Archive - Nov 2010

In this week's Straight Talk with Chris Martenson, contributor is James Howard Kunstler, author and social critic. His better-known works include The Long Emergency, in which he argues that declining oil production will result in the decline of modern industrialized society and compel Americans to return to smaller-scale, localized, semi-agrarian communities; World Made By Hand and its sequel, The Witch of Hebron, all published by The Atlantic Monthly Press. He writes a weekly blog is also a leading proponent of the movement known as "New Urbanism."

It appears the market still is unable to fully grasp that QE3 - the Municipal edition, is just around the corner. From Dow Jones: "Institutional pricing of California's $10 billion of revenue anticipation notes, which had been scheduled for Wednesday, has been delayed until Thursday, a market source said on Wednesday. The reason for the delay was unclear and there was no immediate comment from J.P. Morgan, the deal's senior manager. Retail investors snapped up $5.89 billion or nearly 59 percent of the offering during a two-day presale period on Monday and Tuesday, according to the state treasurer's office." Here's the reason: all the free capital out there has been sequestered in what will be not only the world's biggest IPO tomorrow, but more importantly, the world's biggest flop soon thereafter.

First city of Hamtramck filing bankruptcy, now this... From Moody's: "The downgrade to A2 reflects continued weakness of the city's finances, which had improved from 2005 to 2007, but deteriorated in fiscal 2008 and 2009, and improved in 2010, but continue to face challenges in the coming few years. Although fiscal 2010 results are favorable, General Fund balance remains negative, both on a budgetary and GAAP basis, and we believe the city has little budgetary margin over its five-year plan which includes significant repayment of deferred pension contributions in 2013 and 2014. In response to the significant financial stresses that began in fiscal 2008, city officials created a fiscal recovery plan that included a temporary sales tax increase and the pension deferral in fiscal 2010 and 2011; the plan gained the required approval from the Commonwealth of Pennsylvania legislature at the end of September 2009, allowing for the sales tax increase to begin at the beginning of October. Additional revenue and expenditure reductions in fiscal 2010 resulted in surplus operations, although these were diminished from previous forecasts due to a late state aid payment of approximately $70 million; much of that revenue has since been received."

UPDATE: "Mr. Ellison asked unanimous consent that debate on PASSING H.R. 3808, the objections of the President to the contrary notwithstanding, be limited to 10 minutes. The House resumes today at 10am." Watch it live here...

The world has too much debt. In the book of Leviticus (Old Testament), a Jubilee year is mentioned to occur every fifty years, in which laves and prisoners would be freed, debts would be forgiven. Today there is no Jubilee. - Hinde Capital

Some more on the second biggest piece of Euro-news from yesterday. After Austria surprisingly announced it would delay its contribution to the Greece bailout fund until such time as Greece actually stopped lying and did what it had promised (i.e., never), it seems that more of the Eurozone is starting to get cold feet over how to proceed with this classical defection from a game theory set up. As a result, the entire EU has delayed the December tranche of the Greek payment until January. Presumably this is to teach Greece a lesson, although it is unclear what it will actually end up achieving. As Greece can not fund itself outside of the ECB framework, as its banks are insolvent, and as it does not have the capital to exist in isolation, this action is comparable to the EU pointing a gun at its head and telling itself it has to stop lying or else. Yet with the entire continent subsisting on nothing but lies, this is nothing but a pure exercise in surreal tragicomedy - yesterday's question to Ollie Rehn during the EU press conference by a WSJ reporter about how the Stress Tests confirmed all is good with Austrian banks, and how he would comment on this, which was followed by an awkward silence, captures it perfectly.

This is an extensive post designed for those who want to truly comprehend what I perceive to be both the root causes and the practical solution to the Irish sovereign debt problems and the threat of Pan-European possibly global financial and economic contagion.

