Archive - Feb 2011

While "hope" has certainly been the primary investment thesis in the stock market for the past twp years, little did we realize that it was the key decision-making input variable at the Federal Reserve. What else is there to say: the central planners are now officially using the f[o|a]rce.

Still wondering why the US (and global) stock market is nothing more than a crime scene, and an imminent catastrophe waiting to happen, supervised and regulated by a bunch of "special" porn addicts? Then read the following comment letter and wonder no more.

One would think that the S&P doubling from the March 2009 lows would be indicative of a mission accomplished for the Fed's market manipulation, aka Open Market Operations, team. No such luck. In fact, while the abominable Dr Chairsatan and Messrs Frost Sack are spouting garbage about economic recovery to anyone retarded enough to listen (oddly they have found a great audience in Congress) behind the scenes they are telling banks to prepare for a stress test recession scenario in which unemployment is 11%. And since current unemployment is about 23%, and we continue to be in a Depression, we assume this means that the Fed is actively preparing to make sure banks will be able to handle the explosion in economic growth and, oh yeah, hyperinflation, when the $1.7 trillion in excess reserves as of June 2011, finally flood the market. Although since this statement may be sufficient to get Zero Hedge to issue "unsolicited" opinions on the state of the Great Ponzi, we will go with the party line here... Which we find confusing: why would the Fed force US banks to undergo another stress test: aren't they all massively overcapitalized? Wasn't that the whole point of the first fraud of a stress test back in 2009 which had he same credibility as the upcoming European one? And why not cut to the chase and conduct a Ponzi unwind stress test? So many questions...So many more lies.

"I remember when McDonald’s first released the “Super Size” promotion. You were supposed to get in line and say to the attendant “super size” me, at which point you would be served an egregiously sized portion of fries and soda. Pretty soon after that American obesity levels starting going through the roof. In any event, we won’t be having this problem much longer. Sizes are about to shrink dramatically and prices will go up at the same time. Food quality will probably decrease as well, which is hard to imagine considering the crap that is sold as food every day. In any event, I have a suggestion for McDonald’s. They should just teach us Americans to accept our indentured servitude to the financial oligarchs and roll out a “Serf Size” menu. People will get to the acceptance stage that much faster as they say, “serf size me!” and then walk away with three fries and a five ounce soda." - Mike Krieger

Are these (1) spontaneous protests in the Arab world (2) creations of American intelligence services or (3) the start of a world-wide unfolding of unrest?

Yesterday we reported that instead of manipulating home price data, China would simply stop reporting it. Fast forward to today and a few thousand miles west where we get a comparable report, only this time involving an insolvent continent and a comprehension-challenged rating agency. Just released from S&P: "Following new European Union regulations on credit ratings, we are converting our issuer credit ratings on these sovereigns and the ECB to "unsolicited", as we do not have rating agreements with the rated entities. Standard & Poor's  will nonetheless continue to rate the seven sovereigns and the ECB, and classify the ratings as unsolicited, as we believe that we have access to sufficient public information of reliable quality to support our analysis and ongoing surveillance, and because we believe there is significant market interest in these unsolicited ratings. Article 10 of EU Regulation 1060/2009, which addresses matters relating to the disclosure and presentation of credit ratings, requires, among other things, that unsolicited credit ratings be identified as such." In other words, Europe just told S&P, "Go fornicate yourself. We'll continue being broke while pretending to be solvent, and don't need you to spoil the party by being occasionally truthy..."

RANsquawk US Afternoon Briefing - Stocks, Bonds, FX etc. – 17/02/11

All black market "arbitrageurs" listen up: it is time to stop selling bread in Zimbabwe and start importing beemers to Singapore. The reason: a baseline 3 Series BMW sells for $260,000 (US) in Singapore. Yes, that's more than a quarter of a million for a car that in the US leases for a few hundred a month. "Francis Goh sits in a bronze BMW 335i convertible in a Singapore showroom, waggling the wheel and feeling the leather. He isn’t fazed by the S$340,000 ($260,000) price tag, five times what the same car costs in the U.S. “I see the price of a BMW, to me it’s reasonable,” said Goh, adding that he may instead go for a Mercedes-Benz E200 or Audi A5 to replace his Subaru Impreza WRX." However, unlike pretty much everything else (and take a look at Cotton and Corn today to see our broad definition of "everything"), this particular price surge is not due to endless Fed liquidity. Or at least, not so much: buyers have the Chinese trillions in Renminbi loans and the Singapore economic miracle to thank for this one, as well as Singapore's unprecedented hatred of car ownership.

