Archive - Jun 2011

Goldman's David Kostin is out with his latest chartpack which is as always chock full of pretty pictures, and the usual set of Monday morning quarterbacked recommendations. Just as it was Zero Hedge who first called Goldman's BS out in December of 2010 on their economic "fundamental shift" resurgence call, so it was ZH again first who suggested the QE Unwind compression trade, "Utilities and Consumer Staples as the long led in a compression trade, while shorting Industrials and Consumer Discretionary." Sure enough here comes Goldman observing "The rotation away from Cyclicals (Financials, Industrials, Materials) and into Defensive sectors (Health Care, Utilities, Consumer Staples, Telecom) continues to follow closely the historical trading pattern typically exhibited when the ISM index is declining from a peak back to 50" following a week in which  "every US economic data release disappointed relative to consensus expectations. ISM manufacturing index (53.5 actual vs. median consensus expectation of 57.1), consumer confidence (60.8 vs. 66.6), nonfarm payrolls (54,000 vs. 165,000), and unemployment rate (9.1% vs. 8.9%) all posted negative surprises and pushed the cumulative 22-day rolling US MAP (macro data assessment) score to its lowest level since  the beginning of our data in 2001. Domestic vehicle sales (9.2 million vs. 9.7) and home prices as measured by S&P/Case-Shiller index also disappointed." Perhaps it is time to launch the REDI Zero soft dollar machine: if Goldman makes billions and is dead wrong all the time, we would be trillioniares...So naturally, here's Goldman, pitching the high "Sharpe Ratio" basket, or back to defensives. Of course, anyone who listened to use almost three weeks ago already has this on.

By William Banzai Yeats

In tonight's episode of "Friday night comedy with Zero Hedge", instead of name play (also here) or almost factual Bloomerg [sic] stories we present 6 minutes of stand up comedy from the one, the only James Altucher who brings the mysterious case of the missing Birinyi ruler, to a close. Since we are laughing too hard to be able to type for any extended period without fatfingerdly sending the ES to 0, we open up to our readers the following clip of pure comedic bliss in which Altucher makes the trivial case for Dow 20,000 using the very same arguments you have heard elsewhere at least a thousands times, though with such conviction, dedication, and passion, that one not help but stare mesmerized, mouth agape, and hypnotized submitting a limit buy order for the DO at 19,999 (because, ultimately, it is a good deal - just ask James).

Credit markets have been performing well all year. The returns, while not outstanding have been incredibly consistent. There has been an eerie calm to the market. Most people are bullish on corporate credit - even those who don't like the overall yields argue that the spreads are attractive. That may be true, but two leading indicators of potential trouble in the credit market have popped onto my radar screen

I've repeatedly pointed out that Wall Street executives are incentivized to lie, cheat and steal. So - of course - they will continue to lie, cheat and steal. Politicians are EXACTLY the same ...

Will the biggest acquisition in its 36-year history give Microsoft a leg up on Google and Apple?

Food stamps, my pops, and another look at a trillion.

Just in case the broad speculator public did not get the message earlier this week after the CME lowered ES margins, just in time for the market to sell off and send realized vol surging (while of course ignoring plunging vol in gold, silver and all other commodities), the CME has completed the "paint by Rahmian numbers" puzzle, and has made clear which other asset class has the investment "go ahead" by the administration. As of a few minutes ago, the initial and outright margins for 10Y and 30 Y Treasury Bond Futures, 10 Year On The Runs, 7 Year Interest Rate Swaps and LT US Treasury Bond Futures were all lowered by up to 19%. Good thing the move comes 4 weeks before the end of QE 2. Were it to just precede, or, gasp, coincide with June 30, one may get ideas that this is not quote unquote risk management, such as that expressly not exhibited by the CME's refusal to hike ES margins following their cut, but is nothing but another glaringly obvious means of directing speculative capital into preferred asset classes.

Probably the most imprtant secular trend in recent employment data, one that has a far greater impact on the macroeconomic themes than Birth/Death and seasonal adjustment manipulated month to month shifts in the employment pool per either the household or establishment surveys, is the labor share of national income. In a 2004 paper from the St. Louis Fed, the authors make the following statement: "The allocation of national income between workers and the owners of capital is considered one of the more remarkably stable relationships in the  U.S. economy. As a general rule of thumb, economists often cite labor’s share of income to be about two-thirds of national income—although the exact figure is sensitive to the specific data used to calculate the ratio. Over time, this ratio has shown no clear tendency to rise or fall." It would be wonderful if this was true, and thus if the US population really had a stable distribution of income between laborers and capital owners. Alas it is dead wrong. In fact, as the latest note from David Rosenberg points out, the "labor share of national income has fallen to its lower level in modern history - down to 57.5% in the first quarter from 57.6% in the fourth quarter of last year, 57.8% a year ago, and 59.8% when the recovery began." And here is where the Marxist-Leninist party of the US should pay particular attention: "some recovery it has been - a recovery in which labor's share of the spoils has declined to unprecedented levels."

