Archive - Aug 25, 2010

Hedge fund honcho, Kyle Bass, says that time has run out for Japan. This year, the Ministry of Finance will see ¥40 trillion in receivables against ¥97 trillion in spending. The tipping point is close, and when it hits, Japan will have to borrow from abroad in size. Foreign investors subject to tougher investing criteria than domestic institutions, won’t take it. Both the JGB market and the yen can only collapse in the face of these developments.

As if the Fannie and Freddie debacle wasn't enough, two Fed economists are now proposing that the government insure the entire ABS market. Of course they have a foolproof scheme that won't repeat the old mistakes. This is not speculation. It is a serious proposal that is being considered as part of the discussions about the future of the GSEs

Courtesy of Tom Cochrane, we know that life is a highway. But did you know that so is the stock market? BNY's Nicholas Colas explains...

James Altucher’s work is supremely two things: bullish (permanently so) and flawed. It is on the latter that I wish to briefly comment.

With millions of words already uttered and/or written on the topic of an inevitable convergence between the fates of the US and of Japan, there is a certain fatigue in the Broca area when merely the topic of deflation is uttered, which causes frontal lobe Na/K pumps to immediately downshift to half capacity. Which is why we have decided to present this far more easily digestible presentation of 39 pretty and contrast-colored slides prepared by Bank of America, titled "Is the US Becoming Japan" for all those who are of the visual learner persuasion and happen to still wonder how long before a Shinto shrine is erected in the middle of Las Vegas.

According to Laurence Kotlikoff, Social Security is broke. He estimates its fiscal gap is $16 trillion. If you factor the trillion dollar gap of underfunded state plans, the US Pension Ponzi scheme is a lot worse. What can be done to address the looming retirement crisis?

If you would like to subscribe to Shadow Capitalism Daily Market Commentary (with lots of pretty charts), please email me at naufalsanaullah@gmail.com to be added to the mailing list.

Although the Iranian government insists that countries like China and Russia can make up lost Western investment in the petroleum sector, rising gas prices and stalled energy projects are signs that the regime is beginning to buckle under international sanctions. The United States, Canada and Australia, as well as the United Nations and the European Union, have stiffened financial penalties over the last several weeks against Iran for its nuclear program, which Tehran argues is meant for civilian uses like power generation and medical purposes. In recent weeks, Tehran has begun to feel “a lot of pressure” on the gasoline front, said Houchang Hassan-Yari, a professor of international relations at the Royal Military College of Canada in Kingston, Ontario. The government is now curbing from 100 liters to 60 liters (roughly 26.4 gallons to 15.9 gallons) the amount of subsidized gas consumers can buy each month, Hassan-Yari told OilPrice.com.

At least that is the question posed by Ambrose Evans-Pritchard in his column today, where he accurately points out that while a bankrupt Greece can get away with borrowing at 5% courtesy of the IMF bailout package, as of today Ireland's 10 year rate is 5.48%. Ambrose attributes this to the Greeks savvy knack of scaring the shit out of Europe by "dilly-dallying on the first set of austerity measures, and – not to be too diplomatic about it – by insulting the Germans with demands for war reparations" and also being on the verge of destroying its own country, by Molotov Cocktailing its own parliament, if its doesn't get its way. And the real kicker: as a member of the IMF, and a lender to its various soon to be multi-quadrillion last ditch rescue facilities, Ireland, whose borrowing cost is higher, is subsidizing the Greek interest and, therefore, way of life. Nuts you say? Ambrose agrees: " It has moral hazard written all over it, and shows what happens once a dysfunctional system twists itself into ever greater knots rather confronting the core issue." But such is life in the Keynesian endspiel, where the worst housing data ever recorded is sufficient for a green close: bizarro is now mainstream.

1.4 million homes need to be taken off the market for at least 5 more years to resolve housing's near term oversupply.

No problem can be fixed before a solution is formed. No solution can be formed until the underlying problems are clearly identified. The officials in charge of fixing the economy have not articulated the underlying problems. Worse, many of these officials - directly or indirectly - created or contributed the underlying problems. It is shear lunacy to expect that the people who screwed up the economy have any chance at fixing what they destroyed.

Mort Zuckerman has not kept his displeasure with Obama's economic policies secret. A mere two months ago, the Boston Properties Chariman penned "Obama Is Barely Treading Water" - one of the most critical missives by the corporate oligarchy targeted at the president. A few days ago, he followed up with an even more angry op-ed for the WSJ, titled simply enough: "The End of American Optimism" which concludes simply that the gridlock in the economy, driven by the two sets of opposing interest of Wall Street and Main Street is strategically spilling over into the political arena, and that the country is pretty much doomed to years of economic deterioration unless a clear, independent leader emerges in the meantime (and whose candidacy is not tactically "blocked" by the money lobby of Wall Street, which is the only party more than happy to preserve the status quo): "if
the economic scene these days is daunting, the political scene is
downright depressing. We have a paralyzed system. Neither the Democrats
nor the Republicans seem able to find common ground to address what is
clearly going to be an ongoing employment crisis. Finding that common
ground is a job opportunity for real leaders."

I love Barron’s. I really do. I read it from cover to cover, and I truly believe it is one of the few business publications that knows the difference between a good company and a good stock. Now that I’ve sugared it up, let me tell you this: its article on Medtronic is wrong!

An extended look at recent economic data and its impact on financial markets courtesy of Asbury Research. Summary: "Inflationary pressures at the consumer level -- although just a touch higher than the FOMC's central tendency for 2010 -- are benign and well below their 20-year averages for YOY change. However, inflation at the producer level spiked up in July -- to almost double its 20-year average for YOY change -- and appears vulnerable to rising even further in the months ahead. In addition, Wall Street is currently hovering at quarterly extremes in its expectations for little to no upcoming inflation which, as a contrary indicator, has actually led significant increases in benchmark US interest rates. Accordingly, we would view a continuation of the July rise in the YOY change in headline PPI, and/or widening in the 10-Year TIPS breakeven spread -- both which appear likely in the months ahead -- as indirect indications of both an upcoming bottom in benchmark US interest rates and an upcoming rise in US equity prices."

RANsquawk Market Wrap Up - Stocks, Bonds, FX etc. – 25/08/10