Archive - Nov 2010

The one best thing about tomorrow, is that 29 hours from now, there will be no more speculation about what QE2 may look like, how big it will be, what the impact on stocks will be, why it will even take place considering the ISM and other economic metrics have turned up recently (and the Fed is an independent, objective force after all) and all the other topics that have clogged the pages of mainstream and alternative media for months. So as we all prepare to relegate this topic to the dustbin of history where it belongs (soon, alongside the current reserve currency), here is the definitive walkthru of what to expect tomorrow from Goldman's Ed McKelvey.

The entire world is preparing to bury the dollar in advance of tomorrow's QE2 currency suicide by the chairman. Exhibit A: the OZ dollar which is now trading north of parity for the first time in 28 years, as Australia decidedly puts its in chips in China's basket, believing that no matter how high the OZ, China will have no problem with importing its exports. A quick look at the FX heatmaps shows that while the dollar is getting shorted across the board and the EUR is surging, and making Merkel livid once again, the Yen, at least so far, is benefiting as it has again become the short currency of choice against the AUD, in the one pair that correlation traders use to determine broad market risk more than anything. Yet with a near record number of dollar shorts in existence, will the be the proverbial cover on the news day? Or, if Bill Gross is right, are we going to see a 20% plunge in the dollar beginning tomorrow? Of course, if Gross is right, he would be buying stocks on margin, not MBS. So take notice.

BoomBsutBlog and the independent analysts vs Wall Street: I(we) say insolvent, or damn close, they say buy. Hmmm!!! Judging by affiliation and track record, who do you think is right?

It is peculiar that the firms that don't underwrite securities or sell information services are the most bearish on the banks, isn't it? Even the constant "just shut up and buy 'em" banks missed the ball on Google!

• Democracy’s Rich Pageant (The Awl)
• Democratic power at risk (Reuters)
  • Obama may face "Goldilocks" voters
  • California's high-stakes elections go down to wire
  • Obama seeks to blunt Republican attack over comment
  • Obama says troubled by comments of top Republicans
• US Federal Reserve's latest bubble threatens mayhem: The prospect of more quantitative easing (QE) is driving government bond yields to levels that price in a depression (Telegraph)
• Fed easing may mean 20 percent dollar drop: Gross (Reuters)
• US Shifts G20 Currency Focus To Trade Deficits (FT)
• Robert Rubin dares to show his face with an FT oped: How America can withstand the headwinds (FT) - here's how, go back in time, and make sure Robert Rubin was never in position of power. Does that work?
• Lessons From a Lost Decade (Hussman)
• China's Hu Jintao Says Country's Yuan Policy Is Responsible, Figaro Says (Bloomberg)

• Fed likely to announce $500B of securities purchases: Bloomberg survey.
• India's central bank raised interest rates by 25 bps - for a sixth time this year.
• Yen declines against Euro as Asian recovery signs reduce demand for refuge.
• Alberto-Culver's Q4 net rises 31% on 12% jump in sales.
• Altra Hldgs sees FY10 EPS of $0.95-1.00 (cons $0.88); revs at $512-517M.
• Anadarko Petroleum reported Q3 EPS of $0.21, 28% below the average analyst estimate.
• Archer-Daniels-Midland's Sept. net income declined from $496M to $345M.

Earlier today, another member of the rapidly expanding European "periphery" (at least in terms of troubled states), Belgium, sold €3 billion in T-Bills at rates that were materially worse than the prior auction, even as the Bid To Cover remained flat or declined. This is happening even as Euribor fixings continue to surge and have hit year highs, with the 3 Month now at 1.047% (and 6 Month Euribor at 1.269%). As for the Belgium auction, here are the results. Hopefully little monetary damage occurred to the ECB as part of this latest apparent monetization.

Very little today on the economic side. Additionally, no POMOs until after QE2 is announced.

RANsquawk European Morning Briefing - Stocks, Bonds, FX etc. – 02/11/10

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.

Sample Ballot--NYC plus more...

The market ran in the morning today on the strength of China manufacturing the fuck out of some shit before falling in the afternoon after realizing that most Americans can no longer afford to buy the fuck out of that same shit (except of course for iPhones, because...

When two weeks ago we highlighted the news that key title insurers such as Fidelity National are demanding indemnity and warranty from banks, we asked "what happens if the bank is once again caught to be, gulp, lying?
Who foots the bill then? Why the buyer of course. All this does is to
remove the liability from companies like Fidelity National and puts it
back to BofA, which is already so much underwater it has no chance of
really getting out without TARP, contrarian Goldman propaganda
notwithstanding." And while our speculation provided amusement to some of the more (vastly so) polemic elements in the blogosphere, it appears that Alan Grayson took this development seriously, and sent a letter to Geithner demand that a special capital buffer be established at the TBTFs, to absorb any and all losses that will arise from foreclosuregate (especially since earlier today it was made clear that certain banks such as First Horizon don't have any provision for putbacks). In Grayson's words: "Recently, Bank of America struck a deal with Fidelity National Title Insurance to indemnify the title insurer should legal problems with foreclosures create unanticipated title liability.  Title insurers are clearly worried that they may face higher legal and policy costs if foreclosures are reversed, or should legal ambiguity cloud titles they already have insured...Since title insurers have in some cases just refused to insure this market, someone must pay for the liability these insurers have refused to incur. Both banks and regulators are claiming that the problems are simply process-oriented document errors that aren't really causing harm to the public at large.  I suspect that no one really knows the extent of the problem, or the potential liability.With that in mind, it would seem prudent to require additional capital buffers for systemically significant institutions until the extent of the foreclosure fraud crisis is understood." We wholeheartedly agree with Grayson.

Nouriel Roubini, Laurence Kotlikoff, Steve Keen, Michel Chossudovsky, the Wall Street Journal and Hyman Minsky agree ...

The Reserve Bank of Australia has raised rates to 4.75%, more than the consensus expected, and the result is a surge in all AUD, crosses, especially the critical AUDJPY which is the primary recipient of the USD funding largese, and is the primary correlation to the ES, meaning futures are likely to follow suit, especially since there will be no monetary tightening in the dollar in this lifetime under the current Fed syndicate. It appears the RBA has bought the decoupling theory hook, line and sinker, and with China refusing to combat inflationary forces domestically, it is up to its derivative economies (AUD, BRL, etc) to do so. Nonetheless, one must respect the RBA's concern about what inflation may do to its economy: "the economy is now subject to a large expansionary shock from the high terms of trade and has relatively modest amounts of spare capacity. Looking ahead, notwithstanding recent good results on inflation, the risk of inflation rising again over the medium term remains. At today's meeting, the Board concluded that the balance of risks had shifted to the point where an early, modest tightening of monetary policy was prudent."

BNY's always informative and entertaining Nicholas Colas has a habit of seeing the silver lining, when others only see a putrid and radioactive mushroom cloud. And in this case, we do tend to agree with him... somewhat: when looking at the transformation currently gripping stock markets, instead of taking either extreme, Colas takes the Keith Richards path: adapt and survive (instead of fading away). And in surviving, the market may just return to that “old school” model of stock picking, and thus, fundamentally based stock trading, something which all investors and market participants lament and remember fondly as a bygone era before the Fed decided to take control of the entire capital market. However, where we are far less sanguine, is that for Colas' prediction to come true, it would necessarily (and sufficiently) require the removal of the Fed and its tentacular influence on stocks. And thus the question: can the existing stock market model survive an overhaul in which the underlying economic model reverts back from a central banking primed fiat system, to some "other" form of sound monetary decision making. That, we do not know.