Archive - Feb 2011

Today, instead of the traditional, and sometimes boring, weekly balance sheet format (no surprises: another week, another record) we want to focus on one particular aspect of the Fed's balance sheet: namely the unprecedented differential between bank excess reserves and Fed asset purchases since the start of the latest round of quantitative easing (since the launch of QE Lite in August 2010). Since this cumulative number has now hit $170 billion, it can no longer be qualified as pocket change, even by the Chairman's standards.

When markets turn on you, you become a short timer.

As the Greater Depression continues along a parallel pathway with the Great Depression of the 1930s, Congress is about to commit the same blunder it made in 1930. The rocket scientists in the House of Representatives in September passed the Currency Reform for Fair Trade Act, which aims to crack down on Chinese currency manipulation by targeting imports from China and other countries with currencies that are perceived to be undervalued. The vote was 348 to 79, with more than 100 Republicans voting in favor of the bill. It died in the Senate before the mid-term elections, but Representative Sander Levin, Representative Tim Ryan and Representative Tim Murphy are expected to reintroduce the bill when the House returns in February from a congressional district work break. Senators Shumer and Casey are also planning legislation to punish the Chinese for unfair trade practices.

If indeed as Credit Suisse speculated gold's move was predicated by concerns that the Muslim Brotherhood may end the peace treaty with Israel, then the relationship between Egypt and the country's largest Islamist movement, the Muslim Brotherhood, deserves a special focus. Below we publish a special report by Stratfor focusing precisely on this relationship, and what the future may hold for either. "With Egypt’s nearly 60-year-old order seemingly collapsing, many are asking whether the world’s single-largest Islamist movement, the Muslim Brotherhood (MB), is on the verge of benefiting from demands for democracy in Egypt, the most pivotal Arab state. Western fears to the contrary, the MB is probably incapable of dominating Egypt. At best, it can realistically hope to be the largest political force in a future government, one in which the military would have a huge say."

Love them or hate them, only the most self-deluded can claim that the NIA, and its predictions, have been incorrect so far in this monetary 'printing' cycle. Sure they may have an agenda, and yes, Gen Ben may one day pull his money (if he is willing to see the S&P plunge to 666 and well below, so not really), which would kill all commodities, and certainly gold, in their tracks, but focusing solely on their message will have spared many massive real (not nominal) losses as surging commodity prices dwarf the modest pick up in stocks. Today's note from the NIA, while unpleasant, looks at the disastrous long-term consequences of the Chairman's monetary policy, and concludes rightfully so, that absent a diametric shift, which after today's press meeting may well require a revolution as the creature appears to be well on its way to QE3, 4 and so on, what is happening in Egypt is a preview of what will happen in the US in a few short year. Furthermore, the NIA's prediction that rice is up, up and away is in line with what Zero Hedge has been claiming since October (link). Also as a reminder, and as David Tepper just confirmed today, the realization that Rubber is the third and last R-bubble is starting to percolate...

We are officially in the middle of the worst housing collapse in U.S. history - and unfortunately it is going to get even worse.

If you don't know the stories of LTCM, Enron, Tyco, Worldcom, Adelphia, Global Crossing, the S&L Crisis, how portfolio insurance contributed to the 1987 crash, or countless other investing lessons going back centuries, then you have no business investing your or anyone else's money. Now, it looks like China MediaExpress Holdings is about to become another one of these lessons.

A killer play ("655321 QE Triple fake)" freshly inked in Quarterback Benny Inkjet's playbook...

According to Charlie Gasparino, the intifada between Meredith Whitney and the rest of the world just got uglier. According to the former CNBCer, the one-time Citi scourge has been called in to testify before the House TARP committee and explain her less than favorable position on munis.

Earlier today we noted that the ICE was considering establishing size limits in [insert surging commodity here], in this particular case cotton. This has just been formalized as per the press release below, and explains why cotton is among the worst performing softs today. If gold continues refusing to play along with the script, look for the CME to do something comparable with gold and silver (for the third time) shortly. But never, and we repeat never, expect the Globex to do something crazy like hiking margin requirement on ES.... Ever.

Is it just remotely possible, that 50% of the people in the United States of America can't possibly afford to live in Bullish Projection America and that the growth that is priced into the markets is, perhaps, overly optimistic?

I debated whether or not to write today. To be completely honest I feel as if I have said as much as I can and don’t want to start sounding like a broken record. That said, we have clearly entered the next stage in this tragic circus called the global monetary and financial system death spiral. The final stage comes when the system consumes itself as a result of its refusal to reform and we are there now. The fact that most people are completely unaware of it or have such strong “normalcy bias” they can’t see what is directly in front of their faces is immaterial. It is here, it is irreversible, and it will unleash a cyclone of chaos and confusion that will leave many literally suspended in disbelief as the entire false paradigm most of humanity has lived under for their entire existence is washed away forever. - Mike Krieger

Hosni Mubarak sure is learning from the best criminals in the world.... Fast. Well over two years after Hank Paulson told Congress that the world would end unless he was given unlimited power to give the banks however much money the needed, Egypt's despotic president has done exactly the same, and in an interview with ABC's Christiane Amanpour, "said he's fed up with being president and would like to leave office
now, but cannot, he says, for fear that the country would sink into
chaos." And there you have it: the same mutual assured destruction strategy used by bankster and by despotic tyrant alike. One wonders - is there really any difference between the two.

This is a translation of Ben Bernanke's speech today to the National Press Club. The short translation: We don't know what we are doing!