Archive - 2010

December 30th

A Happy 2011 And A Disillusioned Outlook For The New Year From Nic Lenoir

I should have embraced the corruption and policies I cannot stand rather than keep too bearish a focus, which only thankfully to careful tactical considerations based on technical observations did not turn into a complete disaster. So while we did overall a good job looking for technical opportunities to express our views, I will need to be much more cynical when it comes to assessing potential government intervention in the economy...I am however convinced that no real positive societal growth will be possible in the West without addressing entitlement programs, pension issues, the cost of production in developed economies whether it is via currency revaluation or protectionism, and a more responsible management of the world's natural resources should probably make the list too. Can we continue inflating this mercantilist world economy without an absolute collapse in the value of Western currencies? The answer is not "maybe not", it's not even close: we can't and it's obvious...So with all that said, I would like to close the circle and close the discussion with what I think is possible for 2011. - Nic Lenoir

Why Does Brian Sack Interact With Goldman's "FX Committee"?

Following the release of Bill Dudley's daily schedules from the beginning of 2009, through September 30, 2010, there have been some amusing, if not very surprising, disclosures. Among them: Dudley's penchant to meet with Jamie Dimon, Vik Pandit and, of course, former boss Lloyd Blankfein. Other meetings include Sullivan and Cromwell chairman, and the banking cartel's personal chief attorney H. Rodgin Cohen. Those are to be expected: after all Dudley has to conduct the New York Fed policy exactly in accordance with Wall Street's expectations, and per Wall Street's recommendations. What is a little more surprising is that on February 9, 2009, Bill Dudley hosted a lunch roundtable with hedge fund SAC Capital... Perhaps now Dudley knows almost as much about the chances of various Phase II/III drugs to make it to market as ole' Stevie himself. Additionally, on May 14 Dudley invited Ken Griffin and Adam Cooper from Citadel into his office at about 2:00 pm. One wonders just what the quid pro quo between the New York Fed and Citadel may have been, over and above of the traditional dark pool securities purchasing relationship between the two entities of course. Where it gets a little confusing is why Dudley had to have two informal meetings with the man who singlehandedly determines US fiscal and monetary policy: Goldman's Jan Hatzius, first on March 11, and then, less than a month later, on April 6, both times as the Pound and Pence. And where it gets downright bizarre, is trying to explain why Bill Dudley on June 11, 2009, had to bring over one still unknown Brian Sack, now pervasively known as the head of the Fed's Open Market Operations Committee, to not only walk over to Goldman Sachs for a meet and greet (as opposed to Goldman coming over to the NY Fed), but specifically "introducing Brian Sack to the Goldman FX Committee" between 4:00 and 4:30 PM on that day. Just which of Brian's myriad functions is the one that requires the participation of Goldman's FX team? Last time we checked, purchasing bonds and MBS in POMO operations had little if any impact on Goldman's FX trading flow...

Guest Post: If We Close Our Eyes, The Monster Will Go Away

The Titanic offers us a timeless analogy for denial and a frantic, too-late acceptance of grim reality. Had the doomed ship's leadership actively accepted the challenge to save as many lives as possible, then lifeboats would not have been sent off half-full. The sea was calm; boats could have been safely loaded beyond their designed capacity, and crude life-rafts might have been lashed together. As poor a solution as a lashed-together assemblage of buoyant materials would have been welcomed as a better alternative than certain death. But instead, the "plan" was to maintain a veneer of normalcy: the band played on, even as the bow sank lower into the unforgiving icy water. Fed chairman Bernanke, Treasury Secretary Geitner, President Obama and Congress are all ordering the band to play spritely tunes of rising holiday spending, endless borrowing, and the carefully crafted propaganda of Fed manipulation, statistical legerdemain and happy-talk about how the Monster will be gone when we open our eyes.

As Irish ECB Borrowings Surge, The Country's Bank Run Picks Up Speed

Following the publication of the monthly Central Bank of Ireland flow statistics for November, that the country's bank ended up borrowing another massive amount of capital from both Europe and the central bank itself, should not be surprising. After all it was in November that Ireland followed Greece into the insolvency abyss, a place where none other than Olli Rehn guarded the gates to feudal hell. However, one much more troubling factor is that the depositor run from Irish banks, a development which many have cited as potentially being the catalyst for the next major step down in the European house of cards tumble, is accelerating. From the report: "Deposits from the Irish resident private sector were 6.7 per cent lower on a year-to-year basis in November 2010. The annual rate of change in deposits from Irish households was minus 4.5 per cent, whereas deposits from Irish NFCs fell by 14.9 per cent on an annual basis in November." What this means simply said, is that as more deposit capital is withdrawn from Irish banks, the more they will need to rely on ECB and ICB funding, the more distressed they will be perceived as, the more capital will be withdrawn and so on... But that is a 2011 story. And just in case anyone is wondering what the source of all the capital is that is pushing the EURCHF to fresh all time highs day after day, not to mention spreads of PIIGS CDS closing 2010 at near all time wides, please refer to the chart above.

At 4.86%, The Fannie 30 Year Fixed Mortgage Is Back To 7 Month Highs

To all who have been following the recent rout in both the 10 year and the mortgage market, today's most recent jump in the 30 Year Freddie Fixed-rate mortgage, which at 4.86%just hit a 7 month high, will not come as a surprise. To Ben Bernanke, however, this is a flashing red sign, that QE2 is only working for Wall Street: its primary function of creating imaginary wealth in the form of additional home equity is not only failing, but the recent jump in mortgage rates by 1%, has had the indirect impact of forcing home prices to drop by another 10%. Look for this to hit Case Shiller data in March-April when today's near-5% mortgage rates diffuse through the marketplace. Robert Shiller describes it best: "Optimism is fading from the housing market." QE3 should promptly abort any last traces of anything even remotely resembling a housing recovery.

