Archive - Jun 2010

In our seemingly never-ending search for new economic indicators, today we look at what Americans like to read at major turning points in the equity markets. With the help of archived copies of The New York Times nonfiction bestsellers list, we looked at 12 (six highs and six lows) turning points in the S&P 500 from 1973 to the present day. The most telling category is inspirational/self help books, which grow much more popular at market lows. There are three books currently on the list that fit that bill, equal to the average number at previous market bottoms. A bullish sign if you are inclined to look for them, but a bit worrisome for us given the market’s run from the March 2009 lows. In the same vein, books on politics and public policy seem to grow more popular at slack points in the market, and the current list has two such offerings, in line with prior market lows. As a more general point, if you want to want to make big as a nonfiction writer, better stick to history and biography. Over any economic cycle since the 1970s, that’s what sells. Who says Americans aren’t interested in the past? - Nicholas Colas, BNY ConvergEx

GLD claims to have added another 3 tonnes of gold to a fresh new all time record of 1,316.18 tonnes as of close of business today. In the meantime the fixing price of gold is back to near record levels... which is where it was on May 11, when GLD held over 124 tonnes of gold less. In other words, the world's biggest real time acquiror of the precious metal has added more than all central banks purchased in Q1 (if one ignores that whole Saudi Arabia snafu which we posted first last week), and the price of gold has not budged by a penny. Well played JPMorgan, well played.

Which would REALLY suck ...

10yr 310bps/S&P 1040... all you have to watch.

Today, Greek CDS hit an all time wide in spread. For the first time, this unpleasant phenomenon seems to have registered in the minds of Greek oligarchs, as finally, after months of dithering, the country is taking serious steps to moderate its bankruptcy. The steps in question are asset sales, and the assets in question are islands including portions of Mykonos, and all of Nafsika. So if you work in Goldman and need a nice place (with a non extradition treaty in place very soon) to stash the several hundred gold bar collectionamassed over the past two years of record bonuses, here is your chance for a nice, cheap offshore vault, ironically in the very country whose finances you overrepresetned for years.

Greece was the standout in Europe (and in fact across most sovereigns) with a 60bps decompression today (closing below 1000bps but managing to get above and trade handily upfront for much of the day). This is a 200bps decompression since the roll and while volumes remain marginal, bonds have weakened with the 2-5Y range inverting even more significantly. Calls for 50% haircuts on Greek sovereign debt in the stress tests, and an increasingly glib view of the effectiveness of the stress tests saw FINLs shift wider once again with SEN and SUB moving pretty much in line and notably FINLs and ExFINLs not decompressing. This is interesting as perhaps we are seeing the contagion leaking back into non FINLs (which would make sense via direct channel from lending/credit as well as indirect via austerity/growth slowing).

Markets have viewed China’s willingness to move to a more “market” determined value of CNY as an indication that Chinese officials believe the global economy is strong enough to weather a CNY revaluation. However, I contend just the opposite. What if China fears increased risk reversion as the worldwide economy slows down during the second half of the year? What if they are moving away from a peg to the USD because they are afraid that USD will appreciate significantly during an onset of risk aversion? Given the increasingly likely double dip scenario, China’s move toward a “market” based CNY value may ironically only exacerbate global imbalances.

Here are the top five myths the bullish pundits would love you to swallow without question:

• “European sovereign debt auctions are going well”
• “The S&P 500 is trading at an 11.5x price/earnings multiple on 2011 earnings, which is extremely cheap”
• “The Chinese RMB revaluation is a very important marker in the rebalancing of the global economy”
• “The low return on cash will continue to drive money into risky assets”
• “A return to more affordable housing will result in a housing market recovery”

Here is the refutation to each and every one.

Given that the worlds central banks answer to global speculators and their money center bank/investment bank sponsors, the people of each country must stand up for a public policy that benefits them. Central bankers have many complex tools in which to exercise their “stability” agenda. While things like currency swap facilities sound harmless when explained as short term in nature, the ability of a central bank to reinstate them at will is a perpetual back stop to global risk asset speculators. When we are asked to fund the IMF in the name of global economic stability, we are really just allowing the sovereign risk hot potato to be passed up the credit ladder in a hidden backstop of foreign folly. The unwinding of the global risk asset carry trade is the ultimate end game for decades of Keynesian lunacy. A credit bubble cannot be cured by more credit. We must recognize the widely accepted fallacies we have lived by, and devise an exit strategy that is fair to all.

Joe Saluzzi has been let out of his cage and is disseminating yet more truthiness, this time on Bloomberg with Margaret Brennan, where he references the ICI number we disclosed yesterday about $28 billion in equity outflows and says he "doesn't really blame" investors for bailing. After ongoing daily stock beatings, those people will be the smart ones. Joe has long been a proponent of the double dip, yet without a good soundbite, he could only have been classified as a second-tier bear at best so far. We are happy we has realized this little omission, and with Catherine's assistance, we now have one for JS as well: "We are one headline away from S&P 900." Definitely catchy/snazzy. As for the reasons why he thinks the market is doomed to a 150 point swoon (at least), he notes "stimulus is starting to run out, and in addition to all the problems from last year, now we've got all the issues in Europe, we've got pension funds that need to be bailed out... the government knows this, the Fed knows this, and they are just one step away from another stimulus packages, which the stock market loves." As for trading, Saluzzi once again explains why nobody should still trade stocks, courtesy of market distorting forces like the HFT SPARC brigade, whereby a few astrophysics Ph.D. determine the price of market (and thus US economy) defining Apple. Joe's long-term thesis is spot on: "Right now we are the flight to safety but that won't last long." Indeed - there is only so many countries whose CDS can hit 1,150 (ahem Greece) before the specs reorient themselves to a better upside/downside investment thesis (ahem Bund, Bobl, Schatz, and, of course, UST).

RANsquawk Market Wrap Up - Stocks, Bonds, FX etc. – 24/06/10

We so can't wait for a doom and gloomy weekly report out of Erik Nielsen this week. Football result (and insult) notwithstanding (Denmark's elimination by Japan), surely after the latest collapse in Europe, Goldman's European strategist will see something, anything, that leads to a slightly less favorable interpretation of the climatic conditions in his beloved Chiswick.

Reuters is so not getting the administration's latest round of taxpayer bail out funding when mainstream media comes knocking on Obama's door looking for handouts. The media company has shockingly decided to release some of the truth about the biosystematic genocide currently happening in the Gulf: "As much as 1 million times the normal level of methane gas has been found in some regions near the Gulf of Mexico oil spill, enough to potentially deplete oxygen and create a dead zone, U.S. scientists said on Tuesday. Texas A&M University oceanography professor John Kessler, just back from a 10-day research expedition near the BP Plc oil spill in the gulf, says methane gas levels in some areas are "astonishingly high." Luckily, America is gradually realizing that the entire food chain in the southeast is about to be turned around on its head, leading to a massive and unprecedented ecological disaster, which will certainly wipe out thousands of species and result in not only a surge in unemployment (that's a given) but outright loss of life (at statistically significant levels), and the anger is mounting. Perhaps the one good thing to come out of the worst ecological disaster in world history will be the sudden, and jarring awakening from the generational slumber for most of America, and a long overdue overhaul of a broken political and economic system.

Like clockwork, the volume emerges the second the market realizes a rout is imminent and the HFTs are quietly switching off the frontrunning engines. Elsewhere, Doug Kass is starting to channel the "predictive" abilities of Goldman's FX sales (aka the Client Rape SWAT) team.