Archive - Mar 2011

While Zero Hedge readers have long known about the eerie phenomenon known as China's ghost cities (and ghost malls), Australia's SBS' Dateline has done a terrific documentary on the topic of "64 million empty apartments in China." As each passing day brings more confirmation that not only is China's real estate market one massive bubble, but it is also, as expected, completely hollow, both literally and metaphorically. The full brief clip is a must watch for all those who wonder how central planning manages to hit its goal-seeked and manipulated GDP number each and every quarter .We are surprised that in keeping with the Japanese earthquake economic miracle, China has not destroyed the vacant city yet only to rebuild it immediately.

Goldman provides a brief summary of the ongoing irrelevant EU summit (as discussed yesterday, with Portugal in flux no decision can be enacted for at least two months, or long after Portugal is declared technically insolvent). More important is keeping a track of picking up German regional elections which this weekend include Rhineland-Palantine and Baden Württember. As Dirk Schumacher says: "Although a change in government in BW would have no immediate
consequences for the ruling coalition in Berlin, it would be a heavy
blow in political terms nonetheless."

Some irrelevant data again today (at this point the market will continue going up irrelevant of news, until it doesn't): final GDP, Fed speeches, Consumer sentiment and more.

The latest development in the Fukushima saga is probably one of the more ominous to date. Yomiuri reports that radioactive Zirconium 95 has been found after samples were taken near the water outlet. Google translated: "Zirconium is used for nuclear fuel cladding, the cladding melts some of the spent nuclear fuel was hot cooling water is lost, possibly mixed with sea water flowing into the large drainage There. TEPCO am on March 23, collected about 330 m south from the water at the point of outlet. Zirconium-95 concentration was 0.23 becquerels per cubic centimeter. Atomic Energy Research Institute of Kinki Sugiyama Wataru teachers (of nuclear safety), "The evidence that melting in the heat of the fuel cladding, said first find. Will come from a spent fuel storage pool at," he said." Shortly thereafter NHK spokesman admitted that this is why large amounts of radiation are leaking into the environment, making attempts to control the situation 'very challenging'. If indeed the fuel rod zirconium casing is coming off, it means that the risk for recriticality could be increasing.

RANsquawk European Morning Briefing - Stocks, Bonds, FX etc. – 25/03/11

EURGBP has exploded into the strong long zone with almost 70% of retail traders short after UK Retail Sales data yesterday. AUDUSD is back in the long zone and EURUSD is holding its ground in the long zone. USDCAD after a brief dip in the short zone is now back in the strong short zone. The German Ifo Business Climate is the main retail position moving event of the day.

Has Canada become the world's largest subprime lender?

According to Asahi Shimbun which is quoting the Japan NRC, the Fukushima event has just surpassed Three Mile Island in terms of seriousness, and has been upgraded from Level 5 "Accident with Wider Consequences" to Level 6 "Serious Accident." Only Chernobyl is a Level 7 event. We believe Fukushima should get there within 2 weeks as ever more of the current devastation becomes public. Of course, all of this is a paper-pushing formality. What isn't, are people who may be developing serious diseases as the government continues to misrepresent the severity of the situation.

Something very notable happened today receiving exactly zero recognition by the mainstream press: the process of winding down the Supplementary Financing Program ended, with either zero (assuming the entire $25 billion in 56 Day CMB matured without rolling) or $5 billion (as per the Treasury's disclosure), remaining under the SFP. This means that the entire $200 billion buffer that had previously afforded the Treasury breathing room with the looming debt ceiling, is now gone, and next steps include such drastic measures as a partial or complete government shutdown, as no incremental funding will be available to fund the daily deficit. As a reminder, as of today the Treasury had a total of $12.24 trillion in debt, just $70 billion below the ceiling, and $14.172 of debt subject to the limit. Which is not good because as per today's refunding announcement there is $99 billion in 2, 5 and & 7 year debt coming down the line next week. Which means that while the formal debt ceiling will not be breached, the total amount of debt including the fluff not counted, will surpass $12.4 trillion by next Friday. In the meantime, the SFP unwind continues to have a major impact on the adjusted monetary base. As we have discussed in the past, excess reserves continue to go parabolic, purely as a function of the SFP unwind and ongoing QE2, which in turn is impacting the adjusted monetary base, which is now half a trillion greater year to date. As we predicted previously, excess reserves will hit $1.7 trillion by the summer. These rose by $72 billion in the past week to approximately $1.4 trillion, which means that by the time QE2 is over, the Adjusted Monetary Base will hit $2.7 trillion, a $750 billion increase in 6 months. And if QE3 gets the green light, all bets are off. And once this surging monetary base is converted from excess reserves to currency in circulation, that is the moment when Weimar comes a-knockin'.