2011 - The Year When Rare Earths Become The New Black

Since trading desks are dead, and to classify those manning them as bored would be an overstatement, here is what one such dejected individual who is neither able to ski with his/her boss over in Chamonix, nor pick 25 bps margins on CDS bid/ask spreads has come up with. Presenting the imaginary hedge fund letter describing: 2011: Year of the Rare Earth Mineral: "I have appropriated thirty-seven Chinese nationals from a Scandium Mine in Longba Town, Zhuxi Country, China, that have secured and transported my gadolinite, promethium, cerium and yttrium and other rare earth minerals holdings. As many of you are aware, I recently acquired these minerals, as well as the laborers, on a recent site visit to a rare earth mining facility in the P.B.O.C. My rare earth mineral holdings represent precisely half of my net worth."

2011 Year End Gold At $1,630...Sub $1,000... Or Entering A Diamond Top?

With gold poised to close 2010 a hair's breath away from its all time nominal high price, all those who had been calling for a major correction in the gold metal "just around the corner", have been completely discredited. In fact, what may come as a surprise to many, gold is Reuters' best performing asset class of the year, well above the Nasdaq, and nearly doubling the S&P performance YTD. Yet the fact that gold continues to be a risk hedge as we suggested first about 6 months ago, has not deterred the empty chatterboxes from providing empty predictions: ten days ago we provided Doug Kass' prediction that gold is about to tumble. Granted our read of his "analysis" was one that suggest a jump in the price of gold was imminent. Sure enough, gold since then surged by nearly $50. And with global central banks having to beat their heads over the issue so well encapsulated by John Taylor, namely that global assets barely generate enough cash to service global debt, lat alone retire it, the only long-term outcome will be one of continued fiat devaluation and appreciation in hard currencies such as gold and silver (naturally with bouts of marked volatility, where one will be able to BTFD). So where will gold end 2011? Here are some more respected pundits' views on what may happen to gold in the coming year.

Chicago PMI Surges To 68.6 On Expectations Of 62.5, Highest Since July 1988

Even as economists were expecting a contraction in December from the November print of 62.5 to 61.0, the Chicago PMI climbed to 68.6 in December, an unprecedented 15th consecutive month surge and the highest reading since 1988! In terms of specific indices: Production reached its highest levels since October 2004; New Orders improved to 2005 levels; Employment reached its highest level in more than 5 years; Priced Paid accelerated to its highest point since July 2008. And while inventories and "prices paid" demonstrate that the prevailing weakness across inventory accumulation and margin pressures as seen in other diffusion indices persist, there was strength in most verticals. Then again, as the PMI is a B-tier indicator at best, it is unlikely that the Fed will actually look at it in determining whether or not to end its monetary stimulus. But be sure it will be trucked out to validate any stock ramp in the next several hours.

John Taylor Explains Why Off-The-Charts 2011 GDP Estimates Are Irrelevant, And Why Defaults Will Be Pervasive

It appears someone, even if that someone is the traditionally bearish John Taylor, finally gets the fundamental issue at the core of the global financial and economic problem: "We see the health of world economy as being driven by the implied strength of three economic centers: the US, China, and the Eurozone... Each of these three centers has a problem in that the amount of debt is too high and the assets against that debt are unable to throw off enough cash to support it, much less retire it."

Initial Claims Print At 388K, Far Lower Than Expectations Of 418K, Non-Seasonally Adjusted Claims Jump To 521K

And the year end seasonal divergence starts: while seasonally adjusted claims came at 388,000, a 34,000 drop from the prior week, and 30k below consensus, it is the Non-Seasonally adjusted number which probably provides a far better indication of what is happening: and at 521,834 it was a 24,879 increase from last week's 497k. Additionally, the 99 week cliff continues impacting more and more claims recipients: a total of 150k people dropped from EUCs and Extended claims. Lastly continuing claims increased on a Seasonally Adjusted basis by 57K to 4.128MM even as the actual NSA number declined. Lastly, last week's slightly better than expected print of 420k has been revised to what would have halved the number to the expectation of 424k. We will soon chart how in 2010, the BLS revised upward (i.e. adversely) almost 100% of its initial claims data in the subsequent week.

Reggie Middleton's picture

The future of media lies in creating truly compelling content, not iPad apps or Flash gadgets. Let's get back to the old school when media outlets broke truly investigative stories and they reported the news in lieu of having it reported to them. Isn't there a reason why ZeroHedge is so successful with absence of iPhone app, flash animation, etc.?

Frontrunning: December 30

  • China Manufacturing Growth Slows as Policy Tightened (Bloomberg)
  • Why I Don't Believe In This Santa Rally (WSJ)
  • Who Is Ron Paul? (National Review)
  • A True 'Japan Inc.' Could be on the Way (WSJ)
  • Forecasters Warn UK Jobless Rate Set to Nudge 9% “ (FT)
  • Three Hedge Funds Got Inside Data From Consultant, U.S. Says (Bloomberg)
  • China To Enhance Regulating Property Market in 2011 (China Daily)
  • BP Facing New Legal Threat Over Gulf Spill (Independent)