Confirming once again that the clueless government would rather risk a populist backlash than actually cutting costs (recall that federal worker compensation has surged in the past 5 years), it appears that the long-stirring debate over a value added tax may be about to materialize into something tangible. Per Bloomberg, "Alice Rivlin, a member of President Barack Obama’s deficit-reduction commission (and former Fed vice chairwoman), is trying to stir a debate over imposing a national sales tax to reduce the deficit. Rivlin, as part of a separate 19-member group sponsored by the Bipartisan Policy Center in Washington, offered a plan for a 6.5 percent national debt-reduction sales tax. Her recommendation comes as the president’s panel prepares a Dec. 1 report of options for Congress to trim the national debt." Coming from a former Fed member, this is not all that surprising - after all, there is nothing to stir inflation expectations like a sudden 6.5% hike in all prices.

The country which has languished in 6th position in the world, with combined gold holdings of 1,054 tonnes (just behind the GLD ETF), may have finally awoken that it needs to buy about 7,000 tonnes of gold to catch up with the US, and its 8,133 tonnes (or even France with 2,435). China daily 21st Century Business Herald has just reported that: "China is considering raising its gold reserves, a move which would push
up gold prices in the future, a person providing consulting services to
the Chinese government said." Conveniently, China can now buy gold notably cheaper courtesy of a $100 dip in gold price as recorded over the past week, precipitated by... China inflation concerns. When next month the politburo reports below consensus inflation (as the number is imaginary to begin with), look for gold to surge, but not before China manages to load up at depressed prices.

The October Consumer Price Index came at 0.2%, on expectations of a 0.3% rise, compared to a previous read of 0.1%. The CPI ex-Food and Energy was unchanged, also below expectations of a 0.1% rise. And somehow, despite what is obviously a massive campaign for "value deflation", the BLS once again saw a barely notable increase in food prices (and an outright decline in some): "The food index rose 0.1 percent in October after a 0.3 percent increase in September. The index for food away from home rose 0.1 percent while the food at home index was unchanged.... The fruits and vegetables group posted the largest decline, falling 0.7 percent, while the index for nonalcoholic beverages fell 0.5 percent. " Elsewhere housing starts and building permits both missed expectations by a wide margin, coming in at 519 (vs exp of 598K), and 550K (vs exp of 568). Starts plunged from a revised 588K the month prior. One wonders how this contraction for the builders will be spun.

• The horrible truth starts to dawn on Europe's leaders (Telegraph)
• Fed May Hesitate on More Easing After Critics Question Mandate (Bloomberg)
• UN warns of rising food prices (FT)
• China Targets Liquidity to Cool Inflation (China Daily)
• Anger at Germany boils over (FT)
• BofA CEO: Settling foreclosure probe best solution (Reuters)
• China Buys Treasurys for Third Month (WSJ)
• Bond Vigilantes Ride Again (Barrons)

Could it be as simple as buy the rumor and sell the news? This sell off will end up as a whimper, not a bang. But the “Big One” for the markets is coming, and could unfold as early as the next quarter. Please tighten up you stops and your risk control accordingly.

Nothing quite like the billionaire whose entire fortune is invested in the successful perpetuation of the ponzi, thanking the administration for taking trillions of dollars out of the taxpayers' pocket and preserving the broken system for a few more years, just so said billionaire can wax holier than thou on the pages of the administration's newspaper and thank the administration for allowing him to swim in his nickel pool through expiration. If one tries hard enough, one can almost spot a ridiculously hypocritical vicious loop in there somewhere...

• API reports surprise decline in crude-oil supplies.
• Asian stocks, commodities drop as China drafts price curbs; Won, Euro fall.
• EU starts work on Irish bank aid package, stops short of immediate bailout.
• FDIC is conducting abt 50 criminal investigations of directors, employees at US banks.
• NAHB index rose to 16 in November from a downwardly revised 15 reading in Oct.
• Amgen Inc. is studying a takeover offer for Actelion Ltd.
• Boeing to buy privately-held CDM Technologies. Terms undisclosed.
• Carlyle's Booz Allen Hamilton raises $238M in IPO.

Data on consumer prices and housing starts, plus a couple of Fed speeches. Fourth POMO in a row better do something about finally getting a green close or stat arbs will lose all faith in Brian Sack.