Archive - Aug 2010

Q2 annualized came at 1.6%, slightly higher than the revised consensus of 1.4%, and lower than Zero Hedge's expectation of 1.8%. The fact that this was 0.8% lower than the first number is completely lost on Hal9000. We anticipate the final revision to this number will be sub 1%. And why are we looking at Q2 anyway - isn't the upcoming negative Q3 print a little more important? We can't wait for the CNBC clown to gloat that the number has beat his 0.5% estimate (which was established two days ago - where was he when the original 2.4% number came out?)

Two days ago, in Mort Zuckerman Laments "The End Of American Optimism", Takes His Criticism Of Obama To A Whole New Level, we assumed out that Mort's critique of Obama, his policies, and his economic team had reached a level that would likely not be surprassed for a long time. Boy were we wrong - one short day later Mort comes out with The Most Fiscally Irresponsible Government in U.S. History: Current federal budget trends are capable of destroying this country. "The United States simply seems to lack a system that can fund the government that the people say they want. We are good at crises, but we do not seem to be good at tackling chronic problems. Obama must know that if he doesn't address this, he will be the president who drove us toward a debt crisis. And so too must Congress, for both have now participated in the most fiscally irresponsible government in American history." Scathing does not do it justice...

• The beginning of the end of the dollar? Banks Back Switch to Renminbi for Trade - A number of the world’s biggest banks have launched international roadshows promoting the use of the renminbi to corporate customers instead of the dollar for trade deals with China. HSBC, which recently moved its chief executive from London to Hong Kong, and Standard Chartered, are offering discounted transaction fees and other financial incentives to companies that choose to settle trade in the Chinese currency. (FT)
• SEC vows more action, [and arguably less porn, regulatory capture, criminal negligence and gross incompetence] (FT)
• Gold's Evangelist: With gold a fashionable hedge against turbulent times, one billionaire is doing everything he can to get his hands on the actual stuff (BusinessWeek cover story)
• Banks’ Self-Dealing Super-Charged Financial Crisis (ProPublica)
• Bernanke, Trichet Economic Paths May Diverge at Jackson Hole (Bloomberg)
• All Eyes on Bernanke's Speech From on High (Barrons)
• Hoenig Says He Changed Jackson Hole Guest List to Discourage `Group Think' (Bloomberg)
• Kan to Speak on Steps to Boost Japan Economy, Curb Strong Yen (Bloomberg)
• UK economy grows at fastest pace in nine years (Telegraph)
• The Fallacy of ‘Bailing Out’ U.S. Cities and States (Rick's Picks, h/t Robert)

Faros Trading looks at an imminent QE episode less from a monetary stimulus, and more from a game theory perspective, in which the firm sees the interference by other central banks and governments as long overdue for retaliation by the Fed. "At some point the Fed’s gloves have to come off; and given the recent Employment data, Durable Goods data, Housing data and Manufacturing data, we feel that the US has come to a point where diplomacy must end. The rules have changed and the US must change with them. The Fed should announce further quantitative easing measures on a grander scale, and the government should voice concern over the strong dollar, currently made so by many of our intervening trading partners." After all in the global race to the bottom, it's every man for himself. Alas, we are pretty confident that Faros is missing one key thing - once everyone switches from an even make believe cooperate stance to one of guaranteed defection, it is pretty much game over, as the CBs begin to actively lock each othe out. But since things are headed that way anyway, might as well go out guns blazing...

So, S&P finally gets around to Cutting Ireland’s Rating on the Cost of Bank Support, and of course Irish officials balk... Let's drill down into the facts.

RANsquawk European Morning Briefing - Stocks, Bonds, FX etc. – 27/08/10

POT is the world’s largest fertilizer producer, and with the global population expected to grow from 7 billion to 9 billion over the next 40 years, a takeover seems like a no brainer. Why not buy another product that the Chinese are voracious consumers for? It’s cheaper to take over someone than to hire people. The recent doubling of the price of wheat in a mere eight weeks has been a shot across the bow of investors everywhere that it is time to get on the train before it leaves the station. Suddenly the entire sector is in play. (POT), (MOS), (AGU), (MOO), (DBA).

