Archive - Apr 2011

So, it looks like I’m a hyperinflationist after all. Reminds me of the joke about the cowboy who chats up a woman at a bar – a lesbian, as it turns out. She tells him she spends her days thinking about nothing but women. “As soon as I get up in the morning, I think about women,” she says. “When I shower, I think about women. When I watch TV, I think about women. I even think about women when I eat. It seems that everything makes me think of women.” The cowboy goes home that night thinking that maybe he’s a lesbian too.

And so hopefully the whole birth certificate meme can be put behind us, Trump's attention grab campaign will finally end, and people like Ron Paul will have a chance to actually run for president. Full statement from the president to come at 9:45am.

March Durable Goods came at 2.5% in line with expectations fo 2.3%, with the previous number revised far higher from -0.9% to 0.7%. However, durable goods ex the volatile (and oh so snow dependent) transportation segment was 1.3% on expectations of 1.9% (with the previous plunge here of -0.6% remaining unchanged). While this month's ex-number was weak, the prior month's revision likely means the trendline was smoothed down, although both February and march were still modestly weaker, confirming that while Q1 GDP will be low, the pain will continue to be felt in Q2.

GoldCore submits: "Many of our clients have taken profits on certificates in recent days. Most continue to be prudent and continue to maintain a core holding (for portfolio diversification and financial insurance purposes) but there are definitely concerns amongst some of a bubble. Others have taken profits on certificates and bought gold and silver coins and bars (in secure storage or delivered). Recently orders for coins and bars have outweighed those for certificates and there is definitely an increased preference for physical coins and bars and for taking delivery. Our ratio of sell orders to buy orders is the highest it has ever been."

With all eyes focused on the Fed's largely irrelevant first ever presser, during which only "Congressionally accredited" journalists will "ask" questions, we also get durable goods which we anticipate will confirm the recent downward economic trend indicated by the Dallas and Richmond Feds, as well as all the horrendous double dipping housing data.

• Hilsenrath: What to Watch in Fed Statement: ‘Inflation Expectations' (WSJ)
• Japan Debt Outlook Cut to ‘Negative’ by S&P on Reconstruction (Bloomberg)
• China’s Wen to Spur Investment, Tap Resources in Southeast Asia (Bloomberg)
• Holding Bernanke Accountable (David Leonhardt)
• Hong Kong Exchange And Clearing Chief Prepares for 'Seismic Change' From China (WSJ)
• Because Europe is not enough...China Seeks Bigger Role in Australia Economy (WSJ)
• Tank convoy seen moving around Damascus (Reuters)

As we reported yesterday, The Treasury Borrowing Advisory Committee, easily the most important 3rd party advisory structure at the US Treasury currently, chaired not surprisingly by JP Morgan and Goldman Sachs, released a letter to Tim Geithner, doubling up his calls for untold death and destruction, not to mention plunging year end bonuses, if the US is not allowed to kick the can down the road for another 1-2 years. For those curious, in addition to the Matt Zames chaired committee, other members include Soros, Tudor, Bank of America, BNY, Moore, Alliance Bernstein, Morgan Stanley, Round Table IMC, Brevan Howard, PIMCO (lol), Dodge & Cox, RBS, and Western Asset Management. The full M.A.D. letter is presented below.

RANsquawk European Morning Briefing - Stocks, Bonds, FX etc. – 27/04/11

Nothing surprising out of the UK, whose economy grew just as predicted, and enough to offset a comparable drop in Q4 of last year. Per Bloomberg: "Gross domestic product rose 0.5 percent from the final quarter of 2010, when it fell by the same amount, the Office for National Statistics said today in London. The result matched the median forecast of 28 economists in a Bloomberg News survey. Services expanded by 0.9 percent, the most since 2006." Now if only inflation could be cut to just double the rate of economic growth... And with the world now looking at the US 1st GDP number due out tomorrow, which will ultimately be revised to sub 2%, we wonder just how a global economy, whose key economies are barely crawling higher, and in the case of Japan, outright collapsing, supposed to lead to a 3.5% global GDP growth in 2011.

