Archive - Nov 9, 2010

The split between pundits on the fate of the key FX pair: the EURUSD, has rarely been more diametrical. On one hand you have the Steven Englanders of the world calling for a major drop in the USD, on the other, you have firms like Brown Brothers saying the USD is poised to surge. Ultimately, the arbiter will likely end up being China, and what grade the world gives to Bernanke's actions. In the meantime, here is BBH on their view of why the EUR is likely overpriced at these points. Surely, this is a view that would be very much endorsed by all of Germany, and since the EUR did its penance as the world's most overpriced currency long enough, we would not be surprised to see much more of the European weakness make headlines once again.

RANsquawk US Afternoon Briefing - Stocks, Bonds, FX etc. – 09/11/10

As frequent Zero Hedge readers know, the next FRBNY POMO monetization schedule, in which the fund flow, simply put, is Brian Sack -> Primary Dealers (who collective hold $7+ trillion in debt, more on that soon) -> Steve Jobs, with a bunch of retail hot potato momo handlers suckered in the process, will be announced tomorrow at 2 PM. We can't remember the last time a Fed release was so anticipated, FOMC announcements included: by now even the hot dog dude knows that POMO days are a green light to a green close. So while money will not be put to any use for the next 27 hours, as the only trade is and continues to be levered beta Fed front-running, here is an attempt to forecast what the POMO schedule will look like from Ian Lyngen of CRT Capital.

High interest rates aren't a crisis as Ben Bernanke assumes, instead they're a positive symptom of past mistakes which ensure that no more capital will be destroyed supporting what has already failed.

You can see that gold is mainly a negatively correlated trade against the dollar - it's there to protect your cash! You stocks are not cash, your TBills are not cash, your other commodities are not cash so don't make the mistake of over-protecting yourself because gold will crash with the markets - that's something a lot of people did not realize in our last crash as people panicked into the dollar and sent commodities right off a cliff along with equities.

Can any of the tens of thousands of people working on Wall Street or in the bowels of the Federal Reserve, Treasury, Pentagon, etc. truthfully claim they "didn't know it was wrong" to mislead the citizenry, the soldiers, the investors and the buyers of their fraud? On the contrary, every one of those tens of thousands of worker bees and managers knows full well the institution they toil for is doing evil simply by hiding the truth of its operations. The entire status quo of the American Empire is built on lies. Now the dependence on lies, fraud and misrepresentaion is complete; Wall Street and the Empire itself would fall if the truth were finally revealed and properly identified as evil.

Fan, meet shit: "Dagong has downgraded the local and foreign currency long term sovereign credit rating of the United States of America (hereinafter referred to as “United States” ) from “AA” to “A+“, which reflects its deteriorating debt repayment capability and drastic decline of the government’s intention of debt repayment. The serious defects in the United States economic development and management model will lead to the long-term recession of its national economy, fundamentally lowering the national solvency. The new round of quantitative easing monetary policy adopted by the Federal Reserve has brought about an obvious trend of depreciation of the U.S. dollar, and the continuation and deepening of credit crisis in the U.S. Such a move entirely encroaches on the interests of the creditors, indicating the decline of the U.S. government’s intention of debt repayment. Analysis shows that the crisis confronting the U.S. cannot be ultimately resolved through currency depreciation. On the contrary, it is likely that an overall crisis might be triggered by the U.S. government’s policy to continuously depreciate the U.S. dollar against the will of creditors."

The old faithful GDP boosting trick of accumulating inventories continues to work. The Census Bureau announced that September wholesale inventories jumped by 1.5%, matching the largest monthly increase in over two years, and coming in decisively over estimates of 0.7%. Furthermore, the prior number was also revised much higher from 0.8% to 1.2%, confirming what we already knew: namely that Q3 GDP is merely based on yet another stocking, which will soon need to be liquidated as end demand persists at being subdued, further impacting FIFO margins (as for LIFO, forgetaboutit). The biggest jump in inventories was in farm products (14.8%) and misc. durable goods (3.0%), while destocking was seen in lumber, prof and comp equipment, and... alcohol. The last one is self-explanatory.

With the dollar tumbling overnight, many were scratching their heads as to what caused the move in the dollar. Citi's Stephen Englander provides a useful explanation, which fits perfectly with the commentary from PBoC advisor Li's earlier that the dollar's position as a reserve currency is now "absurd": namely that more and more in the world are starting to look at the CNY as the new reserve currency. And as we pointed out earlier, its fixing surge of over 0.5% overnight caused many to blink. Is China finally pushing to aggressively force the dollar out?

Repeat after us: gold is not a currency. But, just in case we are wrong, pretty soon one may see it accepted as pseudo legal, non-federal reserve note equivalent just about everywhere. First: the ICE, where "Gold bullion will be permitted for initial margin only and will be accepted by the clearing house by electronic transfer in increments of 1 troy ounce, and will be priced daily using the London Gold Fixing Price in US Dollars." In other words, the ICE will gladly take your gold. Period.

Two more lawsuits in the neverending safa fraudclosuregate, this time against JP Morgan. "Two purported class action lawsuits have also been filed against Washington Mutual Bank and JPMorgan Chase & Co. in the United States District Court for the Northern District of Illinois, and against Chase Home Finance, LLC in California state court alleging common law fraud and misrepresentation, as well as violations of state consumer fraud statutes. These investigations and actions follow the Firm’s decision in late September 2010 to commence a temporary suspension of obtaining mortgage foreclosure judgments in the states and territories that require a judicial foreclosure process. "

It is now official that Bank of America has a 'better' trading desk than Goldman (no matter that it is outsourced to Calcutta). GS has just released its 10-Q, in which it discloses that even though it had 7 days in the quarter in which it made over $100 million, it actually lost money on 2 days out of a total of 66. This compares to BofA's flawless Q3. Additionally, in Q2, while Goldman has far more trading losses, it also made big money (>100) on more than double as many days. The trend here is unmistakable: the open ended >$100MM trading days for Goldman are plunging: from 35 to 17 to 7. And this is a trend which now that Goldman prop's activity is far more limited, will persist.

One way this could play out.

• Fed Global Backlash Grows (WSJ)
• Warsh Says Federal Reserve's Asset Purchases May Fail to Benefit Economy (Bloomberg)
• The HFT parasites are back in full force: High-Frequency Traders Lobby, Donate to Head Off U.S. Rules (Bloomberg)
• China to Tighten Control on Inflows of Overseas Funds (Bloomberg)
• Goldman Faces Lawsuit Over $1.2 Bln Hudson CDO Deals -Filing (WSJ)
• Ireland's Next Blow: Mortgages (WSJ)
• One Law for the Rich, One Law for the Poor: The new foreclosure crisis reveals the shocking unfairness in how the law treats struggling homeowners (Stiglitz)
• Goldman, Natixis Fight Over Swaps Deal Goes to Trial in London (Bloomberg)
• A Recipe for Fascism (TruthOut)