Archive - Feb 2011

What this record global population means for the civilization. Food prices to soar, regional conflicts increase, and countries fight it out for natural resources. Expect a permanent rise in volatility. Will the “one child” policy work in time? Next stop, 9 billion?

Following loud complaints by Zero Hedge over the weekend about the retention of Bernanke's FCIC testimony from the public's eye, yesterday the commission caved and agreed to release Bernanke's November 17, 2009 89-page closed session confidential transcript, in which, among other things, Bernanke complains about the... blogosphere. Arguably, among the most amusing comments are the circumstances which bring Bernanke to lament the surge of alternative media. On page 68, the Chairsatan, in responding to a question of why nobody could predict the disastrous consequences of Vissarionovich Jr's actions, we see another face of Bernanke - that of the man who deflects his gross incompetence which almost destroyed civilization as we know it... to those who worry too much: "I think there were people -- there were people saying -- including people at the Fed but others as well -- saying, in the year before the crisis, that risk was being underpriced, that  spreads were very narrow, that markets seemed ebullient, that liquidity was, in some sense, excessive. There were -- you know, the way I would put it is, I think there were people -- not necessarily the same people -- identifying various parts of the problems. You know, there were people who were concerned about derivatives, there were people that were concerned about subprime mortgages, there were  people concerned about the overall credit environment, there were people who were concerned about off-balance-sheet vehicles. But I think notwithstanding the claims of one or two people out there who are now sort of living on the fact that they, quote, anticipated in the crisis, I  would still say that the interaction of these things, the “perfect storm” aspect was so complicated and large, that I was certainly not aware, for what it’s worth -- and it could be just my deficiency -- but I was not aware of anybody who had any kind of comprehensive warning. There are people identified -- and the trouble is -- and particularly in this blogosphere we live in now -- at any given moment, there are people identifying 19 different problems, crises." So there you have it: the next time the entire financial system collapses, which should be within a few years at most, and unless Mars bails the Earth out, this will be the last collapse, it will be the blogosphere's fault again, for identifying too many problems again, and for supposedly 'shouting wolf' when it has been right all along.

The only actual number that matters, is the Empire Index' Prices Paid index, which climbed to a two and a half year high of 45.8, as prices received barely moved. Even the Empire Index itself acknowledges the collapse in margins: "The prices paid index climbed to a two and-a-half-year high in
February, but the measure for prices received was little changed,
suggesting some pressure on profit margins." New orders and employees both dropped to 11.8 and 3.6, from 12.4 and 8.4 respectively. And, lo and behold, inventories climbed to the highest since April: the hollow growth must continue!

Yet the biggest disappointment came from the advance retail sales which not only missed on every metric, but saw all the January data was revised lower:

And some bad news for the world's worst car maker (recently bankrupt), which has bet its entire "growth" platform as per the recent IPO on the one market that is so far unfamiliar with said carmaker's "quality" reputation. In January, the Shanghai-based China Passenger Car Association reported that sales of passenger cars fell 10.3 percent in January from the month before to 965,238. Per Manufacturing.net: "Chinese bought 13.7 million passenger vehicles last year, up by a third
from 2009. But that robust growth is forecast to cool this year due to
the expiration of tax incentives for some vehicle purchases and a
renewed effort by cities to bring traffic under control."Is the recent collectivist action to cool off purchasing actually going to have an adverse impact not only on GM's margins but its sales as well? Why yes. But the market will be stunned when this is publicly announced shortly.

President Obama's budget proposes to raise premiums the Pension Benefit Guaranty Corp. charges employers by $16 billion over ten years and, in a significant policy shift, would levy higher premiums on the riskiest companies...

Silver and particularly gold rose sharply on the release of the higher than expected UK inflation data. It showed that UK inflation quickened to 26 month highs at 4.0%. Currency debasement and higher food and energy prices are leading to an inflation surge in both developed and emerging markets. The Chinese inflation data appears to be even more misleading and manipulated than that in western economies. Many governments are attempting to manage consumers perceptions regarding the significant increase in the cost of living as fiat currencies are debased. Silver is now less than 2% from its 30 year nominal high of $31.25/oz seen at the start of the year and looks set to challenge and surpass this level in the coming days due to continued robust physical demand (both investment and industrial) and the fact that the futures market is seeing some big money go long again after the recent correction. Silver remains in backwardation with spot trading at $30.68/oz while the July 11 contract trades at $30.55/oz and the December 14 at $30.40/oz.

