Archive - Feb 7, 2011

A carbon-free United States in 2050 seems to be one of Secretary Chu's more abstract notions. Interestingly, a recent large energy meeting in Berlin was on the same wave length, where the emphasis was on solar and wind's place on the German energy scene in the same year. As far as I am concerned, the German intentions are strictly off-the-wall, and in 2050 the German nuclear intensity will match or overmatch that in France. The nuclear equipment will be breeders, and I sincerely hope that the security problems associated with those reactors are solved the way that they should be solved, because if not somebody could be in a world of hurt.

Ignoring real estate, most people invest their hard earned money in paper things. Stocks, bonds, annuities, insurance - it’s all paper, and it sits nicely in our bank accounts and shows up on our computer screens. Halfway across the world, investors in China and India have never trusted paper investments as a store of value - and they’re converting their hard earned paper money into gold and silver bullion. Not that this is anything new. It isn’t. But the scale and speed with which they are accumulating precious metals IS new, and it’s driving the fundamentals that we believe will lead to higher prices in 2011. - Sprott Asset Management

Last week Zero Hedge presented The Forensic Factor's latest report focusing on a company which TFF claimed was "The Most Preposterous Chinese Reverse Merger Yet" discussing the shadier dealings of Chinese reverse merger AutoChina (AUTC). Following a prompt crash in the stock, the company was forced to reply immediately or else risk being seen as merely another RINO in waiting. Today, the soap opera continues with TFF responding to the management's own response. And sure enough, the response has all the makings of a successful second season for what is rapidly becoming one of the most popular soap operas in the market: "Name That Chinese Fraud." Management team: the podium is yours.

Dallas Fed's Richard Fisher, who despite his recent quite vocal disagreement with Fed policies (Dallas Fed's Fisher Stunner: Admits Worries Fed Has Created Nothing But Bubbles), yet who conveniently forgot to dissent with the decision to continue the status quo at the latest FOMC committee, thereby making the current batch of hawks even more useless than the previous one (at least back then Hoenig had the guts to put his dissent where his mouth was) is once more on the tape, and following last week's announcement by the Dallas Fed president, was once again caught stating that he will not support further Fed accommodation and he will dissent with further QE decisions. At this point it is mostly theatrics. Should there truly be more QE, as Ben Bernanke implied may be the case during last week's Press meeting, then watch oil, commodities and those pesky precious metals quickly ground any such ambitions.

A modest pick up in insider buying this week as 16 insider purchases for $1.7 million worth of stock put recent non-existence insider purchasing to shame. The biggest buying was seen in GE and Caterpillar, which two cumulative purchases for $800k accounted for nearly half of the buying in the week ended February 4. On the other side, it is relentless selling as usual: 126 insider sales amounted to $749 million worth of holding dispositions, with the core of the selling as usual focused on the usual suspects: MSFT ($154 million), QCOM ($73 million), Google ($69 million), GameStop ($60 million) and FCX ($30 million). This is a major pick up in the rate of selling compared to January, and represents a double from the last tracked number of $373 million for the week of January 22.

One chart as usual does more to convey a simple message than all the Fed speeches equating the economy with the Russell 2000 ever could. Below we demonstrate the performance of three key market data points since the August Woods Hole speech: the performance of the S&P (via the ES), the price change in the 10 Year bond (TY1 inverse scale), and of course the change in non-farm payrolls (remember that old-school Fed mandate about full employment something something). Bottom line: the S&P is up over 30%, the 10 Year has plunged from over 126 to 118, while NFPs have added 392k, or 78.4 per month, nowhere near enough to even keep up with the natural growth of the labor force. So has QE been a success? We leave it up to you.

