Archive - Jun 3, 2011

Watch the teleprompter advise the president on the correct choice of words at his address to workers at a Fiat, pardon Chrysler Group, Toledo supplier park, during which he will have to explain why both fiscal and monetary policy (read Keynesianism) is now a confirmed failure. But far from Austrian economics finally get the respect it so much deserves, this will merely retrench the current idiotic policies - just read any column by Krugman demand doubling down on stimulus post haste: that's what happens with junkies - it never ends, and in fact the "last" does must always be more and more and more...

Constitutional values cannot defend themselves. They require the people to stand firm, and to never yield. Americans today have yielded far too much already, and at some point very soon, we’re going to have to make the hard choice on what is more important; our general safety and personal comfort, or our freedoms and the freedoms of future generations. Like the American Colonials, we have a system that does not serve our best interests, but the interests of an elite few. We are quickly losing our ability to dictate the terms of our own society, and our own destinies. Sadly, we are not yet presenting the determination that the colonials held in the face of this danger. Today, we are a nation mourning its own demise before it has even occurred. We have turned to reluctant compliance and submission. We are, frankly, whiny and pathetic. This does not have to be.

To many people on the same side of the boat made this one difficult. Luckily, the market still seems to be rather oblivious to basic fundamentals.

No, QE3 is NOT the answer ...

Thanks to Nanex we once again get a reminder that not only is the economy broken, something which becomes painfully clear each and every time the monetary and fiscal stimulus are about to get yanked, like right now, but that our stock markets continue to be the butt of all algorithmic jokes. Today's punchline: Bitauto Holdings, which traded from $6.90 to $0.09 in two seconds. And lest one thinks this was a fat finger, the total number of trades canceled subsequently by the NYSE and Nasdaq was 22,900 shares. SkyNet strikes again.

A snapshot of the US Afternoon Briefing covering Stocks, Bonds, FX, etc.

Market Recaps to help improve your Trading and Global knowledge
Weakness in CAD evident after mixed Canadian economic data

Some thoughts on pensions seeding funds after my day trip to Toronto...

So here it is:

• EU, IMF: GREECE NEEDS TO REINVIGORATE STRUCTURAL REFORMS (so, fire more people and generate more GDP with whoever is left?)
• EU, IMF: GREECE WILL REDUCE PUBLIC SECTOR EMPLOYMENT (so, fire even more peple)
• EU, IMF: GREECE TO REDUCE TAX EXEMPTIONS, RAISE PROPERTY TAXES (So, generate more GDP by taxing people more?)
• EU, IMF: `AMBITIOUS' MID-TERM PLAN, WILL MEET 2011-2015 TARGETS (If the targets are all Greek bankruptcy, yes)
• EU, IMF: OVERALL ASSESSMENT GREEK PROGRAM `SIGNIFICANT PROGRESS (uh, where?)
• EU, IMF: GREEK ECONOMY TO STABILISE AT TURN OF YEAR (Idiots)

And now, the people get angry. Expect live webcast from Syntagma square shortly.

Well it looks like the rich have taken the tax cuts and used the money to buy 'necessities' at Tiffany's rather than hiring people. Weren't the tax cut extensions necessary for hiring? It really looks like that money went straight to little blue boxes. Does Kraft Mac'n Cheeses still come in dark blue boxes? Maybe we aren't separated into rich and poor, just which shade of blue box you can afford?

It is hard to find anything encouraging about the numbers out today. For the past 4 months now, the NFP has added 752k jobs. 610k of those have been birth/death jobs. If you do year to date, it's not as bad since January saw a large negative birth/death adjustment. I am concerned about the validity of the birth/death model. We have gone through such unprecedented changes in the economy I find it hard to believe that the model is calibrated well.

I still like being short IYR, SPG, VNO on the back of the move in CMBX. I am digging deeper into corporate credit, but 2 worrying signals are there. Recent new issues seem to be struggling. Even GOOG is wider. The indices are also starting to trade fairly cheap to fair value. This combination is rarely good so selling LQD (on spread basis) and HYG while collecting more details for this analysis.

