Archive - Apr 21, 2011

First, as always happens, the BLS revised last week's non-credible mega miss even worse, from 412K to 416K. As for this week, the number will end up being worse than 403K, which is what was reported for this week, to be revised upward to 406K or so next week. This is (and will be) much higher than the expected 390K. And so Tim Geithner has to start his latest "Welcome to the Recovery - edition 2011" draft from scratch. Continuing claims also were well above expectations, printing 20K over consensus at 3,695K. Last week's number of 3,680K was revised, gee, higher to 3,702K. And just as importantly those hitting the 99 week cliff seem to be accelerating: those on EUCs dropped 24K, while people on extended benefits declined by 47K. Total number of persons claiming benefits across all programs dropped by 217K in the week ended April 2. And so the Yen carry trade unwinds once again: the USDJPY just plunged to 81.72.

• S&P Raises the Stakes in Deficit Battle (FT)
• France and Switzerland most exposed to Greece's debt crisis, say analysts (Guardian)
• EU Budget Plan Angers Austere States (FT)
• Prospects Of Stepped-Up Yuan Strength Lifts Asia FX (Market News)
• Bernanke Bond Market Signals No Shift With Obama Deficit Cutting (Bloomberg)
• Bernanke to Open Up as Fed Embarks on Era of Glasnost (Hilsenrath)
• Australia Won’t ‘Manipulate’ Currency Now at Record (Bloomberg)
• World Revs Up U.S. Profits (WSJ)
• Balkan Economic Recovery Is at Risk From Greek Woes, Mirow Says (Bloomberg)

Gold and silver have surged to new record nominal highs in dollar terms (all time and 31 year) with the dollar falling sharply on international markets. Silver has continued to surge in all currencies and has surged to a new record nominal high of $46.25/oz (£27.85/oz and €31.54/oz) on growing rumours of a short squeeze involving a billionaire or state interest attempting to corner the silver market. The massive concentrated short positions of some Wall Street banks have incurred serious losses and a desperate attempt to close their futures positions due to the tight physical marketplace may be leading to a short squeeze. This is something that GoldCore and a few other analysts have warned of for some time. We have long said that the very small silver market was ripe for cornering by private or state interests and that appears to be happening on some level. However, there are an increasingly large number of silver buyers who realize the market can be cornered and they are buying in anticipation of this event. The blogosphere has again been ahead of the curve and dismissal of much circumstantial evidence of silver manipulation, a short squeeze etc. as “conspiracy theories” is becoming less easy to do. It looks like many investors internationally and one or a few private individuals and states are cornering the silver market. At one stage the Hunt Brothers cornering of the market was a “conspiracy theory” – it soon became fact.

On one hand we have Goldman (and various other novices) telling us there may be a small blip at most in Treasurys when the Fed stops buying bonds. On the other, as has been much discussed, we have the world's biggest bond manager disagreeing. Now he gets some popular company. Jim Rogers, formerly of the Quantum Fund, who traditionally comments more on the commodity space has chimed in and pledged his allegiance to Team Gross. In a release to Reuters Insider Rogers said: "If the bond goes up another 3 or 4 points, I for one am going to sell it short." He also said what we have been saying since about October of last year: "I mean the market is just going to give up. Once (the Fed) ... stops buying bonds I'm not sure who's left to buy bonds at that point." The right question is who are Primary Dealers going to flip their bonds to, especially once the marginal increase in excess reserves ends.

Another wildly fluctuating initial claims will be interpreted in any way necessary to justify the ongoing surge in stocks (not so much plummet of the dollar). Prior revision will naturally be higher. The Philly Fed may be interesting to show whether the latent economic weakness from last quarter is pushing over into Q2.

Courtesy of Sean Corrigan, we share this stunning chart of Japanese relative buying/selling of foreign stocks denominated in USD (and thus subsequently needing to be converted to JPY). Having swung in what is largely a one standard deviation range, in the last month the ratio of foreign buying to selling plummeted to the lowest in the past decade, and possibly ever: the relative dumping of foreign stock is easily the most pronounced five sigma event of recent times, and has been largely unnoticed. Want empirical evidence of repatriation? There you have it, in not one, not two, but five standard deviations. But don't tell the G7, or Steve Liesman. There is no such thing as repatriation following the country's biggest natural disaster in... ever.

Is rising inflation a serious problem in Canada and how will it impact pension funds' returns?

Remember when we said that "stagflation" would be the word of 2011? We were only kidding. The true word of the year can only be one. Er three. And all credit goes to Goldman Sachs. The firm which always finds a way to call a spade an excavator, has released a note on the Greek "liability management exercise" - yes: restructuring is now such an ugly word it is to be henceforth omitted when discussing what insolvent European vassal states are about to do. In the note - Francesco Garzarelli also confirms another thing about Goldman: why use another three words, namely "we don't know", instead of 10+ long paragraphs which have effectively the same effect. So cutting to the chase, here is Goldman's summary on why a Greek restructuring, pardon, "liability management exercise" would be good, no bad... no good, or unknown: "any transaction would need to be designed extremely carefully and give consideration to the impact on domestic institutions, with the ECB fully on board continuing to extend funding assistance. Further uncertainties relate to ‘second round effects’ and potential exposure of non-bank financials (estimated to amount up to EUR50bn). Funds diverted from repaying foreign creditors in full and on time, be it through debt exchanges or haircuts, could be used to further bolster the capital base of the Greek institutions." So anyway, Goldman also provides another somewhat factual note which lays out the total risk exposure to Greece, and of PIIGS in general: not surprisingly, the countries most exposed (in addition to Greece itself of course), would be Germany, France and Benelux. Here's to hoping banks in these countries have enough excess capital to absorb the massive MTM losses to come.

RANsquawk European Morning Briefing - Stocks, Bonds, FX etc. – 21/04/11

Original piece here.

As if a dollar in freefall was not enough, surging oil is about to hit the turbo boost, decimating what is left of the US (and global) consumer. Xinhua, via Energy Daily, brings this stunner: " Chinese oil giant Sinopec has stopped exporting oil products to maintain domestic supplies amid disruption concerns caused by Middle East unrest and Japan's earthquake, a report said Wednesday. The state-run Xinhua news agency did not say how long the suspension would last but it reported that the firm had said it also would take steps to step up output "to maintain domestic market supplies of refined oil products". Oh but don't worry, those good Saudi folks are seeing a massive drop in demand... for their Kool aid perhaps. "Sinopec would ensure supplies met  the "basic needs" of the southern Chinese special regions of Hong Kong and Macao, but they also should expect an unspecified drop in supply, Xinhua quoted an unnamed company official as saying." Now... does anyone remember the 1970s?

At this rate the Hunt Brothers all time high to be taken out within a week...or a day, right about the time the dollar suffers terminal implosion. The DXY is now below 74.