Archive - Apr 2011

August 1, 2012: Federal Reserve Chairman Ben Bernanke once again defended the Fed's accommodative monetary policy at today's press conference. Mr. Bernanke was late to the conference, which was shielded from protesters by riot police. In his absence, a pet parrot was brought out to amuse the waiting journalists, who had been carefully vetted by the Fed to "represent the nation's media." The parrot had apparently occupied a perch in the Fed's conference room, for it repeatedly squawked, "Stocks are up, stocks are up." The Fed chairman finally emerged sometime later, looking somewhat distracted. Recent developments in the global economy have cast a shadow on the Fed's continuation of zero interest rates and quantitative easing, the term describing direct purchases of assets such as mortgages, Treasury bonds and stocks. As the dollar continued its slide, unemployed German workers shouted "Death to America" in mass protests in Germany's industrial heartland. With the euro worth $2, German exports to the U.S. have shriveled, causing a sharp contraction in the once robust German economy.

RANsquawk US Afternoon Briefing - Stocks, Bonds, FX etc. – 28/04/11

If there is a day that passes without another Chinese fraud bottling up the Nasdaq's trading halt page, we feel a vague sense of abandonment. Luckily: not today. Alfred Little has just released his latest report on what appears to be the most recent Chinese fraud: Sino Clean Energy (Nasdaq: SCEI). This one apprears to be a total donut: "Sino Clean Energy (NASDAQ: SCEI) is the most outrageous Chinese fraud to date committed against U.S. investors. SCEI management pre?announced its first quarter 2011 results Tuesday in a press release (here) stating that revenues were $33.7 million. In its 2010 10?K (here) SCEI reported 2010 full year revenues of $106.2 million and adjusted net income of $27.9 million. However, four months of surveillance of SCEI’s three coal water slurry fuel (“CWSF”) factories clearly show nothing more than backyard?sized money losing operations. Incredibly, in December, SCEI’s fee?hungry investment bankers, Rodman & Renshaw and Axiom Capital Management, raised this scam company $33 million ($29.6 million net proceeds after deducting $3.4 million of investment banking, legal, due diligence and other fees). Did the banksters do any due diligence at all? Simply observing these idle operations proves SCEI is a total fraud, a fact urther confirmed by official tax records. Investors will never recover any money from SCEI and ts shares are worthless." As always remember: careful with buying options on a stock that may never reopen post the halt...

Feeling like the economy is not the only thing that has taken a dump for the worse? Harboring a nagging suspicion that the Chairman's chances to continue presiding over the free world with a Hewlett Packardian fist may have taken a bit of a hit, and his Wall Street overlords are starting to consider pulling a Hudsucker Proxy and replacing him with Mark Zandi? If so, InTrade has you covered. As of today, you have the chance to bet that the mutant second coming of Rudolph von Havenstein and Gideon Gono will be shown the door, either voluntarily or not, by the end of 2011. In some ways this is perfect way to hedge one's precious metal, stock market, and rates bets, since the entire fate of capital markets continues to rest squarely on the Chairman's shoulders. We wonder how long before Goldman securitizes this InTrade contract and sells the equity tranche to idiot European and Korean money managers...

Yesterday, Bernanke staged a “conference” answering “questions” from “journalists.” It’s striking that the man with the most power in the world would be handled with kid gloves. After all, if he’s in charge of directing the world’s reserve currency, surely he could answer a few hardball questions about his insane policies However, instead of holding this miscreant accountable for his monetary madness, the “journalists” let him prattle on with his meaningless drivel. The markets, on the other hand, read through his BS. Soon after the conference the US Dollar collapsed to a three year low.

When a month ago the CEO of Wal Mart Americas told the world to "prepare for serious inflation", the Chairman laughed in his face, saying it was nothing a 15 minutes Treasury Call sell order can't fix (granted net of a few billions in commissions for JPM). 4 weeks later the Chairman is no longer laughing, having been forced to hike up his inflation expectations while trimming (not for the last time) his economic outlook. "U.S. consumers face "serious" inflation in the months ahead for
clothing, food and other products, the head of Wal-Mart's U.S.
operations warned Wednesday talking to USA Today.
And if Wal-Mart which is at the very bottom of commoditized consumer
retail, and at the very peak of avoiding reexporting of US inflation by
way of China is concerned, it may be time to panic, or at least cancel
those plane tickets to Zimbabwe, which is soon coming to us." In  light of that perhaps today's words of caution from Wal Mart CEO Mike Duke will be taken a tad more seriously (yes, even with the $50 billion in "squatters rent" that the deadbeats spend on iPads instead of paying their mortgage: that money is rapidly ending). Warning is as follows: "Wal-Mart's core shoppers are running out of money much faster than a
year ago due to rising gasoline prices, and the retail giant is worried. "We're seeing core consumers under a lot of pressure," Duke said at an event in New York. "There's no doubt that rising fuel prices are having an impact." Tell that to Printocchio please.

