Archive - Feb 2011

According to Al Jazeera, the Egyptian Central Bank has just imposed a withdrawal limit of $10,000 on all banks in order to prevent a systemic bank run that will promptly wipe out what is left of the financial system. Look for this number to be cut to $100 in the first several minutes after banks reopen (whenever that actually happens). As for all that central bank currency "gold backing", somehow we have a feeling that Egypt's 75.6 tonnes in gold is about to be drastically adjusted. Also, it is not too late to reevaluate that long EGPT thesis.

Like PM, like MP. At least in Italy they don't hide when going about their prostituing business, either on the receiving or giving end... From IBT: "A member of the Italian government led by Italian Prime Minister Silvio Berlusconi was caught ogling at an escort's website on his iPad during a no-confidence debate on Wednesday. Simeone di Cagno Abbrescia, 66, was photographed checking several scantily-clad women at a time when the three-times-married MP, a member of Silvio Berlusconi's ruling centre right People of Freedom party was in the chamber to take part in a no confidence vote. The MP was more interested in checking out 'Dolly, 39' and 'Daisy' who charged £400 for three hours on his iPad." The mea culpa: it literally just popped up - "I was looking at my messages when a window opened up and I couldn't help looking at the pictures of those lovely girls. I was just being curious. Sometimes you have to be in the house even when the debates are not exciting," Telegraph quoted Simeone di Cagno Abbrescia as saying. "Sometimes these messages from girls just pop up when you are looking at your email. I have never been with an escort," Abbrescia added." What next: someone photographs Gen Ben putting in a limit buy order 1 billion ES on his iPhone version of REDI?

The January non-manufacturing ISM came at 59.4, higher than expectations of 57.2, and compared to 57.1 previously. From the report: "The Non-Manufacturing Business Activity Index increased 1.7 percentage
points to 64.6 percent, reflecting growth for the 18th consecutive month
and at a faster rate than in December. The New Orders Index increased
3.5 percentage points to 64.9 percent, and the Employment Index
increased 1.9 percentage points to 54.5 percent, indicating growth in
employment for the fifth consecutive month and at a faster rate. The
Prices Index increased 2.6 percentage points to 72.1 percent, indicating
that prices increased at a faster rate in January. According to the
NMI, 13 non-manufacturing industries reported growth in January.
Respondents' comments are mostly positive about business conditions;
however, they still remain cautious about the sustainability." But why cautiousness- this is after all the 18 consecutive months of growth? Or is someone concerned what happens when Gen Ben closes the floodgates? With the dollar jumping on the results and stocks falling, it goes to show just how irrelevant economic data is for the bizarro stock market. And yes, prices paid jumped from 69.5 to 72.1, the highest since September 2008. Nothing to see here.

The garlic eaters don’t want to repay their debts, and the beer drinkers don’t want to lend them any more money. That pretty much sums up the financial tensions that exist within Europe right now. Time to Short the Euro.

The latest letter by Absolute Return Partners' Niels Jensen is a must read for anyone still on the fence about the Chinese "thesis." With many prominent pundits pitching either side of the China bull/bear case, often times covering up weaknesses in their arguments with extended and superfluous rhetoric, sometimes it gets easy to get lost in the noise: here is where Jensen's ability to create signal shines through. Jensen starts off with the official revelation that Chinese GDP is a made up number, discussed previously on Zero Hedge. "In a leaked 2007 cable Li Keqiang, who is the favourite to become the next premier, confided that official Chinese GDP figures are “man made” and “for reference only” (surprise, surprise), and that one should rather look at alternative measures such as electricity consumption, rail freight volumes and bank lending, if one wants a true picture of economic growth in China." It is all downhill from there.

When last month we highlighted the FAO's periodic report which noted that food prices had surged to a fresh all time high, Zero Hedge first predicted that food riots were imminent. Fast forward 6 rioting countries and 2 revolutions later, to today when we get an update from the UN's Food and Agriculture Organization, where we read that, not surprisingly "the FAO Food Price Index (FFPI) rose for the seventh consecutive month, averaging 231 points in January 2011, up 3.4 percent from December 2010 and the highest (in both real and nominal terms) since the index has been backtracked in 1990." And while it is painfully obvious to anyone who shops for groceries, but not to Genocide Ben, nothing is ever obvious to him, here is Reuters' take on the numbers: "Up for the seventh month in a row, the closely
watched FAO Food Price Index touched its highest since records began in
1990, in nominal terms, and topped the high of 224.1 in June 2008,
during the food crisis of 2007/08." Yes, oil may not be at its all time highs from the summer of 2008, but food has already surpassed it.

