Archive - Dec 23, 2010

Dennis wants the power of the Federal Reserve in Congress. His ambitions are actually quite disturbing because he is also pursuing the flawed concept of full employment, but now he has added even grander ambitions - the one thing that the horrible Federal Reserve prevented Congress from doing - creating money for the purpose of spending it. Granted with QE2 in full swing it becomes difficult to make that argument, because buying US debt so that the US Government can continue functioning is essentially the same thing, but at least our total debt grows and Americans are still aware of the cost. With Kucinich's bill this aspect disappears as money will appear whenever Congress wishes it to be so and the value imbued in this money will come through Congress alone - a Chartalist dream come true. - Arkady Kamenetsky

RANsquawk US Afternoon Briefing - Stocks, Bonds, FX etc. – 23/12/10

A few days ago, when oil was pushing on $89 we said that we expect oil to pass $100 in a few weeks, now that chasing returns in stocks is beyond ludicrous, and speculators are branching out to those commodities which have not yet been cornered by the JP Morgue, although we are confident the Masters brain trust is plotting and scheming how to create a synthetic security that allows crude to hit $150 as RBOB goes negative. As of a few minutes ago, WTI has just passed $91, which for those who have taken math means that $100 oil is less than $9 away. And as a reminder, every $1 rise in oil reduces US GDP by $100 billion, just as every cent increase in gas prices lowers disposable income by $600 million. Who would have thought that trillions in binary dollars just sitting there, unused, unwanted, doing nothing but taking up EEPROM space could possibly have an inflationary impact...

David Rosenberg closes the 2010 books with his top ten reasons to be cautious for 2011. We are fairly confident that none of these will come as a surprise to regular readers of Zero Hedge. The only real risk to the now endless melt up, in our view, is that actual news actually start having an impact on stocks. If that ever happens, look out below.

After many months of calls for SNB intervention, did Philipp Hildebrand finally wake up? The EURCHF just surged, bringing day gains to over 1% on no news. Is the Swiss giant, with its pregnant CHF-full balance sheet, finally stirring? Or does Switzerland realize that Hungary and Austria are toast if the EURCHF continues to plunge? Keep an eye out on this pair (and the EURUSD which surged in sympathy). Or is the catalyst crude oil, where WTI just hit $91 and possibly set off some array of derivative USD selling? Or, far simpler, is the FTSE's passing 6,000 somehow supposed to imply that the dollar should take a step function move down. We can only scratch our head - for the answer, ask the momo quants who are in charge.

We have the perfect job for Designated Market Maker Getco: after the HFT firm did everything in its power to make sure GM's stock will never drop below $33 as long as HFT is the only dominant power in the stock market, the next logical place for the talents of the world's biggest High Frequency Trading powerhouse, is making markets in Brian Moynihan resignation odds. Because even though InTrade has just launched a contract on Brian Moynihan resignation odds by June 30, 2011, there is no markets and no bids and offers. Furthermore, we are confident that Bank of America, which has recently bought out all potentially embarassing domains of the www.brianmoynihanblows.com variety (although www.brianmoynihanswallows.com, .net and .org are still available), will demand a market maker who represents a "slightly" subrealistic outlook on Moynihan's chances of survival, and is willing to "internalize" all such risk, (unclear whether or not selling residual risk to the Fed would subsequently ensue). And in keeping with tradition, Getco should surely be paid using BofA's residual taxpayer-funded TLGP capital. Furthermore, Zero Hedge will work closely with Nanex to monitor the number of flash crashes in Moynihan "eats shit" contracts as they are already called in the street.

After the dotcom bust of 2000, these bad boys spent nearly a decade in the penalty box, shunned by the investing world as the poster boys for wild excess. During this time, cash balances doubled, free cash flows soared, outstanding shares shrank, and multiples fell to a tenth of their bubblicious peaks.
The lessons of the bubble made them ultra conservative in their capital spending, which will lead to product shortages and much higher prices in any recovery. There are short squeezes developing for a whole range of tech components. (CSCO), (IBM), (JNPR), (CSCO), (JDSU), (XLK), (QQQQ), (ROM).

