Archive - Jan 2011

Markets mostly bullish this AM following the holiday weekend in the US. Friday’s CPI print seemed reflective of inflation, showing increases in core and non-core metrics, while retail sales was mixed relative to expectations. We fear the real demand rally might well be short lived. Today’s Empire Manufacturing and November TIC flows will be watched closely for forward indications in the US, while the story out of Europe continues to be the market’s focus.

About a month ago, some took offense at our characterization of the Chair-hewlettpackard-man as a "bearded mutant-cum-supreme genocidal overlord" after we predicted to the dot that his monetary policy would eventually lead to a global, well, genocide, presumably first in the developing world. Following riots, self-immolations and outright revolutions in Algeria, Tunisia, Morocco, Jordan, Yemen and Egypt, in the span of a few shorts weeks, we believe we have been once again validated. Putting the period in any debate of what Bernanke's runaway money printing means to the life-expectancy of increasing number of people, is the latest news coming out of Sudan where "security forces on
Tuesday arrested opposition leader Hassan al-Turabi and eight other
party officials after they called for a "popular revolution" if Khartoum
did not reverse price rises." And since economic slack in Sudan is roughly in line with that of the abovementioned other 5 countries, it is safe to say that the bulk of this move is speculation frenzy related, which in turn is purely a function of pervasive and free global liquidity. And this is still just the beginning. As Bernanke will not stop before the Dow hits roughly 36,000 expect these kinds of headlines to be an hourly occurrence.

With the algos having promptly switched to trade stocks higher with dollar weakness (unlike on days when a strong dollar also somehow miraculously leads to stock strength), the world was looking for some data point to validate this morning's ramp in futures, timed perfectly to further neutralize Apple's holiday announcement. The catalyst ended up being the latest ZEW numbers of German and Eurozone economic sentiment, which came so strong in spite of ongoing European insolvency, that all one can do is laugh. These printed as follows: Eurozone ZEW Survey (Economic Sentiment) (Jan) M/M 25.4 vs. Prev. 16.6 (Prev. 15.5); German ZEW Survey (Economic Sentiment) (Jan) M/M 15.4 vs. Exp. 7.0 (Prev. 4.3). Once these hit overnight, the EURUSD went balistic and, of course, futures surged, completely eradicating any threat of a market-wide circuit breaker being hit, which would have been the case hat Apple made the Jobs announcement during regular market hours. On the other hand, how Europe, er, Germany is supposed to preserve its export-led miracle in light of a 500 basis point surge in the EURUSD in just one week, is something only Goldman's Houdini economic team can explain.

Empire index, TICS, builder sentiment, and the weekly confidence poll….Most importantly, it seems that the only thing that matters, is that POMO is back, although we have just a piddling $1-2 billion in Sack Frost initiated AMZN purchases by way of TIPS monetizations.

RANsquawk European Morning Briefing - Stocks, Bonds, FX etc. – 18/01/11

Bloomberg News: Goldman Squid...No Comment, FaceBook...No Comment, SEC...No Comment

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Who is to blame for the pension meltdown?

And so things move from the simply violently revolutionary to the outright surreal, and once again they originate in Africa where today's TheOnion reality seems to feel most at home in practice (unlike its mostly theoretical, for now, US counterpart). Ivory Coast, the biggest producer of cocoa, today told bondholders of $2.3 billion in debt that unless creditors legitimize the corrupt incumbent regime, and recognize voted out president Laurent Gbagbo, then the country will not make an interest payment on its bonds which already are in a grace period, and will essentially default, unless the political gridlock is resolved in two weeks. “It’s a joke, right?” said Phillip Blackwood, head of emerging markets at Sydbank A/S, Denmark’s fourth-largest bank and holder of Ivory Coast debt. No, unfortunately it isn't. And just like Tunisia is a harbinger of the food riots to come to the developed world, so Ivory Coast is a leading indicator of how the world's greater debtor - the US Treasury - will one day negotiate with its own creditors. As both countries are bona fide banana republics, it won't be much of a stretch...

