Archive - Feb 2011

Surging inflation? Check. Negative GDP growth? Check. Increasing unemployment? Check. Dropping wages? Check. Looks like we have a stagflation bingo. Per Bloomberg: "U.K. unemployment claims unexpectedly rose in January, underlining the fragility of the labor market a year after the economy emerged from recession and as public spending cuts start in earnest. The number of people receiving unemployment benefits rose 2,400 to 1.46 million, the Office for National Statistics in London said today. The median of 25 forecasts in a Bloomberg News survey was for a 3,000 drop. Unemployment based on International Labour Organization methods rose by 44,000 in the fourth quarter to 2.49 million." And this is just the start of what real austerity means: "Prime Minister David Cameron is counting on hiring at private companies as his government embarks on budget cuts that will cost 330,000 public-sector jobs over the next four years." And more economic humor: "There is a risk unemployment could rise” this year, Philip Shaw, an economist at Investec Securities in London, said before today’s report. “It’s possible that the public-sector job cuts happen straight away and you don’t see a pickup in private-sector job creation.”" Coming soon to every centrally planned regime near you.

Meet Axel Weber's replacement

Housing starts, PPI, industrial production, and the FOMC minutes….Small 05/15/2021 – 11/15/2027 POMO for $1.5-$2.5 billion.

The patently obvious deterioration in housing just took one big step for the worse, after the Mortgage Banker Association reported that the Market Composite Index, a measure of mortgage loan application volume, decreased 9.5 percent on a seasonally
adjusted basis from one week earlier. The Refinance Index decreased
11.4 percent from the previous week and is the lowest Refinance Index
recorded in the survey
since the week ending July 3, 2009. The seasonally adjusted
Purchase Index decreased 5.9 percent from one week earlier. And for the obligatory quote that confirms that Ben Bernanke's plan to fix the economy by raising rates or something, is about to blow up: "Mortgage rates remained
above 5 percent last week, up almost a full percentage point from their
October lows, and refinance
volume continued to drop," said Michael Fratantoni, MBA's
Vice President of Research and Economics. "Applications for home
purchases also declined on a seasonally adjusted basis.  Buyers
have not returned to the market as rising rates have reduced
affordability, to some extent." Bottom line: few people care to refinance (which is also making the QE Lite component of QE redundant), and even fewer people want to buy homes. So, again, what recovery?

RANsquawk European Morning Briefing - Stocks, Bonds, FX etc. – 16/02/11

Increasing Inflation levels in the UK have led to strength in the GBP with analysts increasing the probability of an interest rate rise later in the year. Retail positioning however is quite contrary to this with increased short positions against the EUR, JPY and USD.

The market was down today as retail sales disappointed (thanks to the weather, a little something called rampant unemployment, and ...

Some people just don't know when to keep their mouth shut...

Concerning the NY Brat Exchange...

In 2008, the entire financial system nearly went under due to the Credit Default Swap market which was $50-60 Trillion in size. In contrast, the interest-rate based derivatives market is $196 TRILLION in size: more than THREE times larger than the credit default swap market at its peak.

Emerging Markets, which have lead the S&P 500 for years are flashing MAJOR warnings signals. Remember, the Emerging markets bottomed before the S&P 500 (November 2008 vs. March 2009) during the Crash.

The small country of Bahrain has promptly been displaced in the docket of revolutionary news, by recent developments in Iran. Yet the peace on the Saudi island neighbor is deteriorating as demonstrations escalate. According to ABNA.ir, "Tens of Bahraini Army jeeps surrounded the main square and attacked the protesters. Thousands of Anti-Government protesters filled a main square in the Bahrain capital due to discriminations posed by the government. Security forces at first appeared to hold back as the crowds poured into Pearl Square in Manama. After a while, in an extreme violent action the army released more than 50 war vehicles to the square, which resulted in shameless and violent attacks against the righteous freedom seekers. The dramatic move Tuesday comes just hours after a third protester died in clashes with police in the strategic Island Kingdom, which is home to the U.S. Navy's 5th Fleet." So while we wait for Al Jazeera or anyone else for that matter to start covering the protests in Manama (which could be a while: the world has suddenly developed revolution burn out), below we present a photographic update from the island nation.

In advance of tomorrow's FOMC minutes releasae (2pm Eastern) Goldman shares some interesting thoughts on what may be disclosed. The key variable is whether, just like in the minutes from early 2010, the Fed will once again jump the shark (what is the creature of jump choice when jump is done twice in one year?) and commence discussions of exit strategy. If, as Goldman expects this might be the case, expect the market to plunge as there is nothing organic about this Fed liquidity driven pump of over 600 S&P points. To wit: "Is the FOMC turning its attention back to its ultimate exit strategy?  It is premature to assume that the FOMC has any preset schedule for the “exit strategy” that was discussed widely—inside and outside the Fed—in early 2010.  After all, the LSAP program is only about half completed, and the default assumption appears to be that it will run its course until mid-2011.  That said, it is never premature for the committee to revisit its options, particularly during the longer two-day sessions that allow time for more strategic thinking.  Thus, we would not be surprised to see some discussion, if only a brief review of familiar tools and strategies for the exit strategy that will ultimately be needed.  The mere existence of such a discussion would not be meaningful in itself, though obviously the language surrounding it would have the potential for market impact, whether justified or not."

Swaps logic,logic of weather?

Jan Hatzius is the bellwether of the sellside economist crowd. When he was bearish (2009), most were bearish, when he turned bullish (early half of 2010), everyone else followed suit. Then he turned bearish again (early August 2010) and convinced his friend and former co-worker Bill Dudley to launch QE2. Then, in December, he turned very bullish again. And now we are here. We expect Hatzius to be fake bullish for another 3 months max, at which point he will have no choice than to start telegraphing to Jon Hilsenrath that it is time for QE3. In the meantime, for those who are not too familiar with his work, here is an extended interview with Bloomberg TV, in which the GS head economist talks about Goldman's call for 18% gain in stocks this year as well as trends in jobs, inflation and other data indicators.