The weekly initial claims number has become nothing short of a yoyo. The volatility in the data series, which is supposed to be erased through the seasonal adjustments has hit another year high, and to anyone trying to extrapolate any forecast based on a number that has moved between 380K and 457K in one month, our condolences. According to the BLS initial claims dropped by 42K from an upward revised 457K (454K previously) to 415K, on expectations of 420K. Non-seasonally adjusted claims came in as well, but by roughly half this amount, dropping from 486K to 460K. Continuing claims came at 3,925K on expectations of 3,950K (with the previous revised, naturally higher from 3,991K to 4,009K). EUCs dropped by 130K in the week ended January 15 as wave after wave of people now hits the 99 week cliff of all jobless extensions.

Earlier today, the ECB decided to keep rates at 1.00%, as expected. There were no major or even minor moves in the EUR pairs following the announcement indicating that rumors of a rate hike by the ECB are still very preliminary. Yet the one issue everyone wants to hear more information on is when the latest "rescue" ponzi scheme, the EFSF, will become active, which will allow Europe to wash its hands of all direct monetization allegations, and blame it all on a CDO. Of course, when the CDO itself implodes it will be Europe, and mostly Germany left to pick up the pieces, which is why Merkel is so far the only party which has refused to endorse the outright monetization power of the EFSF. For an update of the ECB's views on the EFSF watch the press conference starting any minute now.

• Violence Escalates After Gunfire Assault (WSJ)
• Yemenis Protest After Saleh Makes Concessions to Defuse Tension (Bloomberg)
• Here come subsidies: China allocates $228m for vegetable supply (China Economic Net)
• ECB Seeks to Shed ‘Uncomfortable’ Bond-Buying Duty (Bloomberg), because if it's a third party CDO monster, then it is nobody's fault really
• And minutes after our own headline... Oil Climbs on Egypt as Stocks Decline; Copper Hits $10,000 (Bloomberg)
• Senate Rejects Repeal of Health Care Law (NYT)
• Egypt Millionaires `Sacrificed' as Leadership Turns to Military (Bloomberg)
• S&P Says No Plans to Cut U.S. Rating in Medium Term (Reuters) and nobody has any plans to listen to S&P ever again
• White House Charts a New Plan (WSJ)

"ICE Futures U.S.®, Inc. (“Exchange”) is contemplating taking the following action effective with the March 2011 Cotton No. 2® futures contract. Cotton market participants who expect to carry positions in excess of the spot month position limit, 300 contracts, into the notice period would be required to file an exemption request form with the Market Surveillance Department. To be eligible for a notice period exemption under Exchange Rule 6.26 (Hedge Exemption), applicants would request a specific long or short position sufficient to cover the applicant’s bona fide hedging requirements for the contract month’s delivery month and the next succeeding calendar month."

As suggested last night, the escalation in Egypt, together with more riot news out of Yemen, and fear that tomorrow's Syrian "Days of Rage" will live up to their name, Brent Crude has pushed to the $103 psychological barrier (even as the Brent-WTI spread continue to be about $10, much as we speculated previously would be the case for a while). And speaking of psychological barriers, copper just passed a key one after it moved to a record north of $10,000/tonne for the first time "as investors bet that supply shortages and buoyant demand growth this year would keep fuelling a rally."

Markets dour in the early AM as oil rises on escalating geopolitical concerns. Yesterday’s ADP report was once again more bullish than expectations ahead of Friday’s Payroll data. The ADP “preview” of Friday’s job numbers reported a 187K gain v 140KE. The track record of the indicator was tarnished last month by divergent results as the indicator foresaw a 247K jump in payrolls while the BLS reported Private Payrolls rose only 113K. Today will see numbers for labor inputs, weekly claims data, factory orders, and ISM Non-Manufacturing data. Eyes remain on geopolitics and the European periphery ahead of tomorrow’s data. TBAC recommending Treasury issue 100Y bonds to lock in low rates.

Today's calendar has initial claims, productivity and costs, the January services ISM, factory orders for December, Bernanke's speech at the National Press Club and a weekly Fed Balance Sheet update. $7-9 billion 10 Year POMO - will it come at yesterday's massive S/A ratio? No 56-Day CMB auction today, means major excess liquidity influx.

"Timid men prefer the calm of despotism to the tempestuous sea of liberty." Thomas Jefferson