Governor 'Terminator' meet Governor 'Wrecking Ball'...

An intro for newbies ...

Arguably the one most definitive market top ticking activity of the past month, in addition of course to Tim Geithner's absolutely disastrous "Welcome to the Recovery Pamphlet" issued literally hours before the wave of economic downgrades of US GDP by Wall Street began in earnest, was Mark Zandi and Alan Blinder's even more laughable administrative job cover letter titled "How We Ended The Great Recession" (yes, gentlemen, we remember). Which is why we read with great fascination that not even a month after the paper was released, Alan Blinder told Bloomberg that "Things seem to be losing momentum. The lending part of the financial system doesn’t seem to be curing itself." Actually, Alan, if that is your justification for why the momentum is being lost, you are an idiot - the lending part, or the supply side, is perfectly cured: it is the demand aspect which proud Ph.D.-bearing economists such as yourself always ignore - yes, people, the medium and small businesses, and virtually everyone else, who makes the economy tick (not Wall Street), don't need the bank's steenking money - not at 20%, not at 0.002%, if they don't know whether they will have a job tomorrow, or if upon waking up their stocks and 401(k) won't be worth 50% what they were the night before. And not to be left alone, Mark Zandi, the other member of the permaclown duo, told Bloomberg TV that he now puts the chance of a double-dip recession at 1 in 3. "If you’d ask me 4-8 weeks ago, I would have said 1 in 4, 12 weeks ago, 1 in 5. So it is rising uncomfortably high." How about 15.8 weeks ago: was the chance 1 in 69? What is it with these economists who need to scientificate every bullshit concept of their worthless occupation? Why quantify the merely abstract? Do economists have such a great mathematician penis envy, that they have to cloak their infinite lack of understanding in irrelevant numbers? The fact that this man a month ago said things are all good, and never realized that America had never emerged from the recession, is all you need to know just how much credibility any and every person working for Moody's has. But we knew that already. And just because a Moody's economist sees the only hope left before the country as even more QE, it merely shows that when QE finally does strike (which it will) it will be the end game for America, and its currency. At least we now know that in the meantime Zandi has blown any chance he may have had getting a job with the administration.

I usually don’t do follow-up pieces to any of my posts. But my recent longish piece, describing how hyperinflation might happen in the United States, clearly struck a nerve. There were two issues that many readers had a hard time wrapping their minds around, with regards to a hyperinflationary event: The first was, Where does all the money come from, for hyperinflation to happen? The second question was, Why will commodities rise, while equities, real estate and other assets fall? In other words, if there is an old fashioned run on a currency—in this case, the dollar, the world’s reserve currency—why would people get out of the dollar into commodities only, rather than into equities and real estate and other assets? In this post, I’m going to address both of these issues — Gonzalo Lira

What ZIRP means to me. What it means to the economy.

There is only 1 interpretation for this finding: bear market.

In addition to the traditional (and much discredited) argument of quadrillions of cash on the sidelines (which conveniently ignores the quintillions of debt also on the sidelines), the other last remaining point that bullish pundit like to point out is that the PE on the S&P is oh so very low compared to historical level. Putting aside the fact that the last 30 years of economic data have been perverted by a cost of credit which has declined from 15% all the way to zero, and with no additional place to go, and as such any historical comparisons are now moot as the Fed is pretty much out of options (aside from monetizing of course, and outright debasing the dollar), the primary reason why investors continue to put little credit in the "miraculous" corporate profits explosion, and thus give companies subpar P/E, is that the entire profit recovery has been predicated not on GDP growth (which explains the constant skittishness about macro events), but on declining labor costs, and as the following JPM report points out, "the latest profit recovery (the three red dots) is reliant on declining labor costs like none before it." What investors really want to know is how much more wage deflation can America take before it all collapses into a huge stinking deflationary mess? And by sowing the seeds of deflation at the heart of the corporate economy, who in their right mind would expect a wage-driven inflation (a monetary-event catalyzed hyperinflation, in which the Fed just goes berserk and decides to print $1 quadrillion tomorrow, is a different topic altogether).

RANsquawk Market Wrap Up - Stocks, Bonds, FX etc. – 26/08/10