Archive - Jul 20, 2010

Either in anticipation of QE2 which will cut the value of the dollar by another 50% once another $2 trillion in toxic crap becomes the "assets" backing the viability of the dollar, or just because they are sick of Fed policies, mid-Michigan has taken monetary matters into their own hands, and in one simple act, completely bypassed the destabilizing influence of the domestic currency printers. As ConnectMidMichigan reports, "New types of money are popping up across Mid-Michigan and supporters say, it's not counterfeit, but rather a competing currency. Right now, you can buy a meal or visit a chiropractor without using actual U.S. legal tender." The plan is so simple, it just may work - after all if one can't get away from the Fed's probing and pickpocketing long fingers, all one has to do is learn to live without its parasitic pieces of paper. And not just paper: "I sell three or four every single day and then I get one or two back a week," said Dave Gillie, owner of Gillies Coney Island Restaurant in Genesee Township. Gillie also accepts silver, gold, copper and other precious metals to pay for food." So yes, you can eat gold.... and load up your gas tank with it.

Two good leading indicators have turned south: ECRI and Consumer Metrics Institute.

UPDATED

For a vivid example of how pointless QE1 was (and QE2 will be), look no further than the 30 Year FRM fixed: the mortgage rate is now at the lowest it has ever been, at 4.57%, for the second week in a row, and housing is unanimously double dipping. The problem is that the Fed has no more incremental mortgages to buy, so QE 2 will likely be all about other assets. Yet with USTs also at or near all time tights, there is little point for the Fed to bid up Treasuries. Which is why QE2 will be all about risky assets: the Fed will find a way to go all out and bid up stocks. Although, as today indicates, and as we first posted earlier, all the idiotic market needs is some totally groundless rumor of a reserve interest cut to go from down 1.5% to up in the span of an hour. All the Fed needs to do is pull a Radioshack, and keep leaking day after day that it will bid up $5 trillion in AAPL stock and watch the Dow hit 36,000 tomorrow as all the HFT go nuts with frontrunning each other, all the while Goldman keeps on betting against all of its major clients (and praying it will be correct this time).

The Homeless Recovery?...No, we're not referring to some type of improvement in the homeless problem domestically. Unfortunately with what is happening both in residential real estate and labor markets, that problem probably gets worse before it gets better. It has been some time since we have looked at the National Association of Home Builders housing index numbers, but believe it's important to do so now. Especially given the ECRI message of the moment showing us the potential for a proverbial double dip in the macro economy itself. You already know the recent NAHB monthly reading in the now absence of the homebuyer tax credit was not good at all. Same deal with month over month new and existing home sales. But as we have done in the past, looking at the NAHB numbers in isolation is not the key issue. As we have shown you in prior discussions and is important now, the NAHB data has shown us its own leading tendencies historically that have proven to be important watch points. Will it be so again? If housing "double dips", what impact will that have on the macro economy and by extension financial asset prices? And of course we use the characterization housing double dip very loosely as it assumes a prior period recovery, which itself is very much debatable. The charts do a lot of the talking here, so we'll try to keep the commentary brief.

Fox Biz reports that Ken Feinberg, as one of his last ineffectual actions during his tenure, will announce on Friday the clawback of various bonuses paid during the 2008 year of ubiquitous bail outs. Since every single bank received some form of assistance in 2008, and many still benefit from the ridiculously low rates on the FDIC-backed TLGP debt (which only has 1.5 years before it matures), it is unclear which banks will be the target of this last attempt to recover some taxpayer money out of the TBTF. Also, since these same banks run the country via their Federal Reserve lobby, it is unclear if and to what extent the Goldmans of the world will agree to this action. As Gasparino reports: "In an interview, Feinberg refused to say how much money he’s going to ask for or which banks will be targeted. “I’m aiming for Friday to make an announcement,” he said in an interview. “The banks will be notified shortly.” Feinberg declined to say whether the five remaining banks -- Citigroup, JPMorgan, Goldman Sachs, Morgan Stanley and Bank of America -- would be repaying any of the claw-back money; his mandate covers 418 banks, but people on Wall Street suspect the main focus of his mandate will be the large financial institutions."

RanSquawk reports market talk that ahead of the Bernanke semi-annual testimony tomorrow before the Senate Banking Committee, the Federal Reserve may be tempted to stop paying the 25 bps interest on excess reserves (which nonetheless have been declining recently as pointed out previously on Zero Hedge) in order to stimulate lending. Certainly, the topic of lending to what little is left of America's middle class, will be the primary theme during tomorrow's faux interrogation at which idiot politicians act confused and disgruntled that their corrupt policies have destroyed the country.

RANsquawk US Afternoon Briefing - Stocks, Bonds, FX etc. – 20/07/10

The WSJ's Greg Zuckerman has published a Q&A with one of the world's biggest deflationists (who nonetheless admits that once QE 2 begins all bets are off): David Rosenberg. Here is how Rosie sees the world of finance over next 2 years, and provdes more color on his currently favorite investment strategy (aside from bonds): SIRP (Safety and Income at a Reasonable Price... and in keeping with acronyms RIP GARP).