Two days ago, in a surprisingly vocal announcement to make sure everyone heard it, the Fed extended the duration of its USD FX swap lines with foreign central banks from January (when they were due to expire) to August. One may ask: why the extension when Europe continues to lie that all is good, and when America has made it clear that it is not China, but the US, which will suddenly lead the next global growth spurt (ignore for a second that the recent jump in crude to just under $91 has wiped out virtually the entire benefit from the just passed payroll tax "stimulus"). One may also not get an answer. So while the announcement is nothing but the latest salvo in what is now merely a policy approach to risk asset pricing, the question of what is being achieved from a purely fundamental standpoint is likely somewhat relevant in our brave new centrally planned world. Bank of America provides the explanation to all those for whom the Fed's continuing backstop of Europe is a novel topic.

New home sales continue to bounce along the bottom, with the November number coming in at 290K, 10K below expectations. This number will likely be revised lower next month, just like the October number was which ended up being not 283K but 275K, the lowest in pretty much forever. Months supply came at 8.2, a decline from the 8.8 in October. The news is sufficiently bad for the robots to push stocks higher.

UMichigan consumer confidence came on top of expectations, at 74.5, a slight increase from the prior read of 74.2. Market snoozes as expected as nothing trades on news right now. The notable observation is that while the conditions component of 85.3 actually declined from prior (85.7) and missed expectations of 86, inflation expectations rose once again, with 1 year inflation rising from 2.9% to 3.0%, and the 5 year up from 2.7% to 2.8%. Perhaps cotton prices doubling in 2010 may actually not have a deflationary impact.

Pure euphoria has officially set in. According to the December 23 AAII sentiment survey, the bullish mood soared from 50.23% to 63.28%, the highest reading since November 18, 2004. Bearish sentiment plunges from 27.15% to 16.41%, the lowest since November 24, 2005. The difference between bullish and bearish sentiment is 46.87%: the highest since April 15, 2004. There is no point in commenting on these results. There is a point in highlighting, though, that retail continues to refuse to be suckered in and becoming the hot potato buyer of last resort: 33 consecutive weeks of outflows from mutual funds indicates that the social split between bankers and everyone else, is now translating into the stock market, as only professionals, and robots, "trade" now.

Summarizing today's econ data barrage:

• Initial claims at 420, on expectations of 420k. Prior revised higher (duh), from 420K to 423K.
  • Continuing claims at 4,064K vs expectations of 4,105K. Previous revised higher (duh), from 4133K to 4167K
• Durable goods down 1.3% on expectations of -0.5%, prior read of -3.3% is revised to -3.1%
  • Ex transportation 2.4% vs expectations of 1.8%
• Personal Income at 0.3%, just above expectations of 0.2%, and a drop from the prior 0.5%; Personal spending of 0.4% lower than expectations of 0.5%, and the same as the prior reading.
• US PCE Core 0.1% M/M, in line with expectations
  • US PCE Core 0.8% Y/Y, vs Exp 0.9%, previous 0.8%
  • US PCE Deflator Y/Y 1.0%, on expectations of 1.1%, of 1.3%

BDIY was 1830 yesterday. It is now down 1.9% to 1,795. it would be only fitting if the index closed the year below its 2010 lows of 1,700. Would go well with year wides in sovereign risk, with gold at near all time highs, and with stocks at two year highs. Carry on.

As America continues to keep its head firmly planted in the sand, if not somewhere much worse, Europe is falling apart. Hungary was just downgraded by Fitch to BBB-, and still kept its rating outlook negative, meaning the country is about to enter junk territory. And what is sure not helping is the record strength of the CHF, which is making life for borrowers in Hungary a living hell, whose debt is denominated primarily in Swiss Francs. And as US stocks hit 2010 highs, so does the SovX index of sovereign spreads. In other words, equities and sovereign bankruptcy risk are now positively correlated with an R2 that would make 1.000 almost blush.

“God Bless Bankstas, each and every one!” said Tiny Timmah...