Archive - Mar 2011

This morning GDP was released and it came in slightly, but statistically insignificant, better than the previously released 2nd revision of the 4th quarter 2010 GDP Estimate. The main issues that popped out of the release was the downturn in imports which, given the rise in oil prices in the first quarter of 2011, is very unlikely to be a beneficiary to GDP in the coming months. More importantly, the acceleration in the Personal Consumption Expenditures (PCE) reflects a continued drag on the consumer base (70% of the recent release) and their ability to continue at their recent pace of consumption as the acceleration was largely in food and energy. This has been quickly reflected in the large drop in the recent Durable Goods report earlier this week. None of this is very surprising or enlightening. In the coming releases of GDP we will see the import component jump, exports lag, and consumption fall. Analysts are already scrambling to bring down their overzealous estimates from the end of last year and this will all eventually show up in corporate profits.

This is a chart of the US monetary base. In simple terms, it charts how much money the Fed has pumped into the system (at least that it admits). So it’s a kind of visual of the Fed hitting the PANIC button: when the monetary base explodes higher, the Fed is FREAKING out. You'll note that during the Financial Crisis the Fed didn't do much until the autumn of 2008 when it pumped nearly $1 trillion into the system. Think about that, the Fed didn’t go nuts pumping money until the stuff REALLY hit the fan.

All those who are looking for a handy free, web-based resource providing the weekly CFTC Commitment of Trader update, one focusing on disaggregated Managed Money positions (not the Non-Commercial Speculative positions which Zero Hedge has traditionally followed), can now do so at the following Reuters site. Since commodities will certainly be an ever more important part of daily investing life, we urge everyone to get familiar with the weekly data release for speculative (the guys who will be blamed for price hikes) and commercial (the banks who will be doing the blaming and urging exchange margin hikes) accounts from the CFTC.

In a really bizarre moment in history, a single American dollar was actually worth 4.2 trillion German marks.

It really happened. To fund its mega-expensive World War I effort, Germany severed the tie between its mark and gold -- something that's always happened, sooner or later, with government-generated currency.

Today there are no gold-backed currencies in the world.

I still remember when there was a certain cachet to Japanese made products. They were technologically advanced and better built than anything else available. Sonyo, Toshiba, Toyota, Honda, Kawasaki, Yamaha, etc. were all dominating brands. You could find products in Electric City in Tokyo that were generations ahead of what you could purchase in New York City. That gap has narrowed and in many cases reversed over time, but now we might be hitting a stage where 'Made in Japan' is a big negative...I was long Japan post quake as the market seemed to have over reacted to the earthquake. The bounce, though, has been large and profitable, so I'm out, and as the situation in Fukushima continues to deteriorate, the market looks expensive as its not pricing in the potential consequences of this being a nuclear event rather than an earthquake event.

RANsquawk Market Wrap Up - Stocks, Bonds, FX etc. – 25/03/11

Foreign evacuation precedes toilet paper like bottled water panic.

Ben will have a have tough time defending QE.

With the VIX closing the day and the week at approximately a 17.70 level, it marks a 40% decline from its closing print recorded on March 16, when it hit 29.4, just as the Nikkei was about to flash crash to the high 7,000 range. This represents the 2nd largest closing drop in the history of the volatility index, beaten only by the weekly VIX drop from November 4, 2008 (when the VIX dropped from 80 to 47.7). And stunningly, on an intraday basis, when the VIX dropped to the day's lows of just over 17, it briefly represented the biggest weekly drop in the VIX ever. Of course back in 2008 each and every day it seemed as if the world was ending and both stocks and vols moved around like electrons shuffled around in the LHC. This time around, with the apocalypse yet to be delayed (we will not list all the news that have hit the tape in the past month), one wonders: is the market so habituated by the Siren song of the Bernanke Put that it believes nothing can ever dent the smooth Russell 2000 upward slope ever again? And what happens when the Central Planner hubris is once again exposed as the hollow perpetuation of an economic fallacy backed simply by trillions of pieces of linen-diluted cotton? We shall find out soon enough.

The following artist's impression of the generic trader's desktop is applicable to pretty much anyone (who is not a Primary Dealer) trying to scrape a living trading the "stock market", better known as the monetary policy tool to implement "The Wealth Effect."

While generically completely useless, both during increases and decreases as all it is, is a reflexive and very much coincident market indicator, the UMichigan consumer confidence index does have one useful feature: it tracks respondents' 1 and 5 year inflation expectations. For what it's worth these are very volatile, but by and large trend with the moves in short-dates bonds. Indeed over the past 30 years, the 1 Year inflation expectations has tracked the moves in the 2 Year bond very closely. Until today: the 1 year inflation expectations jumped from 3.4% to 4.6%, a 1.2% jump in one month, this is the single highest monthly jump in a decade since the 1.4% jump in December 2001, following the deflationary knee jerk reaction from the September 11 attacks. But what is most interesting is that as the second chart below shows, the spread between the 1 Year inflation expectation and the 2 year bond yield is now at a record wide. This means that either consumers and bonds are at record odds over how they view the inflationary environment in the future, or that there is no real bond market in the short end (all the way up to the 2 Year bond), which is dictated purely by the Fed, and its monetization activity. We believe it is a mixture of the two, although if even US consumers for whom non-core inflation is allegedly supposed to be less of a burden (and recall Dudley's Let Them Eat iPads speach) are starting to freak out about rising prices, perhaps for the first time bonds, courtesy of central planning, may actually be wrong.

We’ll share a couple of new pieces of information we’ve come across since our Aussie Pride post just a few days ago. To begin, we think it’s worth noting that the peak in existing house sales in the U.S., led the peak in price by about six months. It is intuitive that, Activity Leads Price in the real estate market. With that little nugget in mind, homeowners in Australia may wish to note the following press releases from HIA’s Economics Group.

A second government falls in one week, after Canada's conservatives are defeated in a no confidence vote, following Portugal government fall on Wednesday. Belgium must feel like a veteran in the anarchy department, which seems to be claiming more and more countries, or at least those that do not adopt a revolutionary route.

Stop whining, citizen ... eat some radioactive spinach and just wash it down with Corexit!

From Dow Jones: "An inflation-only mandate would be more appropriate for the U.S.
Federal Reserve than its current dual goal of managing price stability
and facilitating job creation, U.S. Federal Reserve Bank of Dallas
President Richard Fisher said Friday. "I do believe that the full employment mandate puts us on a slippery
political slope," Fisher said in a panel discussion in Brussels.
"Personally, I would prefer to have a single mandate." Somehow we doubt this statement was preapproved by your friendly Ministry of Truth big brother.