Archive - Dec 2010

Heretofore, Japan has been able to avoid the worst consequences of its many debts and obligations – but that may soon change. In addition to the exports referenced above, the country’s high internal savings rates have provided crucial support for the Japanese government’s energetic issuance of debt at low rates. But as you can see in the chart below from our own Bud Conrad, those internal savings – like exports – are now in decline...It all begins to get a bit circular when you consider that Japan’s aggressive financing needs make it likely the country will have to dial back its participation in future auctions of U.S. Treasuries. It would not surprise me if they followed China’s lead in reducing the U.S. paper now held in reserve. That, in turn, could lead to even higher U.S. rates, and even higher rates for Japan. Or it could lead to more monetization of U.S. Treasury debt by the Fed, which in turn leads to Mr. Market demanding higher yields to compensate for the rising potential of inflation.

What should we make of all the WikiDrama?

Just last week we posted the follwing: "Was this the peak of the world's most overpriced stock Netflix? A new
Form 4 filing indicates that the first defection in realization of a
sinking ship may have occurred. On November 4, Netflix Chief Financial
Officer Barry McCarthy sold 100,000 share equivalents, with 91,181
shares sold between $200.36 and $201.11 and the balance from option
exercise. The sale has left Barry with just 51,563 shares of NFLX stock.
If the CFO believes the time to take profit is in, what does
it mean for the millions of other hot potato holders?" Today we get the answer: "LOS GATOS, Calif., Dec. 7, 2010 /PRNewswire/ -- Netflix, Inc. today announced the appointment of company finance veteran David Wells as its chief financial officer to succeed outgoing CFO Barry McCarthy, who has expressed a desire to pursue broader executive opportunities outside the company.  The change is effective December 10...."We offer both great gratitude and sincere best wishes to Barry.  Over
the last few years, Barry has balanced his affection for Netflix – and
the excitement all of us have felt by the tremendous growth of the
company – with his personal desire for broader professional
opportunities.  Barry concluded that now is the right time to seek out
those opportunities, and we will be cheering for him." Barry will be far more cheered by the absolutely immaculate timing of his NFLX stock dump at the all time high in the stock price, and his gratitude to the suckers who bought the stock is unmatched by that of even Netflix.

Paul Farrell lights it up in his latest market commentary, which puts even some of the more hard-core realists out there to shame: "Wall Street is a loser. Stocks are Wall Street’s ultimate sucker bet.
And it’ll sucker you again. You’ll lose, worse than in the last decade.
Wake up before Wall Street banks trigger the next meltdown, igniting
mass bankruptcy." Um, wow. And seeing how we have been saying that only absolutely immaculate top tickers should be in this market, we agree wholeheartedly with Farrel.

RANsquawk Market Wrap Up - Stocks, Bonds, FX etc. – 07/12/10

The 10 Year Treasury surged 16 basis points this morning to 3.08%. This is the highest level since July and is now up .68% since Ben Bernanke indicated QE2 was on the way. QE2 was supposed to REDUCE long term interest rates. Mortgage rates are going up, not down. Housing prices are already in free-fall again. Higher mortage rates will destroy the housing market. Obama, Bernanke, and Congress have created the perfect storm. Keep partying today, for tomorrow will be painful.

“McCarthyism is Americanism with its sleeves rolled.”--Joe McCarthy

Today's consumer credit release tells you all you need to know about who continues to fund the economy (deficit commission be damned indeed). The all important revolving credit number declined by $5.6 billion in the month, which just happens to be the 26th consecutive drop in revolving credit, as in the stuff that Americans use to actually buy stuff with using their credit cards. And while October total consumer credit rose to $3.4 billion from a downward revised $1.2 billion in September (previously $2.1 billion), all of it was due to non-revolving credit, which rose by $9 billion, and more specifically due to a whopping $31.9 billion increase in Federal Government debt used to fund student loans (the latest industry recently nationalized by the US government). Ex-federally funded student loans, consumer credit declined by about $28 billion.

The only chart that may matter until the end of the year... And no, this is not Portugal

Today, David Rosenberg has some good commentary which proves that those who say to not fight the Fed, may be 100% wrong when it comes to fighting adjusted for inflation, or as the case may be - deflation (conveniently, few talk about what bothers even seasoned hedge fund managers such as David Einhorn - i.e., "corn and oil"). And Rosie is spot on: the deflation in all credit-intensive purchases is accelerating, and will accelerate because the only thing that matters, as we have claimed for over a year, is the shadow capital/credit contained in the shadow banking system. That is the number that is collapsing at a rate of more than half a trillion per quarter. No matter what Bernanke does to M2 will even remotely offset this deleveraging deluge. Which is why we have long claimed that the only trump card Bernanke has is to devalue the dollar (both relative to other currencies and absolutely - relative to gold) to the point that its fate as a reserve currency is imperiled, ostensibly leading to a monetary crisis. One is free to name the resulting chaos in dollar denominated prices as one sees fit. But the bottom line is that as long as the shadow banking system continues to contract, which it will for years as the bulk of the funding came from European and Japanese banks: both of which are now gripped in austerity, and not really flooded with leveraged depositor money, everything else is merely a short-term blip on a long-term decline in both economic output and market terms. Also known as noise.

You can't say I didn't tell you it was gonna happen! At this point, anyone who doubts the onslaught of Android is in sheer denial. My last post on Wikileaks highlighted the possibilities truly distributed computing such as Android promises in the form of making it virtually impossible to censor any type of web site or publication, ex. Wikileaks. Keep in mind such a feat would be quite difficult with iPhones.

After hours of debates, the moment appears to have come: the vote to pass the budget, aka the "save the European senior bondhodlers" vote, is on the table and voting should commence imminently.

After Morgan Stanley's call for the 10 Year hitting 4.5% in 2010 ended up being one of the worst calls of the year (together with each FX call by the Goldman team), the firm's head rates strategist Jim Caron is back on the scene with his latest set of Top Trades for 2011, as well as some views on where the fixed income market is headed next year. In summary: just fast forward the firm's bearish 2009 view on yields one year forward. After all if the firm was so wrong one year, it can't possibly be wrong two years in a row...

We hosted an investor call last week, followed by our presentation at a Private Wealth Summit on The Great ‘flation Debate. Our slides can be accessed

A new study forecast 1.3 million white collar professional jobs could be offshored by 2014. This offshoring tsunami, a stubborn U.S. labor market, plus QE3, which has proven ineffective at job creations, are brewing a perfect storm for stagflation.