Archive - Feb 2011

The talk regarding the EFSF having the potential to buy bonds raises more questions than answers to us. For one, at what price will they be purchased? Banks that hold the sov debt are reticent to sell below par since that would make them realize a loss. The EFSF can ill afford to purchase bonds from banks at par when they are trading in the open market at prices well below that, and such a subsidy does not seem to make economic sense either. The aforementioned voters will soon recognize that this debt purchasing is a transfer and represents taxation on core country’s citizens to support periphery debt. Also, who might sell? The ECB’s program has a scant €76.5B to sell into such a scheme against an aggregate periphery debt load of over €3.2T. Direct issuance is a possibility, but then the EFSF becomes an even bigger CDO performing funding arb – at an unknown cost. With only €440B available, it seems that the funding for only a portion of the periphery would be achieved. Further, the AAA rating on the bond issuance out of the EFSF has a participant element to it. If a country needs funding, it is prohibited from contributing to the facility and whatever it draws comes out of the facility. Would a purchase of a particular country’s bonds by the facility constitute a drawdown per the facility’s rating requirements? It would seem so, though details are sketchy right now. Either way, this would seem to impact the ratings that were so important they took five months to obtain last year.

RANsquawk Market Wrap Up - Stocks, Bonds, FX etc. – 01/02/11

After for most of the day, grains traders were pretending they have no interest in gobbling up every available pound of rice, the end of trading was like an Ebay auction where everybody submitted their bid in the last possible instant, sending rice from $15.60 to $15.99 in seconds. And since Rice previously closed at $15.51, we were literally two cents away from a second limit up day in the world's most popular food. Since we speculated that rice is the next commodity bubble on Monday morning, the grain has surged nearly 7%. Incidentally, this is the highest price for rice in the last twelve month period. Lastly, if Hoenig is indeed telegraphin QE3 as we suspect, look for rice to double six months from now. It is now only a matter of time before some momo chasing idiot on CNBC "discovers" what a great investment rice is, and the thing trades limit up for the indefinite future.

We thought Jon Hilsenrath would break the news of QE3. To our shock, it comes from the only sensible man at the Fed, Kansas Fed's Tom Hoenig. Per Reuters: "The Federal Reserve could
debate extending its bond-buying program beyond June if U.S.
economic data prove weaker than policymakers expect, Kansas
City Fed President Thomas Hoenig said. Another round of bond buying "may get discussed" if the
numbers look "disappointing," Hoenig told Market News
International in an interview published on Tuesday." May we suggest in that case that Joe LaVorgna stop blaming every herpes outbreak in the US on snow and instead indicate that shit is once again hitting the fan. Obviously, this is merely a scheme to keep the market well bid no matter how violent the revolutionary images on TV, brought upon precisely by this genocidal policy. Even more obviously, it means that oil is going to $200 on short notice.

Any minute, Egyptian president Hosni Mubarak is address the nation in a speech in which he may or may not announce he will step down, but one in which he most certainly will state that he is not running for presidential reelection. We are not sure what this slap of a gesture toward the Egyptian people is expected to achieve: that is the equivalent of hiring Ben Bernanke as your advisor on how to economize on toner ink.

Much has been said about Bernanke's wealth effect and how it impacts a whopping 1% of the US population (traditionally, those very same bail out recipients who would be insolvent had Gen Ben not rescued the entire financial system at the expense of the DXY, which at last check was below 77 again). Unfortunately, a little less time has been spent discussing the equal and opposite effect: that of the poverty effect. Luckily, every month we get an update on this just as useful metric. And as of November, the SNAP program had 43.6 million participants, an increase of 400k from October, and a 14% increase, or 5.3 million from a year prior. We are confident that this 15% of the US population will be delighted to know that their rapidly diminishing dollars will end up acquiring increasingly less and less stuff.

Of course, all of this is just financial speculation and trading models. No sane person could possibly invest in the Euro today based on fundamentals. After all we’ve already seen Greece ask for an extension of its bailout payments from three to 30 YEARS. And it’s not as though investors are interested in buying bonds from Spain or Portugal (see the recent bond buying activity from the ECB). And then of course there’s the Irish wild-card now that the elections will be held in late February.

For all those who looked at today's Priced Paid component of the ISM, and had a very bad feeling about what this signifies for not only corporate margins (one word: shrinkage), but broader inflation, we good news for you: you are absolutely right. A simple regression analysis of Prices Paid to CPI data indicates that the median CPI 12 months following a PP greater than 80 (such as this morning's 81.2) is over 6%! Which of course means that the far more volatile non-core components of the CPI will likely be surging at double digit rates by then. In other words, in one year, based on a simple historical regression, the US will well be on its way to inflation that will even leave the Chinese cowering in shame. And if consumers still refuse to leverage by then, then Al Jazeera will be covering riots (following the FTC's shut down of all US media) from our own back yard. If they do, on the other hand, and with $2 trillion in excess reserves, say hello to the Shazam moment.

The puppet show.

A short recap of today's meeting...

Recently, BOE head Mervyn King came out with a very surprising warning to his compatriots, accompanied with an apology that our own Ben Bernanke will never offer, namely: "I sympathise completely with savers and those who behaved prudently
now find themselves among the biggest losers from this crisis." Of course, the US central bank believes it has completed its third mandate job now that the US stock market, not to mention commodities, are starting to be reminiscent of the parabolic phase of the Harare stock market. But back in Europe, even as the EURUSD is surging (killing the dollar, and the primary driver behind US stocks) now that it is accepted that the continent will proceed with its latest full on ponzi scheme and have the EFSF acquire insolvent bonds, even as the ECB proceeds to raise rates, things are getting worse. This is precisely what King warned about in a speech that not surprisingly got absolutely no coverage in the US. Luckily, here is Simon Black's take on the very surprising speech by King which confirmed that the only beneficiaries of Bernanke's policies continue to be the top 1% that make up the financial oligarchy.... as always.

Thank you, President Mubarak ... for educating the world about the concepts of agents provocateur and false flags ...

RANsquawk US Afternoon Briefing - Stocks, Bonds, FX etc. – 01/02/11

Forget "million man march" ... Egypt has over TWO million.