Archive - Sep 16, 2010

There is spin and there are facts (and even these come from the Census Bureau so take them with a ton of salt): the official poverty rate in 2009 was 14.3 percent—up from 13.2 percent in 2008. This was the second statistically significant annual increase in the poverty rate since 2004, in 2009, 43.6 million people were in poverty, a 3.8 million increase from 39.8 million in 2008—the third consecutive annual increase in the number of people in poverty. Additionally, we are stunned to learn that the uninsured rate and number of people without health insurance increased between 2008 and 2009. Perhaps the president should just go back to a permanent vacation status, and just let Wall Street add another 10-20 million to this statistic in 2010, as the US middle class continues to disappear just so it can fund the exorbitant lifestyles of some 100,000 people.

The Philly Fed has just reconfirmed a contraction, following last month's -7.7 plunge, now coming at -0.7 on expectations of 0.5. Let the spin begin. In the meantime, here are the facts: The New Orders index at the lowest level since June 2009, Prices Paid lowest since August 2009, and from the report "For the second consecutive month, firms reported a decline in both new orders and shipments. Employment levels remained steady this month, but firms reported declines in average work hours. The survey’s broad indicators of future activity continue to suggest that the region’s manufacturing executives expect growth in business over the next six months, but optimism remains below levels earlier in the year."

The recent ISM print of 56.3, which was so ridiculous, not one economist had predicted a number as high, and was therefore sufficient to validate that the US government is now actively managing the Department of Truth, managed to send stocks surging, and disconnect completely form all other correlations, as yet more stat arb desks imploded. Yet what goes up, must come down, especially in an economy gripped by the greatest Depression in history. Which is why, here is Goldman's Andrew Tilton, member of what has now become the world's most bearish economic team, explaining why the very next ISM, and certainly as soon as within a few months, will be sub-50, which will be the catalyst to plunge stocks even as all hedge funds have gone all in chasing last minute September beta with the Fed's blessing.

Diana Olick was right - the home price double dip is not only here, it is getting worse. RealtyTrac reported overnight that general foreclosure activity (i.e., default notices, scheduled auctions and bank repossessions) — were reported on 338,836 properties in August, a 4 percent increase from the previous month. One in every 381 U.S. housing units received a foreclosure filing during the month. The spin is that this was a modest decline (5%) from August 2009, but represents another inflection point in a trend which up to now had been declining. “The trend lines of decreasing default notices and increasing bank repossessions converged in August, with virtually the same number of new default notices and bank repossessions for the month — a clear indication that the clogged foreclosure pipeline is being carefully managed on both ends by lenders and servicers,” said James J. Saccacio, chief executive officer of RealtyTrac. “On the front end, seriously delinquent loans are rolling into foreclosure at an unusually slow rate, while on the back end the dammed-up inventory of properties already in foreclosure is moving to REO in steady stream rather than a flood — presumably to prevent further erosion of home prices.” Of course, banks are doing all in their power to prevent the realization by the consumer class of just how much lower home prices have still to go. Most notably, the bulk of the foreclosure action in August occurred in bank repossessions, which came at 95,364 U.S. properties in August, the highest monthly total in the history of the report and about 2 percent higher than the previous peak of 93,777 bank repossessions (REOs) in May 2010. August REO activity increased 3 percent from the previous month and was up 25 percent from August 2009 — the ninth straight month where REOs have increased on a year-over-year basis. In other news, we expect Jim Cramer to come out with another call, like his wrong summer 2009 pronouncement that the bottom of housing is here.

Someone forgot to tell gold to crash today. The spot price for the next true currency, and self-imposed non-Fiat standard, was at $1,277, a fresh all time high, as it prepares to take out the stops at $1,280, which would send it promptly over $1,300. As Jim Rickards pointed out, the daily devaluation of gold and all fiat currencies continues as gold is now the only absolute that can not be diluted by central bank printing, and in a world of relative daily currency devaluation, it will increasingly be the benchmark against which to judge the bankers' desire to destroy their own paper money. And as the BOJ action demonstrated, gold is going much, much higher. In the meantime we expect CNBC anchors to continue making fun of gold.

Despite UBS' expectation of a 25 bps hike, the SNB kept its rates flat at 0.25%. Yet applying some parallel universe principles, the bank announced that it is lowering its inflation expectations even as it boosted its GDP growth estimate to 2.5% from 2%. This in itself was sufficient to weaken the CHF, although the dramatic move in the currency crosses have led many to believe that Phillip Hildebrand just couldn't take the pressure and decided to sell a few billion of the currency now that FX intervention is the norm. We are waiting to hear if the SNB confirms or denies any intervention this morning.

Initial jobless claims come in at 450K, a drop of 3K from last week's revised slightly higher to 453K, a number which as readers will recall was estimated by various states and also the US government due to the holiday weekend. Oddly enough the action was in the continuing claims category, where the weekly number surpassed expectations of 4,464K to 4,485K, and the previous number was revised from 4,478K to 4,569K. And the worst piece of news for the economy: there was a decline of half a million in those on Extended Benefits and Emergency Claims as more and more people exhaust their total maximum 99 week allottment.

Lots going on today – PPI, claims, current account balance, TICS, Philly Fed, and some FX testimony…

• BOJ becomes 'wild card' as Kan may demand stimulus after Yen intervention.
• EU new car registrations fall 13% YoY in August.
• Geithner says US examining ways to pressure China into faster Yuan rise.
• Greece rules out possibility of default; FM says restructuring would ‘break’ Eurozone.
• India hikes rates to contain inflation; move signals end of loose monetary policy.
• Most Asian stocks fall, led by mining shares; Japanese exporters advance.
• Naked-short sellers, derivatives traders face European Union restrictions.

We bail them out. They stiff us. Wonder why we hate the banks? Some thoughts on Ed DeMarco.

RANsquawk European Morning Briefing - 16/09/10