And so here we are, with austerity measures and higher taxes occurring in Europe because of bankers’ greed and dishonesty. Having realized that their politicians aren’t going to do the right thing, the people are now openly expressing their disgust at the ballot box (Angela Merkel’s party is getting slammed in Germany for supporting the bailouts) and the streets (protests are occurring across Europe). And it’s just a taste of what’s coming to the US.

Whenever I unleash a tirade at home about how Federal spending has leaped 40% in three years and how the government is now borrowing 42% of its spending, my wife points out that nobody cares because the deficit doesn't impact them at all. This always stops the tirade in its tracks, because it's so obviously true. As long as the Federal checks keep being issued and everyone gets their 17 "low-cost" meds paid by Medicare, the National Defense State gets unlimited billions to spy on the citizenry and indeed, the entire world, gasoline at $1,000 a gallon flows freely in Afghanistan and other distant corners of the Empire, and Wall Street writes itself billions in bonuses, then nobody cares about the deficit. The only way anyone will feel the deficit is if their share of the Federal swag is trimmed to pay the interest on the ballooning debt. But the Federal Reserve has a solution to that eventuality: keep interest rates (and thus yields on new Federal debt) super-low. At zero interest, $50 trillion in debt costs nothing. Heck, you and I could handle the interest payments on $50 trillion at zero interest. At 1%, the interest is "only" $500 billion a year--no big deal, as we can easily borrow another $500 billion a year, no problem. After all, the bond market hasn't barfed yet and we're already borrowing $1.65 trillion a year, plus hundreds of billions "off-balance sheet" in "supplemental appropriations."

John Paulson's worst nightmare is on the verge of coming true. As reported yesterday, JP is a holder of 34.7 million shares of Sino-Forest, which was halted yesterday after Muddy Waters came out with a report exposing the company as a fraud, and by implication, all the sellside analysts covering the company with a buy rating, not to mention all the funds who had bought into it, as diligenceless monkeys who refuse to actually do their homework and merely follow the leader in the worst example of Wall Street groupthink. Well, yesterday groupthink became gangbang, after names as varied as JP, CapRe, Bessemer, Blackrock, John Hancock, Hartford, and many more learned they all may have been fooled by the biggest ponzi fraud since Madoff. And while the funds may pretend things are good courtesy of the continued freeze of TRE.TO on the Toronto Stock exchange, where it still has to issue an announcement despite promises it would do so before market open, its sister stock, SNOFF.PK continues to trade domestically. And it's a bloodbath. After opening at $18 yesterday, the stock just touched $2.45, generating a loss of over $500 million for John Paulson, who in addition is rumored to be very heavily long the company's bonds. It will be ironic if one Chinese fraud (despite our repeated warnings) ends up being the black swan that confirms that there is no such thing as a consistently good hedge fund, and it is all merely a function of one right trade, at the right time, executed with infinite amounts of leverage (thank you CDS). In the meantime, we hope Muddy Waters is working a report exposing that biggest ponzi scheme of all: the US stock market.

In the too little too late department, the ISM just released its Non-Manufacturing report on business, which was probably the first actual economic beat of the last week, coming at 54.6 on expectations of 54.0, up from 52.8 previously. That this was merely a countertrend bounce in what is now a secular decline from the 60 top in Q1 2011 is largely irrelevant, and just like the Mfg ISM which we now expect will drop under 50 in two months or less, the Services ISM will follow suit. For the consumer discretionary bulls out there, we would like to note that of the 18 industries that are reported in the index, only two reported contraction: Educational Services and Retail Trade. Of course, that would be retail for the lower and middle classes. The Tiffany's of the world will certainly not have any such problems until the next GFC.

It was difficult rerunning this chart with a straight face, make that near impossible, but here are the results. Following the most recent NFP disappointment, the simple math indicates that for the US to return to its December 2007 unemployment, when factoring in the natural growth of the labor force of 90k people a month, the economy will need to add 250k jobs a month for the next 66 months or until the end of Obama's now very implausible second term. Then again, considering what the alternatives are, we can guarantee that the 2012-2016 period in terms of job creation will definitely not look like what is presented on the chart below.

Just out on Bloomberg: GREECE SAYS EU-IMF REVIEW COMPLETED POSITIVELY

Of course, since this is merely another lie, nobody cares, but the robots will likely go nuts with the EURUSD any second.