Archive - Apr 2010

RANsquawk 1st April US Afternoon Briefing - Stocks, Bonds, FX etc.

As if the steep curve (aka free money) curve trade was not enough, today the global FX carry trade is on in full force. The yen is plunging against everything, the dollar is plunging against the euro, and commodity currencies are skyrocketing. It is the summer of 2007 all over again. The Yen is today's whipping boy, weaker against every currency in the world.

The broader public, where the first baby boomers begin retiring this year, continues rotating out of equities and into the safety of bonds. The ICI just disclosed that fund flows for domestic equity mutual funds turned negative for the week of March 24 to the tune of almost $1 billion, after a substantial spike the week before. Thisoccurred even as the market has barely had a single down day in the past two months. Year To Date the outflows have now hit a massive $3.5 billion, surprising when considering the performance of the actual stock market, which continues being bid up into the stratosphere by Primary Dealers, or as Rosenberg affectionately calls them, Pig Farmers, using free Fed money, as they merely trade with nobody but each other in a disappearing volume game of musical chairs in which each and everyone is just focused on the exit strategy and getting the market to a sufficiently high level where a 30% "bidless" drop doesn't destroy too many.

Following tomorrow's NFP announcement, the Bureau of Labor Statistics will entertain a Q&A session with the general public. The BLS will use Cover It Live (which prescreens questions, so don't expect any too "pertinent" questions to be allowed). We hope TrimTabs' Charles Biderman will use this opportunity to discuss some of his rather divergent payroll observations. Furthermore, we ourselves may inquire as to what the reason why the average unemployed's monthly paycheck has now increased to the all time record of just under $1,500 based on a total insured population of just under 11 million, and why if the actual check is where it should be (~$1,000) is there a shadow 40% of the insured work pool (roughly 4 million people) that is not being accounted for?

Link to the BLS Q&A can be found here.

The Treasury just announced the auction schedule for next week: a total of $165 Billion in gross issuance of which $74 Billion in coupons, and $8 billion in a 10 Year TIPS reopening.

Yesterday we noted that Fannie just announced a record number of delinquencies at 5.52%. Today, not to be outdone, Freddie follows up and discloses that total delinquent loans also hit another fresh high of 4.08%, an increase from January's 4.03% and double the 2.13% from last February. Also yesterday we noted that CMBS delinquencies are likely in the 6-7% range, as both the residential and commercial real estate market continue experiencing unprecedented weakness.

Also, as reader Tin Cup points out, "The credit enhanced book of business (loans insured by the private mortgage insurers) also hit a record high or 8.59%, up from 8.52% in January (and also double last year’s 4.54%).  Again, despite trillions being throw at the housing market, delinquencies continue to rocket upwards."

Bill Fleckenstein has kept a hawk’s eye on what the government does to our economy. Most recently, Bill wrote an excellent article describing the new health care law as “the great health care bailout.”

I caught up with Bill to discuss three hot topics:

1) How the new health care law will affect our economy;

2) Whether the Fed has painted itself into a corner of low interest rates; and,

3) Whether the foreign debt crisis are an omen for what’s coming to the US.

The uptick in unemployment is directly correlated to the extreme tightening in credit standards we've seen over the past year or so. The environment of lax credit "easy money" we experienced over the past several decades artificially inflated the perceived purchasing power of households by most likely several magnitudes.

Over the last ten years, the Renminbi (RMB) or yuan, has been slowly gaining influence in the markets that surround mainland China. And about one year ago Hong Kong introduced a new trade settlement that allowed Hong Kong business’ to use the RMB as a trading currency. In a China Daily interview, Dr. Billy Mak, Associate Professor in Finance at Hong Kong Baptist University believes the yuan overtaking the dollar will happen in three phases.

Straight from the pits, to Bernanke's ears.

"The feeling that the government will ride in on a white horse to rescue the world is widely held. The vast majority believe that the government can control the economy, and the reason that they are so vociferous – or should I say violent – is that they really believe that if their party or ‘concept’ were in total control then everything would be fixed up and we all would be paying our bills and living the good life... Everyone with any skill in the money management or the economic forecasting arena is aware of how little he or she knows. The random nature of the variables is important, but the psychologically hardwired misconceptions that the behavioral economists have recently pinpointed make the problem much worse. None of the “blue ribbon” economists ever forecast a recession, but they do occur. More importantly we all see order when there is none and we all believe that we know more than we do. This applies to Geithner, Sarkozy, Merkel, Gordon Brown, and even Paul Volcker, as well as to you and me." - John Taylor

Even as the BLS and DOL would like us to believe that the unemployment picture is getting better, we present a chart comparing the initial and continued claims as presented by the Dept. of Labor and compare these to actual government outlays. Even as the two combined series have been declining (offset by increasing much discussed EUCs), the most recent Unemployment Insurance Benefit outlay reported by the Treasury (as of March 30 - there is still one more day of data for March), just hit an all time record high of $15.4 billion.What this means is that in March the average paycheck from Uncle Sam for sitting dong nothing, surged to an all time high of $1,447/month.

This is the skinny on the EU's Greek rescue package. The (empirical) truth, the whole truth, and nothing but the whole (empirical) truth! Moral hazard, be damned...

As we expected, Goldman just revised tomorrow's NFP down from +275k to +250k, primarily a function of a lower, and just barely positive organic growth (+25k vs +50k previously), and Census hires (+75k vs +125k previously)

• Larry Fink's $12 trillion shadow (Vanity Fair)
• Jobless claims beat estimates by 1,000 at 439,000 after prior week revised, as always, negatively by 3,000; Same thing with continuing claims (Bloomberg)
• After getting a taxpayer bail out in 2008, Jamie Dimon attacks demonization of banks (JPM)
• Oil hits 18 month high (Reuters)
• Kerviel #2? SocGen investigating "anomalies" in Singapore account (Bloomberg)
• Will spending unding ObamaCare trigger the next financial crisis (RCM)
• Are jobless recoveries the new normal? (Cleveland Fed)
• Jim O'Neill: tough talk on China ignores economic reality (FT)
• PIMCO sees Europe's
  action on Greece as ineffective in fixing the country's problems, while
  Britain's sovereign debt rating could be downgraded within a year (Reuters)
  
• Nothing has changed from 2005: house flippers in U.S. crowd courthouse steps in hunt for deals (Bloomberg)