That's right, I am now resorting to random gibberish in the hopes of getting a better understanding of the markets.

The "correction" is over. The last time silver was here, the 10 Year was at 12.45%, the 2s10s was inverted -210 bps, and gold was $600.

It is good to see that things are back to normal. The now irrelevant, and very soon to be former reserve currency is getting pummeled as stocks go up on 410,000 initial jobless claims nearly 2 years after the end of the recession (and $3 trillion pumped into this hollow scam of an economy), and a guaranteed plunge in margins, but more importantly the Precious Metal complex is back to being a high beta alternative to stocks. Silver just passed $31.10 and is set to close at its post Hunt-Brother highs. In the meantime, the highest intraday price since the early 80's is $31.2375 from January 3: we are less than two dimes away.

When about six months ago we noted that the European ponzi is in full force, courtesy of banks using any toxic assets as collateral to the ECB, little did we know just to what heights this scheme would reach. Today we get our answer. The Irish Times writes that Irish Banks are issuing billions in bonds to themselves "under the Government guarantee to borrow cheaply from the European
Central Bank and to avoid drawing more heavily on emergency lending from
the Irish Central Bank. Four banks issued bonds worth €17 billion to themselves last month under
the Government’s extended guarantee, the Eligible Liabilities
Guarantee, to use as collateral to borrow from the ECB. “What you have here is micro-quantitative easing, or money printing,”
said Cathal O’Leary, head of fixed-income sales at NCB Stockbrokers.
“The banks are issuing unsecured loans to themselves.” And since this is happening in Ireland, it is most certainly happening everywhere in Europe. And yes - this is the pinnacle of a pyramid scheme - this is about a thousand times worse than what US banks did when they purchased CDO tranches from each other, as the risk in the Irish case is ultimately borne by the European taxpayer. But such is life when the entire financial system continues to be massively insolvent, and only openly Ponzi schemes of this nature allow the system to continue operating on a day to day basis.

Ben Bernanke has started his speech on the Fed's role under Frank-Dodd, and specifically on Bernanke's role as head regulator of everything. His prepared comments were released Tuesday evening. He did not address either the status of the economy or monetary policy. He focused on how the Fed is helping to establish the new Bureau of Consumer Financial Protection (CFPB). The speech and Q&A can be followed here.

The Philly Fed Current Business Outlook Survey came out at a print of 35.9 compared to 19.3 before, and expectations of 21.0. This print is the highest reading since January 2004. Yet the only component metric that matters is, you guessed it, the Prices Paid index, which came at a ridiculous 67.2 from 54.3 previously! The prices paid index, which increased 13 points in February, has now increased 55 points over the past five months. And confirming the crush in margins was the in the prices received index which tacked on a barely notable 3.9 points to 21. The Prices Paid less Prices Received spread is the highest since 1979!  It is time for the sellside clown brigade to start lowering margins with gusto.

We had seen the financial wreckage and losses from the events of 2007 and 2008 as too severe to allow this growth cycle to continue. We were wrong — or at least 75% wrong. What makes us still 25% right is that the next recession, coming sooner than most pundits think, will be precipitated without a significant increase in interest rates, which is totally different than any other post-war cycle. Despite decent economic growth and extreme market optimism, this cycle is crippled as the banking and government issues supporting the monetary expansion necessary for GDP growth have either no capital base or no taxing ability and no further deficit spending power...The strong commodity markets and continuing QE2 should keep the dollar under pressure into June, except possibly in Europe where the shorter cycles are arguing for a euro high in March. As the Republican House of Representatives and the fiscal gridlock in Washington will keep Bernanke and Obama in check, an extension of equity and economic strength beyond June looks very unlikely.