Archive - Jul 12, 2010

Nothing going on. Off to the beach.

Today's wtf moment of the day is brought to you by the SEC and god. In a stunning development, we uncover that the SEC actually has had a Chief Information Officer for the past two years (yes, we loled). In an even more stunning development, the SEC has disclosed that this CIO is leaving the organization, and has decided to join the metaphorical Goldman Sachs by doing god's work on earth... but not at 200 West, and is instead joining the church as a deacon. "The Securities and Exchange Commission today announced that Charles Boucher has decided to leave the agency after serving as its Chief Information Officer (CIO) since 2008. His plans include not-for-profit work and completion of studies in preparation for ordination as a Deacon in his church next spring." This is merely confirmation that Mr. Boucher must have been rather compromised when Chief Information Officering: he should know, as most other far dumber SEC henchman have figured out, that Goldmanliness is Godliness. Had he gone to Goldman, he would have already been promoted to Pope, in exchange for a few indulgences on behalf of the Abacus and Timberwolf sins, and have DMA access to High Frequency Communications directly to the One.

Earlier today we demonstrated the first instance of AUDJPY decoupling. Well, sure enough the spread closed within minutes of our observation. Luckily the market is so broken now, that it is allowing all participants another freebie in the form of another major decoupling as stocks once again spike on absolutely nothing, except a few misplaced 1 and 0's here and there. If you missed the earlier decoupling, here is your opportunity to jump in on a trade that has successfully recoupled on 18 out of 18 past observations. For those who already made money on it earlier, double down time is here. Please enjoy spanking those busted robots.

Bloomberg recently reported on the increased correlation between the CRY commodity index and the S&P, claiming that increased correlation decreases the incentive for investors to be in commodities and that continued high correlation will lead to outflows from commodity funds. But one thing we noticed is that the charts look completely different depending on how far apart the data points are spaced. Below we provide charts with data points taken monthly, quarterly, and annually.

Vignettes from my "Lost Weekend" in Las Vegas while I was attending Freedom Fest. Perhaps a bit off topic for ZH, but I think it has a lot to do with our perma-Boom-Bust economy. The stories of The Cabbie and The Gambler. Enjoy.

With the summer now upon us, the "Sell in May and Go Away" adage has proven itself true once again. The major market indexes are all turning downward, and while they haven’t dropped enough yet to warrant panic, we certainly want to be positioned properly if this trend continues into the fall. The market tea leaves are no longer sending mixed signals either – most of the new data is decidedly bearish. So what happened to all the ‘green shoots’? What happened to the strong recovery the market rally was promising? Economic data released over the past two weeks have decimated any remaining belief in a lasting economic recovery. Slowdowns are appearing in the US, Europe, Japan and even China. Auto sales, housing starts, employment, consumer confidence, factory orders, consumer purchase intentions - just about every aspect of the economy that can be measured, is showing decided weakness. - Sprott Asset Management

The jostling between the executive and the legislative branch continues. After a court of appeals denied Ken Salazar and the Obama administration their request to overturn the previous repeal of the offshore drilling ban, AP now reports that Obama is about to issue a "new revised" moratorium on deepwater drilling. In other words, when courts refuse to deal with being strongarmed, the government will just pummel them with new decrees until they relent. We suggest Obama just escalates the issue to the SCOTUS and get his prearranged favorable ruling already.

The US government is another $35 billion in the debt sink hole. The cost of this marginal addition to our existing debt load ($10 trillion? $100 trillion? who cares) was just 1.055%, which was gobbled up briskly at a 3.20 Bid To Cover. The bulk of the buying came from Primary Dealers who took down the highest portion of the auction, or 45.1%, since May of 2009, when PDs were responsible for 56.6% of the takedown. Indirect bidders, coming in at 40.6%, was the lowest indirect take down since January, when they were responsible for just 38%. The balance of 14.3% was left to the Direct Bidders. The Bid To Cover at 3.20 came in well above the LTM average of 3.03%.

