Archive - Sep 9, 2010

RANsquawk US Afternoon Briefing - Stocks, Bonds, FX etc. – 09/09/10

Today's announcement by the BLS that it decided to flat out estimate nearly a third of all initial jobless claims (courtesy of several large outliers) due to a "clerical holiday" which resulted in a major beat to estimates, caught many offguard by just how tendentious and manipulative the US Department of Truth can be. This is nothing. To visualize just how ridiculous the perpetual upward bias is at the Labor Bureau, we present a chart demonstrating the weekly jobless claim revisions by the BLS: in a nutshell, 90%+ of the time the bureau has revised prior claims upward, meaning it consistently strives to create an optimistic picture at the moment, only to have it revised it to its true, uglier state a week later when nobody cares. The implication is that fraudulent (and we sure hope this is inadvertent, although a 90% error rate definitely would invite a criminal investigation into just who and how stands to benefit from such an manipulative upward bias) data reporting is responsible for a persistent upward bias in data, and that fundamentals have been disconnected from the "government's reality" for years, confirming that the recent pathological breakdown in the market's relationship with fundamentals is not a new development. For example: today stocks would be flat to down if the BLS were to report the initial claims as they really are. Instead, here we are, almost 1% higher on nothing but soon to be revised lies. In other news, the China-US data distribution Joint Venture/Vassal State development is progressing better than expected.

In what can be dubbed the definitive presentation for those pursuing yield (and let's face it, in our day and age when most have given up on stocks as a capital appreciation vehicle, that would be everyone), Morgan Stanley's Jim Caron and team have created "Searching for Yield - What the Bond market is up against." Easily the most comprehensive analysis of even the smallest nuances in rates, corporates and dividend yields, it is chock full of 113 pages of must read data. And while we leave it up to the reader to make their own conclusions on which asset class is most appropriate, it bears to highlight Caron's thoughts on why stock dividend yields are surging, despite Cramer's daily begging to get people invested into companies that may pull their dividend any moment, to go with the whole cash hoarding theme.

Here's the trailer for what will likely be a must watch documentary, Inside Job, directed by Charles Ferguson, opening October 8th in America.

For all those who are wondering why the market may have caught a vapor bid today, here is your answer: the Fed is currently (as of 10:15 Eastern) conducting an auction for Bonds maturing between 2013-2014, which if Morgan Stanley is correct will inject roughly $2.5 billion in new market liquidity. Lever it up 15x and you get some decent market moving potential. And as the FRBNY discloses, the next auction will be on September 13, when the Fed will focus on the 7-10 Year "belly" of the curve. Today's POMO result will be announced at 11:00am: expect no stock weakness immediately following the reallocation of capital from USTs to stocks via the PDs.

Nothing to this at all. Just move on to the important stuff.

It is no secret that money paid to Primary Dealers via the Fed's POMO monetization tends to immediately find its way in risky assets, most notably stocks. Yet one of the major complaints against the Fed's QE Lite by the permabull brigade, is that the amount of weekly monetization is just far too low to make much of a dent on stocks, even assuming massive leverage and the deranged computerized feedback loop algos that take the smallest move and make a tsunami out of it. Well, according to Morgan Stanley, the Fed will make sure that over the next three weeks hedge fund LPs are happy, that redemption requests are sparse, and that September wil be an up month for all those levered to the hilt and chasing beta: for September/October the Fed is now expected to monetize double the amount of bonds in Aug/Sept. In other words, the Primary Dealers, aka Fed Lites, will be using tens of billions of brand new Fed printed money to chase the highest beta stocks they can find. And they will most certainly be using made up government data to facilitate this pursuit.

The BLS has announced that as a result of the Labor Day weekend, 9 states (among which the biggest one California) did not report initial claims data to the bean counters, so instead the government had to "estimate" what the data would have been: yep, estimate, what the data was in these nine states. From Bloomberg: "For the latest reporting week, nine states didn’t file claims data to the Labor Department in Washington because of the Labor Day holiday earlier this week, a department official told reporters. California and Virginia estimated their figures and the U.S. government estimated the other seven." Official data is now made up on the fly. This US economic data reporting has just entered the twilight zone. Also, when the data is officially made up, it is not that difficult to get data that is "better than expected." The full list of states is: DC, Illinois, Idaho, Hawaii, Oklahoma, Michigan, and Washington. California and Virginia estimated themselves.

Futures surge as the US economy continues to hemorrhage jobs: a 451K print in initial jobless claims merely means that ever more people are being shifted over to extended benefits, which increased by 64.7K. One can be sure that at least 20K of this number is those hitting the 6 month ceiling on claim applicability. And yes, anything over 400K means no job creation (private or census), contrary to whatever the DOL may want everyone to believe. Elsewhere, the US trade deficit for July came out at "only" $42.8 billion on expectations of $47 billion, with the previous print slightly revised to $49.8 billion. We are looking forward to the Chinese release over the weekend of their version of the story, which will show more updated August data, and allow to read into how the China-US trade balance is developing.

• Norway Buys Greek Debt as Sovereign Wealth Fund Sees No Default (Bloomberg), and in two years those responsible for the decision will be sued for criminal negligence; In other news ECB funding to Greek banks stays within €0.3 billion of all time high at €95.9 billion. Perhaps Norway meant buying ECB bonds?
• Funniest self-serving statement of the year: Greece Says Bonds Now an 'Opportunity' as Budget Deficit Falls (Bloomberg)... as opposed to yesterday when they were a catastrophic investment. Also not mentioned was the austerity is really working as Greek industrial production plunges far below expectations
• And guess what - more QE coming to a broke Europe near you: BOE Mulls ‘Second Wave’ of Bond Buying as Rebound Ebbs (Bloomberg)
• Base metals overnight flash crash in China (Reuters)
• OECD Says Slowdown `More Pronounced' Than Anticipated (Bloomberg)
• European Crisis Flares Up in Ireland (WSJ)
• A recent uptick in insider buying is normally considered a positive for the stock market, but it may be misleading for investors (Reuters)
• Japan Plans to Seek Discussions With China on Bond Purchases (Bloomberg)

In response to HP's suit against its former CEO Mark Hurd to block him from working at Oracle, Larry Ellison threatened the suit could jeopardize the 25-year partnership between HP and Oracle. Whereas in fact, if anything Ellison was trying to instigate a fued with HP.

On one hand you have the Greek finance minister uttering the most self-serving statement of the year, saying Greek bonds are no longer something to fear (even as Greek industrial production falls 8.6% on expectations of -5.7%), on the other you have John Taylor saying that "unless a miracle takes place, the Greek situation will deteriorate and other countries will follow in the next few years." That's fine: G-Pap is currently taking advanced transmogrification lessons as the local alchemy university - even miracle workers have to start somewhere.

• Afghan president's brother made $800K in Dubai using loan tied to Kabul Bank.
• Asia stocks up, SKorea unexpectedly leaves key rate at 2.25% as recovery slows.
• Australian employers' hiring for August exceeds estimates; Currency gains.
• BOE mulls 'second wave' of bond buying as rebound ebbs.
• China trade surplus may top $20B, stoking tension over yuan policy.
• China's stocks decline most in 2 weeks on concern about new property curbs.
• Euro slides to $1.2693.
• Norway buys Greek debt as sovereign wealth fund sees no default.

The trade balance, jobless claims, and the Fed’s balance sheet….

RANsquawk European Morning Briefing - Stocks, Bonds, FX etc. – 09/09/10