Bernanke tells the public and Congress that the reason we need low interest rates is to support housing prices. He doesn’t mention that $188 TRILLION of the $223 TRILLION in notional value of derivatives sitting on the Big Banks’ balance sheets is related to interest rates. Yes, $188 TRILLION. That’s thirteen times the US’s entire GDP and nearly four times WORLD GDP. If even 4% of this money is “at risk” and 10% of that 4% goes wrong, you’ve wiped out ALL of the equity at the top five bank

RANsquawk US Afternoon Briefing - Stocks, Bonds, FX etc. – 07/02/11

It is easy to forget that when dealing with corrupt, foreign regimes, the labor structure tends to be just "slightly" different from our own. Case in point - Egypt. In today's note from Art Cashin, we read something quite fascinating, namely that while unemployment in Egypt may be very high (who knows what the real number is - we have enough problems with snowfall and reconciling the household and establishment surveys as is), a far bigger concern is that of those employed, 70% work for the government. Is there a better indication of just how pervasive the Stockhold Syndrome is. Surely, at some point Egyptians will want to go back to work. Yet they work for the government, the same government that may well be in tatters should the revolution proceed according to such a plan that ultimately ousts Mubarak. Which begs the question: was the revolt doomed from the get go, and what is the breakdown between employed and unemployed in Egypt, for the anger to get off the ground in the first place.

The title says it all... Except for a few metric blips borne from .gov bubble blowing, the housing market has been on a continuous nosedive since 2nd half of 2006. Anyone unfortunate enough to buy into the nonsense mis/dis/information styled propaganda of "This is the best time to buy" or the government's incentives to catch a falling knife with your bare hands (ex. tax incentives) have already been cut...

According to some analysts, the "recovering" U.S. economy is poised to enter a phase of explosive growth. Other analysts see evidence that the bogus "recovery" (all Fed stimulus "hat" and no organic growth "cattle") is teetering on the edge of implosion from any number of causes: high inflation, declining home values, high oil prices, etc. My view? Whatever. The real economy is so detached from the one presented by official data and the stock market that "growth", explosive or modest, is a matter of managed perception, not reality. As for the implosion, Central State intervention and massive spending/credit creation has already limited it to a decline heavily smoothed by extended unemployment, food stamps, zero interest rates, Federal Reserve purchases of Treasuries and mortgage instruments, and massive Federal spending on everything from fighter jets to Medicare. The relentlessly managed perception is that the "spot of bother" circa 2008-09 is history, and the situation has been restored to normalcy, i.e. a rising stock market, super-low interest rates and unlimited Central State borrowing...Put very simply: the U.S. economy is now totally dependent on unlimited expansion of debt and credit creation by the Central State and its proxies. Withdraw those and the gap between the managed-perception economy (the propaganda facade) and the real economy vanishes: reality trumps perception.

Over the past 3 days America has been battered by one after another apologist explaining just how good the employment data is if one strips out all the "bad", and how all the "bad" can and should be stripped out by all patriots, and attributed solely to bad weather. For those who are beyond sick and tired of listening to this tripe, here is David Rosenberg once again telling it how it is. In summary: "The data from the Household survey are truly insane. The labour force has plunged an epic 764k in the past two months. The level of unemployment has collapsed 1.2 million, which has never happened before. People not counted in the labour force soared 753k in the past two months. These numbers are simply off the charts and likely reflect the throngs of unemployed people starting to lose their extended benefits and no longer continuing their job search (for the two-thirds of them not finding a new job). These folks either go on welfare or they rely on their spouse or other family members or friends for support."

