Archive - Feb 2011

This is not the $104 brent crude you are looking for. Ignore everything and just BTFWW3.

Two Iranian warships planned to sail through the Suez canal en route to Syria on Wednesday, Israel's foreign minister said, calling the move the latest "provocation" by Tehran and hinting at an Israeli response. "Tonight, two Iranian warships are meant to pass through the Suez Canal to the Mediterranean Sea and reach Syria, something that has not happened in many years," Foreign Minister Avigdor Lieberman said in a Jerusalem speech distributed by his office.

As a Google exec once quipped, does putting two Turkeys together get you an Eagle?

According to an executive of Industrial and Commercial Bank of China, the world's largest bank by market value, demand in China for
physical gold and gold-related investments is growing at an "explosive"
pace and its appetite for the yellow metal is poised to remain robust
amid inflation concerns, reports Reuters. In other words, what was previously repeatedly reported on Zero Hedge, and by the World Gold Council, is starting to be appreciated by everyone else. Yet in a market in which supply and demand are completely disconnected from price discovery thanks to global central planning, and courtesy of precious metal price suppression by JPM, China investors are able to accumulate gold and other non-dilutable metals at prices that no longer reflect surging global demand. And just like in the US, China is also starting to fall for physical substitute investments: "There is also frantic demand for non-physical gold investments. We issued 1 billion yuan worth of gold-price-linked term deposits in 2010, but we managed to sell the same amount over just a few days in January this year," Zhou said, adding that such deposits would easily exceed 5 billion yuan ($759 million) this year." Although in China, unlike in London, these deposits may actually have real coverage behind them.

In what can only be described as broadly market positive news (remember in bizarro world $200 oil is equivalent to 2,854 on the S&P), Jerusalem Post reports that the leader of Hezbollah Hassan Nasrallah is ready for another war with Israel and will "conquer the Galilee."  "I tell the fighters of the resistance that one day they might be asked to liberate the Galilee," Nasrallah said at a "Resistance Martyrs Day" ceremony. "The Israelis are afraid," Nasrallah said. "I want to assure you and tell the Israelis that they should be careful because the blood of Imad Mugniyeh will not go to waste." Presumably, Hezbollah has been closely following Israel's response to recent revolutions across the region, and likes what it sees: "The Hezbollah leader also discussed Israel's reactions to the protests across the Middle East, citing Defense Minister Ehud  Barak's assessment that the Middle East is "changing in front of our eyes." "This shows that Israel, which was confident in the past, is no longer," as it was, Nasrallah said." And following that profound piece of psychological insight, all we can say is BTFD, or we would, if Bernanke allowed dips any more.

Kermit was earlier on CNBC, killing microphones with 20,000Hz+ chirping, delivering a presentation on the merits of using rulers as a market extrapolation tool. And in case anyone is not convinced to whip our their own (ruler) and see just how the S&P is expected to hit 2,853 or some ballpark number by September 14, 2013 (precisely), here is how he got that number: you take the recent surge in the S&P driven by Bernanke's and the HFT's no volume melt up market levitation and apply a straight line to it. Any questions?

Last week, the CFO of Wells Fargo suddenly resigned for "personal reasons"  and was immediately replaced by CAO Tim Sloan. The departure was promptly buried, and everyone moved on. Not so fast, says Institutional Risk Analytics' Chris Whalen, who speculated that there is much more here than meets the eye. In a report released yesterday, Institutional Risk Analytics notes that "The departure of Atkins, we are led to believe, was not merely the result of personal issues, but reflects an ongoing internal dispute within WFC’s executive suite regarding the bank’s disclosure." As a result of this action, IRR went ahead with the following rating action: "We are downgrading from “Neutral” to “Negative” the outlook for the forward operating results for Wells Fargo & Co. (“WFC”/Q3 2010 Stress Rating: “B”/Outlook: “Negative”). Recent management changes, the poor quality of WFC disclosure and unresolved issues regarding on and off balance sheet exposures to the GSEs and private investors and/or insurers led to this downgrade, as discussed below."

There is a real sense of the “calm before the storm” in markets globally. Complacency reigns, despite signs that the sovereign debt crisis in Europe is deepening and that Japanese and US bond markets also look very vulnerable due to rising inflation, very large deficits and massive public debt. US Treasuries have been sold by some of the largest investors (both private and sovereign) in the world recently (see news). These include large creditor nations Russia and China but also PIMCO, the largest bond fund in the world. A global sovereign debt crisis is now quite possible. At the very least, we are likely to have a long period of rising interest rates which will depress economic growth. Contrary to some misguided commentary, rising interest rates will benefit gold as was seen when interest rates rose sharply in the 1970s. It was only towards the end of the interest rate tightening cycle in 1980, when interest rates were higher than inflation, that gold prices began to fall.

