Archive - Jan 25, 2011

Zero Hedge reader Jason submits the following rebuttal to yesterday's most hilarious segment on CNBC, which was Steve Liesman's explanation of how a 100% jump in wheat prices is really nothing to be concerned about. "I viewed CNBC on Monday morning and was amused at the attempt to convince consumers Moms and Dads on a budget who buy groceries) that a 50% increase in wheat will not impact their grocery budget. The logic used (see the story as recorded by CNBC) is beyond ridiculous to the point of incompetence. Anyone who actively listens vs. passively dozing off, and I know that is hard to keep from doing, would have seen right through this.

Since FX trading is rapidly eclipsing stocks as the main market of choice for retail investors, it is useful to chart how the foreign exchange market has developed over time. Below, we present a recent comprehensive summary on the evolution of the foreign exchange market written by Brown Brothers' global head of currency strategy Marc Chandler.... Cause in today's centrally planned world, you either have 5,000x leverage on every trade, or you are too little to be bailedout.

RANsquawk US Afternoon Briefing - Stocks, Bonds, FX etc. – 25/01/11

Inflation is actually much higher than what the BLS claims it is; something that purchasers of college tuition, pharmaceuticals, or health insurance know all too well. To give the BLS some credit, they must try and estimate a single rate of inflation that applies to everyone equally. But that is a completely impossible task. An octogenarian living in Seattle on a meager pension and taking lots of prescription medications will have a totally different inflation experience than an 18 year old living in their parent's basement eating Ramen noodles. But even after spotting the BLS some slack, there are some enormous and glaring errors in their methods that render the official inflation measure hopelessly - and dangerously - inaccurate. In this article, I am going to reveal how US inflation numbers are badly understated, how this practice short-changes institutions and fixed-income individuals alike, and why this means fiscal and inflationary train-wrecks are the most probable outcome for the US -- and, by extension, the globe.

CUSIP 912828PM6 due 12/31/2015: $5,488,000,000, 71.1% of total

Always kick a Squid when it's down--WB7

Today's mortgage fraud stunner comes from Bloomberg's Jody Shenn who reports on the ongoing lawsuit between Ambac and former Bear Stearns mortgage unit EMC, now part of JP Morgan. In what can only be classified as fraud-cum-double dipping-cum-AIG/Goldman, "JPMorgan Chase & Co. demanded that a lender repurchase bad
mortgages even as it resisted calls to buy back the loans from bonds
created by Bear Stearns. “That would be pretty bad” if true, said Joshua Rosner, an analyst at
New York-based research firm Graham Fisher & Co. He said such
allegations show why “investors and consumers have a right to be
distrustful of the banks’ statements." The bottom line is that JPM, which has so far been able to escape largely unscathed from the fraudclosure scandal, is about to take front and center. The reason: the very first line of the just released Exhibit 1 to the Ambac lawsuit: "In mid-2006, Bear Stearns induced investors to purchase, and Ambac as a financial guarantor to insure, securities that were backed by a pool of mortgage loans that - in the words of the Bear Stearns deal manager - was a "SACK OF SHIT." But the stunner, and nothing short of a full-blown scandal if proven true, is that Bear Stearns (aka JPM) after funneling misrepresented loans with Ambac's insurance, "implemented a trading strategy to profit from Ambac’s potential demise by “shorting” banks with large exposure to Ambac-insured securities." This needs its own congressional hearing right now, followed by a few wristslaps. After all such wholesale fraud can never possibly be prosecuted in the world's most advanced country.

We have received a disturbing update on the situation in Egypt (one of Africa's most populous countries will just under 90 million): "Twitter is now blocked in Egypt, and apparently many phone lines have had data services disabled." What happens next is anyone's guess.

And so the latest shoe to drop in robosigning falls. Diana Olick reports that BofA has stopped its issuing notices of default in non-judicial states, such as the all critical California and Arizona, which explains the dramatic drop off in NODs in January. Previously explained by Koolaid guzzlers as an indication of economic improvement, it turns out this was merely yet more fraud being perpetrated by the big banks, which are now trying to cover up their slime trail. According to Bank of America's Dan Frahm, "We did conduct a review of the Notice of Default process. As a result we stopped the NOD process in non-judicial states." And so the double dip just got far worse.

