Archive - Feb 2011

The consensus expectation for Chinese CPI was 5.4%. Zero Hedge's expectation based on just announced manipulated CPI data was 4.9%. Guess who was correct... In the meantime, Chinese food prices are not increasing by 5% every ten days, or over 400% annualized. Or at least, they are not doing so on rice (most likely fake) paper.

You know what would have been really cool? If Obama had just said - you know what - the budget can't be balanced, deal with it. And you know why? Because over the past two years, the economy, that was trashed by the banking sector, still sucks. And, during the entirety of the Bush administration, while prepping the economy to suck, debt to pay for wars and tax cuts kept growing. And, when the banking system was facing the abyss, we opened our checkbooks, we stimulated the hell out of it, but we did it mostly through issuing Treasury debt and the magical Fed printing machines - so it doesn't show up in the budget that we're all debating, except for a couple hundred billion to Fannie and Freddie and what remains of the stellar TARP project. And you know what? I admit that was a stupid thing to do. It was stupid when it started under Bush, and it was stupid when it continued under me and the economic team I appointed to keep it going. The bailout binge increased our public debt by 50% under my reckless economic advisors, Treasury Secretary, the Federal Reserve. And, hell if other countries decide to dump Treasuries in bulk, and their interest rates rise, and Bernanke can't QE them down fast enough, our budget deficit will gap like the Grand Canyon.

Social unrest has already unseated several regimes in the Middle East. And the same formula that created those situations (tons of poor, repressed folks no longer able to afford food) exists today in China as well. With that in mind, expect the relationship between the US and China to deteriorate in the coming months. The flirtation underlying trade tensions (steel and tires) we’ve already seen will erupt into full-scale trade wars. We could very well even see an actual physical war the way things are heading.

Renowned behavioral economist debunks another myth ...

As we speculated earlier, China has just lowered the weighting of food in its CPI. The reason: the nearly 5% surge in food prices in the past 10 days. Turns out the US can still learn a thing or two about data manipulation from the Chinese...

No, snow was not blamed in this latest, and certainly not last, broke state snafu. But wait until you read the official excuse...

We've known for a LONG time that too much inequality leads to crashes ...

I’ve finally had the time to thoroughly study Bernanke’s entire Press Club speech, his appearance before Representative Paul Ryan’s House Budget Committee and bulk of the recently released 2005 FOMC minutes. The conclusion I have drawn from all this data is that the captain of our economy, Ben Bernanke, is either an economic imbecile or a financial terrorist. Through evil intent, or sheer stupidity, the outcome remains unchanged. The bottom-line: He has hijacked our economy flight and changed our destination. Bernanke is about to crash Flight 666 and all 308 million of us sitting helplessly in the passenger cabin into Zimbabwe’s airport known as Hell’s Hyperinflation Field.

This one caught us by surprise. Today, Deutsche Bank announced it was suspending new issuance in the PowerShares Agriculture Double Long ETF, the DAG. What is odd, is that unlike last week's announcement by Barclays that it would start unwinding its triple inverse S&P ETF (BXDD), which has logically been plunging as the market levitates ever higher on ever lower volume, the DAG has done exactly the opposite. In fact, as the chart below shows, the DAG is trading close to its 52 week high, having tripled from the 52 week low in July (yet still $12 away from its all time high reached in 2008). Therefore, this is not a performance issue, which needs a reverse stock split to be resolved, and likely indicates some deeper issues with creation of shares in what is rapidly becoming the hottest asset space.

When we pointed out our volume chart earlier, which indicated that volume is now a laughable joke, we received one of the traditionally amusing responses, "ZH misses the point on volume because they data mine and only compare it to the volume during the crisis. SPY volume is STILL higher today than it was pre-2007. So are we to believe that the crisis volume levels are the "real" levels for volume? If you compare back to pre-crisis, volume is actually still pretty high." Here is our response.

David Tepper's Appaloosa has released its Q4 holdings. During the quarter the famously bullish investor made some major additions to his portfolio, the most notable of which is the increase in his Citi position from 51.3 million shares to 117.5 million: a 66.2 million increase, which brings the total to $555 million as of December 31. In other words, Appaloosa's bigest position is now the same as that of John Paulson. And that's just the start of Tepper's incursion into financials: the Chatham, NJ fund also increased its holdings in Wells Fargo Perpetual Preferred Convertible stocks from 292,019 to 335,482 shares, bringing the total holding to $336 million, closely followed by the last of the TBTF trinity: Bank of America, which saw an addition of 2.6 million shares to bring the total to 334 million shares. Total equity AUM increased by $1.5 billion between Q3 and Q4 as much cash was deployed to purchase mostly financial stocks. Other notable additions were Hewlett Packard, Wells Fargo common, Microsoft, and pretty much all of the top 25 positions. New positions were initiatied in Micron, Dean Foods and United Continental Holdings. In fact the only decline among the top 25 was in Fifth Third Bancorp, which saw an 825,500 share drop in Q4. It seems that the biggest hedge funds are now the holders of pretty much the same stocks: hopefully, just as has been the case over the past 6 months, nobody will ever have to sell, as there is nobody left who is not on the same side of the reflation trade.

RANsquawk Market Wrap Up - Stocks, Bonds, FX etc. – 14/02/11

Fedex plunged after hours only to retrace almost all of the drop, after investors were assuaged that the reason for the company's guidance cut was snow (in December, yes unbelievable), and plunging margins (this is one-time: just recall Goldman's most recent lies on the topic). In other words, while QE3, 4 and 5 is now the norm (i.e., perfectly recurring), such things as snow, and plunging profits, are transient. After all, it is only a matter of time before the Vissarionovich Jr. finds a way to subsidize his pet Russell 2000.

Two percent!
That’s how much the price of EVERYTHING has gone up IN AMERICA since Christmas Day, just 6 weeks ago.

"The Court recognizes that an adverse ruling regarding MERS’s authority to assign mortgages or act on behalf of its member/lenders could have a significant impact on MERS and upon the lenders which do business with MERS throughout the United States. However, the Court must resolve the instant matter by applying the laws as they exist today. It is up to the legislative branch, if it chooses, to amend the current statutes to confer upon MERS the requisite authority to assign mortgages under its current business practices. MERS and its partners made the decision to create and operate under a business model that was designed in large part to avoid the requirements of the traditional mortgage recording process. This Court does not accept the argument that because MERS may be involved with 50% of all residential mortgages in the country, that is reason enough for this Court to turn a blind eye to the fact that this process does not comply with the law." Judge Robert Grossman