Archive - Apr 2011

RANsquawk US Afternoon Briefing - Stocks, Bonds, FX etc. – 05/04/11

There is nothing remotely ideological or personal in my prediction that President Obama will lose the 2012 election. Both parties are equally out of touch with reality in my view, and both suppport the same things: a global Empire, an increasingly intrusive Savior State, a shadow banking system which is no longer under the control of State institutions (rather, the banks control the institutions), and various crony-capitalist cartels which fund political campaigns and partner with the Central State's bloated, unaccountable fiefdoms. The only visible difference between the two parties is slight variations in the relative growth rates of the most-favored cartels and fiefdoms. President Obama seems like a nice guy. Many people said the same thing about George W. Bush. While a likeable personality is a plus in a media-obsessed society, American elections boil down to this: Americans vote their pocketbook, and their pocketbooks will be a lot lighter by November 2012.

Good news: at least it is not in backwardation. We wonder how long before Bernanke uses that excuse in a public tribunal.

Nobody could have foreseen this. Nobody. In other news, Ben Bernanke has just ordered an extra absorbent set of Huggies.

We have now gotten to the very limits of the market, where any even modestly bad news (Services ISM) even if of a secondary importance nature, sends the market surging higher as expectations that QE3 is inevitable, hit 100%. Then when good news comes, and QE3 is deemed to be impossible, the market plunges. Bizarro world, where bad news is good news and vice versa, has won. Thank you central planning. And for all those who jettisoned gold on expectations the economy was actually, chuckle, improving, here is your chart.

A thought on a hot stock.

Contrarian, yet common sense, perspectives on Apple that so few seem able to see.

Time for some more theater: at 10:30 am Eastern Paul Ryan will reveal his budget proposal which sees the US government cutting $650 billion each year over the next 10 years. This simply means that even more stimulus will reside with the Fed, and with monetary policy, which also means that not only is QE3 guaranteed, but so is QE33. Watch Ryan live at the below C-Span link.

While the services PMI dropped from 59.7 to 57.3, well below expectations, the broad Business Activity series plunged from 66.9 to 59.7 The surging inflationary Price Paid series dropped from 73.3 to 72.1, or back to January's level. New Orders and Employment also declined from 64.1 and 53.7, from 64.4 and 55.6 respectively. The only growing components were Backlog of Orders rising 4.0 to 56.0, New Export Orders up 2.5 to 59.0 and Inventory Sentiment up 9.5 to 67.0, which the Surve classifies as "Too High" - this means liquidations are imminent. Hope you have your FIFO on.

There is nothing too remarkable in Absolute Return Partners' Niels Jensen's latest letter: it does a good compilation of a recent letter by James Montier posted previously, and juxtaposes it with textbook precepts from the discredited Market Portfolio Theory, in terms of what makes a good investor. Well, indeed: if one does everything correctly according to what works in a textbook definition and combines it with real world success, one will certainly end up making money. On the other hand, Jensen does have an actual trade recommendation: and it is go illiquid. "My favourite example right now is illiquid as opposed to liquid investments. I strongly believe that less liquid investments will outperform more liquid ones over the next few years for the simple reason that the less liquid ones are struggling to catch the attention of investors who, still smarting from the deep wounds inflicted in 2008-09, stay clear of anything that is not instantly liquid. This has had the effect of pushing the illiquidity premium (i.e. the extra return you can expect to earn by investing in an illiquid as opposed to a liquid instrument) to levels we haven’t seen for years." We wonder how ARP will fare if and when the markets seize up once again. But there's at least a few milliseconds until HFTs blow a fuse next and crash the market yet again.

With so much sound and fury out of Washington one would imagine something big must be happening. One would be wrong. The ongoing theatrical strawman between Republicans and Democrats is merely a massive spectacle which has one outcome: a compromise. But why not score some brownie points from the constituency in the meantime by "sticking firm to principles." And of course the spin by the MSM will lead to a huge relief rally in stocks once we get news on Thursday in the 11th hour that the government will not shut down. As if the government would shut down when it prints $100 billion in debt every two weeks. In the meantime here is a summary of the key parts and intermissions for the ongoing DC melodrama for the balance of the week, courtesy of Goldman.

And so with each passing day the veil of lies at Fukushima is being lifted. For all those who had been scratching their heads how it is possible that Fukushima would have a (very high to begin with) radiation level in the millisieverts if indeed the plant had experienced a Chernobyl style meltdown and "inadvertent recriticality", when it should have been far higher, here is your answer. According to NHK, "a radiation monitor at the troubled Fukushima Daiichi nuclear power plant says workers there are exposed to immeasurable levels of radiation." Unfortunately for the workers present, the monitor is not being metaphoric: "The monitor told NHK that no one can enter the plant's No. 1 through 3 reactor buildings because radiation levels are so high that monitoring devices have been rendered useless. He said even levels outside the buildings exceed 100 millisieverts in some places." Perhaps it is time for the discredited Japanese government to form a committee to investigate whether TEPCO, with or without the complicity of the NHK, was counterfeiting radiation reading over the past month, and thus sacrificing the lives of the 50 brave TEPCO workers who are committing an act of suicide by continuing to stay at the plant. Who knows: maybe they would have a different opinion if they actually knew their presence there is a guaranteed death sentence.

• Hilsenrath speaks again: BoJ Considers Measured Quake Response  (WSJ)
• Bernanke Says Fed Will Act If Inflation More Than ‘Transitory' (Bloomberg)
• IMF Chief: 'Black Swans' Still Haunt Global Finance (WSJ)
• Will the Real Phillips Curve Please Stand Up? (Hussman)
• China Raises Interest Rates to Counter Inflation Pressure (Bloomberg)
• Japan Food-Supply Issues Raise Questions on Tariffs, Imports (WSJ)
• Fed's Bernanke Downplays Inflation Fears (WSJ)
• U.S. Budget: Demagoguery and Sophistry Reign (RCM)
• Asian Central Banks Aim to Weaken Currencies (WSJ)

The strategy of Mutual Assured Destruction has worked so well in the "developed" world (thank you Hank Paulson, Tim Jeethner, Clearinghouse Association et al), it is time to see it in application in the "developing." In an attempt to preempt US doubts about intervening (on the proper side) in the case of escalations in Saudi Arabia (and with the possibility of Yemen becoming a potential Al Qaeda hotbed rising by the hour, this is non-trivial) the former Saudi oil minister Sheikh Zaki Yamani told Reuters on Tuesday that "Oil prices could leap to $200 to $300 a barrel if Saudi Arabia is hit by serious political unrest." We are confident he was merely talking in a very, very hypothetical scenario. After all why scaremonger in a world in which everything is under control?

More pension politics up here in Canada and more disinformation on Canada's pension myths...