Archive - Apr 2011

A quiet data calendar to close the week, as eyes are now focused away from Europe and on the hill. Futures are up, commodities are surging, as the dollar destruction continues. There is no POMO.

Below is the complete list of banks to take, and then pass, the next farcical round of European stress tests. Just as a reminder of the complete useleness of this exercise, the last time Irish banks appeared on this list, they all passed swimmingly. They were all bailed out months later. We can't wait for Portugal, Spain and Italy to all pass without a single failure. Perhaps European taxpayers should inquire what percentage of the near-record gas price is financing this ridiculous waste of funds, whose only real outcome is building confidence in the utter cluelessness of Euro-leaders.

The distraction factor today will be 100%, as the government has decided to draw out the government shutdown decision to the very end. Per Reuters, Hoyer has said that both sides are very close to a shutdown "deal" with 70% agreement on dollars. Supposedly 30% disagreement on a binary issue is good news. "U.S. House of Representatives Democratic Whip Steny Hoyer said on Friday that budget negotiators were "very close" to a deal to avoid a shutdown of the federal government. "There's no deal yet unfortunately," Hoyer told NBC's Today show program as negotiators worked furiously to reach agreement. "I think we're very close. I think we've come 70 percent of the way in terms of dollars. That's a long way to go in trying to reach compromise."" Obviously the disagreement percentage will drop more and more as this soap opera season draws to a close, with only one logical outcome, which obviously will be one of market relief, even as the DXY is pennies away from both 2008 and 2009 lows, both of which preceded major global market calamities.

RANsquawk European Morning Briefing - Stocks, Bonds, FX etc. – 08/04/11

The market stumbled a bit on Thursday on news of a potential government shutdown (and politicians quibbling over a $40B budget difference is like...

Lights out

The ongoing total decimation of the dollar is sending everything that still has value through the roof. Case in point: WTI which just passed $111 for the first time since 2008. And with Brent waiting with open arms at $125 it is only a matter of time before gas prices in the US will make the teleprompter advise anyone who doesn't have Discount Window access to trade in their inline 4 for the "Wealth Effect." In the meantime, a centrally planned China was just forced to hike gas prices for only the second time in 2011 (lucky them): "April 7, China, Asia’s largest oil consumer, raised retail prices of gasoline and diesel for the second time this year, starting Thursday, as international crude oil prices continue rising, China Business News reported on Thursday. The benchmark retail price for gasoline will rise by RMB 500 a metric ton on April 7 and that for diesel will increase by RMB 400, the National Development and Reform Commission (NDRC), said on Wednesday. According to several energy information institutions, the retail price of 90# gasoline will rise by 5.63% to RMB 9,380 per tonne, and that of 0# diesel will gain 4.9% to RMB 8,530 per tonne, the paper said." Bottom line - pretty soon the entire WTI curve will be in backwardation.

Just out from Reuters:

WATER LEAK FOUND AFTER LATEST QUAKE AT JAPAN'S ONAGAWA NUCLEAR PLANT BUT NO CHANGE IN RADIATION LEVELS-NHK

WATER LEAKS AT ONAGAWA NPP FROM REACTOR 1,2 SPENT FUEL POOLS

Onagawa is the plant which as we disclosed earlier experienced an almost critical power failure following today's new earthquake off the Sendai coast. One wonders just how much "undisclosed" news will start leaking. Surely just as the shut down of America is sending futures surging, this news should levitate the Nikkei by a few percent.

Following news that an 11th hour attempt to resolve the budget impasse between Obama, Reid and Boehner has failed, the dollar, and all related carry pairs, are getting obliterated. At last check the EURUSD was north of 1.4350, while all Yen funding pairs rose back to intraday highs. Which in this bizarro
world also means that futures are now at highs: yes - a government shut down is bullish for stocks. The good news for those who continue to believe, what is only being realized by others, namely that the dollar's days are numbered is that silver has just touched $39.85: a fresh post Hunt Brother high. Gold is following suit.

A somewhat contrarian view on commodities from Global Tactic Asset Allocation: "Most commodities remain deeply overvalued. As with other assets it does not really matter in the short-term (as long as the trend is positive) but it is paramount for longer-term projections. We have little doubts that commodity long-only who buy to hold are going to experience a >50% drawdown (from current levels) on their industrial metals, crude oil and agricultural positions sometimes in the next 24 months. Demand has been artificially boosted by China strategic reserve building, infrastructure intensive fiscal stimulus, booming demand from the rest of emerging economies and, as the trend persisted, by trend followers and money managers new attraction to the sector (you know it is not correlated so you should buy them to diversify your portfolio... sorry it WAS not correlated...). The introduction of physically-based ETFs is not helping in this matter as it represents a big short-term increase in marginal demand especially when the Fed is still busy implementing QE2."

General Tommy Franks, the rather straight-talking former commander of the war in Afghanistan way back in 2001, once described US defense policy wonk Doug Feith as “the dumbest fucking guy on the planet.” Feith, a bumbling architect of the failed Bush Doctrine, now has an intellectual match in Christina Romer, the former Chairwoman of Barack Obama’s Council of Economic Advisors. Romer appeared Thursday on the Daily Ticker, leaving no doubt that she should be the undisputed frontrunner for the Nobel Committee’s much anticipated Doublethink Prize. Warning, do not watch this video while eating: food projectile WILL permanently damage your computer.

...is up by $51 billion in two weeks. But, once again, before people freak out that this is some crazy scheme to flood the market with money (nothing crazy about that scheme: it has been going on for 2 years), keep in mind: this is merely the delayed catch up of the SFP program unwind and the ongoing increase in Treasury holdings by the Federal Reserve Capital, ULC. Nonetheless, it is disturbing that the gradual phase out in the build up of the Adjusted Monetary Base, exclusively due to the rise in Excess Bank Reserves, is still proceeding at a 100%+ CAGR.

The natural step in the US-led invasion of Libya's oil fields, which could be seen from a mile away and as was discussed on Zero Hedge previously, is about to unfold with the proverbial silver-tipped bang. Courtesy of Army Gen. Carter Ham we learn that the Nobel war prize winner "may consider sending troops into Libya with a possible international ground force that could aid the rebels, the former U.S. commander of the military mission said Thursday, describing the ongoing operation as a stalemate that is more likely to go on now that America has handed control to NATO." Nothing like a little land war in Asia, er, Africa, to distract the peasantry from an insolvent government which can't legally issue any more debt on top. Make no mistake though - this is all about "humanitarian intervention."

Crisis? What crisis? Nuclear power is TOTALLY safe!

The CMBS market gives us an inside look at the credit quality of many CRE loans which are the key to recovery. This article tells you why it's important.