Archive - Mar 2010

Today will be day 12 of 13 (or something just as silly) that the market has been melting up on no volume: yet another truly ridiculous statistic in the anals of momoism. As David Rosenberg points out: "the market has been able to digest California, Dubai, and Greece" - and this has all been offset by what? Merely promises of ever increasing liquidity and bailouts by the Fed, first domestically, and soon internationally. Have people really forgotten yet again that this is precisely what got us on the verge of a historic collapse in the first place? Yes, the Fed bailed capitalism out last time around (with about 3 hours to spare), but this time it has gone dodecatuple all in, and unless intelligent, and very rich life, on Mars is discovered pretty quickly, this will all end in ruins (certainly those of the Marriner Eccles building).

Due to some upcoming travel, posting over the next few days will be somewhat sporadic. We will attempt to provide recap thoughts on any major developments, although we have a sense the task will be pretty much comparable to the job of a weatherman in San Diego: "The market was... up. Back to you." Please use this post as an open thread for items of relevance. We leave you with this video in which Bruce Caldwell, a Professor of Economics and the Director of the Center for the History of Political Economy at Duke University and expert "Austrian," discusses a very relevant topic for our day and age: Friedrich Hayek's observations on the Road to Serfdom.

Today Ben Bernake and Paul Volcker will lead Panel 1 at a hearing of the House Financial Services Committee on "Examining the Link Between Fed Bank Supervision and Monetary Policy." With the just announced news that the Volcker Plan is dead after all, we fully expect this to be the last public appearance of the former Fed chairman before he is stuffed back in the closet for good. After all with 8.33 bid to cover for 1 year Ukranian bonds what can go wrong?

The hearing can be seen live at 2 PM eastern at the following link.

Market pundits scrambled to fill up air time by attributing the market movement to this data or that comment. The market rally catalyst was quite singular however. As rumors spread of a firmed up Greek rescue package, and the S&P suggested it was shifting Greece out of ICU, the Euro soared. It spiked 0.7% which is a significant move in the currency arena. The result was immediately evident and dramatic. Gold spiked $20 and oil shot up over $2. Those moves came long before the FOMC statement. Those moves were not influenced by some piece of economic data. Those moves were not the result of some shift on the outlook for the President’s health plan. Those moves were the direct result of the jump in the Euro and the correspondent weakening of the dollar. We believe that the Euro/Dollar move was also the primary catalyst in the stock market. Given the action in gold and oil, the stock market’s reaction was rather mute. With such a strong tailwind, you might have expected something like a 100/150 point move in the Dow. The real question on stocks was what was holding stocks back given the currency boost.

• China in Midst of ‘Greatest Bubble in History,’ ex-LTCM General Counsel Rickards Says (Bloomberg) (click here for recent extended interview with Rickards)
• Coal beats solar as analysts favor Peabody while subsidies drop (Bloomberg)
• Steve Forbes on Fannie and Freddie: Ugly beasts loom again (Forbes)
• Feldstein Sees Greece Euro-Exit Pressures as Deficit Plan Fails (Bloomberg)
• Evans-Pritchard: The proposed EU Greek bail-out cannot simply bypass German law (Telegraph)
• Deflation: Producer prices post biggest drop in 7 months (Reuters)
• Ex-Lehman boss sees vindication in Examiner's report (Post)
• Hussman: Ordinary outcomes in extraordinary recklessness (Hussman Funds)

• Asian stocks, commodity prices rise on Fed rate pledge, BOJ lending expansion.
• Bank of Japan doubles credit program to $222B, holds interest rate.
• BoJ loosens monetary policy, increasing low-interest loans available to the money market.
• India may create sovereign wealth fund to help state entities to acquire overseas energy assets.
• OPEC Ministers poised to keep output steady with Oil over $80/bbl.
• World Bank raised its forecast for China's growth this year to 9.5%.

RANsquawk 17th March Morning Briefing - Stocks, Bonds, FX etc.

RANsquawk 17th March Morning Briefing - Stocks, Bonds, FX etc.

The world is desperately need a second green revolution. Rising emerging market standards of living are consuming increasing amounts of food. Reserves are now at 20 year lows. The world population has doubled from 3.5 to 7 billion since the sixties, eating up surpluses, and is expected to rise to 9 billion by 2050. An impending global famine has not escaped the notice of major hedge funds. (POT), (AGU), (MON), (DBA).

