Archive - Apr 2011

While it is no surprise that the day after Lehman failed, every single bank scrambled to the Fed to soak up any and all available liquidity after confidence in the entire ponzi collapsed, what is a little surprising is that of the 6 banks that came running to papa Ben, and specifically his Primary Dealer Credit Facility, recently upgraded, or rather, downgraded to accept collateral of any type, two banks (in addition to Lehman of course which at this point was bankrupt and was forced to hand over everything to triparty clearer JPM), had the temerity to pledge bonds that had defaulted (i.e. had a rating of D). As in bankrupt, and pretty much worthless. Now that the Fed would accept Defaulted bonds as collateral: or "assets" that have no value whatsoever is a different story. What is notable is that the two banks that did so were not the crappy banks such as Citi or Morgan Stanley, but the two defined as best of breed: Goldman Sachs and JP Morgan. It is probably best left to the now defunct FCIC to determine if this disclosure is something that should also be pursued in addition to recent disclosure that Gary Cohn may have perjured himself by not disclosing truthfully his bank's discount window participation. However, we can't help but be amused by the fact that of all banks, the ironclad Goldman and JPM would be the only ones in addition to bankrupt Lehman to resort to something so low.

As stock volume surges (we won't insult your intelligence to tell you what that means for stock prices), there is one asset that is going up. Considering the just released news of imminent land invasion in Libya which will be the next domino to fall in the MENA region, we would believe it is rather easy to guess which asset that is.

There is too much cheap money sloshing around markets these days. This is not a good thing for true market based price discovery, and ultimately leads to the creation of market bubbles.

While it has been made very clear that no US "boots" would be on the ground in Libya, except for those beloning to CIA operatives of course, no such stigma applies to Europe. Which is why we were not surprised to read the following from RIA Novosti: "The European Council on Friday approved the decision to mount an EU
military operation to support humanitarian efforts in Libya, if asked to
do so by the United Nations. "The EU will, if requested by the UN Office for the Coordination of
Humanitarian Affairs (OCHA), conduct a military operation in...order to
support humanitarian assistance in the region," the council statement
read." Of course, humantiarian assistance only works best with silver tipped warheads and laser scopes. And honestly who didn' expect that the goal for Triopli's oil would mean a land invasion any minute? Oil most certainly did, with WTI just closing at a fresh 2.5 year high of $108.

As some Americans managed to find part-time and temporary jobs in March, some other Americans dropped below the poverty level threshold. 105 thousand in one month to be precise. The total foodstamp participation in January hit an all time record 44,187,831 according to the USDA. But fear not, here's the bullish spin... sorry, there is no way to spin this.

Considering there was no POMO today, the fact that the Fed just pulled out $1.75 billion from the market via a 3 Day reverse repo (TOMO) may raise some eyebrows. This is probably the first day in many years in which there was a net outflow of liquidity from the market without a corresponding inflow from POMO. That the total amount submitted into the Reverse Repo was $3.09 billion probably indicates just how overliquified the market is, if PDs are willing to accept a modest 0.09% weighted rate of return on a 3 Day repo operation. Also, notable is that the lower bound in the submission rate was a laughable 0.04% on Treasury holdings. Either way, PDs are sans $1.8 billion and nary a hiccup in stocks, while bond yields are back at day's lows. And Dudley hopes the naive public will believe that it is not excess liquidity chasing commodities to all time highs...

Remember, way back when, when the dollar was supposedly on its way to rediscovering the little engine of growth that could just after the monthly NFP number came in just 30k below where it should be for the US to regain jobs list since December 2007, and the Fed was about to end debasing the US currency? Look again.

Unprecedented strength in corn continues, with futures rising by 4.5% on Thursday, following strong demand for corn to make food and fuel. That demand has whittled down the corn supply, which was already at its lowest level in 15 years in the United States, the world's top exporter of the grain. Per Reuters: " Demand has been strong from the livestock and ethanol sectors, and from importing nations, including China which is believed to have purchased 1.25 million tonnes last week. This week's rally, triggered by the U.S. Agriculture Department's lower-than-anticipated quarterly U.S. corn stocks estimate on Thursday, rekindled worries about food price inflation. The near-term supply concerns have largely overshadowed USDA's forecast that U.S. farmers will plant the second-largest corn acreage since 1944." Yet whether due to fundamental reasons or pure momentum, Goldman has just added more fuel to the fire by raising its corn price forecast, after having lowered it a whopping 10 days ago, from $6.00/bu and $5.80/bu to $7.80/bu and $7.00/bu, for 6 and 12 months respectively. Of course, all those who followed Goldman's recent downgrade made some very inverse profits. So it may well be time to trade against the squid yet again.

