Archive - Sep 2010

After much speculation and many flying rumors, Japanese government stepped in and intervened--sell yen, buy dollar--for the first time in six years. But the bigger question is whether this would achieve the ultimate goal--pushing export and domestic price levels high enough to help fight deflation--which has plagued the country for a decade.

Overall a boring release, as the CPI print came in just as expected, with energy and gas contributing to the increase. Of course, with biflation now the topic du jour, where things needed are surging in price, and thing unneeded are plunging, it is only expected that the average won't change much. Overall, CPI came in at 0.3%, as expected, compared to 0.3% previously. Core CPI was at 0.0%, just below expectations of 0.1%... At least it was not outright deflation. Regardless, whatever the result would have been, it is bullish for the 4 people passing hot potatoes.

And the euro seemed so happy after its recent surge, that it completely forgot it is backed by an insolvent continent. Luckily, here's Ireland to remind us stuff is much, much worse than expected. According to the Irish Independent the Labour Party, Eamon Gilmore, came very close to suggesting that Ireland is considering defaulting on its debts "when he talked about the Government "negotiating'' with bondholders in Anglo Irish Bank." Additionally, the same newspaper also reported that Ireland is on the verge of calling in the IMF for a bailout, citing "a report from Barclays, one of Europe's largest banks, said Ireland may yet need financial help from the IMF or the EU if conditions got any worse. But a spokesman for Finance Minister Brian Lenihan said last night: "The Government's strategy for dealing with the economic and financial challenges has been commended by the EU Commission, the European Central Bank and many other international experts." In other words, domino #2 has at most a few more days. Net result of all this: Irish-Bund spread explode, and gold hits a new all time high of $1,282.

• Asian stocks gain as Oracle, RIM earnings boost tech stocks.
• BoJ facing pressure to do even more to prop up the economy.
• China approves 4 Taiwan banks to set up mainland branches.
• European governments approved a free trade agreement with South Korea.
• International Monetary Fund hasn't ruled out putting together more aid for Greece.
• Oil rises above $75 in Asia as traders look for demand clues from US economic data.
• U.S. jobless claims declined last week to their lowest level in two months.

CPI and the Reuters/Michigan survey…

RANsquawk European Morning Briefing - Stocks, Bonds, FX etc. – 17/09/10

“Dr. Copper”, the only commodity with a PhD in economics, is predicting a decent economic recovery. While demand for American home construction remains in the basement, demand from China is surging, whose own construction industry remains on a tear. Global production has fallen 12% during the first half of this year. The new “monetization” of the red metal. Stashing copper bars in warehouses around the country, expecting the red metal to hit $6/pound within the next three years. (JJC), (DBB), (ECH), (FCX).

Roundup of current events ...

On September 15 former Federal Reserve Chairman Alan Greenspan made a speech to the Council on Foreign Relations. Some very interesting comments he made with respect to gold in response to a question were reported in an editorial in yesterday's New York Sun, "Greenspan's Warning on Gold": On this occasion Greenspan, who has been famous for gobbledygook that leaves the audience guessing what he meant, did not mince his words. He said, "Fiat money has no place to go but gold."

We are at a point in the September beta ramp, when the market seems to go up on all news: good, bad, worse, worst, and completely irrelevant. After all there are just 10 more trading days in which funds needs a market rise of at least another 5% before they can sleep confident that tomorrow their largest LP won't send in that dreaded redemption notice. Yet there is still one potential gray swan that the market appears to not have factored in - the emergence of full blown protectionism, which will impact the core game theory relationship between the US and China at its very foundation, and begin a process of ever-escalating defection between the two fiat system dilemmatic prisoners. What could bring this disastrous development to the fore? Why Washington, D.C. of course. And if you are about to say that there is no chance of something like that happening in the nearest term, especially before the mid-terms, not so fast. Here is Goldman's Alec Phillips explaining why the passage of a protectionist law in the next few weeks is not only possible but probable.

Together with the Fed's balance sheet, we are now convinced that the second most important developing metric for the economy is a granular analysis of the key public monetary aggregates: M1+M2. Within a month we also hope to develop our own definition of M3, to supplement such work elsewhere, in order to provide an independent opinion on what the true monetary growth is, now that increasingly more people are discussing the threat of outright hyperinflation. But before we get there, here is our first breakdown of M1 and M2 data. As a reminder, M1, or the monetary base, consists of the i) Currency in Circulation, ii) Demand Deposits, and iii) Other Checkable Deposits (technically it also includes roughly $5 billion worth of Travellers Checks each week, but this is merely a remnant of a bygone era and it rarely if ever changes). In the most recent week, total M1 was $1,700.7 billion, a modest decline from the prior week mostly due to a $12 billion drop in Other Checkable Deposits. Beyond pure M1, there are also i) Savings Deposits at Commercial Banks, ii) Savings Deposits at Thrifts, iii) Total Small Denomination Time Deposits and iv) Retail Money Funds. All these, in addition to the items listed under M1, make up M2, which closed the week ended September 8 at just over $8.7 trillion for the first time in history. For those who look at M2 as an indication of just how much liquidity is sloshing in the system, and use it as a proxy for inflation, the attached chart must be rather troubling.

Graham’s note: the following is an excerpt from my latest issue of The Phoenix World Views Digest, my monthly newsletter devoted to dissecting how the socio-economic-political structures of the world REALLY work.

Stocks may rise and stocks may fall (not likely) but one thing is certain: the Fed's $2.3 trillion balance sheet will never stop growing. Time for the weekly update.

Spot gold Tuesday hit a record $1,274.75 an ounce,drifted lower on Wednesday partly weighed down by fresh comments from billionaire financier George Soros that gold is the ''ultimate bubble,' and that "this is a period of great uncertainty so nothing is very safe."

An interesting development out of Jean Johnson, Circuit Judge in Duval Country, Florida, where in a case filed by JPMorgan/WaMu, as Plaintiff, and law firm of Shapiro and Fishman, attempted to evict defendants Hank and Marilyn Pocopanni. As basis for the legal case, WaMu had submitted an assignment of mortgage, which however the court just found never actually belonged to WaMu, and instead was carried on the books of Fannie Mae. Once this was uncovered is where this case gets really interesting: In point 5 of the filing we read that the "plaintiff predecessor counsel made "clerical errors" when it represented to the Court that the plaintiff was the owner and holder of the note and mortgage rather than the servicer for the owner."  Which means that only Fannie had the right to foreclose upon the Pocopannis, yet JPM, as servicer, decided to take that liberty itself. And here the Judge got really angry: "The court finds WAMU, with the assistance of its previous counsel, Shapiro and Fishman, submitted the assignment when [they] knew that only Fannie Mae was entitled to foreclose on the Mortgage, and that WAMU never owned or held the note and Mortgage." And, oops, "the Court finds by clear and convincing evidence that WAMU, Chase and Shapiro & Fishman committed fraud on this Court" and that these "acts committed by WAMU, Chase and Shapiro amount to a "knowing deception intended to prevent the defendants from discovery essential to defending the claim" and are therefore fraud. While the Judge in this case did not also find declaratory damages against the plaintiff, and while the case of the defendants is unclear (we would expect Fannie to file a foreclosure act on its own soon enough), the question of just how pervasive this form of "fraud" in the judicial system is certainly relevant. Because if JPM takes the liberty of foreclosing on mortgages as merely servicer, when it has no legal ground for such an action, who knows how many such cases the legal system is currently clogged up with. The implications for the REO and foreclosures track for banks could be dire as a result of this ruling, as this could severely impact the ongoing attempt by banks to hide as much excess inventory in their books in the quietest way possible.