Archive - Jun 28, 2010

Fin Reg has now passed, and Goldman's Richard Ramsden is not happy: "Based on these changes, we now forecast that the large banks could see a 13% hit to normalized earnings while the regional banks could see a 5% reduction in normalized earnings. Ultimately, we believe that some of the increased regulatory and legal burdens will be passed on to customers either in the form of annual fees or higher spreads on lending. As an example, conforming mortgage rates are currently 90bps above MBS yields vs. a historical average of 20bps. This implies that banks are not passing on the full benefit of low rates and the Fed MBS purchase program because on the other side they are concerned about losses such as GSE repurchase requests. Hence, we believe the impact that we have estimated on normalized earnings could prove to be too high over time." Good work Congress - mortgage rates are about to go up. How's that whole shooting yourself in the foot thing working out so far?

As I've mentioned in the past, the Pittsburgh's G20 at the end of 2008 filled me with real hope that global policy makers were willing and prepared to tackle the painful issues that lay at the root of the global crisis. I'm not talking about morally corrupt bankers or delinquent US home owners but rather the massive capital imbalances created by individual nations and their excess spending or saving. After all, if it weren't for the current account surplus countries and their cash, there wouldn't have been the cash to finance the consumption binge in the US, UK etc. Now its possible that even with aggressive policy steps, it might have been impossible for politicians to curb the squirrel-like savings habits of the German's or the gargantuan appetite of US consumers. However, it's absolutely certain that if policy makers shirk this responsibility in the face of domestic pressures, we are just heading towards the next crisis as clearly as night follows day.

- Thermidor

There is smoke rising from the windows of the LBMA as the 270 Park boys have rarely been so busy creating gold short contracts out of thin air and selling them to all willing manipulators. Gold now down $22 after second major leg down on no news, and in fact as ML reiterates its $1,500 PT for gold by the end of 2011. In the meantime, the CHF is rising. The paper cartel is doing all it can to present the Swissie as the last ditch reserve currency. For now, it is succeeding. And as the SNB's balance sheet is pristine, at least compared to that of the US, UK and the ECB, and further considering that the only major asset class is accumulated EURs from all that intervention (now over), think what will happen to the CHF when the SNB decides to offload its €200 billion in EURs...

Stocks have once again decoupled from FX, with the now defunct EURJPY being ignored and even the relevant AUDJPY decoupling. The only relevant signal today seems to be the temporarily successful gold price supression by the Wall Street paper gold dumping brigade. Eithe way selling overvalued stocks and hedging with cheap FX pairs is the right trade here. Alternatively one could buy the EURJPY and sell the AUDJPY.

Paul Mylchreest periodic report on all that is important is, as usual, a must read. In this issue:

• Buying Oils and Rare Earths
• Gold and the Euro - rumblings of economic discontent
• Feedback from the secretive Bilderberg & Trilateral Commission
  meetings
• Why we shouldn’t be surprised that Obama has failed to live up to all
  the hope
• Arch Crawford’s warning of a rare planetary alignment
• Decoding Stanley Kubrick’s Eyes Wide Shut

Gold at all time record highs? Goldman Sachs sending bankers to pitch a Radioschack LBO to gold? Can't have that - here comes the royal PM beatdown courtesy of Jamie Dimon's completely unflagrant gold plunge enforcement goons. Also, let's not forget - let's *not* forget, Dude - that keeping gold, a precious metal, for uh, domestic, you know, within the city - that (soon) aint (gonna be) legal either.

Just headlines: "the audit board violates constitution, supreme court finds." As Reuters explains: "At stake in the case is how corporate America is audited and a key provision of the Sarbanes-Oxley corporate reform law adopted in 2002 in response to the Enron and WorldCom accounting scandals. If the Supreme Court strikes down the board, the ruling will put pressure on Congress to revisit the law, opening it up for potential changes in the reporting duties of companies." Then again, who even pretends we have remotely credible filings anymore? With FASB indefinitely locked in the basement and companies allowed to report their numbers on a mark-to-unicorn basis, it is all lies anyway.