Deciding on a hedging policy is not a simple task. Many conflicting theories have persisted over the years...

"When plunder becomes a way of life for a group of men living together in society, they create for themselves in the course of time a legal system that authorizes it and a moral code that glorifies it."--Frederic Bastiat

It appears the market is in a festive mood today, just 8 hours ahead of the first largely irrelevant FOMC press conference (yes, Bernanke has fielded irrelevant Q&A before, and yes, whenever he met a question he did not like, he disagreed with it and moved on). As a result the long-suffering US Dollar, which continues to be down YTD as much as the market is up, confirming that in real term there has been absolutely no gains in the stock asset class, has just hit a 3 year low low and just a little more to go until the all time low is breached. And this is in addition to the just announced S&P outlook cut on Japan, which has seen some incremental shorting of the Yen which unfortunately now is a secondary carry funding currency, and you can see that while the dollar should be getting at least a modest push higher the EURUSD is now toying with 1.47. The biggest winner in FX land continues to be the USD-backed CHF, which is outperforming every other pair. And elsewhere, after doing its all too usual OpEx shenanigans, gold is also back in fine form, over $1,506 and going higher now that the shakeout of the latest batch of weak holders has taken place. All in all, a perfect day for nobody to ask whether it is US policy to destroy its own currency.

S&P revises Japan's AA- credit rating outlook to negative. The culprit: the Japan earthquake that just as predicted, has become the scapegoat to excuse another quarter of "non-recurring" EPS misses. And while according to Wall Street the economic devastation is GDP positive, Japan may soon be a single A credit, which of course will send it 10 year bond trading with a 0 yield handle. From S&P: "The negative outlook signals that a downgrade is possible if Japan's public finances weaken further over the next two years in the absence of fiscal consolidation to offset them. We believe that uncertainty over the country's fiscal and economic outlook will lessen over the next six to 24 months. If the government's debt trajectory remains on its current course or begins to erode the nation's external position, the long- and short-term ratings could be lowered. If reconstruction costs place less burden on public finances than we expect–either because of lower outlays or increased revenues to cover them–and the government makes progress in strengthening Japan's fiscal profile, we could revise the outlook back to stable."

While the state pretends to protect its people from external threats, it is in fact the perpetrator thereof, the more so the larger the state is. Which is to say, the state does not provide security. Rather, it creates the need for security on a scale that would not otherwise exist, assuring that the more it spends, the more liberties must be sacrificed on the altar of “national defense.” Why else would the American people, for example, find themselves in something approaching lockdown status, despite the fact that their government constitutes nearly half of all military spending worldwide?

With stock volatility having morphed over the past year to FX and commodities, along the lines of what had been expected, some of those trading various ags (and other commodities) have had to literally suffer through days of gutwrenching market halts when a given product hits its daily limit for the day. And over the past two months it has been a veritable limit-a-palooza. Which is why we were not surprised to learn that having appreciated the severity of this artificial "limit" rule, the CME is now considering its revision. From Reuters: "The CME Group Inc is considering widening the daily trading limit in Chicago Board of Trade corn futures to 50 cents per bushel, from the current 30 cents, a spokesman for the exchange said Tuesday...The exchange last expanded the daily limit in corn in March 2008, to 30 cents from 20 cents. At that time, front-month CBOT corn futures were trading at $5.60 a bushel and were on their way to a then-record high of $7.65 in June 2008." And since, pretty soon the new, wider range will likely be filled on a daily basis when the market goes all bid or offered, we expect the CME to do away with position limits entirely: a progression diametrically opposed to what the SEC is doing to halt market crashes in regular equity markets. It is almost as if the CME is inviting more volatility into a market (where the exchange makes the bulk of its money based on daily traded vol). But is there more here than meets the eye?