Archive - Feb 2011

Markets modestly positive in the early AM. Yesterday’s claims numbers were roughly in line with expectations and expectations for today’s Payrolls data have been modestly upgraded from the pre-ADP expectations. ISM showed progress as did Nonfarm Productivity, while Unit Labor Costs indicated the divergence between commodity price inflation and labor price inflation (or lack thereof). Bernanke’s speech yesterday provided a few great tidbits, including the dovish outlook predicated on the Fed’s expectation of low inflation and high unemployment. After emphasizing that expectation, the Chairman stated, “Under such conditions, the Federal Reserve would typically ease monetary policy,” via the Fed Funds rate. Though the statement was seemingly later couched in the context of asset purchases, it does seem like strong language. For the inflationary hawks – especially those abroad who are concerned with the US ‘exporting inflation’ – the Chairman offered that higher “visible” prices (notably for gas) were results of “very strong demand from fast-growing emerging market economies, coupled, in some cases, with constraints on supply.” Inflation is apparently someone else’s problem.

Goldman's Andrew Tilton dissects today's NFP number, explaining why if it is weaker than expected (+146k) it is due to snow, and why if it stronger than expected, it is entirely due to the "economic recovery" (and not Bernanke's hyperinflationary mandate). Bottom line: win-win, while North African (and soon Middle East) regimes: lose-lose.

It's all about jobs: Employment report for Jan…weather versus the fundamentals. Estimating the change in payrolls in January is an exercise in weighing the positive trend in fundamental factors against the depressing effects of unusually cold and snowy weather. Goldman has an original estimate of +175k predicated on the view that the weather effects would not be large, but further analysis helped by classification of the storm that passed through during the survey reference week as a major storm suggests the potential for a larger effect. At the same time, the labor market data themselves, including claims, ISM employment indexes, and online help-wanted indexes, suggest further improvement. Goldman decided, on balance, that these trends were offsetting, but there is clearly a lot of uncertainty surrounding this number. To aggravate the situation, this report will incorporate a benchmark revision to the March 2010 level of payrolls that the Labor Department estimated last fall at -366k; this often has the effect of reducing estimated net changes in the months following the benchmark.

RANsquawk European Morning Briefing - Stocks, Bonds, FX etc. – 04/02/11

Retail traders are notoriously wrong at picking market direction/tops and bottoms. Most retail traders very naturally seem to adopt a counter-trend stance and this offers very accurate signals for individuals looking to trade against this group. This daily report is designed to help traders focus their efforts on higher probability pairs.

How many times in your life can you honestly say you discovered a new hero? Today I did...

The market closed up again today as Ben Bernanke let the National Press Club know that either the economy is fucked, or it isn't...

It’s the perfect set up for any investment: dwindling supplies and growing demand. The inflationary holocaust will only be adding gasoline to the fire, pushing agricultural commodities to record highs. As Jim Rogers puts it, “God knows how high the price of agriculture is going to go, so that's where I'm putting more of my money now than in other things… I think I'm going to make more money in agriculture than I make in precious metals.''

Well, the US Dollar has staged a small bounce at $77 or so. The question now is whether this becomes anything substantial, or is merely a result of the Euro/USD pair becoming so stretched that a brief pullback had to happen. We should know the deal within a few days. However, the greenback is now only 2% away from breaking its multi-year support line. If the Dollar turns down again now then the inflationary collapse will intensify rapidly.

Every now and then, Standard Chartered has a knack for coming up with that one report that is miles ahead of the competition and promptly becomes the definitive guidebook for the industry. Its most recent one: "Inflation: illusionary, inflammatory" is arguably one of the most detailed and comprehensive reports to come out from an institutional entity in a long time, dealing with the ever so sensitive topic of, you guessed it, inflation. And while it is guaranteed that the Fed will read neither this report, nor today's earlier announcement that food prices hit another all time high in January, we urge all readers to at least familiarize themselves with the contents herein. In addition to providing a case by case geographic atlas of which the next riskiest Tunisia-like countries are, the report includes a unifying thematic overview that explains not only why the global liquidity glut is long overdue to be pulled back, but what the next (and last) steps available to central bankers are before a wave of global unrest undoes 100 years of failed Federal Reserve policies. An absolute must read.

Markopolos went on to say, “The banks that are doing it, it's 25-33% of their bottom line net income per year, so it's like being addicted to heroin, they can't afford to pull the needle out because their share prices will collapse."

The recovery bugs are out again even after the GDP report for Q4 2010 showed significant structural weakness. Inflation is spreading quickly and has already impacted businesses and households. The Fed will not do anything about it because its models say it isn’t there. We show why those models are so confident (why you should be much less so), why inflation is a problem now, and why this latest bubble will not last six years like the last.

So much for quant trading being an innocent program that can never do any harm. After a year ago AXA Rosenberg disclosed that it had kept its clients in the dark about a massive error in the computer code of its "quantitative investment model", today the SEC fined the  one time asset manager of over $70 billion with a record for its kind fine of $242 million. As a reminder the immediate effect of the error when first reported was the major underperformance of the fund compared to its peers: "A number of the funds managed wholly or partly by AXA Rosenberg performed poorly last year." Yet what supposedly did not alert the firm that anything was wrong was that the system was performing in line with other comparable models: ""It wasn't obvious if there were any problems or
any impact from this error on our fund because it followed a similar
trend to other quant managers," Vanguard spokeswoman Rebecca Katz told
Reuters on Saturday." In other words, it is safe to assume that other AXA peers have or had been operating with comparable system flaws, yet due to the SEC's preoccupation with porn, had never been caught, and as a result investors in such funds may have well been fleeced of millions due to comparable uncaught computer glitches. So much for robotic efficiency, especially when coupled with a human's eagerness to engage in willful securities fraud...

Just out from the NYT:

The Obama administration is discussing with Egyptian officials a
proposal for President Hosni Mubarak to resign immediately, turning over
power to a transitional government headed by Vice President Omar
Suleiman with the support of the Egyptian military, administration
officials and Arab diplomats said Thursday.

In other words, the formerly biggest spook of the Middle East, and quite possibly a former CIA asset, is about to become president, under the auspices of a US-endorsed "democratic" transition, which does nothing but replace one crony regime with another. It is disturbing that the US administration does not comprehend that the Egyptian people are sufficiently intelligent to see just how superficial this proposed "regime change" is.

Five years ago, when I showed up on the doorstep of Nouriel Roubini’s RGE Monitor, I was in the minority of macro economists who saw a financial tidal wave coming. For the rest of the world, including Wall Street’s financial analysts, Fed bankers, Politicians, or even Moses himself, none of them could see how the contagion from subprime loans could cascade into a systemic crisis. A crisis that would then expose larger problems that would eventually lead to a complete financial meltdown. Similar to the subprime loans and the subsequent credit crisis, we face a new tsunami of what on the surface appears to be of minor financial relevance, but what will be the final straw that breaks the camel’s back if not politically achieved. What it is is ownership and accountability, from a political standpoint, for ALL of the politically fueled economic decisions being made as well as their side effects. For investors, it would be a catastrophic misjudgment to not escalate these macro political views into the analysis of economic work. (This is starkly different then a political debate, but rather a true non-partisan skyview of policies and rhetoric and their overall effects on the psyche of the economy.) For a financial system that is running on the fumes of confidence, we need to properly analyze this new dynamic.