Today, the Fed's openly fraudulent operations desk will buy back $6-8 billion of bonds maturing between 01/31/2015 – 06/30/2016 starting at 10:15 am Eastern. Below we present a table showing the 10 cheapest CUSIPs that the Fed SHOULD be buying, considering that it should be monetizing, as it is supposed to, the best bang for the buck bonds. Note that nowehere in the list is CUSIP 912828PM6 due 12/31/2015 or the last 5 Year auctioned off, which is in fact one of the bonds trading richest relative to the entire spline. In other words, if the Fed ends up accepted a bulk of PM6, someone in Congress should really pretend they give a rat's ass about the 300 million or so US citizens raped daily by the kleptocratic elite, before said (mostly armed) 300 million finally realize what a complete criminal fraud the PD-FED complex is.

You've heard me say it ad nauseum! You've seen me demonstrate it in real time! Now read Bloomberg report it... Absolutely amazing that these guys can keep a client worth more than $15. I'm tempted to open up shop right next to them on West Street and hire the head marketing guy from Apple to go toe to toe!

In our relentless pursuit of the completely locked up Chinese interbank market (here and here), we stumble upon today. And boy was today a doozy. Both the 7 Day SHIBOR and repo rate, which effectively both show the same thing, i.e., the rates in the unsecured interbank lending market, have jumped to fresh multi-year highs after posting a slight improvement yesterday. And guess who is to blame (in addition to the Chinese new year) - why snow, of course.

Something funny happened on the way to the "wealth effect": we call it affectionately, the "poverty effect." At least for those who have homes. The November Case Shiller index confirmed that the double dip in housing is accelerating, with the composite index posting its 5 sequential decline. The 20 city composite came at -1.59% Y/Y on expectations of a rebound to 1.7%. Perhaps the Chaircreature should finally consider lowering those mortgage rates instead of focusing so much on the Russell 2000. What we are amazed by is that all that abundant California snow was not blamed on this one particular negative surprise.

We read last night's news that the massively underfunded Illinois pension fund is now the subject of an SEC inquiry with little surprise: "The Securities and Exchange Commission has launched an inquiry into public statements by Illinois officials about the state's underfunded pension fund, the state's governor's office confirmed Monday night. The Illinois inquiry is focused on public statements concerning an overhaul measure passed in 2010 meant to help shore up the retirement system, said the governor's spokeswoman, Kelly Kraft." The issue at hand is nothing short of complete accounting fraud: "An issue being examined is whether Illinois was taking future savings and treating them as current reductions in the cost of the pension fund, said Robert Kurtter, a managing director in the public finance division at Moody's Investors Service, who said his firm spoke with Illinois officials about the inquiry. One of the measures that Illinois took to save costs was to raise the retirement age for newly hired Illinois workers." To be sure if proven, which the porn freaks at the SEC will never be able to do, unless the pension fund has animate midget porn gifs on every excel spreadheet, this only means that absolutely nobody will go to jail for massively misrepresenting the truth. What we are far more interested in is whether the Illinois Teachers Retriement System, which as readers will recall took offense to us saying they are insolvent last summer, will be the next to follow in being charged with gross fiduciary breach and alleged accounting fraud. Now that development would most certainly not surprise us.

• Who knew: Robert Rubin is a Keynesian - "America must cut its deficit but not in haste" (FT)
• Uncertainty Over Economy Clouds Obama Speech (NYT)
• Stimulus Improves US Outlook, Says IMF (FT)
• Fed Likely to Press On With QE Even as Business Lending Rises (BusinessWeek)
• EFSF first bond issue - 43 Billion Euros of Orders From 500 Investors (Asymptotix, WSJ)
• Madrid Tells Banks to Boost Core Capital (FT), causing Spanish spread weakness
• Japan's central bank keeps lending rate, lifts growth forecast (Xinhua)
• India average inflation during 2010-11 to jump up to 9 per cent (Economic Times)
• KKR Gets Surprise Help in Fundraising From Bernanke, Trichet (BusinessWeek, h/t 5U)
• U.K. Economy Contracts in Fourth Quarter (WSJ)