Yesterday we correctly predicted that the entire 10% silver correction would be momentarily taken out as the Comex news is properly digested. And so it continues - as silver is once again pennies away from $50 and a fresh new nominal all time high, we take a quick look at the futures curve where as expected the backwardation is confirming the "negative convexity" (yes, yes, we know silver is not a duration security) once the $50 stops are taken out will send silver surging to unseen before levels (which also considering it will be at a new record over $50 is pretty much intuitive). In the meantime, the chart below is the worst nightmare of anyone still holding short silver positions. While the near-far contract backwardation was about $0.75 yesterday, it has since doubled in less than 24 hours. We can't wait to see what surprising nuggets the Comex will bring us today.

Not at all surprising, Goldman's economic team continues to (pretend) it is in denial, knowing full well the second it downgrades its Q2 and H2 numbers it is game over. As such its "review" of the ugly Q1 GDP number came out smelling like rainbows and unicorns, namely "this mix of growth - stronger consumption and less inventory building - suggests a bit more momentum heading into Q2." Let's see how this mix is revised in the second and of course third GDP revision. However, where Goldman gets ominous, is its observation of next month's NFP number. If Hatzius is correct (and with his 1.75% Q1 GDP he was the closest of all to the real number), look for the nonfarm payroll number to be beyond ugly, fully opening the door for further QEasing.

Just over a year ago, Econstories managed to successfully, if briefly, fuse the worlds of rap and monetary policy in the form of "Fear the boom and bust" - a Keynes vs Hayek rap anthem. And now, when with every passing day the shamanism of Keynesian voodoo is exposed for all too see, courtesy of the tide of endless credit and free money finally flowing out, we get the sequel. Enjoy.

9:30AM NYUK Opening Bell: Berkshire Hathaway has further escalated its war of words with former executive Curly Sokol...

Our friends at Zerohedge did some excellent discovery and analysis last night on the recent drawdown in Comex Silver stocks eligible for delivery. We have personally seen this activity before, and while we do not doubt the authenticity of the draw down from the Registered (for delivery) stockpile described below; We add that this has happened many times in the past in short -cons meant as exit strategies for big longs. So far, if this is an exit strategy, it is basically what happened in 1997 when Buffet took delivery, but on a much bigger scale, a long –con if you will. But if the reason is that someone bigger that the usual investor community with pockets and a will deeper than all the Bullion Banks combined has decided to de-dollarize their FX reserves, like say China, then this is the way to do it. We think this is real and will describe why briefly after the ZH analysis.

The bottom line: Q1 GDP ex-inventories came at 0.8%, the lowest since Q3 2009. The economy has hit stall speed, and absent another fiscal (nope) or monetary (QE3) stimulus, we will go negative in Q2, now that the full impact of the Japanese economic collapse has forced even the ostriches to pull their heads out of the sand. Alternatively, Bernanke will be stuck with the worst case of stagflation since the 1970s. Rock and hard place: just as we predicted in December 2010. The chart below shows the ugly collapse in the economy in Q1: recall that up to a month ago it was supposed to grow by 4%! Now, ex inventories, it is 0.8%. And most importantly, the strong US consumer, in the form of the Personal Consumption Expenditures, sees his share of economic growth drop by over 30%, from 2.8% to 1.9%.

Key highlights:

• US GDP Price Index (Q1 A) Q/Q 1.9% vs. Exp. 2.3% (Prev. 0.4%)
• US PCE Core (Q1 A) Q/Q 1.5% vs. Exp. 1.4% (Prev. 0.4)
• US Personal Consumption (Q1 A) Q/Q 2.7% vs. Exp. 2.0% (Prev. 4.0%)

and the kicker:

• US Initial Jobless Claims (Apr 23) W/W 429K vs. Exp. 395K (Prev. 403K)

More coming

• Most Dealers See Fed Keeping Rates Near Zero (Reuters)
• Japan Economic Data Underscore Impact of Disasters (WSJ)
• China’s Population Flocks to Cities, Grows Older, Census Shows (Bloomberg)
• China Property Slowdown Poses Growth Risks, World Bank Says (Bloomberg)
• Asian Currencies to Appreciate Against Greenback in Second Half, ‘Mr Yen’ Says (Taipei Times)
• Syria's Assad Facing Dissent over Deraa Crackdown (Reuters)
• Spain Calls Draghi ‘Excellent’ Choice for ECB President, Isolating Merkel (Bloomberg)
• German Unemployment Falls Below 3 Million to 19-Year Low (Bloomberg)

Well, the statement was more dovish than I thought - leaving in the extended period language, offset only a little by a slightly more direct reference to inflation. This was the first sign that the conference would be positive for stocks. As soon as it became clear that no questioner would really be allowed any follow up questions, the Q&A took on the 'Does this dress make me look fat?' tone. A few reporters tried to ask some tough questions, but the format made it far too easy for the Chairman to avoid answering in any great detail. There are a few useful takeaways from the conference...