Archive - Mar 26, 2011

Is the US FED about to roll out a surprise rate increase?

Wonder why the administration made such a stink of reducing the US airborne presence around Libya, and handing it off to France, Italy, Canada and Turkey? Here's the answer: the CVN65 Enterprise which last week was within striking distance of Libya, has quietly left the Red Sea and is now virtually swimming in the wake of CVN 70 Vinson in the Strait of Hormuz. Because obviously whatever is about to happen in the Persian Gulf will need not one but two aircraft carrier formations. And meanwhile in Japan the Washington is doing all it can to put radiation free miles between itself and Fukushima, even as the Essex, chock full of marines is sitting on the coast waiting for orders.

The one revolution currently rocking the Levant region (more fitting than MENA as it include Greece which at last check was also not all that peaceful, as well as Italy, which soon won't be all that peaceful either) that few are talking about is that of Syria, which has been put on the backburner as no holy crusade is currently in place to liberate its people, but, far more importantly, its oil, nor does it even have oil, is that of Syria. Which is unfortunate because all the public outcry crusaders who just look for their chance to express their disapproval of the latest toppling regime (after quietly sitting on the sidelines for ages saying nothing), would have a field day with what is going on in Damascus, but primarily the city of Daraa for the time being. Per Haaretz: "Syrian security forces killed on Saturday two protesters who tried to
torch the ruling Baath Party headquarters in the port city of Latakia,
rights activist Ammar Qarabi told Reuters in the Egyptian capital. Protesters set fire to offices of the ruling
party in southern and western Syria on Saturday, burning tires and
attacking cars and shops in a religiously mixed city on the
Mediterranean coast, according to accounts by government officials,
activists and witnesses. More than a week of protests centered in Daraa exploded into nationwide unrest Friday when tens of thousands of protesters marched in cities, town and villages around the country, posing the greatest threat in decades to the Baath party's iron-fisted rule." Unfortunately for the people of Syria, they should prepare for the same kind of retaliation that Gaddafi rained upon his own discontents, until France, pardon the UN, pardon the US, pardon NATO, pardon not the Arab League, pardon total chaos, decided to step in and order a no fly zone. Alas, rule #1 in international economics: "No oil Zone", means no "No fly zone." Syria, you are on your own.

Is the guy that is saying there is nothing to worry about willing to indulge in some Fukushima sushi and a bottle of fresh tap water?

Just your typical London protest. The Telegraph has recorded the attempted break and entry into a bank, which however proves too much for scattered "anarchists" courtesy of reinforced glass. The same can not be said for the Ritz hotel unfortunately.

Following our latest Fed balance sheet update, where we get another confirmation that for another week the Fed's assets have hit a fresh all time record (Bernanke now owns nearly $200 billion more Treasurys than China), there are two items that we believe deserve far closer scrutiny. The first is the as expected drop in MBS and Agency prepayments, which after seeing an initial surge in activity when rates were low enough to merit prepaying existing mortgages, has now plunged. In fact in the last several weeks the average prepay activity is roughly half of what it was in the September-December period. This is critical as it impacts the amount of debt the Fed can monetize via the QE Lite component of the ongoing monetization procedure. Should this weekly prepayment amount remain constrained, the Fed will have far less of a marginal impact on share prices (which is what POMO ultimately is) then if QE Lite was working at its expected $25-35 billion a month monetization run rate (in addition to the $70-80 billion from QE 2). Yet far more questionable is the recent surge in "Other Federal Reserve Assets" - an observation we have commented on previously, yet which we attributed merely to capitalized accrued interest on the Fed's portfolio. However, following the recent remittance of tens of billions in interest expense from the Fed to the Treasury we now know that is not the case, so we kindly request that the Fed answer the following simple question: just what is the key driver in the growth of this asset category, which in the week ending March 23 hit a fresh all time high of $120.4 billion? In fact, we are rather stunned that nobody before has asked just what "other assets" comprise a line item that is greater than the GDP of about 80% of the world's countries.

Deep thinking from the Minneapolis Fed head

The latest news out of Fukushima confirms fears that irradiated water containment at the radioactive plant has been complete breached, after Radioactive iodine-131 at a concentration 1,250.8 times the legal limit was detected Friday morning in a seawater sample taken around 330 meters south of the plant, near the drainage outlets of the four troubled reactors, the government's Nuclear and Industrial Safety Agency said Saturday. As Kyodo updates: "The level rose to its highest so far in the survey begun this week,
after remaining around levels about 100 times the legal limit. It is
highly likely that radioactive water in the plant has found its way into
the sea, TEPCO said." It's all good though: the government has a prepared strawman for this unprecedented surge in radioactivity as well."Radioactive materials ''will be significantly diluted'' by the time they are consumed by marine species, the agency said, adding it would not have a significant impact on fishery products as fishing is not being conducted in the area within 20 kilometers of the plant because the government has issued a directive for residents in the zone to evacuate." But none of this matter as we get the latest confirmation that no news coming out of the stricken plant can be trusted: "TEPCO's Fukushima office acknowledged Saturday that it had known earlier that the radiation in the underground level of the turbine building of one of the reactors was extremely high, but had not made the information available to pertinent parties."

After leading to the collapse of the Portuguese government, anti-austerity anger is now ramping up at the very heart of the old continent, where the biggest demonstration in over a decade has struck in London. Per the Guardian: "More than a quarter of a million protesters against public sector cuts are expected to flood central London today in the biggest political demonstration for nearly a decade. Police sources, normally cautious about estimating numbers, said last night they were braced for up to 300,000 people to join the march – far higher than previous forecasts from TUC organisers. More than 800 coaches and at least 10 trains have been chartered to bring people to the capital from as far afield as Cornwall and Inverness. The Metropolitan police, under fire for their use of kettling in previous protests, said "a small but significant minority" plan to hijack the march to stage violent attacks. Organisers, however, insist it will be a peaceful family event. Union members are expected be joined by a broad coalition, from pensioners to doctors, families and first-time protesters to football supporters and anarchists. Ed Miliband said the government was dragging the country back to the "rotten" 1980s. Labour is calling today's event the "march of the mainstream"." Some of the protesters, already pigeonholed as "anarchists", have already become unruly as a splinter group has formed on the iconic Oxford street where it is engaged in altercations with the Police, including throwing smoke bombs, lightbulbs filled ammonia..

John Noyce is back with his bag of charty goodness in his latest "Charts that matter." While the whole presentation is provided for our readers' perusal, the three charts of note are those of the EURUSD (where we  observe a potentially bearish Triple Divergence), the DAX, which is an important leading indicator of risk, the USDJPY where following last week's fireworks, things appear to have stabilized somewhat, and naturally the S&P, where an important Fib support held, and with the 55 DMA resistance now turning to support. Of course, none of these charts actually matter - the only thing the world cares about is whether all engines are go for Bernanke to spread his Wealth Effect^TM some more.