Markets mostly positive this morning, breaking its recent pattern. Today will show several retail industry-related releases, including advance retail sales and import price index. Surveys reflect expectations of bullish data. We also note a recent creep in LIBOR-OIS to 16bp (+4bp YTD). Emerging market stocks rallied yesterday after the release of China’s positive export figures and the announcement of Egypt’s intent to form a democracy. Inflation continues to rise in China, as its CPI increased 4.9% YoY missing expectations of 5.4% and PPI increased 6.6% YoY v 6.2%E. The CPI increase included a change in the basket of goods that reduced the weight of food which has recently risen in price dramatically. The BOJ left its target rate unchanged at 0.1%, in line with consensus estimates. Japan also saw a 3.3% MoM gain in industrial production over last month’s +3.3%.

Lot’s going on today—retail sales, Empire index, import/export prices, TICS, housing market index, business inventories, two rounds of budget testimony, and the usual weakly consumer confidence…At 11am a $5 – $7 billion POMO in 02/28/2015 – 08/15/2016 closes. Look for CUSIP 912828PS3 to be monetize like hotcakes.

Inasmuch as one can trust any data coming from centrally-planned governments, following last night below consensus CPI reading, China continues to telegraph that monetary growth is once again under control (at least for the time being): in January commercial banks extended CNY 1.04 trillion in Loans, up from CNY 480.7 billion in December, which however was well below the consensus of CNY 1.2 trillion. Outstanding CNY loans grew by 18.5% yoy in January, down from 19.9% yoy in December (market consensus: 18.7% yoy). Additionally, the just as "credible" Chinese M2 printed at 17.2% growth yoy, down from 19.7% in December (19.% consensus). The M/M seasonally adjusted annual growth fell to 1.5%, down from 14.5% in December.

It's not quite snow. But it's close. Reuters reports that traffic in the Suez Canal has been disrupted since 8am GMT after a ship ran aground due to "engine failure in bad weather." There is no indication of foul play yet.

RANsquawk European Morning Briefing - Stocks, Bonds, FX etc. – 15/02/11

Eurozone and Portugal GDP both miss by 10bps QoQ (0.1% vs 0.0% and 1.2% vs 1.3%, respectively), leading to a bit of euro weakness that was extended after WestLB announced failure to reach a restructuring agreement, causing fears of senior bondholder impairment to rise.

Today we have a plethora of major news events that could effect retail positioning dramatically. With German GDP, UK CPI, German ZEW, USD Retail Sales and US TIC coming out today all within a 8 hour window, any major deviations could have powerful implications. Going into the news events the report is fairly settled with most pairs in the neutral zone. GBPUSD has slipped a tiny bit back in the Long zone, with GBPJPY back in the neutral zone.

The latest job Obamatunity in a promising field...

The much anticipated Paulson & Co. 13F is out and there are quite a few changes. First, the total equity AUM has increased from $23 billion to $30 billion. Paulson is now bigger than many mutual funds: "nimble" unwinding should the market ever sell off again sure will be an amusing sight. After all, his top 10 positions, which amount to $16 billion, represented 55% of his entire equity AUM (of 102 names). While there are not many dispositions, most notable is the decline of Paulson's third biggest holding - Bank of America - by 10% from 137.8 million shares to 123.9 million. Also, as Zero Hedge speculated, Paulson reduced his holdings in Citi modestly, from 424 million shares to 413.5 million (it appears he was selling to Tepper). Otherwise the top two holdings, the GLD for the dollar denomination shares, and Anglogold, are still in first and second place. In terms of notable increases, Paulson added 7.9 million shares to his Anadarko stake (conceived in Q3), bringing the total to 21.3 million, making it his 5th largest position. Rounding out the top 10 are Hartford (a small decline), Suntrust (a 5 million share increase), Comcast (flat), Capital One (3 million shares added) and MGM (flat). Buffett fans will be delighted to learn that Paulson added 5 million shares to his Wells position, making it his 11th largest holding at $635 million. Those curious what other additions are in Paulson's portfolio can do so by looking at the green highlighted rows in the table below (also, the rightmost column shows increases in green and declines in red). As for complete dispositions, here is the list: Hewitt Associates, NBTY, Mariner Energy, Mirant, Burger King, General Growth Properties (Ackman will not be pleased), Airgas, Family Dollar, Starwood, Zymogenetics, Potash, Mead Johnson, Boyd Gaming, and Starwood Property Trust.