Archive - Aug 2010

The mass media’s way of communicating war is basically to put fake tough-guy narcissists on your TV screen speaking to the equivalent of a pre-oedipal 2 year old: “there are scary people out there…you need to be terrified…heroic saviors will attack and destroy their bad countries for you so you can maintain your mental fantasy that you’re safe. All you need to do is keep shopping, buying your little toys, while daddy keeps you safe.”

The outlook for the US, with its still miserable 3.9% savings rate, does not look great. Countries with low savings rates historically suffer from weak economies and poor stock markets, because of a shortage of available capital. China, India, and Turkey look much better. (SPX), (FXI), (TUR), (PIN)

It's been a long, hot summer for hedge funds and things aren't looking up. Why are so many hedge funds struggling?

First Orzsag, now Romer? If the latest rumor about the imminent defection of one of the three remaining policy stalwarts is true, it means the administration's economic policy is on the verge of collapse. Hotline Oncall reports: "Christina Romer, chairwoman of Pres. Obama's Council of Economic Advisers, has decided to resign, according to a source familiar with her plans. Romer, an economics professor at the University of California (Berkeley) before taking the key admin post, did not respond to repeated calls to her office." The sad reality is that Romer's (who has largely been a mere figurehead and staffed to provide soundbites to CNBCs how every worsening NFP report is in reality a dramatic improvement, a job which even Steve Liesman can do with a passing grade) departure will only make the remaining two people in Obama's economic circle, Tim Geithner and Larry Summers, even more powerful. Why couldn't those two leave? Surely both have by now earned their $2.5 million a year job at Goldman... We now anticipate the 8-K from Whitehouse Corp announcing the appointment of Paul Krugman and Mark Zandi to fill the newly vacant positions.

"When I refer to it as The Deficit (it is too majestic for the lowercase), I am not referring to a mere fiscal shortfall—I am referring to a policy mentality. This policy mentality—shared by both “saltwater” and “freshwater” economists—effectively amounts to a suspension of the notion of opportunity cost. In the realm of The Deficit, the macroeconomic policy questions cease to be “either/or”—they become “both/and”. All policy options can be achieved because—according to the macroeconomic policy known as The Deficit—the American fiscal shortfall can never bring the United States to bankruptcy. As Dick Cheney so memorably phrased it, deficits don’t matter—so The Deficit as a macroeconomic policy can continue indefinitely." - Gonzalo Lira

Goldman chief economist Jan Hatzius has created a useful preview of tomorrow's NFP number (consensus +90,000 private, -65,000 overall), explaining why Goldman has a more negative outlook on the number than most (+75k and -75K, respectively). Jan's conclusion on tomorrow's, and recent trending data :"Our view remains that the primary job market problem is a shortfall in labor demand." More relevantly, Hatzius does an extended analysis of the Beveridge curve (i.e., the relationship between unemployment and job vacancies) to determine if there has been a shift in the overall level of structural unemployment, as opposed to the more simple seasonal variety. Hatzius' modestly negative conclusion: "The answer is that the vacancy rate has not picked up by enough to push gross hiring sufficiently far above gross separations—i.e., layoffs plus quits—to create large numbers of net new jobs... Structural unemployment may well increase over time if large numbers of people remain without a job for long periods of time, and thus lose their skills and attachment to the labor force. But it is not clear that this process has started yet."

Just because wishing away local and state financial collapse doesn't work quite as well as it does at the Federal level (courtesy of everyone's favorite printer genie), attached is a terrific interactive chart from AP which helps in the visualization of unemployment, foreclosures, bankruptcies, and a composite “stress index”, by county and state. Don't miss the "play" bar at the bottom and the time scaling function at the top right (monthly rate vs change, annual).

Stop the presses. The United States is no longer the world’s biggest consumer of energy.

After topping the energy consumption charts for more than a century, the U.S. has been left behind as China leapfrogged past. According to the International Energy Association’s (IEA) latest report, China burned its way through 2,252 million tonnes of oil equivalent last year – about 4% more than the U.S.

Stocks continue to represent all the reality contained within the confines of the Byron Wien twilight zone. The decoupling between stocks and everything else is getting even more laughable than before (and it was damn funny then). A simple weekly chart shows that the divergence between stocks and bonds is worth about 35 ES points alone. Extend this three months back, and stocks are about 100 points rich. Throw in the carry trade (cause with no money from mutual funds, stock buyers would at least need the benefits of currency funding arbitrage, as otherwise the whole all too relevant question of just where the money comes from to buy up all these stocks may be asked by someone) and the EOD ramp, in turn, becomes painfully obvious. All in all, if one is trading stocks at this point, one deserves to lose it all. We reiterate our advice from last summer when the market went batshit for the first time: take your money, and go to Vegas. You have much better odds, you won't be frontrun by an Atari 2600 while playing craps, and if you lose it all at least your stay will be comped.

RANsquawk Market Wrap Up - Stocks, Bonds, FX etc. – 05/08/10

What can we say: it would be flagrantly criminal if the most incompetent and corrupt organization in the world was allowed to be unaccountable to anyone, least of all the US citizen. Our respect to Senators Leahy, Cornyn and Kaufman and Grassley for doing what is so obviously right, we are stunned only four senators ended up sponsoring legislation proposed by the Senate Judiciary Committee to strike the FOIA exemption for the SEC. Full press release below.

While relatively low liquidity equity and commodity markets are attempting to signal a global recovery (and hence a more inflationary environment), the two most liquid and therefore most efficient financial markets (Treasury and FX) continue to invalidate the claims made by these markets ultimately portraying a much more accurate environment with significant deflationary headwinds.

It looks like a feud is brewing among the credit rating agencies. For now, it is just the verbal bashing between S&P and Dagong. With S&P's fresh downgrade on Moody's this Tue., Moody's may have a score to settle as well.

Not much commentary needed here as boston.com says it all: "The number of Americans who are receiving food stamps rose to a record 40.8 million in May as the jobless rate hovered near a 27-year high, the government reported yesterday. Recipients of Supplemental Nutrition Assistance Program subsidies for food purchases jumped 19 percent from a year earlier and increased 0.9 percent from April, the US Department of Agriculture said in a statement on its website. Participation has set records for 18 straight months. An average of 40.5 million people, more than an eighth of the population, will get food stamps each month in the year that began Oct. 1, according to White House estimates. The figure is projected to rise to 43.3 million in 2011." But who cares: can someone please tell these ungrateful sods their stocks are up like 70% since the Fed became the market in March 2009.

If you have always been waiting for a relatively risk-free pair trade, which also has the added bonus of allowing you to put your money against Bill Gross, today's pair trade idea of the day, courtesy of Damien Cleusix is just for you, although as A.B. points out, good luck finding borrow: hopefully by now you have some incriminating pictures of your repo desk guy, which will force him to release a couple thousand shares your way.Of course, if Mr. Gross is long a sufficient amount of domestic insurance company debt (i.e. Fidelity which has no borrow whatsoever), doesn't matter how much clout you may have - it is 'the Gross' way or the Pacific Coast Highway.