The BBC has released a dramatic recollection of events at ground zero when the Japanese earthquake and tsunami hit on March 11. The source is an unnamed maintenance worker who witnessed and experienced events in real time. Below is his story.

RANsquawk US Afternoon Briefing - Stocks, Bonds, FX etc. – 01/04/11

We can only assume this is some evil April Fool's joke: in a speech, titled appropriately: "Central Bank Independence and Sovereign Default" given at Wharton, Minneapolis Fed's Kocherlakota who now it can be put to rest was well aware of what today's NFP number will be, says the following: " I’ve argued that even if the fiscal authority borrows
exclusively in its country’s own currency, the central bank can have a
large amount of control over the price level. But the central bank can
only achieve that control if it is willing to commit to letting the
fiscal authority default. Such a commitment may expose the country to
risks of short-term and medium-term output losses. How this trade-off
should best be resolved awaits future research. But I suspect that it
may be optimal for central banks to guarantee fiscal authority debts in
some situations." In other words, if this is really a prevailing mode of thought within the Fed, very soon we may witness the first ever Leveraged Buyout by a central bank of a sovereign, leading to advent of the concept known as the Full Faith and Credit Of The Chairsatan. It will also certainly cement the perception of the Fed as an "independent" organization. And one wonders why gold is well on its way to recouping today's losses.

BaNZai7 to quit blogging...

The energy complex is certainly enjoying discounting the end of quantitative easing, and is doing so in style: Brent briefly touched a multi year high of $119.44, as it prepares to play chicken with the OPEC threat of pumping more oil once it passes the psychological barrier. And crude, despite the well-known and much discussed issues at Cushing, almost passes $108. No matter what anyone says, this is extremely bullish for the economy and (inverse) wealth creation. At this point we are clearly back to 2008 trendlines to see whether oil can keep up with stock, which are back on their trendline to hit Birinyi's target of 2,700 or something within a year. And $300 oil is very bullish too, especially with the nuclear energy business now, well, out of business. At if all else fails it's ok: the Great Chairsatan can just print some more oil.

The Fed apparently has more empathy for foreign mad men then the American people ...

Yesterday when we speculated that Kocherlakota may have been leaked the NFP number based on his hawkish tone, we presented an attempt at refutation by Morgan Stanley's David Greenlaw who claimed the following: "I've heard some stories that Kocherlakota has seen tomorrow's employment report and that explains his hawkishness comments.  However, there is no way this is true.  Only the Fed Chairman gets the report ahead of time (late in afternoon on the day prior to release) and he doesn't even share it with the other governors -- never mind the regional bank Presidents." Let's do a little math exercise. Today at 8:30 am the BLS came out with a step change in the unemployment rate which dropped from 8.9% to 8.8%. So far so good. Then at 10:00 am Dudley released his speech from embargo with the following disclosure: "unemployment rate has fallen sharply over the past four months, dropping to 8.8 percent from 9.8 percent in November." Obviously Dudley was aware of the NFP number at the time of writing the speech. So our question is: did Dudley write the speech in the 1:30 hours between the NFP release (presumably while in Puerto Rico)? Or did he simply leave the unemployment data blank until the last moment and just filled it in after the official number was released? Since an embargoed version of the speech was likely released to various news outlets in advance, that cuts the time he had to pencil in the correction. Or, of course, if the embargoed version went out before 8:30 am that confirms that Dudley was well aware of the NFP number ahead of time, and roundly refutes the "fact" that only Bernanke sees the jobs number before its public release. Which then brings the question: who else sees the NFP number in addition to Bernanke? And just how profitable is the industry of distributing forward looking economic data at time of embargo distribution, especially when it pertains to something as critical as the NFP number.