Archive - Jun 2010

Despite the pleas of Dr. Athreya to the contrary, Rick Davis of the Consumer Metrics Institute boldly goes where no BLS statistician or Fed economist dares...that is into the upstream consumption data (gathered in real time, no less) that leads the taxpayer-subsidized bean counters' work by up to seven months. While it's no surprise that all is not well on the H2 2010 horizon, CMI tells us specifically what to watch out for.

Hedge funds poured into the currency down under, making it one of the world’s best performing assets this month. The bottom line is that interest rates there are high and rising, while ours are low and stagnant. A procession of central banks have been pulling the ripcord on the troubled euro and landing into currencies with vastly better fundamentals. A proposed 40% mining tax triggers a stunning change in government. Singing “Waltzing Matilda” in the shower. (FXA), (EWA).

Gold traded in a wide range on Tuesday as markets reacted to frightening news. Slowing growth from China shocked the market, driving oil prices more than $3 lower,dropping the Standard & Poor 500 ~30 handles and leaving gold and the dollar as the prime beneficiaries. More contagion fears from Europe and paltry consumer confidence reports didn’t help matters either. Gold sold as low as $1228 per 100 troy ounces on Tuesday before ultimately closing just over $1246, a $4.80 gain for the day.

Today's ADP number came in at +13k, compared to expectations of +60k, with the previous number revised to +57 from +55. It was basically a disaster, as it now puts the already shaky expectations for the June NFP number in even greater jeopardy. The number was so bad it even has Goldman's Jan Hatzius scratching his head. As the firm has lately been horrendous in predicting the NFP, we anticipate that Goldman will likely downward revise its +150,000 gains in payrolls ex-census over the next 48 hours.

• The $5 trillion rollover (Reuters) -
  good of Reuters to pick up on this theme. We
  wrote about this is November, and the number is not $5 trillion, it
  is $15 trillion
• Yet another jobs miss: ADP comes in at +13,000 on expectations of +60,000 (Bloomberg)
• Scrutiny of Goldman's board focusing on silence over conflicts (Bloomberg)
• As expected, Alex now a hurricane (Bloomberg)
• "Not only is Elena Kagan perhaps the most unqualified person to ever be
  nominated to the Supreme Court, but she is a neoliberal globalist hack
  who had the silver spoon of privilege surgically implanted in her Kagan
  rectum at birth" - All in the Family; The Globalist Kagans of Brooklyn (American Everyman)
• Putin rips Russian spy bust (WSJ)
• Why Obamanomics has failed (WSJ)
• Todd Harrison: Where we've been and where we're going (Minyanville)
• Krugman spits in the faces of imaginary bond vigilantes (NYT)

Flagstar is the nation's 65th largest bank and without yet another recent capital raise would probably be gone. In truth, there is little Good and a whole lot of Ugly.

Today at 9:00 am the FCIC will have yet another great diversion session, in which the man responsible for losing half a trillion on behalf of AIG shareholders (and forcing US taxpayers in the biggest involuntary bailout in history), Joe Cassano, will be chided for a few hours, then promptly released back on his way. Goldman will be there too for some reason. Here are some observations in advance of this hearing.

• API reported a decline of 3.4M barrels in US' oil stockpiles.
• Asian markets stay in the red but pare early losses.
• Australia reportedly close to mining-tax compromise.
• Consumer Confidence grows in Euro zone, ebbs in UK.
• IMF chief: No double-dip for global economy; defends G20 focus on deficit reduction.
• Japanese stocks fall to seven-month low as US consumer confidence drops.

Today's 3 Month Long-Term Refinancing Operation saw a surprisingly low €132 billion in bid interest on behalf of 171 banks. The transaction which is the key bridge to the rolling-off of the 1 Year €442 billion LTRO which matures tomorrow, was expected to see demand for between €150 and 200 billion, yet missed even the low end as the bulk of excess cash had been used for arbitrage opportunities which would be eliminated with the new, shortened maturity. On the other hand, the 171 banks that did participate in the transaction will likely be stigmatized as it means they are likely locked out of the traditional interbank lending market, which has a comparable 3 month rate of 0.76%. On the other hand the LTRO has a fixed 1% rate: the banks are hardly paying the additional 24 basis points because they like JC Trichet so much. Alternatively, we are convinced that none of the 171 banks will fail the most recent scam that is taking Europe by storm, namely the Tim Geithner-inspired "Stress Test", which just like in the US, have already seen their first mandatory leaks of information. Furthermore, the €310 billion in liquidity that is leaving the system is precisely the amount Barclays' analyst Joseph Abate predicted would depart: "Market attention is focused on how much of the €442bn stays at the ECB and how much leaves the program: currently there is about €300bn “surplus” liquidity in the euro area market, and so a full rollover is not theoretically needed." In fact, the lower the roll, simply means that a greater the number of government securities have been pledged elsewhere: "Obviously, the more government securities pledged, the more likely it is the 3m replacement LTRO will be considerably smaller than the €442bn rolling off." In other words, the ECB's recent willingness to accept any garbage as collateral has skewed the usefulness of this liquidity transition operation as indicative of absolutely anything.

RANsquawk European Morning Briefing - Stocks, Bonds, FX etc. – 30/06/10

Paul Krugman, obviously in total distress over the G20 deficit cut pact, sees a 3rd depression coming to America. Meanwhile, Dr. Doom--Nouriel Roubini--sees a slowdown rather than a double-dip recession in the U.S., and Harvard University professor Niall Ferguson agrees.

Is this partly responsible for the failure of the blowout preventer?

This is the fourth and final part of my major four part series dealing with what I feel is the primary question investors must now answer: is our future to be inflation or deflation? The answer has vast implications to our investment planning and decisions for the near term, and possibly for our long term. It is a very complex question with a lot of moving parts involving economics and politics. For those of you who have stuck with me for this series, thanks!

Tuesday's relentless sell-off across US equity markets marked an undeniable end to the continuous series of higher lows that had been intact since July 2009; closing below 1,044.50 on the S&P 500 Cash, bulltards can no longer claim that the primary trend of equities remains bullish. With ZMH the only S&P 500 issue closing higher, could GETCO be anticipating a large order from Mr. Market for a new hip? Joking aside, what can we expect after such an all-encompassing technical rout?

“We will have a financial crisis again — it’s just a question of the frequency,” said the economist Kenneth Rogoff, who, with Carmen M. Reinhart, wrote a terrific book titled “This Time Is Different: Eight Centuries of Financial Folly.” The title says it all. We’ve been through this before and will go through it again.