Archive - May 2011

And another part of the White House story on bin Laden changes once again, which after promising repeatedly through Panetta to release pictures of a dead bin Laden, has instead decided not to reveal the death pics. We wonder how the administration for which this whole affair is rapidly shifting from a rally around the flag affair to one of losing credibility will then explain the following statement by Leon Panetta: "I don't think there was any question that ultimately a photograph would
be presented to the public. We got bin Laden and I think we have to
reveal to the rest of the world the fact that we were able to get him
and kill him."

Even as the dollar is plunging to fresh 3 year lows and was on the verge of crossing 1.50 earlier, the inverse is happening with the former carry trade darling, the JPY. As of a few minutes ago, the Yen was up to 80.49 against the dollar: a massive 500+ pip surge from over 85 in early April. More importantly, this is the level where the G7 intervened to weaken the Yen back in March after the Nikkei flash crashed. The question then is: will the G7 and BOJ intervene once again to do whatever they can to dilute the Yen (don't forget - Japanese monetization is coming with a vengeance), or will it let go sub-80 again at which point the Mrs Watanabes of the world will be forced to once again close all their unprofitable shorts and send the Yen surging to another all time record high against the dollar. Of course, for that to happen, it would mean the dollar will likely be forced to weaken even more. Then again, the opportunity cost is an even greater economic plunge in Japan in Q2. And just like that the global central planning Committee is caught between two pingponging carry currencies. Luckily, for the time being, Americans continue not to care that their "reserve" currency has all the credibility of toilet paper in the international FX market.

Wanna buy a bridge? Uncle Sam has a few for sale.

In his virtually daily oped, which comes from Time today, Pimco's El-Erian looks at the transitory impact from the bin Laden news, and how even as it has come and gone, nothing has really changed: "One of the most notable outcomes of the dramatic news that Osama bin Laden has been killed is the feeling of unity across the American political and social spectrums. The event has triggered a shared sense of achievement, pride and common purpose. It is a mood that the U.S. has not felt for years as increasingly polarized political debates, on both serious and trivial issues, gradually gutted the operational middle of the country's political system...After initial excitement, this moment of unity has largely been shrugged off by global markets as investors worry about the immediate risk of terrorist backlash and, more generally, the continued sense of malaise in the American economy...Unemployment remains stubbornly high. Youth joblessness is at alarming levels, with too many of the country's teenagers getting close to the point where they go from being unemployed to being unemployable. Various budget constraints have limited the scope for easy solutions, even if these were desirable. The debt and deficit dynamics are bad and deteriorating at both state and federal levels. A major rating agency, Standard & Poor's, has already taken the previously unthinkable step of placing the country's AAA credit rating on negative outlook. And Americans can no longer rely on their central bank for yet another round of imaginative pump priming to buy them time, options and flexibility. In effect, America can't buy itself out of its economic problems, nor can it again kick the can down the road for much longer. Meanwhile, the rest of the world continues to outpace the U.S. in growth, competitiveness and wealth creation."

Curious why Osama Bin Laden lived where he did? Stratfor Vice President of Intelligence Fred Burton examines the strengths and weaknesses of bin Laden’s safe-house and discusses how the al Qaeda leader was able to hide for so many years in a populated urban area.

We predicted Goldman would be first to cut its Q1 GDP back in January. We were right.  We predicted Goldman would be the first to cut its Q2 GDP in late March (around the time we said Goldman will soon start pushing for QE3). So far, said prediction is being met with staunch denial. That said, we give Jan Hatzius at most 2-3 more weeks before the firm's 4% Q2 GDP is cut to 2.5% or lower. Denial: "In conclusion, the report is a disappointment, and suggests some
downside risk to our Q2 GDP forecast of 4%, but probably not as big a
disappointment as the numbers suggest on the surface." Anger is next...We are looking forward to the bargaining part.

Reuters reports that the US Treasury has informed lawmakers it needs a $2 trillion debt limit increase to operate... until the end of 2012. Better stated, this is 112% of US GDP (which will soon be declining). This is precisely as Zero Hedge speculated. We hope PIMCO will be swayed soon enough to buy all this extra debt about to start coming down Geithner's conveyor chute. But yes, the Fed will most certainly not be needed to monetize this extra debt: Japan, Europe and Libya have it covered. That said, we don't know if Libyan rebels will have the capacity to monetize the $3 trillion in debt in 2013, $4 trillion in 2014, and so forth. The pattern is clear.

If you don't know what to hike your silver margin to, just tell your clients cryptically you will hike it to some number (very high if possible) and leave it at that. Best to just leave them guessing.

And so the overly expected "deflationary" wave takes hold, just in time for silver to take out the $40 support. Next up: everyone runs to the exits over fears that despite nothing having changed, deflation is gripping the land, which, of course, is precisely what the uberprinter needs in order to get QE3 approval. In the meantime, weak hands should certainly hit those bids. While that is happening, we eagerly await to see to what record low Comex registered silver drops today, not to mention seeing InTrade odds on whether QE3 will come in August or November...

All we need to do is hire the people who appraised Bin Laden's hideout at a million dollars. Seriously, its an odd shaped lot, with uneven fences, no phone lines or internet connection, crumbling walls, cheap plastic garden furniture, in a country with a per capita GDP of $2,700. Unless the place comes with a cone of silence or room of invisibility, I don't see how that could be worth a million. And if it is, either the dollar is more worthless than I thought or my home might actually be worth more than I paid for it. I'm sure the mock-up the government built for training cost more than a million, but that's more a function of our governments great ability to overpay for anything they do. I find it hard to believe that hideout was worth a million, and don't really understand why every news report likes to focus on that largely meaningless number.

While this is certainly a good development, "Make Shiff Happen"... is the best name you could come up with Peter? Really?

In “Fight of the Century”, Keynes and Hayek weigh in on these central questions. Do we need more government spending or less?

And scene: as predicted, the US economy is now in free fall (even with QE2 still having two more months to go), validated by today's Services ISM (recall that the US economy is based on "services", not a manufacturing) which plunged from 57.5 to 52.8, taking out consensus of 57.5, and "growing" at the lowest rate since August 2010. As a reminder a number south of 50 means "contraction." From the report: "The NMI registered 52.8 percent in April, 4.5 percentage points lower than the 57.3 percent registered in March, and indicating continued growth at a slower rate in the non-manufacturing sector. The Non-Manufacturing Business Activity Index decreased 6 percentage points to 53.7 percent, reflecting growth for the 21st consecutive month, but at a slower rate than in March. The New Orders Index decreased substantially by 11.4 percentage points to 52.7 percent. The Employment Index decreased 1.8 percentage points to 51.9 percent, indicating growth in employment for the eighth consecutive month, but at a slower rate. The Prices Index decreased 2 percentage points to 70.1 percent, indicating that prices increased at a slightly slower rate in April when compared to March. According to the NMI, 17 non-manufacturing industries reported growth in April. Respondents' comments are mixed about overall business conditions; however, they are mostly positive. Respondents' comments also indicate concern over rising fuel costs, commodity costs and the lingering uncertainty about the economy." Virtually every index declined with New Orders plummeting from 64.1 to 52.7 - the biggest drop in history, excepts for Supplier Deliveries (this will certainly drop next month), and Imports.

So here’s a CEO, someone with actual business experience (not some moron academic who’s never run a business a day in his life) telling us the following: food prices are up a lot and going higher in the future, despite high food prices, farmers are quitting farming (lower supplies are coming), food companies will be going bankrupt (even lower supplies are coming).