Archive - Feb 4, 2011

Over the past two years here has been no greater soap opera (with our apologies to Congress, who we know is trying but is now well into B-actor territory) than that of the Fed's 13 Samurai (Bernanke and the 12 regional presidents). And since there is no TV Guide to summarize the key punchlines in any given month, today we commence a highlight reel of the most prominent (amusing, glaringly false, plain ridiculous) statements by various Fed officials. As this is the year where ever more attention will be placed on the fake debates by the Fed's even faker Hawk and Dove split, we are confident that it will provide hours of entertainment to see how those entrusted with protecting the US Dollar contradict themselves from month to month in their execution of job duties that are now nothing less than 100% political.

• Fed Denies Policy Is Causing Food Rises (FT)
• Pressure mounts on Mubarak to go (FT)
• Algeria to Lift Limits on Liberty (WSJ)
• Merkel Turns Crisis into Opportunity to Reshape Euro Zone (Bloomberg)
• And finally, it is mainstream: Rising Commodities Put Profits Through the Wringer (Barrons)
• Storm Battered Australian Coast (WSJ)
• Boeing Loses Half of Dubai Aerospace Order for 737-Model Jets (Bloomberg)
• Virginia to Ask Supreme Court to Rule on Health Law (NYT)
• Are the ultra rich starting to spend less: LVMH Falls After 2010 Operating Profit Trails Estimate (Bloomberg)

Gold and silver have given up a small bit of yesterday’s strong gains in all currencies (especially the euro – see chart below) but are up more than 1% and 3% respectively on the week. Asian equity indices were higher overnight and are higher for the week, except for India where there are growing concerns about surging inflation and interest rates. European indices are higher today and most are up by some 1.5% to 2% on the week – as are US indices...Gold’s price surge yesterday was likely a combination of short covering, the very bullish demand figures out of China, accommodative monetary policy sounds from Trichet and Bernanke. The geopolitical situation in Egypt and the Middle East likely also led to buying.

Peak Theories Research shares their latest technical observations on the gold price chart: "after gold’s trading action over the last week or so, I have come to believe that what we’ve witnessed in gold over the last four months is that complex Head and Shoulders pattern rather than the Diamond Top or any topping pattern as I had pronounced was the case for much of January. Putting such pronouncements aside, if you’re long gold, you may be happy to hear that this pattern fulfilled itself perfectly last Thursday as I show and discuss below. More importantly, however, now that gold has held that fulfillment in what appears to be a strong crux of support for nearly a week now, I am also coming to believe that the volatile trading action of the last four months in gold is more likely than not to produce an uptrend in gold in both the near-term and in the intermediate-term. This last point is in complete contrast to what I thought gold’s technical aspects were telling us in the month of January and this is a significant change of view for me. Put most clearly, I think gold appears as though it is likely to head up in the near-, intermediate- and long-term and all such trading action is consistent with the primary bull market in gold that began in the early part of the last decade."

Markets modestly positive in the early AM. Yesterday’s claims numbers were roughly in line with expectations and expectations for today’s Payrolls data have been modestly upgraded from the pre-ADP expectations. ISM showed progress as did Nonfarm Productivity, while Unit Labor Costs indicated the divergence between commodity price inflation and labor price inflation (or lack thereof). Bernanke’s speech yesterday provided a few great tidbits, including the dovish outlook predicated on the Fed’s expectation of low inflation and high unemployment. After emphasizing that expectation, the Chairman stated, “Under such conditions, the Federal Reserve would typically ease monetary policy,” via the Fed Funds rate. Though the statement was seemingly later couched in the context of asset purchases, it does seem like strong language. For the inflationary hawks – especially those abroad who are concerned with the US ‘exporting inflation’ – the Chairman offered that higher “visible” prices (notably for gas) were results of “very strong demand from fast-growing emerging market economies, coupled, in some cases, with constraints on supply.” Inflation is apparently someone else’s problem.

Goldman's Andrew Tilton dissects today's NFP number, explaining why if it is weaker than expected (+146k) it is due to snow, and why if it stronger than expected, it is entirely due to the "economic recovery" (and not Bernanke's hyperinflationary mandate). Bottom line: win-win, while North African (and soon Middle East) regimes: lose-lose.

It's all about jobs: Employment report for Jan…weather versus the fundamentals. Estimating the change in payrolls in January is an exercise in weighing the positive trend in fundamental factors against the depressing effects of unusually cold and snowy weather. Goldman has an original estimate of +175k predicated on the view that the weather effects would not be large, but further analysis helped by classification of the storm that passed through during the survey reference week as a major storm suggests the potential for a larger effect. At the same time, the labor market data themselves, including claims, ISM employment indexes, and online help-wanted indexes, suggest further improvement. Goldman decided, on balance, that these trends were offsetting, but there is clearly a lot of uncertainty surrounding this number. To aggravate the situation, this report will incorporate a benchmark revision to the March 2010 level of payrolls that the Labor Department estimated last fall at -366k; this often has the effect of reducing estimated net changes in the months following the benchmark.

RANsquawk European Morning Briefing - Stocks, Bonds, FX etc. – 04/02/11

Retail traders are notoriously wrong at picking market direction/tops and bottoms. Most retail traders very naturally seem to adopt a counter-trend stance and this offers very accurate signals for individuals looking to trade against this group. This daily report is designed to help traders focus their efforts on higher probability pairs.

How many times in your life can you honestly say you discovered a new hero? Today I did...

The market closed up again today as Ben Bernanke let the National Press Club know that either the economy is fucked, or it isn't...

It’s the perfect set up for any investment: dwindling supplies and growing demand. The inflationary holocaust will only be adding gasoline to the fire, pushing agricultural commodities to record highs. As Jim Rogers puts it, “God knows how high the price of agriculture is going to go, so that's where I'm putting more of my money now than in other things… I think I'm going to make more money in agriculture than I make in precious metals.''

Well, the US Dollar has staged a small bounce at $77 or so. The question now is whether this becomes anything substantial, or is merely a result of the Euro/USD pair becoming so stretched that a brief pullback had to happen. We should know the deal within a few days. However, the greenback is now only 2% away from breaking its multi-year support line. If the Dollar turns down again now then the inflationary collapse will intensify rapidly.