Archive - Aug 2010

Banks have been lamenting the abysmal volume in stocks over the past two months, and threatening they will fire people and stuff. Well, all they need are a few more days like today. The chart below says it all.

On one hand you have Mark Zandi, whose ongoing attempts to brown-nose the entire administration and fill Romer's big shoes are getting outright pathetic. On the other, you have Goldman: "Report underscores weak tone of US labor market. Payrolls rise only 12k abstracting from discharge of temporary Census workers as job losses in state and local government offset most of a roughly in-line increase in private-sector payrolls; prior data revised down. Household survey confirms job losses, with jobless rate holding steady only because labor force continues to decline. Wage and workweek data recover slightly after weakness in June."

As expected last week, the ECRI Leading Indicator may have seen its lows. After hitting -10.7% last week, this week the annualized rate of change rose to -10.3% (on par with two weeks ago). Watch for the ECRI creators to suddenly change their tune and start espousing all the virtues of their index, now that it is in an upswing. Of course, the fact that it predicted a recession when it dipped below -10% is irrelevant - we have yet to leave the depression. Plus at this point it doesn't matter: today's NFP number has told us all we need to know about the future of money printing by the glorious Chairman.

The administration thinks it can pull a fast one by pretending the unemployment rate is better when millions of people are allegedly leaving the labor force in droves? That's fine - however, there is nothing Christina Romer's replacement can say to put lipstick on the below piggly chart. The ever critical ratio of civilian employment to population is now at 58.4%... It was last this low (to the upside) in October of 1983. At least in one way Obama has caught up to the Reagan administration.

Little by little, the macro economists at all the sellside shops have been turning bearish. Jan Hatzius, once again proves his worth, by seeing the writing on the wall sooner than most of his colleagues and turning negative about a month ago. Yet in a field in which the faux bullishness of a "strategist" directly correlates to the amount of capital at risk of complete wipeout should stocks begin approaching their true value, there are those who clutch to every straw of optimism harder than a drowning man on the verge of going over the Niagra Falls. One such specimen is Bank of America's Neil Dutta, who through thick and thin has kept "the 99% empty glass is 1% full" perspective for far too long. Which is why we would like to call Mr Dutta out: in a note to clients from two days ago, Neil said: "If our forecast for +125,000 in private payrolls comes to"fruition, we think the economy should be able to generate the kind of income growth necessary to offset the fiscal fade coming in the back half of this year." Well, Neil, your permabullish forecast has once again come well short of reality. It is time to admit you have been wrong, and no, saying next month's NFP will finally be better is just not going to cut it anymore: even Christina Romer got that memo. So please spare us the sugar coating and for once tell the truth as you see it, and not as your corporate overlords at 1 Bryant Park demand you spin it. For your own sake.

A fundamental investor's look at the macro picture and lodging earnings sees pretty much nothing but bad news. Apparently, the mainstream media doesn't take a fundamental investor's view. Retractions, anyone???

$1,205 at last check and going much higher. The one place where buying the dips actually does work.

Markets in a Flash

· The JPY has started to look strong over the past few hours gaining against the USD and other currencies.

· The USD is also looking strong against other currencies, this may as investor buy the greenback before the US’s employment report.

· US equity futures have been fluctuating this morning but are currently posting slight gains ahead of the US session.

Mr. Geithner is either outright insane or a total liar. Neither of those are welcome realizations, though I doubt they are news to anyone with a working brain. However, for the sake of manners, I'll simply assume Mr Geithner is outright insane, in which case I am indeed, quite honored to be invited to his recovery... I only wish he'd mentioned the planet where it was taking place.

July Non Farm Payrolls miss expectations, coming in at -131,000, way below the consensus of -65,000, yet the unemployment rate drops once again to 9.5% as even more people drop out of the labor force. Total Private Payrolls rise only 71k, on consensus estimates of +90k. The June Jobs report is revised majorly downward to -221K, from -125K, as the double dip gets yet another validation. The 2 Year Treasury just hit another fresh all time low of 0.5136%. And the stunner: those working actually declined by 159,000 to 138.960 million, even as another 381 thousand left the labor force between June and July, resulting in an actual drop in the unemployment rate from 9.6% to 9.5%. Another NFP debacle which will certainly cause stocks to sure by at least 5% as QE 2 is now absolutely inevitable.

• Asian shares mixed on Friday, weighed by caution ahead of key U.S. jobs data.
• China's stocks decline on inflation, policy outlook; Developers retreat.
• European stocks advance ahead of jobs data; financial-sector earnings provide a lift.
• US Same-store sales rose 2.9% in July vs. cons est. of 3.1%: Retail Metrics.
• AIG's operating profit rises 17%.
• Allianz's Q2 profit down 46% on lower income from own investments.
• Beazer's orders falls 33%; posts loss of $27.8M despite $55.2M in debt-retirement gain.

For all those curious to see just what an entire country on fire looks like, the University of Maryland Fire Information for Resource Management Services provides an interactive map of all currently raging fires in Russia. With Moscow temperatures projected to hit 40 Celsius today (and stay there for at least the next few days), and visibility in the Russian capital down to double digits, now that the surrounding smoke has been blown in via increasing winds, grain exports and surging food prices may soon be the least of the country's worries... at least for those unlucky enough to have been a part of the CIS privatization mafia better known nowadays as Russia's resource tycoon billionaires. All those with Google Earth can download the interactive KML map at the following link. (Google Earth can be downloaded here)

The most important story nobody talks about continues developing, with both Euro Libor and Euribor (3 Month) jumping to year highs. The much more popular funding rate, Euribor, just hit 0.905%, compared to 0.904% yesterday as tightness across the banking sector continues, on expectations that the ECB may cease providing constant backstops to everyone (1 week Euribor was 0.569%, 1 month: 0.649%). With the European policy rate at 1.0% the collapsing bank lending market may soon pressure banks to go exclusively to the ECB for overnight lending, in addition to all their other funding needs. And to think all this was supposed to be avoided with "successful" completion of the stess farce... And while Euribor has been on a non-stop tear higher, EUR Libor had recently dropped marginally. Well, no more. Market News reports, "The euro 3-month LIBOR rate was up 0.369 basis points on the day to stand at 0.8348%, edging nearer to the official 1% policy rate and at its highest level for almost a year. At the monthly press conference Thursday, European Central Bank head Jean Claude Trichet talked about normalisation of EONIA rates, and raised no concern about euro market rates moving higher. The euro LIBOR/OIS 3-month spread was almost 0.37 basis points wider on the day."

RANsquawk European Morning Briefing - Stocks, Bonds, FX etc. – 06/08/10 (US Nonfarm Payrolls Special)

Good thing humans don't eat or use energy or else the highly "accurate" core CPI, courtesy of the draught and harvest catastrophe in Russia, causing wheat prices to literally take off, might actually reflect reality for once. A closer look at the consequences of the grain export collapse in the third biggest exporter in the world: "Russia’s domestic prices rose even more within the last 30 days. In addition, on August 5, Russia announced a ban on grain exports through year-end, effective August 15. This should help contain further domestic price gains, but may send global prices even higher. J.P. Morgan’s commodity team expects that any meaningful decline in prices is unlikely to occur before late 2010, but wheat prices are forecast to recede to below $6/bu in 2011, as higher prices now are likely to promote increased global planting."