I warned, in detail, that Research in Motion was a strong short due to waning market share and margin compression in January. RIM warns of the EXACT SAME risks as it lowers guidance earlier today. For all of those optimists in the stock, this is just the beginning - for RIM and its competitors as well. Mobile computing will soon be a commodity business like desktop computers.

Back in April 2010, before Waddell and Reed sold a few shares of ES, effectively destroying the market on news that Europe was insolvent, we made the following observation: "The IMF has just announced that it is expanding its New Arrangement to Borrow (NAB) multilateral facility from its existing $50 billion by a whopping $500 billion (SDR333.5 billion), to $550 billion." Little did we know that our conclusion "something big must be coming" would prove spot on just a month later after Greece, then Ireland, then Portgual, and soon Spain, Italy, Belgium, and pretty much all other European countries would topple like dominoes tethered together by a flawed monetary regime. Well, based on news from Dow Jones we can now safely predict the following: "something bigger must be coming." As if the IMF's trillions in open lending facilities (many of which have recently been adjusted to uncapped) were not enough, we now learn that the world lender of last resort (which in theory is the Fed, but apparently Bernanke has been getting a little shy lately so is offsetting his direct lending directives to secondary organizations like the IMF, leaving the Fed with only USD liquidity swaps) is about to activate a "Special Funding Pool" - Dow Jones explains: "The International Monetary Fund is expected to soon activate a special funding pool that will boost the fund's ability to prevent or resolve economic crises, two people familiar with the situation said Thursday. One of the people said the activation of the funding--which can only be made by a special request from the IMF managing director to the board--was in anticipation of an expected wave of new IMF programs, including the possible expansion of the Greek bailout package." Wonderful. Global financial cataclysm rinse repeat all over again...

I know that many deflationists believe that we cannot experience hyperinflation in the US due to our obscene debt levels. The belief here is that all the money thrown into the US financial system will be swallowed by another round of debt deflation. The problem with this belief is that it doesn’t understand how currency crises work. Inflation occurs when a currency falls in value relative to other currencies. And as noted by other astute commentators, hyperinflation occurs when a currency is abandoned all together.

It appears that someone may have called the bluff on our earlier post of a possible commencement of trading in advance of QE3 (and how anyone could be surprised that QE3 is coming is beyond us - it has been our conviction that the Fed is now on a slippery slope from which there is no return since late 2010), and decided to take our every offer in ES afterhours for nearly 10 points straight. That this trade was very much out of the ordinary is confirmed by the complete absence in any of the traditional correlation pairs (see chart below) such as the AUDJPY. Is the prevalent mindset finally one that QE3 is inevitable? If so, look for gold and silver to follow suit promptly and even promptlier nullify today's latest margin hike by the CME.

The US Dollar's inflationary death spiral continues. We've now taken out the 2010 low leaving only two more lines of support before we're in completely uncharted territory. At its current rate of collapse, the US Dollar will do this within the next 3-4 months. This means the greenback will break into a new all-time lows by 2H11, which will precipitate the coming inflationary collapse.

Just out per Lipper, High Yield recorded its largest weekly outflow ever with a negative $2.8 billion this week. Presumably this is due to the risk off mood in the markets carried over from last week, or maybe just more funds converting out of fixed income and pumping into equities in advance of what even the futures just seem to realize is an inevitability (go ahead, check out the ES chart AH, we dare you). That said, per ICI there was a 3rd consecutive outflow from domestic equity, so perhaps this was simply derisking. Continuing on the Lipper news, the 4 week average dropped from $181 million of inflows to $641 million in outflows, pushing the year to date down by half to just $2.9 billion in inflows. On the other hand, loan funds continues being John Holmes with $9.5 billion in YTD inflows, although just $57 million (down from $686 million) in the last week.