

After opening strong, the EUR is now slowly rolling over, on increasing concerns over bund spreads which are once again surging. If the EURUSD moves to white, look for futures to hope and pray that Australia can sustain the greenness there. Else, all those who were bidding up futures overnight are about to offload accumulated and now largely underwater positions.

One thing is sure to happen when Americans buy more iPads than they can afford: the savings rate will fall. Sure enough, the just reported September savings rate dipped to 5.3%, the lowest reading in 2010, and a decline from August's downward revised 5.6%. This is due to a miss in both personal income and personal spending, the former coming at -0.1% vs Exp. of 0.2 (and a prior revised to 0.4%) with the latter at 0.2% versus expectations of 0.4% (and an upward revised prior to 0.5%). The savings rate has now declined in a straight line since peaking at 6% (2010 high), to the current low. In other words Americans have been spending more than they were making for four months in a row. And on wonders why consumer discretionary names have been doing well... Luckily, it means that courtesy of Americans' savings decline by nearly 20%, there are only so many future landfill filling gadgets that will be bought going forward.

See the 1940 Dow analog, when the markets crashed in May and again during election week.
Bonus: Murphy v. Krugman update...nearly $50k raised to date.

• Here is why Europe is not screeching about EURUSD 1.40: Bernanke Greenmail - Fed Helping Spanish Debt Keeps ECB Mum on Dollar (Bloomberg)
• More Mixed Signals: China cuts discount to mortgage rates (China Daily)
• China Waves Magic Central Planning Wand and Manufacturing Posts Biggest Gain in Six Months (Bloomberg)
• Dollar/yen Jump Short-Lived After Suspected Miss-Hit (Reuters)
• White House Considering New Tax Cut Plan, Washington Post Says (Bloomberg)
• Natural-Gas Futures Advance to Six-Week High as Heating Demand to Increase (Bloomberg)
• China says no significant cut for rare earth quotas (Reuters)
• Fed Risks Its Credibility on a Bowlful of Mush (Bloomberg)

• Asian stocks, emerging currencies, oil climb on China manufacturing, Korea data.
• Chinese factories get busy; Official PMI shows surprise gain, sends stocks higher.
• South Korea's inflation rate climbs to 20-month high, exports accelerate.
• US unemployment probably hovered near 10% as Fed discusses additional easing.
• 3M is using acquisitions, its own labs to diversify into areas as biometrics and fuel cells.
• Ambak to file for bankruptcy if prepackaged plan is unsuccessful.

Ambac decides to not pay its November 1 coupon payment. And with that the 30 day grace period clock on the company starts ticking. Bankruptcy is now imminent unless the ad hoc bondholder committee can find a way to fund a pre-pack DIP. Of course, a prepack coupled with bond churn in the next few weeks would wipe out $7 billion in NOLs, as a debt for equity traditionally qualifies as an ownership change when accompanied by rapid changes in bond owners. Additionally, the implications of what this now inevitable monoline bankruptcy means for mortgage insurance are not entirely clear, but certainly are not good.

Futures are still on fire, following a much stronger than expected manufacturing reading in China. As Bloomberg reports: "A purchasing managers’ index released by the logistics federation rose to 54.7 from 53.8 in September, with input prices climbing the most in six months. A second PMI, from HSBC Holdings Plc and Markit Economics, jumped to 54.8 from 52.9." What is less known is that European PMIs also jumped across the board. As Erik Nielsen points out below UK, Norway, Turkey and Russia all reported stronger than expected PMI readings. Nielsen tries to make the case that even a 1.40 EURUSD is not sufficient to bring Europe down as somehow this is the new goldilocks. We completely disagree, and so will the ECB once the dollar is pushed strongly beyond the 1.40 barrier on Wednesday. Lastly, all eyes are now on US ISM to be reported later, with a consensus estimate of 54. It will be somewhat confusing if in the race to devalue the fastest, every single economy ended up growing. Not to mention somewhat incredible. But if confirmed, it will only give further impetus to debase currencies, as the last resort of economic growth is validated as "working." Which of course will mean more strength for assets that can not be printed out of thin linen.

RANsquawk European Morning Briefing - Stocks, Bonds, FX etc. – 01/11/10

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.