Archive - Dec 11, 2010

Leo Kolivakis's picture

It seems a lot of people get stressed out during the holiday season. They torture themselves trying to figure out if the Santa Claus rally will continue. Don't worry, Santa will keep buying them dips long after Christmas is over...

Van Hoisington's Latest Observations On The "Growth Recession"

"Federal Reserve Chairman Ben Bernanke said in a recent television interview that economic growth was not “self sustaining.” This description also applies to an economy that is in a classic growth recession. A growth recession is characterized as an economy where GDP grows but the unemployment rate also moves higher. A close look at the U.S. economy bears out Chairman Bernanke's description. The economy has been expanding for 17 months, yet both the labor force participation rate and the employment to population ratio stand at new cyclical lows and beneath the cyclical lows of the prior expansion. This is an unprecedented development (Chart 1). For the past 19 months, the unemployment rate has been above 9%, underscoring the harshness of labor market conditions. The employment to population ratio, which is a better measure of labor market conditions than the unemployment rate, was at the cyclical low of 58.2% in November, matching the lowest reading since 1984." - Van Hoisington

Guest Post: Product Over Process: Balance Complexity With Liquidity

No, I didn’t say ‘balance complexity with liquor.’ The central problem for any relative pricing model is its inadequacy given systemic illiquidity. This is because prices in all assets collapse simultaneously: (almost) everything becomes priced rich to cash. Perhaps one shouldn’t distinguish pricing models from valuation models, but at least valuation assumes some notion of fundamentals, and aims at determining them, dubious as the effort is. Because of the relational nature of pricing models, illiquidity in pricing models can be disastrous. People sometimes manage illiquidity by getting flat to the market: they take out shorts to cover the long losses. As declines persist, shorts keep lifting and being flat to the market becomes cost prohibitive. There is no substantive last minute hedging when time horizons collapse.

Deflationists Take Note: Bernanke Succeeds In Offsetting Shadow Banking Collapse

The biggest piece of news in Thursday's Z1 statement was not that consumers continue to deleverage, that corporate cash levels are at $1.9 trillion (of which $1 trillion is financial and half of the rest is held offshore: maybe instead of copying Zero Hedge charts, the WSJ could have actually focused on the story behind the headlines) or that the stock market continues to be the only manipulated delta in household net worth (even as wealth in real terms is dropping). A far more relevant and important data highlight has to do with the only thing that actually matters for the reflation of the monetary bubble: namely the fact that the contraction in the shadow banking system is continuing. Or so was the conventional wisdom. As of September 30, Bernanke has successfully stopped the net decline of monetary aggregates even when including the massive shadow banking system.

CFTC Commissioner Bart Chilton Reveals "One Trader" Controls 40% Of Silver Market, As Silver Holdings Of SLV Hit All Time Record

After we reported a week ago that JPMorgan was trying to corner the copper market, many noted this was not surprising, considering the bank's comparable approach in manipulating various other precious metal markets. Naturally, we extrapolated that the main reason why the CFTC continues to refuse to delay implementation of position limits is precisely due to the JP Morgan's need to control commodity pricing precisely due to such manipulative trading practices: "As for the CFTC, we now know why they are so intent on delaying the size limit discussion:
after all, any regulation will be forward looking - better let JPM
accumulate all commodities it can and distribute these via hidden
channels to affiliated subs before the ever so busy Gary Gensler corrupt
cronies decide to raise their finger on what is increasingly an ever
more blatant market manipulation scheme. At least in this case, JPM will
push the price higher unlike what it is doing courtesy of its gold and
silver manipulation. However, the PM market (especially Asian accounts)
will soon make sure Blythe Masters is looking for a job within 3 months
as we predicted a few weeks ago." The only problem with this story is that so far, is that unlike copper, JP Morgan's now legendary paper short in the silver market, long taken for granted by the "less than in mainstream" community, has been persistently ignored by the broader media due to the a lack of concrete evidence. Hopefully that will now change: courtesy of a speech delivered by none other than the CFTC commissioner Bart Chilton, who continues to expose the CFTC and the banker cartel's illegal market manipulation practices, we now have proof that "one trader held over 40 percent of the silver market." As this trader is either JP Morgan directly, or various Blythe Masters proxies, we can only hope that finally the broader outcry against JPM's ongoing attempt to suppress precious metal prices (insert Mike Krieger/Max Keiser "Crush JP Morgan" campaign here) will force the bank to finally unwind its shorts. And if not, perhaps the market speculators will do it for them: as of Friday, the SLV ETF held an absolute record 10,941 tonnes of silver, an increase of 163 tonnes for the week.

