Archive - Aug 13, 2010

Sick and tired of CNBC "interviews" in which the speaker is given 15 seconds inbetween commercials to explain why the economy is in the toilet, before another talking head from the dodecabox appears and starts spouting painfully ridiculous things? So are we. Which is why we refuse to link to David Rosenberg's earlier presence on CNBC, and instead we present Rosie's following 26 minute interview with the WSJ which is a must watch for all who want to listen to exiled Merrill Lyncher express a coherent realistic thought before some CNBC associate producer screams "cut to commercial for incontinence pills." And, true to form, Rosie starts off in style: "If you don't believe there's going to be a double dip, it's because the first recession never ended. If there is going to be a double dip, the odds are certainly higher than 50-50." For those who follow Rosie's daily letters via Gluskin Sheff (which would be all of our readers), the insights won't be particularly new, but it is always great to hear a rational and sensible human discuss things as he sees them, not as his trading book demands he sees them.

Alabama is suing BP Plc and Transocean for damages sustained from the Gulf of Mexico oil spill, the state's attorney general said on Friday. "We are making this claim because we believe that BP has inflicted catastrophic harm on the state," attorney general Troy King told Reuters. "We are suing them for the amount it will take to make Alabama whole," he said, declining to name a figure.

Continuing on the ever popular series of Artist Renderings of infamous desktops, which now includes Ben Bernanke, Tim Geithner, and Lloyd Blankfein, we present the most recent addition: that of dear leader himself.

RANsquawk US Afternoon Briefing - Stocks, Bonds, FX etc. – 13/08/10

The EUR is in full plunge mode as of an hour ago. There has been no explanation for this sudden weakness, although a reader proposes a very troubling explanation:

As you might have heard 9 mainly EU-newbies sent a letter to the EC demanding to change the current system of account deficit calculation. They argue their pension reforms should be accounted for in the calculation. The letter was obtained by dpa-afx.  Could be a reason for the dropping Euro.

In a unorthodox piece by the WSJ, which goes direct to discussing some of the less than pleasant possible outcomes of central planning, Brett Arends asks "could Wall Street be about to crash again? This week's bone-rattlers may be making you wonder" and says: "way too many people are way too complacent this summer. Here are 10 reasons to watch out." And without further ado...

The indicator most hated by its creators, the ECRI Leading Indicators index, continues its bounce along the bottom, printing at -9.8% YoY for the week ending August 13 (in absolute terms 122.4, compared to a revised 121.7 from 121.8 prior), compared to -10.3%. In this way the index has once again recaptured the magical threshold of -10%, meaning Achutan et al will be more than happy to claim credit for how their index confirms the double dip is (cause, yes, that's where we are in a best case) is soon ending. Contrary to the index creators' admonitions, the ECRI LI was good enough to predict the collapse of the economy this quarter.

The latest Philly Fed professional forecaster (whose members are such resolute permabulls as Moody's Mark "How the Stimulus Worked" Zandi and BofA's Ethan "Goldman cutting estimates means I am raising mine" Harris) survey has been released and it is looking notably gloomier than before. "The outlook for growth in the U.S. economy looks weaker now than it did just three months ago, according to 36 forecasters surveyed by the Federal Reserve Bank of Philadelphia. The forecasters see real GDP growing at an annual rate of 2.3 percent this quarter, down from the previous estimate of 3.3 percent. On an annual-average over annual-average basis, the forecasters expect slower real GDP growth in 2010, 2011, and 2013.The forecasters see real GDP growing 2.9 percent in 2010, down from their prediction of 3.3 percent in the last survey." The economists also see the chance of a negative Q3 and Q4 rising to 14% and 16.8%. So what they're really telling us is Q2 GDP was likely negative and going rapidly downhill from there.

The August UMich Confidence index came at 69.6, just higher than expectations of 69.0 and better than the previous print of 67.8. The Expectations index came at 64.1, compared to expectations of 63.7, Conditions came in at 78.3 (Exp. of 76.5), even as 1 Year inflation expectations came a little higher than consensus at 2.8, at the expense of 5 year, which in turn was lower 2.7. Stocks spike on the "better than expected" news, as cause and effect in the market continue to matter less and less.

