Archive - Jan 2011

You gotta trust the WSJ, right?

Just headlines for now. And so we have gotten to the point where even the 'smart money' is publicly denouncing the global Bernanke put, and the world's central bank "white knights" in the form of China (whose real debt number is wrapped in boxes, mysteries and enigmas), and Japan (which has more debt as a % of GDP than any other developed country). Luckily both can afford to buy a little debt of some other Ponzi nation, and thus preserve their own trade surplus status quo for a few more months. In the meantime the world's biggest bond fund is implicitly saying that frontrunning the last recourse EUR backstops is too risky for him.

The fact that the unveiling of Facebook was done with so much noise and fanfare by GS, a firm that never does anything rash you understand, suggests that there was a need to divert attention from the issue of valuation.

The NIA, traditionally known for cutting to the chase and not really mincing its words today focuses on the latest trillion + dollar bubble: that of US higher education, which is getting increasingly more funded directly by the US Government. "The National Inflation Association believes that the United States has a college education bubble that is set to burst beginning in mid-2011. This bursting bubble will have effects that are even more far-reaching than the bursting of the Real Estate bubble in 2006. College education could possibly be the largest scam in U.S. history." And the kicker: unlike housing debt, college debt has that extra oomph to it that it typically is not discharged in bankruptcy: as such it is the ultimate subjugation mechanism. This one sure is set to get interesting...

Just in case there was any confusion that congress (and its Wall Street superiors) almost work for the majority, but not quite, here is some additional evidence: "The U.S. public
overwhelmingly opposes raising the country's debt limit even though
failure to do so could hurt America's international standing and push up
borrowing costs, according to a Reuters/Ipsos poll released on
Wednesday. Some 71 percent of those surveyed oppose
increasing the borrowing authority, the focus of a brewing political
battle over federal spending. Only 18 percent support an increase." Yet somehow the market has already factored in that no matter what happens, Congress has no choice but to continue heaping on the debt, and following this week's auctions, the total should approach $14.1 trillion in debt, cutting the buffer by another $100 billion. Which is why expect to hear many more threats of untold destruction should Congress actually side with the supermajority for once.

That's odd: usually these invocations are reserved for when futures are down 50 points or so. It appears the NYSE, unlike virtually all other venues, actually does need a human presence to operate.

From JPM: "We downgrade GS from OW to N today. Our downgrade is driven by considering it has reached our Target Price of $175, offering the lowest upside within our Global IB universe. Even the theme of capital re-leveraging is discounted now in our view with the share price upside potential limited at a re-leveraged PE of 9.0x assuming $15.2bn buyback (17% of market cap) in 2012E, as discussed in Table 7 below. The Basel 3 Tier I ratio would be reduced to 9.9% from 12.1% in 2012; in-line with our JPM required capital methodology."

One of the best quarterly observations on asset classes, the Global Tactical Asset Allocation focusing on equities, has been released. This report is a must read for those few who still trade stocks. From the report: "We struggle to find any elements in our analysis pointing toward a continuing unabated 2-6 weeks advance. We are in one of this rare configuration where betting against such an occurrence is an almost (we repeat... almost) certainty. We expect a correction below 1180 on the S&P 500 in the next 20 trading days and would position accordingly. Our cyclical models are still positive so we have to assume that we will see new highs later this year. Note that the failure on the number of new highs to confirms the current highs, the high yield bond markets divergence and some other elements make this assumption less strong that it was last summer. One should be mentally ready to sell the long position which will be acquired when certain "oversold" thresholds are reached with a loss if a rebound fails to materialize and the cyclical models move to a sell signal. We would underweight emerging markets (and are strongly advising to exit the long position in our preferred market since the end of 2008, Indonesia), Europe and small caps. We would overweight Japan (but hedge the currency risk) and the US."

• Home price drops exceed Great Depression (Reuters)
• The Fed Oracle Speaks: Fed Officials Signal Intent to Back Bond Buys (Jon Hilsenrath)
• Sanders Says Bernanke Ducks Request for Details on Fed Loans (Bloomberg)
• Clarium Slumps 90% From Peak After Thiel Hedge Fund Has Third Losing Year (Bloomberg)
• EU Weighs Boosting Bailout Fund (WSJ)
• Lisbon Succeeds with Debt Auction (FT)
• Credit Suisse Plans Market for Long-Term Investors (BusinessWeek)
• UK Insurers Attacks Europe’s Bank ‘Bail-In’ Plans (FT)
• World's ATMs Pump Billions Into Wrong Places (Bloomberg)
• Rethinking the Public-Pension Punching Bag (BusinessWeek)

The general market tone is more positive this AM as winter weather impacts the Northeast. Yesterday's NFIB Small Business Optimism and other economic data did not paint a commensurately rosy picture alongside the recent ISM prints. Today's big releases will be the Fed's Beige Book, which should provide a more granular level of data points on expansion, and the US Monthly Budget Statement.

Ever since his transition from a critical, respected and objective economist to the third coming of A Joseph Cohen, Goldman's Jan Hatzius has become an increasingly irrelevant second fiddle-cum-broken record, and as such his observations have merited less and less attention. His latest spin piece on why the centrally planned US economy will grow within the parameters of "perfection pricing" is merely more confirmation of this sad transition. To wit: "2012 is still a long way off, and the uncertainty surrounding any forecast is large.  But if we are right, the implications of this forecast are reasonably benign for the US Treasury market and very benign for the equity market.  Indeed, our strategists expect only a moderate increase in 10-year Treasury note yields to 3¾% at the end of 2011 and 4¼% at the end of 2012, as well as an increase in the S&P 500 index to 1500 by the end of 2011." In other words: the debt-fueled Frankenstein of a Goldilocks monster, currently rampaging around on government-funded steroids, is really completely under control. It appears that all the gloves have come off in this last attempt to reflate the global ponzi, and sadly credibility once relevant, is now completely out of the window.

The pace picks up, but only a bit, as we get import prices, the beige book, and the December budget balance following this morning’s mortgage applications report…New POMO schedule released today.

Legitimate humanitarians inspired by real compassion inevitably seek to help men become more responsible for themselves, not less. Compared to this mission, the Loughners of the world are only a distraction, a media game which does not need to be played. While it is important to safeguard against events like that which took place in Arizona, it is even more important to safeguard against the exploitation of these events by those who would do much greater harm. The wider view requires a respect for the enduring benefits of freedom, which eclipse our momentary lapses of human character. The Liberty Movement’s interest lay not just in the chaos of the present moment, but in the clarity of a possible future; one in which man’s individual sovereignty is valued, rather than feared.

The most expected yet anticlimactic bond auction for 2011 has come and gone: after getting the backstops of the ECB, China and most recently, Japan, Portugal managed to sell €1.25 billion in 4 and 10 year paper. And while the the yield on the 10 year was better than expected, and notably lower than the 7% where the point had been trading on the curve recently, the 4 year priced notably weaker compared to previous. Of course, none of this would have been possible had the ECB not been buying Portuguese bonds in the open market for two days this week, and continuing into Wednesday, into the biggest farce of a market currently operating in Europe.

RANsquawk European Morning Briefing - Stocks, Bonds, FX etc. – 12/01/11