Yet another smackdown by the inimitable Rick Santelli of all that is fiat, and its henchmen. "Go read some Austrian economist instead of the funny pages." Santelli tells Liesman, to which the response is "I am ready to talk about Fred Hayek, John Hayek, and Selma Hayek." Followed promptly by the Santelli coup du jour: "Go back to Russia where you understand the state and the citizen."

Well, at least Ben Bernanke will never be able to conduct sworn testimony claiming nobody warned him about the adverse side-effects of ZIRP. As part of its 80th annual report, the BIS has dedicated an entire chapter to diagnosing Ben Bernanke's terminal Keynesianism, entitled: "Low interest rates: do the risks outweigh the rewards?" The openly negative, and borderline critical narrative, coming from the central banks' central bank, adds yet more fuel to the rumor that there is an open schism developing between the BIS and the Fed, with the IMF's increasingly fiat-y SDR likely to suffer as a result. Whether the BIS is planning the creation of some non-fiat currency, as some have speculated, is unknown at this point.

This guy has got to go. Maybe we should just get rid of the lot of them.

It's not even funny any more: "Trade Update: Last Monday we opened a short $/KRW trade on the back of the currency reform in China and consequent anticipation of CNY appreciation into the G20.  In the event, while the $/CNY fix moved lower by 0.5% on the week, this was less than anticipated and the volatility of the $/CNY intraday trading generated uncertainty in the market.  While the KRW initially appreciated on the news, less than anticipated CNY appreciation and risk off jitters associated with financial reform in the US ultimately caused $/KRW to trade above our stop leading to a potential loss of 2.2%.  The KRW has underperformed the rest of the region since late August, however we continue to expect the currency to strengthen going forward and will look for further opportunities to take advantage of this view."

In the tug of war between the U.S. urging the European nations to buy more stuff, and the EU insisting it was that very behavior that got us into the problem in the first place, score one for the Continent. It is clear that the U.S. does not carry as much weight as it used to internationally. While the Krugman-Geithener-Bernanke troika scratch their heads as to why the EU can be so stupid on this, let us remind the KGB that while U.S. memories may carry the scars of the Great Depression, theirs is a different reality, one heavy with the Weimar Republic and inflationary collapse. But let’s be practical. Any austerity measure imposed by a government only becomes tolerable to a people when that government has the ability to print its own money. So, whether the Germans admit it or not, there will be money, and lots of it. What other way is there to quell the civil unrest that will accompany a spoiled populace having its candy taken away? Believe me, the only countries that will abide by strict austerity measures will be those with printing presses.

The BEA's May Personal Income and Spending data is out - as expected, with gizmos like the iPad out there, Americans once again outspent themselves: May Income came in at 0.4%, below expectations of 0.5%, flat with a revised April reading of 0.5%; Spending on the other hand was greater than expectations of 0.1%, coming in at 0.2%, compared to a previous reading of 0.0%. Yet despite the excess spending, the Personal Savings rate climbed to 4.0% - an increase from last month's revised 3.8%, and the highest since September 2009.

BP has discovered the largest and most powerful well in history, and control of it may be outside existing technology. Less than 1% of the spilled oil is ending up on the beaches. Possibly 36 million barrels will end up in the sea, the same amount put there by German U-boats during WWII. The best historical analogy is not asbestos or tobacco, but Vioxx. Not for widows and orphans

"We know that Tony Hayward is leaving his position and he will introduce his successor," Igor Sechin told reporters ahead of a meeting with Hayward. Sechin, who is deputy prime minister and board chairman at Russia's biggest oil company, Rosneft, was responding to a question asking about the subject matter of the meeting.

And an immediate refutation from BP: "BP spokeswoman Carolyn Copland in London said the report 'is definitely not correct.'"