Some developments out of Iran, which after 35 years in delays is set to launch its first nuclear power plant, a fact confirmed by Ali Akbar Salehi, the country's atomic energy chief. This had been preannounced by Russia, which helped build the facility located next to the city of Bushehr. More surprisingly, Russia has formally announced that it would be the country supplying Iran with reactor fuel, effectively ignoring almost 4 decades of roadblocking by the West to bring the NPP project to a conclusion. Did Russia just (in)formally announce it is joining into a new axis with Iran?

And to think Friday 13th almost started off on a favorable footing. After JPM and even Deutsche Bank's Lavorgnia whacked their Q2 GDP revision estimates to the low 1% range, Goldman joins in the realistic crowd, stating that based on retail sales data, "The report is not far enough off expectations to move the dial on revisions to Q2 (currently pointing to GDP growth in the 1% to 1 ½% range from the preliminary 2.4% rate) or to expectations for Q3." Additionally, the firm now sees a 25-30% change of a double dip.

This was our feeble attempt at MSM headline creation. According to Bank of Spain data, Spanish banks were responsible for borrowing a third of all the amount lent out by the ECB in July, or €140 billion (and €130 billion net of redeposits). This number is higher than the already record €136 billion the month before. And even though it is presumably priced in, it is somewhat hilarious to think that an entire European country's banking system continues to subsist purely on the liquidity provided by the central bank: Spain continues to be locked out, joining Greece and likely Portugal in the biggest capital markets shut out in history as no matter what the National Lampoons Stress Tests (remember those?) indicate. But yes, thanks to the temporary EUR plunge to 1.16 Germany managed to pull off a record economic quarter as surging exports carried the eurozone for another month or two. All that is now over, and with the market anticipating QE2.1/3 out of our own Fed any time soon, dollar weakness will be persistently just around the corner, which effectively brings the European Golden Age to a close.

Markets in a Flash

· The USD is starting to look stronger this morning. It is gaining as investors seek less risk.

· The EUR/JPY appears to be trading very close to its monthly lows.

· US equity futures are lower today suggesting the selloff will continue when the markets open.

July US CPI reported at 0.3%, versus expectations of 0.2%, and a prior -0.1%, most of it coming from increasing energy prices. Year over Year was 1.2%, in line with expectations. The inflation-and-deflation theme continues. CPI ex food and energy was up 0.1%, also inline with expectations, and slightly lower than June's 0.2%. From the release: "The energy index posted its first increase since January and accounted for over two thirds of the seasonally adjusted all  items increase. Both the gasoline and household energy indexes turned up in July after a series of declines. The food index, in contrast, declined in July, largely due to the fourth consecutive decline in the fruits and vegetables index." Full release here. Elsewhere, advance retail sales missed expectations, meaning another GDP adjustment lower to come, pushing Q2 GDP further into sub 1% territory. "The U.S. Census Bureau announced today that advance estimates of U.S.
retail and food services sales for July, adjusted for seasonal variation
and holiday and trading-day differences, but not for price changes,
were $362.7 billion, an increase of 0.4 percent (±0.5%)* from the
previous month, and 5.5 percent (±0.5%) above July 2009." The expectation was for a 0.5% increase. Retail sales ex-autos was 0.2% (exp of 0.3%, prior at -0.1%), while retail sales ex auto and gas came at -0.1%, also worse than consensus of 0.1% (previous revised upward to 0.2%).

• Obama's economic tragedy - U.S. fiscal gap makes Greece look responsible (Washington Times)
• The Dodd-Frank Wall Street Reform and Consumer Protection Act: The Triumph of Crony Capitalism, Part 1 (Minyanville)
• Fed's Effort to Bolster U.S. Recovery Fails to Calm Investors (Bloomberg)
• US Farmers to Benefit From Failing Wheat Crops (FT)
• Treasury's new idea for laggard banks: we'll sit at your meeting (WSJ)
• Record German Growth Drives Euro-Region Expansion (Bloomberg)
• Americans grim over economy before elections: poll (Reuters)
• It's confirmed - Central Banks in Europe Said to Have Purchased Irish Notes; Yields Decline (Bloomberg)... And with all the lies about banking stability, one wonders why Europe's periphery continues to be completely locked out of capital markets
• Irish Banks Rattling Nerves (WSJ)
• Hungary’s Recovery Halts as Austerity Stifles Demand (Bloomberg)