Archive - Mar 2011

• Fed Policy Makers Signal Abrupt End Bond Purchases June (Bloomberg)
• China's Exchanges Plan to Double Exchange-Traded Funds (Bloomberg)
• China Defense Budget to Stir Regional Disquiet (Reuters)
• Banks Face More Loan Write-Downs (WSJ)
• Honesty for Banks Is Still Such a Lonely Word (Bloomberg)
• Salgado Favors Easing Greek Bailout Terms as EU Wrangles Accord (Bloomberg)
• Foxconn to move China jobs inland (FT)
• Merkel Risks Clash Over Irish Bailout in Euro Rescue Push (Bloomberg)
• IEA: Libya Unrest Starting to Hit Oil Supplies (WSJ)

From Bank of America's Guy Moszkowski, who confirms our views that continuing subdued market participation (or as Guy calls it "market engagement") remains subdued, arguably due to the Bernanke Put which means stock market volatility is a thing of the past, at least until days in which war appears imminent: "Downgrading Citi and GS to Neutral. POs cut. Common denominator: expected weakness in Q1:11 results. Results unlikely to be dismal, and should show improvement over Q4, but we don’t expect seasonal improvement as strong as often seen in the past. Client engagement remains subdued, Mid-East turmoil likely only to further reduce customer risk appetite. Thus we are making significant cuts to our forecasts, and expect consensus to decline over the coming weeks. Increasingly, we believe investors will look to the theme of improving cash flow/return of capital via dividends/ buybacks, and also to play financials that are less–or even positively – affected by restrictions on banks such as Volcker Rules." - BofA/ML

We were about an hour early with our prediction on when the Libyan violence newsflow will pick up. The headlines are coming now. Reuters reports that Libyan forces use tear-gas to disperse anti-Gaddafi protest in Tripoli, gun fire heard. Look for oil to drift higher with stocks now completely oblivious as the ES-Crude correlation factors have been deactivated virtually everywhere.

"This NFP will not influence Bernanke as it is not about data now, it is about funding the deficit and thus more spending from Obama will need more bond purchases by Bernanke as they have to take up the slack as foreign buyers continue to diversify and few seem to see this. The Feds balance sheet is ringing alarm bells to me and M2 is exploding higher. How is it that the Fed is allowed to be the biggest holder of US debt? Who authorises this extremely dangerous situation and how does he get out of it? Printing more Dollars I guess. Good Lord the Dollar is in deep, long-term trouble in my book as history confirms that printing money ends in disaster. ALWAYS. ZIRP will continue to see money evade paper assets and look for stores of value and commodities will continue to rise until Bernanke changes his stance but I am afraid he is trapped in a “Catch 22” situation now. US real wages are falling fast and the US needs the consumer spending now to get the recovery going. That is not going to happen." Strategic Alpha

Markets up overall on the heels of optimistic labor market news in the U.S., with Europe still positive despite the ECB’s announcement of likely future rate hikes. Former Fed Chair Alan Greenspan made a statement yesterday that the fiscal stimulus, new financial regulations, and other ‘activism’ is hampering the U.S.’s recovery, contrasting sharply with current Fed Chair Ben Bernanke’s QE2-defending Humphrey Hawkins speech to Congress this week. Yesterday’s payrolls numbers taken into context with other recent data suggest that today’s payroll figures should easily top their 200KE. Expectations are for the unemployment rate itself to rise to 9.1%, a number that we would consider a victory. Recall that the prior rate dropped mainly on workers leaving the labor pool. A re-entry into the labor pool usually occurs when workers feel the economic environment gives them a good chance for finding a job. So a retracement in the unemployment number for that reason is a positive by our reckoning. The front end has sold off on yesterday’s excitement. While we believe the ECB might well be set to move, we think the Fed will hand-sit for a while and the selloff should be faded. On a production standpoint, factory orders for January are likely to rise given preliminary releases of expanding U.S. manufacturing with consensus estimates at a 2.0% increase from +0.2% prior.

The February report on nonfarm payrolls should look much better than its predecessor. Goldman expects a gain of 200,000 jobs, with risks skewed to a bigger increase. The two key issues are 1) the underlying trend in payroll growth—we think it’s at least 150,000 and perhaps stronger, 2) the extent of the weather-related “payback” in the report—most likely in the neighborhood of 50,000 or a bit more. Markets clearly expect a strong outcome. The “consensus” forecast for nonfarm payrolls has moved up considerably over the past week and is now just below our own. Yesterday’s price action suggests that market participants have positioned for a strong release. If the number is even a modest disappointment, expect a substantial sell off, especially with Libyan violence escalating again.