In June, 20 states posted a (seasonally adjusted) unemployment rate greater than the US average. At 14.2% Nevada was once again the state with most idle hands (excluding Puerto Rico, which since the earthquake nobody cares about anyway). Michigan is second at 13.2% as those unemployed for 20 years or longer (the vast majority of the population) are now presumed to be dead, thus causing a downward inflection point and a major improvement in the state's economic perspectives. California, Rhode Island and Florida rounded out the top 5 states. Yet the gimmickry at the Federal level is making the state picture better as well: in reality the main reason for the improvement on a state by state level is the decline in the labor force, so even as the unemployed in California declined by 30k, the labor force contracted as well, by 23k, and, carry the four, the net result was a loss of 27.6k workers. In other words, more data that is gradually becoming completely irrelevant.

Will there be an overshoot to the all time high of ¥79.5? Looking at the fundamentals, you would not pick Japan to possess one of the world’s most virile currencies. The reason is simple: the fundamentals are so poor, that no one owns the yen, and therefore, can’t sell it. Central bank holdings of the Japanese currency have been plummeting for years. Japan’s notoriously anemic long term growth rate of a minuscule 1% hasn’t exactly seduced managers to pack their portfolio with yen assets. (FXY), (YCS).

Update: Comments from Spain's Salgado taken out of context according to a Spanish official. Appears a caja or two will be sacrificially thrown to the lions after all. The Farce must go on!

• All Spanish banks pass stress tests
• All French banks pass stress tests
• Pretty much all Greek banks pass stress test

HA HA HA

The farce will continue until bullshit flows freely

Not only is economics the must futile, destructive and worthless "science" in the known world, but now it is actually occupying the very limited attention of corrupt congressional critters, who are participating in a hearing titled "Building a Science of Economics for the Real World" (obviously paid by taxpayers). Here is the reason for the hearing: "The Subcommittee on Investigations and Oversight will hold a hearing on July 20, 2010, to examine the promise and limits of modern macroeconomic theory in light of the current economic crisis. The Subcommittee has previously looked at how the global financial meltdown of 2008 may have been caused or abetted by financial risk models, many of which are rooted in the same assumptions upon which today’s mainstream macroeconomic models are based. But the insights of economics, a field that aspires to be a science and for which the National Science Foundation (NSF) is the major funding resource in the Federal government, shape far more than what takes place on Wall Street. Economic analysis is used to inform virtually every aspect of domestic policy. If the generally accepted economic models inclined the Nation’s policy makers to dismiss the notion that a crisis was possible, and then led them toward measures that may have been less than optimal in addressing it, it seems appropriate to ask why the economics profession cannot provide better policy guidance. Further, in an effort to improve the quality of economic science, should the Federal government consider supporting new avenues of research through the NSF?" Since there are no more pressing issues, Congress has to decide on whether or not economics is actually a science. And as the ansdwer is and has always been no, perhaps they could have held this hearing a century ago when the country still had a chance to avoid bankruptcy, ruin and social catastrophe, all facilitated by the false religion of Keynesianism.

Interest in the ECB's weekly 3-'On (Monetization Sterilization Operation) assault on free markets, also known as the Fixed Term Deposit Liquidity Absorption Tender was high, and came at precisely the same level as last week's. €97.2 billion worth of bids were chasing after €60 billion of ECB-regurgitated sovereign bonds, resulting in a 1.6 Bid To Cover, exactly the same as last week, when €98.3 billion of bids were after the same amount of ECB-sterilized worthless Spanish bonds. Of course, in other countries the Ponzi occurs by the ECB accepting collateral from banks which purchase their own sovereign debt. As Reuters reported earlier, 90% of the most recent 26 Week Greek Bill operation was purchased by Greek banks which subsequently received 100 cents on the dollar for each bond from the ECB- if there is a more accurate definition of a pyramid scheme we have yet to hear it. The marginal rate on the Tender came at 0.64% with a 1.00% max rate. The weighted average allotted rate was 0.56%. 88 banks participated in the auction, a slight increased from last week's 85. Elsewhere, demonstrating that real liquidity in Europe is bad and getting worse, 3M EUR Libor rates rose yet again, now well over 0.8% at 0.81125%, the highest since August 26, 2009. The ECB's deposit facility saw a plunge in usage, dropping to just €52.5 billion yesterday, as banks now have to look under the cushions for any and all free euros to allocate. Good luck European Small and Medium Businesses in trying to get a loan.

The story of a 15% price swing in ATP Oil and Gas's (ATPG) stocks due to a $450-million math error by a JP Morgan (JPM) analyst probably has prompted some to question the value and validity of analysts' forecasts. A study by McKinsey Quarterly published in April should provide some insight.