Earlier, we got the January PPI number telling us that things are still somewhat under control on the inflationary front. Perhaps. Perhaps not. Cotton begs to differ. In a month and a half, cotton has risen 44%: since there have been about 44 days in 2011, that means about a 1% a day. Since our first warning back in September, when the world's most worn commodity passed $1, cotton is up 95%. Annualized, the YTD move in cotton is 1,512%. We are confident clothing makers and retailers have extensive hedges in place to counteract a move that will send margins negative shortly unless there is an appropriate hedge offset, or corresponding jump in prices. Either way, BTFD.

The PPI including food and energy came at 0.8%, in line with expectations, and a decline from the previous 1.1%. Ex food and energy, Producer Prices jumped from 0.2% to 0.5%, and over 100% higher than expectations of 0.2%. Somehow, food PPI increased by just 0.3%, the lowest since August, and once again making one wonder which Department of Truth is more unbelievable: ours or the Chinese. From the release: The Producer Price Index for finished goods rose 0.8 percent in January, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today. This advance followed increases of 0.9 percent in December and 0.7 percent in November and marks the seventh straight rise in finished goods prices. At the earlier stages of processing, prices received by manufacturers of intermediate goods moved up 1.1 percent, and the crude goods index rose 3.3 percent. On an unadjusted basis, prices for finished goods advanced 3.6 percent for the 12 months ended January 2011.... The index for finished consumer foods moved up 0.3 percent in January, the fifth consecutive monthly increase. A 13.7-percent advance in prices for fresh and dry vegetables was the main factor in the January rise in the finished consumer foods index...In January, the index for intermediate foods and feeds moved up 0.4 percent for the second consecutive month. A 2.7-percent rise in beef and veal prices accounted for about forty percent of the January increase in the intermediate foods index.

• From Prison, Madoff Says Banks ‘Had to Know’ of Fraud (NYT)
• Rising Chinese wages pose relocation risk (FT)
• Bahrain protesters take over key junction (FT)
• Fisher Says He May Prefer Treasury Sales as First Step for Fed Tightening (Bloomberg)
• Banks Push Home Buyers to Put Down More Cash (WSJ)
• Borders Files Bankruptcy as Expense Cuts Don't Stem Losses (Bloomberg)
• China's farm produce prices down last week (ChinaDaily) - weekly food prices are now Headline news
• Brazil Dismisses Plans to Pressure China on Yuan (WSJ)
• All You Need to Know About Why Things Fell Apart: Michael Lewis (Bloomberg)

Lightening the weight of food in inflation calculation still rendered China's consumer inflation at +4.9% year over year. The more telling number is the producer wholesale inflation, which spiked 6.6% year-over-year in January.

Markets positive this morning. Treasuries experienced a bullish move yesterday as economic numbers managed to disappoint lofty expectations. Advance retail sales released yesterday showed a weaker than expected increase at 0.3% v 0.5%E. Today will see the release of housing starts, PPI, and industrial production. An increase in the latter would represent a third straight month of growth.

Over the past few weeks, Citi's Steven Englander has not exactly kept it a secret that in his view, the US Dollar is due for the kind of flash dash that only stocks trading on the NYSE and BATS are capable of doing after reporting horrible news (bizarro market, remember). In an overnight note, Englander presents several scenarios on how to capitalize on what he notes are EURUSD "fat tails that are getting fatter" - specifically i) Long 6-month EUR Put USD Call 1.2500 At-Expiry Digital with KO at 1.3875 and ii) Long 6-month 1.3000/1.2000 EUR Put spread with KO at 1.3875. The 4 reasons why Citi believes conditions are ripe for sharp move in the pair are i) European sovereign debt is far from resolved, ii) Uncertainty emerging from governmental changes in the Middle East, iii) Unwinding commodity price inflation, and iv) Homeland Investment Act-2.

This may be a highly distasteful proposition, but just for a moment, I want you to sit back, and imagine that you are a member of the corporate banking elite. You are a walking talking disease ridden power mad pustule who naively believes himself intellectually superior to the vast majority of humanity and above the inherent laws of conscience, honor, and general good taste. You are a villain in the purest sense, in that you not only do great harm to the world, you actually SEEK to do great harm to the world, if only to benefit yourself and your exclusive circle of “friends”; a clan of degenerate blood thirsty sociopaths with delusions of omnipotence that stalk the night like Armani wearing Chupacabra exsanguinating the joy from poor unsuspecting cultures. You are capable of anything, and sadly, you take “pride” in this fact…The issue is, how do you convince the general public that all is well until you are ready to unleash hyperinflation and fiscal Armageddon? How do you make them believe with all their hearts that they are not in the midst of a debt meltdown and the end of their financial sovereignty, but basking in a full-on economic recovery?! Here is a step by step guide to fabricating an economic recovery out of thin air….