Earlier today Tim Geithner was interviewed by Fox Business' Peter Barnes. The interview itself was not notable, with Timmy "Repo 105s are perfectly legal: I signed off on them myself" Geithner toeing the party line on issues such as a the Renminbi (It is a very important issue. It’s an important issue for China. I think China will decide it’s in their interest to move." - uh, right, just as soon as the US decides it is in its interest to tighten a couple of trillion in extra liquidity), trade wars (“No I’m not concerned about that.”) and other Houdini issues that just distract from the center piece of America's middle-to-klepto class wealth transfer.No, what was hilarious was Peter Barnes Freudian slip not once, but on two occasions: "Isn't the New York Fed Wall Street's representative?"... and even after an immediate and adamant refutation by tax challenged one, Barnes asks once again: "But [the Chairman of the FRBNY ] does represent Wall Street and its views." Leading to a response of "No....No...."

Hillarious Freudian slip or the absolute and unmitigated truth - you decide.

The ECB's executive board member Juergen Stark had a rare admission (and even rarer for a central banker demonstration of rationality) that not only are most advanced economies about to enter a "third wave, a sovereign debt crisis in most advanced economies", not only is a "timely exit of extraordinary fiscal measures crucial in order to ensure a continued recovery",  but that the mentioned recovery and economic improvements are largely as a result of "massive support measures taken by governments and central banks." In other words, the whole episode of the past year has been a one-time item which most analysts would exclude from "recurring operations" yet due to the magic of the Keynesian magic wand, the new normal is expected to persists as the magical "consumer" at some point takes over the recovery from the government effort. Alas, while the economy has indeed stabilized (effect), the cause continues to be purely based on governmental actions, as the consumer, and the private sector in general, continues retrenching. Too bad the US Federal Reserve has no aerobic critters than can formulate the same critical thoughts as Mr. Stark, or else they would realize that the path they are leading the US on is pure disaster, and furthermore, with the lessons from the last bubble fresh in everyone's mind, doing all they can to be branded mad, at least according to the Einsteinian definition of insanity: let's just keep flooding the system with money and keep hoping that something will change. In retrospect, pleading insanity in a decade when the entire western world is in ruins, before a tribunal of the people may not have quite the desired effect.

New Jersey Governor Chris Christie proposed a $29.3 billion budget that would suspend property-tax rebates, skip the state’s $3 billion pension contribution and fire 1,300 workers next year. Not to worry, the state pension fund is investing billions into hedge funds and other alternative investments to get them out of their pension hole. I wish them luck...

We think that China is an indestructible economic juggernaut but its economy is very fragile and it is sitting on a property bubble which will burst. What China does in response has major implications for their economy and the rest of the world. This is the second part of a three-part series on this topic.

Pimco's Total Return Fund has released its February holdings, which is now a ridiculous 54% higher than a year earlier, at $214.3 billion. The fund reduced it cash holdings from $19 billion in January to just $4 billion in February, and used the proceeds to buy $10 billion of US Treasuries ($75 billion in total), $5 billion in Mortgages ($36 billion), and also expanded further internationally, buying $3 billion in Non-US Developed country bonds (total of $41 billion). Pimco also surpassed the $10 billion mark in Emerging Market holdings. The firm kept its holdings of High Yield bonds flat at $6.4 billion. While there were no major asset reallocations, Pimco did change its curve exposure materially, eliminating all of its sub-1 year paper, which in January amounted to $17 billion. The firm added the most exposure to the 5-10 year bucket, which increased by $12 billion to $72.9 billion. The greatest amount of holdings is still in the 1-3 year bucket. Holdings of 20 years or over were a moderate $15 billion. Is Pimco gradually shifting to a flattener position?

Forty years ago, it was a small town on the Persian Gulf, merely one of seven sheikdoms joined in federation in 1971 to create the United Arab Emirates. Basically, there was nothing there but sand. Yes, oil had been discovered under that sand, and the city/state was enjoying its first economic boomlet. From about 60,000 in 1968, population tripled by 1975, doubled in the next ten years, and nearly doubled again by 1995. Problem is, especially compared with many of its Gulf neighbors, it didn’t have all that much oil to begin with, and its reserves were falling fast. What it did have was Sheikh Mohammed bin Rashid Al Maktoum, the most influential member of the family that had ruled for more than a century and a half. And the sheikh had a vision. Sheikh Mohammed believed that the Muslim world needed a New Baghdad, a center of commerce and learning and culture that would shine like the hub of the old caliphate, which had dominated the civilized world a thousand years earlier. He was determined to erect a dazzling, ultra-modern new metropolis, starting from scratch.