"I have said it's worse than Chernobyl and I’ll stand by that. There was an enormous amount of radiation given out in the first two to three weeks of the event. And add the wind and blowing in-land. It could very well have brought the nation of Japan to its knees. I mean, there is so much contamination that luckily wound up in the Pacific Ocean as compared to across the nation of Japan - it could have cut Japan in half. But now the winds have turned, so they are heading to the south toward Tokyo and now my concern and my advice to friends that if there is a severe aftershock and the Unit 4 building collapses, leave. We are well beyond where any science has ever gone at that point and nuclear fuel lying on the ground and getting hot is not a condition that anyone has ever analyzed." So cautions Arnie Gundersen, widely-regarded to be the best nuclear analyst covering Japan's Fukushima disaster. The situation on the ground at the crippled reactors remains precarious and at a minimum it will be years before it can be hoped to be truly contained. In the near term, the reactors remain particularly vulnerable to sizable aftershocks, which still have decent probability of occuring. On top of this is a growing threat of 'hot particle' contamination risk to more populated areas as weather patterns shift with the typhoon season and groundwater seepage.

Pictures are worth a thousand words. These pictures tell the story of QE.

RANsquawk Market Wrap Up - Stocks, Bonds, FX etc. – 03/06/11

As we predicted last week, the tide has turned in the futures market, where after 4 weeks of steep declines, the net EUR non-commercial specs have finally posted a pick up. And considering they are delayed by about 700 pips, after the pair has surged since May 23, expect what will likely be the biggest surge in net long EUR exposure next week. In the week ended May 31, there were 21,970 net longs, compared to 19.129 in the week prior, and 99,516 on May 3, when the EURUSD was flirting with the 1.50 mark. We expect a pick up of at least 30-40k contracts in the next week as all latecomer shorts promptly cover. Elsewhere, the short covering spree in the USD continues but not for long: look for the most recent net long exposure of 4,787 to promptly flip and go negative once again as more and more begin anticipating another Monetary Easing episode. And out east, the net JPY exposure went bearish fror the first time sine May 3, with net exposure dropping from 8,006 contracts to -1,648. The technicals at this point indicate a break of recent EURUSD resistance in the 1.50 area is very much possible.

Someone keep an eye on Waddell and Reed at all times. Repeat: all times. Because once they, and the market, and the Troica realize that the passage of Bailout 2 will lead to a revolution, it will get very, very interesting. "Protesters belonging to the left-wing The All-Workers Militant Front (PAME) union unfolded a giant banner from the roof of the finance ministry building on the central Syntagma square, calling for a nationwide strike against the new austerity measures that the government agreed to take in return for the new bailout package. "From dawn today forces of PAME have symbolically occupied the finance ministry, calling on workers to rise, organize their struggle and prevent the government's barbarous and anti-popular measures from passing," the front said, AFP reported."

It has been a few weeks since Goldman's FX strategist Tom Stolper made a public appearance. Which is reasonable: after all the EURUSD dipped as low as 1.39 about ten days ago, a level which threatened to stop out Stolper's 1.55 EURUSD target at a loss. Luckily for the GS FX strategist, this is about the time when the G7 decided it was its imperative to once again impair Europe in exchange for sending US stocks higher (i.e., DXY down, RUT up), alas the decision came at a very bad time for the US economy, which was just entering the worst 10 day period of declining growth since last summer. Either way, now that the EURUSD has retraced a massive 630 pips move in the past 10 days, Stolper has once again shown his head, issuing yet another hit piece on the USD. And what a hit piece it is: "...he upcoming balance of payment data will likely show a notable
deterioration in the BBoP. Finally, US policymakers seem to be making
little or no progress on fiscal consolidation with Moody’s now also
warning about the consequences of hitting the debt ceiling in early
August. We remain short the USD against the EUR, CNY, MYR, PHP, and now also the NOK." Ok, we get how you feel... But what is the prop desk doing?