CLSA's Complete 2011 China Outlook

After a few days ago we released the "definitive" factual presentation on China courtesy of HSBC, today we look at the future of the only country that matters (and which according to Goldman was the only saving grace for America, decoupling and what not, before the firm went full propaganda retard) with CLSA's complete (124 pages) and historically very authoritative 2011 outlook on China. While not a departure from conventional wisdom in any way, all those who wish to follow trends and be part of the lemming herd for as long as possible, are advised to read the report: it will certainly permit the collection of a few pennies before the rollercoaster shows up. And when that happens, everyone will naturally quickly and quietly pocket their profits and head for exits in a cool, calm and collected manner. Because, after all, what else can you do when "trading the tape" aka being a momentum trader, is all that works...

Weekly Chartporn, And Why Goldman's Clients Are Not Too Happy With The Firm's Forecast

In addition to his traditional weekly chartporn, Goldman's recently promoted partner David Kostin, who recently has spearheaded the firm's push to new estimate heights (1,450 S&P by December 2011... but why stop there?) provides the strawman opposing views that "clients" have interjected to the sudden and so very anticlimactic shift in the firm's formerly bearish stance. Among these: i) lack of  improvement in the labor market would mean limited GDP growth which would constrain top-line sales growth, and as a consequence  EPS would probably not reach a new high and the P/E ratio would be unlikely to expand; ii) companies would soon hire more workers and therefore profit margins were at risk of contracting – rather than expanding as we forecast – and thus negative EPS revisions represented a material risk; iii) Contagion from the European sovereign debt problems will lead to a rise in the US Dollar and reduce the translational EPS impact of non-US sales; iv) A view that the 70 bp backup in ten-year Treasury note yields to 3.23% (from 2.63% just one month ago) will slow re-allocation of assets from bonds to stocks. To which Kostin has one response: "Unexpected political  developments during the past week only further support our bullish forecast. One might argue that our price target is too low, rather than too high!" It is amazing how much fiscal and monetary Koolaid millions of dollars in bonuses can buy. Incidentally, while we know that Goldman runs US monetary policy courtesy of having Bill Dudley run the New York Fed, it appears that the firm now is also in control of US Fiscal policy, as virtually every suggestion that Hatzius and company have "floated" has been adopted by Obama. Which makes sense: after all Obama's economic team is now down to one person - the president needs to get his fiscal advice from somewhere, and why not make it the bank that runs the world. We will provide more color on the former shortly. In the meantime, enjoy Goldman's latest propaganda.

Guest Post: White House, Republicans Offer Bloggers $100K Each in Compromise Deal

A little-known program to aid the economy by distributing money to bloggers is gathering support in the White House and Congress. In the bruising fight to see which party can give away more borrowed money, Republicans and the Obama administration hammered out a compromise on the White House plan to pay "qualified" bloggers $100 per post, up to $100,000 each. The Obama administration had originally included income limits in its "Web Entrepreneur Program" (WEP) legislation, but Republicans forced the White House to drop the stipulations which would have limited payments to bloggers who earned more than $250,000 annually.

Mark Madoff, Bernard's Son, Hangs Himself

AP reports that Marc Madoff, the son of Bernie, was found hung in his apartment. While it is early to speculate into the causes of death, it is a distinct possibility that the recent pick up in activity by Irving Picard may have some impact. Then again, as lately the big banks have been on the receiving end of Picard's actions, there does seem to be a disconnect, unless of course Mark had incriminating evidence against some of the recently high profile defendants such as JPM and HSBC. Keep in mind that Bernie turned himself in as a means to protect his children and family, or so went the official story.