The traditional hot bed of haute couture and fashion retail is experiencing an unprecedented plunge in end demand as Italy, absent trillions in fiscal and monetary stimulus boosts, has become a prime example of what US retail would look like absent the generosity of the government and the Fed. According to this Bloomberg TV report, "sales are worse than last year and business is getting worse and worse. The situation is not good." Summer sales revenues are expected to be down 5% across the board. Another factor blamed for poor sales: the weak performance by the Italian football team, and the resultant glut of jerseys. And when Prada and Gucci are seen offering extra discounts just to get shoppers into the stores, the whole concept of ultrapremium retail goes out of the window, putting the "aspirational shopper" paradigm on hold.

RANsquawk US Afternoon Briefing - Stocks, Bonds, FX etc. – 12/07/10

Some market views from Minyanville:"On July 1 when the market was down over 300 points and it felt like the world was just about to end, we put out the following alert: Taking Profits in Inverse ETF Positions in which we closed our inverse ETF positions. The Dow Jones Industrial Average has rallied almost 600 points in just seven trading days since that call. The inverse ETFs that we covered for substantial profits had a powerful reversal just as warned. In that alert we also wrote the following: “The market is getting very oversold and the risk is high being long or short right here. On 5/6/10 the market looked like it was ready to collapse. We then had a powerful rally off the “Flash Crash” lows. The markets then made a new low on 5/25/10 before staging another rally. On 6/8/10 the market made another new low and looked like it was about to collapse but once again staged a powerful rally. Each time the market looked like it was about to fall off a cliff, it had some outside force help it rally." Well, that big rally is happening now because once again a powerful “outside force” intervened to stop prices from collapsing. Folks, these aren't natural, free-flowing markets we're dealing with here. If they were, then the market would more than likely have crashed to the July 2009 lows by now."

Following up on our earlier observations on the Spiegel article about Germany change in posture vis-a-vis the European Stability Fund, here are some additional summary thoughts from Thermidor.

In our base case, we project the general government gross and net debt burdens to continue on an upward trend toward 90% and 85% of GDP, respectively, in 2014. A sustained increase in the general government debt burden above these already relatively high levels, would, in our view, reduce the government's capacity to respond to future shocks and increasingly weigh upon the economy's growth potential. We therefore believe such an increase in the debt burden above our base case would be incompatible with a 'AAA' rating.

In a rare dose of realism, Reuters reports that the BOE's Monetary Policy Committee member Adam Posen said there is a distinct chance the UK economy could slip back into a recession. Not surprisingly, the BOE member said eurozone public sector cuts would add as a drag on the UK economy. He also added that he hopes the recovery would continue but it can not be guaranteed. As the BOE has demonstrated no problems in the past with activating money printing QE episodes, is this merely a preamble to yet another round of English quantitative easing? As was pointed out on Zero Hedge over the weekend, recent changes in excess reserves in the US have provided the implicit benefit of nearly $200 billion in new Fed money entering the pursuit of risky assets, and everyone knows that the ECB is now on crash course with Germany over its own most recent monetization regime. It should thus come as no surprise that the UK feels alone and will likely do all it can to pursue the same currency devaluation techniques that seem to be prevalent across the globe, and not be left too far behind.

The big news out of Europe this morning, and the reason for the drag on the euro is an article in Der Spiegel, "Merkel's rules for bankruptcy" according to which Germany is now actively (and very secretly) pushing for a plan outlining a set of insolvency rules, which would require that private investors bear a portion of the rescue burden, and much more importantly, would see at least a partial give up in state sovereignty, where a new insolvency trustee (the "Berlin Club", which we fail to see at least for now, how it differs from the Paris Club) would take implicit control over and override a default nation's treasury, in essence pushing the bankrupt country into a form of Feudal vassal state-cum-reparations subservience. Welcome to financial warfare in the post-globalization period.