Archive - Feb 16, 2011

Tensions in the Middle East is once again heating up. Following earlier reports that Israel would not take too kindly to Iranian warships passing through the Suez Canal, the WSJ now reports that Iran has likely resumed nuclear-research work. "A new classified US intelligence assessment concludes that, even as Iran enriches more uranium, there is an increasingly heated debate within its regime over whether to move towards building nuclear weapons, suggesting international economic sanctions may be sowing serious divisions." Does this mean it is time for a new revision and more lethal version of Stuxnet to be released? How much of this report is based on fabricated data is unknown, although judging by how well it worked last time around there was a full scale US incursion, we will likely find out soon enough (or eventually). As to whether Israel is actually willing to take the risk and actually initiate a military offensive against Iran, and, indirectly, against Egypt's military coup government, we will likely find out tonight when the ships are actually expected to cross the canal.

RANsquawk Market Wrap Up - Stocks, Bonds, FX etc. – 16/02/11

Banzai7 gives you what Taibbi can't...

A month ago, we wrote an article titled: "How Allstate Used Sampling To Confirm BofA/Countrywide Lied About Virtually Everything When Selling Mortgages" in which we described how the insurance company used sampling to confirm that Bank of America had misrepresented virtually every metric when selling mortgages: everything from loan LTV, to percentage of owner-occupied properties. The differentials in some cases were as large as 50%. Today, Allstate, again under the guidance of Quinn Emmanuel, has used the same technique to determine that JPM and WaMu are guilty of precisely the same criminal misrepresentation in its prospectuses when selling tens of thousands of loans. And once again, this will most certainly lead to absolutely nothing. The reason? Just read Matt Taibbi's Rolling Stone piece on why when it comes to crime, Wall Street has a limitless "get out of jail" card. The alternative is a domino-like fall out that would likely see most if not all Wall Street executives actually having to lose sleep over the possibility of jail time (which would also take down every single externally regulating and SRO organization created to "police" the greatest scam in history). And that, as the FCIC has determined, will never happen until the market is in an uptrend. What happens after the next (and final, unless intelligent and wealth extraterrestrial life is discovered, willing to bail out the entire world which has gone all in the ponzi recreation quest) crash is a different story.

"It is hard to overstate the political significance of the anthrax attacks .... That event played at least as much of a role as the 9/11 attacks in elevating the Terrorism fear levels which, through today, sustain endless wars, massive defense and homeland security budgets, and relentless civil liberties erosions."

How about our friends at JP Morgan (JPM), one of our favorite financial holdings, who just reported that they did not lose money on a single trading day in the ENTIRE 2nd HALF of 2010, making $76 Million dollars per day on the average for all of 2010.

On labor: "Overall, meeting participants continued to express disappointment in both the pace and the unevenness of the improvements in labor markets and noted that they would monitor labor market developments closely."

On the stock market as the economy: "Conditions in financial markets improved somewhat further over the intermeeting period. Broad equity prices rose, adding to their substantial gains since the middle of 2010."

On the wrong interpretation of the steep yield curve: "Some participants noted that a steep yield curve is a typical feature of an economy in recovery, and that much of the steepening appeared to have occurred in response to stronger-than-expected economic data."

On the surge in commodity prices: "Regarding risks to the inflation outlook, some participants noted that increases in energy and other commodity prices as well as in the prices of imported goods from EMEs posed upside risks."

On ending QE2: "A few members noted that additional data pointing to a sufficiently strong recovery could make it appropriate to consider reducing the pace or overall size of the purchase program. However, others pointed out that it was unlikely that the outlook would change by enough to substantiate any adjustments to the program before its completion."

On the head of the Plunge Protection Team: "By unanimous vote, Brian Sack was selected to serve at the pleasure of the Committee as Manager, System Open Market Account, on the understanding that his selection was subject to being satisfactory to the Federal Reserve Bank of New York."

On Fed monetary policy-driven revolutions in Tunisia, Egypt, Algeria, Morocco, Libya, Bahrain, Yemen, and Iran: "..."

Q: If money supply is increasing, why aren't we seeing price inflation? A: We are.

Over drinks at a bar on a dreary, snowy night in Washington this past month, a former Senate investigator laughed as he polished off his beer. "Everything's fucked up, and nobody goes to jail," he said. "That's your whole story right there. Hell, you don't even have to write the rest of it. Just write that." I put down my notebook. "Just that?" "That's right," he said, signaling to the waitress for the check. "Everything's fucked up, and nobody goes to jail. You can end the piece right there." One has to consider the powerful deterrent to further wrongdoing that the state is missing by not introducing this particular class of people to the experience of incarceration. "You put Lloyd Blankfein in pound-me-in-the-ass prison for one six-month term, and all this bullshit would stop, all over Wall Street," says a former congressional aide. "That's all it would take. Just once."

The Federal Reserve's stated goal is to create modest inflation. Unfortunately they don't grasp the difference between speculative inflation and organic inflation. The Fed's official goals are to stabilize prices and maintain employment, and its de facto policy to achieve these lofty, high-minded goals is to divert huge sums of the national income to the insolvent banking sector. The Fed also seeks to bail out the insolvent debt machine by generating some nice solid inflation, to boost the impaired assets held by banks. In other words, the Fed is specifically seeking to create asset inflation, which will eventually enable the banks to appear marginally solvent as their real estate and other assets rise in value.

The two most prominent defenders of the Japan-inflation theme, Dylan Grice and Kyle Bass, have just gotten a key reinforcement:Goldman Sachs. Last night, Goldman released its much anticipated 6th trade, to its roster of top trades for 2011. It just happens to be a bet on Japanese inflation. Which, however, begs the question - is this one of those trades where Goldman is, naturally, on the other side and is selling Japan inflation to clients. If the performance of the Squid's Top 10 trades for 2010 is any indication, we would be very cautious, although the fundamentals presented previously by Grice and Bass certainly present a very convincing case for why Tokyo may soon have no choice but go schizo with money printing (all over again), only this time with the gusto previously exhibited only by such monetary madmen as von Havenstein, Gono, Mugabe and, naturally, von Bernankestein.

Hope you like the 12% markups on the CMO's your broker sold you...

Once again China shows how it's done. Instead of continuing to issue it vastly manipulated national property price index, the Chinese statistics agency has simply decided to stop publishing this highly regarded (if completely irrelevant) metric. From the WSJ: "China's statistics agency said it will stop publishing the country's much-watched official index of national property prices." The reason: even armed with Moody's GIGO spreadsheets to "calculate" the data and provide "output", the country was unable to mask the surge in property prices, resulting in a build up of popular anger. Alas, this move which is nothing but an act of massive condescension, and is supposed to get unpleasant data "out of sight and out of mind", will achieve precisely the opposite, as one billion Chinese know too well just how rapidly surging Chinese inflation is first hand.

RANsquawk US Afternoon Briefing - Stocks, Bonds, FX etc. – 16/02/11

Perhaps it is time for Doug Kass to reevaluate his "gold to triple digits" thesis?