It seems the ridiculous Chavez intervention meme is now dead and buried, and WTI is promptly back over $102 following a statement from the head of Libya's rebel National Libyan Council opposing the rule of Muammar Gaddafi who on Friday vowed: "Victory or death."  "We are people who fight, we don't surrender. Victory or death. We will not stop till we liberate all this country ... The time of hypocrisy is over," ex-justice minister Mustafa Abdel Jalil told cheering crowds in Al Badiya. "Libya is free and Gaddafi must go", the crowds chanted. Elsewhere in Tripoli, residents expected protests after opponents of Libyan leader Muammar Gaddafi prepared to march in the capital after prayers on Friday and they were expecting government forces to respond with a violent crackdown. "We do not have any weapons. We will go to the mosque and then say Gaddafi should leave," said Mohammed, a resident in the Tripoli district of Tajoura where clashes took place last week. "They (pro-Gaddafi militias) will attack." That is likely, which also means that the US, courtesy of a rapidly approaching aircraft carrier, will proceed with previously cleared military evacuations, anticipating a provocation of their own, which would then be used a pretext for an all out invasion. "Several residents of Tripoli have said they are planning to protest against Gaddafi when they leave their mosques after Friday prayers, at about 1300 GMT." Which is 8 am Eastern, meaning that the newsflow of an escalation in crackdown and death will begin some time after the NFP announcement.

RANsquawk European Morning Briefing - Stocks, Bonds, FX etc. – 04/03/11

With crude prices bid up so much, traders are left with a dilemma - to be in the crude oil trade, players basically either have to take delivery, or rollover.

"That central banksta yid Ben--Sure makes a mean PONZI CALL!"

"Public pensions may be attracting the headlines, but the unraveling of private-sector pension security poses a much greater long-term challenge, even if it lacks a pyrotechnic confrontation to galvanize the media."

A month ago we reported that the state of Virginia has established a subcommittee to study alternatives in the case of a terminal "Fed" breakdown, and would propose gold as a sound alternative to the existing fiat currency. Now, the state of Utah has gone a step further and is actually voting, as early as today, on whether to recognize gold and silver coins, issued by the federal government, as legal currency, a move that would send a huge signal to the Marriner Eccles building that Americans have had enough of the Fed's dollar debasement. "The coins would not replace the current paper currency but would be used and accepted voluntarily as an alternative." Reports Foxnews: "The legislation, which has 12 co-sponsors, would let Utahans pay their taxes with gold and also calls for a committee to study alternative currencies for the state. It would also exempt the sale of gold from the state capital gains tax. The bill cleared a state legislative committee on Wednesday, the first of 11 similar bills in statehouses across the country to do so. If the bill clears the House, it would have to pass the Senate before the governor could sign it into law." Paying taxes in gold? Interesting. We certainly hope this was not highlighted due to being the only viable use of funds, as one would question the legitimacy of the entire proposal. Finally: "Attorney and Tea Party activist Larry Hilton, author of the original bill, said he doesn't foresee any roadblocks." We shall see about that, but in the meantime it is worth highlighting that the onslaught against the dollar is coming not only from China which as we reported yesterday is pushing to convert the renminbi to a global reserve currency, but from within, as more and more states realize that the viability of the dollar is now crippled, thanks to the Chairprinter.

If you haven’t already taken steps to protect yourself from a US Dollar collapse, you need to start RIGHT NOW. Both Gold and Silver will perform well in the coming months. However, their performance will pale compared to other, less well know inflation hedges.

Why?

Everyone knows that Gold and Silver are the most obvious inflation hedges out there. And to be blunt, anyone who invests in these two assets will likely do very well in the coming months as inflation erupts in the US. However, to make truly ENORMOUS gains from inflation you need to find the investments that are off the radar... investments that the rest of the investment world hasn't discovered yet.

All you need to know about how the market reacts to Non-Farm Payroll day in one convenient cheat sheet. Despite a gross cumulative surprise of 3,480,000 (jobs below expectations), and an average surprise of -27,000, coupled with a negative bias (0.53% negative surprise, 0.33% positive surprise), the market tends to have a bullish average return on payroll days of 0.14% (0.07% median) compared to 0.03% average on all other days. In other words, even if there is a miss tomorrow, which is highly unlikely, expect the market to "internalize" the news and come up with some completely idiotic explanation which excuses yet another stock ramp, which will only be avoided if nuclear war breaks out (and even then it is a toss up).

Time for our weekly M2 update. Presented, as usual, without commentary.