David Rosenberg summarizes this weekend's Barron's roundtable, and while chock full of amusing quips, the take home surely belongs to one of our favorite newsletter writers, Fred Hickey: “Last August, things weren’t looking so well. Then Ben Bernanke gave a speech in Jackson Hole that implied the Fed would engage in quantitative easing, and from that point forward, the Dow added 1,400 points. Gasoline prices went from $2.65 a gallon to well over $3.00 ? a $50 billion hit to consumers. Food prices rose to record levels. It caused a major imbalance in the economy. If you own financial assets, you’re doing quite well. If you don’t, you’re getting hit by higher food prices, higher insurance costs, higher everything, and you’re not getting any interest on your savings ... The economy has structural problems and we aren’t dealing with them. Money-printing won’t work, yet that’s the prescription we continue to give the patient. If the Fed keeps printing after June we’ll have higher gasoline and food prices and more imbalances until this ends. And at some point, it will end, because the dollar will fall apart. What we are doing now makes everything appear rosy. But it is devastatingly terrible policy for the long-term.” And Rosenberg's own contribution: "The era of spending-beyond-our means denial is on its last legs." One can only hope he is right for the sake of everyone...

Ta-tata-daaaaa: Captain Goldmanerica is here to save the day. Can't have 190 hedge funds checking out from hotel Applecornia, now can we.

The Celtic Tiger has been on the economic ropes since the crash of 2008. In the first hours of the crisis, the US Federal Reserve provided emergency funding to Irish banks, pouring 10’s of Billions of US dollars into the Irish Banking system, providing funds as needed.

Two months ago, there were a variety of campaigns launched to get the mass public to demand from their bank an original, wet ink signature note for their mortgage. Many of these fizzled out. That said, we would like to present one instance of Bank of America responding negatively to just such a demand by a Zero Hedge reader, in which the bank's Home Loans unit outright refuses to provide the requested information hiding behind a lack of affirmative responsibility. Specifically, the response from the Qualified Written Request Group notes: "you cite no legal authority that supports your claim that you are entitled to view the original Note, and we are not aware of the existence of any such authority. Accordingly BAC Home Loans respectfully declines this request. If you wish to pursue this matter further, please provide such legal authority." In other words, banks continue to hide behind a legal defense that ultimately involves the jurisdiction of various (if not all) state attorneys general. In the meantime, odds are (99%) that the bank has absolutely no copy of the original and should the reader proceed to default (in a judicial state), the bank will likely ultimately be forced to give up its claim on the mortgage. And one wonders why the TBTF banks (especially BofA, Wells and JPM) are doing all they can to promptly bring the AGs under their fold (regardless of "cost") before all hell breaks loose should the required "legal authority" be provided through case law.

About two weeks ago we brought attention to the curious case of surging Chinese SHIBOR. Today we update on the short and longof it (literally). Indeed since the first post, the short end has dramatically tightened. However, just as importantly, the long-end continues to drift wider. As the chart below demonstrates the 1 Week SHIBOR has plunges from north of 6% to the mid 2% range in about ten days. However, both the 1 and 3-Month rates continue to be sticky and are well above recent averages. This will certainly portend continued liquidity scarcity in the months ahead. And speaking of, interest rates, we would like to bring attention to the seemingly paradoxical and contradictory action being taken by the PBoC, which on one hand has been hiking the Reserve Ratio Requirement (liquidity withdrawing) while concurrently adding liquidity via net liquidity injections through Open Market Operations. As Morgan Stanley's Steven Zhang suggests: "The PBOC’s purpose appears to be to substitute RRR hikes for PBoC bill issuance and repos with a view to enhancing the effectiveness while keeping the cost of liquidity management low." Yet even so, Zhang confirms that the end result will be one of incremental tightening, no matter how much the PBoC wants to moderate liquidity extraction. "Even if the spreads between reference and interbank spot yields were to narrow to acceptable levels, we don’t believe that the scale of open market operations would be restored to normal levels. In this tightening cycle, liquidity management will largely become a one-way operation - withdrawal." In other words, look for more pain in the Shanghai Composite over the coming weeks as mainland investors realize that the inflation party is, indeed, coming to an end (and that to Bernanke's chagrin, all attempts at exporting inflation to China will henceforth rebound with a magnified impact).

The Pentagon says King might have supported the current wars. This is not entirely true ...