We were glad to see that for the first time someone besides Zero Hedge took offense at the Fed's now ceaseless monetization of just auctioned off, more often than not 'on the run' bonds, as an indication that not all is well in Sack Frost Kansasville. Bloomberg writes: "Fed spends 40% on newer, cheaper benchmark Treasuries" and clarifies: "More than 40 percent of the government bonds the Fed bought in January for its so-called quantitative easing were auctioned in the previous 90 days, up from 20 percent in December and 15 percent in November, according to Bank of America Merrill Lynch. The central bank is concentrating on newer securities as its $600 billion program depletes primary dealers’ holdings of Treasuries to the lowest since November 2009. “They’re getting all the bang for their buck that they can” by purchasing so-called on-the-run bonds, said Mitchell Stapley, the Grand Rapids, Michigan-based chief fixed-income officer for Fifth Third Asset Management, which oversees $22 billion. “When you’re the largest buyer out there, when you replace China in terms of the size of your holdings of Treasury securities, that will happen.”" It is great that more and more are starting to pay attention to what has been a ZH peeve ever since the beginning of QE2: namely relentless taxpayer rape. We do have one problem however: when Bloomberg says "cheaper" to qualify the "newer" Treasurys, it is, unfortunately, very much wrong. Take today's POMO for example. In 15 minutes the FRBNY will announce the completion of today's $7-9 billion monetization of bonds between 2017-2020. The most recently auctioned off CUSIP in the roster of 19 bonds is the 912828PC8 CUSIP also known as the 2.625%s of 11/15/20. This is the 10 Year bond acquired by PDs during the December auction (the January is structurally excluded as it matures in 2021). Now if Bloomberg is correct, not one single PC8 will be monetized today, since, as Morgan Stanley once again confirms, this is among the richest (as in, the opposite of cheapest) bonds to put to the US taxpayer, and the result of such a monetization would be yet another implicit impairment of Fed fiduciary interests. We will advise readers as soon as we know what the final outcome of today's POMO is as to how much PC8 was put back to Sack Frost.

It is a Monday, and like any day ending in "y" we get another Obama administration foreign relations screw up. Today's edition comes from President Obama's special envoy to Cairo, Frank Wisner, who over the weekend made waves with his call urging for Hosni Mubarak to remain president. The glitch, however, is that supposedly unbeknownst to the administration and to the journalist cadre, Mr. Wisner works for litigation firm Patton Boggs, which according to the Independent: "openly boasts that it advises "the Egyptian military, the Egyptian Economic Development Agency, and has handled arbitrations and litigation on the [Mubarak] government's behalf in Europe and the US". Wisner's words, now making the rounds, and which appear to have infuriated Egypt's opposition just as things were going back to normal: "President Mubarak's continued leadership is critical: it's his opportunity to write his own legacy." In other words, yet another huge conflict of interest by a man paid by none other than the president of Egypt, which has "called into question Mr Obama's judgement, as well as that of Secretary of State Hillary Clinton", and puts Obama's (in)ability to handle foreign conflicts, in an even more questionable light.

BBH's Marc Chandler gives his latest outlook on the FX board. Not surprisingly, and as we pointed out following the CFTC COT data, following a fresh round of record bearish bets on the USD, the Brown Brother's chief FX strategist sees a short-term bottom in USD sentiment (until we get a fresh new low of course), which coupled with a dose of irrational exuberance over how fast Europe has come on the past month, on nothing real but merely more expectations of improvement, could make the EURUSD fall to a $1.3250-$1.3350 range. Of course, this is the worst outcome for the dollar debasing central banks (i.e., all of them currently, due to the implicit G-20 understanding that a temporary bounce in the US stock market in nominal terms will lift all boats). Specifically: "For three days the euro tried to rise convincingly above the $1.3840 area, a technical area we had been monitoring. Provided this is indeed a failure, the euro could fall back into the $1.3250-$1.3350 range in the near-term. Sterling neared $1.62 and appeared also to run out of gas. Yet given the rebound in UK data and the prospects of heightened tensions in the euro zone, sterling can outperform the euro. Sterling may encounter support in front of $1.60, but there appears to be potential toward $1.58." Keep in mind that Citi's Steven Englander proposed a comparable logic recently, claiming that increasingly the only way to moderate surging inflation (check out commodity futures) aside from CME, ICE and other exchange margin hiking gimmicks which work for all of 24 hours, is for a concerted push to raise the dollar. Naturally, by the time a move like that is espoused by Bernanke it will be far too late.