Archive - Jun 2011

Not even 5 mintues ago we predicted that Goldman would lower its 150,000 NFP forecast to 125,000. Well, even we were off. Hatzius just cut his Friday NFP forecast to 100,000. Just like last August when the horrendous NFP number set off QE2, so Wall Street is in full panic mode, as it tries to find a way to crush stocks enough to give Bernanke validation for QE3, but without getting retail to throw in the towel for the last time. Still to come: the firm trimming H2 GDP to under 3%. We give it a few days. "We are lowering our forecast for May nonfarm payroll employment to +100,000 from +150,000 previously. While the ADP report has a mixed tracked record in forecasting payroll growth, our research indicates it should receive some weight. Moreover, the weakness in the ADP report follows a streak of weaker-than-expected news on both the labor market and activity as whole. We are holding our forecast for the unemployment rate at 8.9% and for average hourly earnings growth at 0.2% mom." Elsewhere, Joe Lavorgna is dry heaving in a corner somewhere, trying to find a way not to look like a complete idiot for having to cut his NFP forecast two days in a row, from 300,000 to under 150,000.

Yesterday we had the biggest monthly drop in the Chicago PMI since the Lehman collapse. Today, the Lehman bankruptcy is invoked again, after the critical ISM Manufacturing index plunges to 53.5, far below expectations of 57.1, and from 60.4 previously: this is the lowest number since September 2009. At this level of "growth" stall , the US economy will be in an official contraction (Sub 50) next month. From the report: "The PMI registered 53.5 percent and indicates expansion in the manufacturing sector for the 22nd consecutive month. This month's index, however, registered 6.9 percentage points below the April reading of 60.4 percent, and is the first reading below 60 percent for 2011, as well as the lowest PMI reported for the past 12 months. Slower growth in new orders and production are the primary contributors to this month's lower PMI reading. Manufacturing employment continues to show good momentum for the year, as the Employment Index registered 58.2 percent, which is 4.5 percentage points lower than the 62.7 percent reported in April. Manufacturers continue to experience significant cost pressures from commodities and other inputs." Surprisingly, inventories declined from 53.6 to 48.7, refuting yesterday's PMI data. The only good news: Prices Paid dropped from 85.5 to 76.5. Too bad it is taking more than 15 minutes. Next up: Goldman to (i) lower NFP to 125,000 and (ii) H2 GDP to under 3%.

A month ago, Zero Hedge first posted (well, technically we read it at Stone McCarthy but beat everyone else to copying and pasting it first), that according to the Taylor Rule, so widely abused by the lemming central planners in the Marriner Eccles building, the effective Fed Funds rates should, for the first time since the GFC, be positive. This is what SMRA said: "For the second consecutive quarter, the original-specification, quarterly version of the Taylor rule, based on real GDP figures and the GDP price deflator, produced a positive result. The previous day, the BEA released its advance estimate for real GDP figures in Q1 2011. Based on those numbers, the Taylor rule prediction for the federal funds rate target in Q1 2011 is +0.4%. In the previous quarter of Q4 2010, the Taylor rule prediction was +0.1%." Now, Taylor himself, in his blog, confirms that not only should the Fed Funds rate be positive, it should be 1%.

The push for soft internet censorship, brought to you by your favorite oligarchs.

Typically we don't do this, but since our inbox continues to be flooded with a story posted in EUTimes.net, which unfortunately did exactly zero fact checking and source validation, sourced by famous internet hoax master "Sorcha Faal" aka David Booth, titled "Russia Says IMF Chief Jailed For Discovering All US Gold Is Gone" and which is 100% non-factual and based on a loose scattering of data. A quick google check of the source would have been sufficient for everyone who has been fooled by this complete fabrication, to quickly dismiss it. Alas, with the world now approaching The Onion in factual headline flow, we can see how it is easy for many to have been fooled. We just wish to caution readers to be wary, and always, and that is absolutely true for anything read on Zero Hedge as well, always, to validate and double check the factual veracity of anything read on the Internet, especially if it sound like a B-grade Hollywood thriller and cites "sources."

Following last night's largely irrelevant and extremely theatrical vote for a clean debt ceiling hike, this morning 150 economists (of which those belonging to Ivy League institutions can be counted on one finger... the middle one) have signed a letter warning that "a debt limit increase without spending cuts and budget reform will destroy American jobs." Luckily, since a clean debt ceiling hike will have no impact on the BLS birth/death model, there is no reason to bother Paul Krugman with the fact that ever more of his peers think that those calling for endless fiscal largesse are now a part of the problem, and not the solution. From the letter: "An increase in the national debt limit that is not accompanied by significant spending cuts and budget reforms to address our government’s spending addiction will harm private- sector job creation in America. It is critical that any debt limit legislation enacted by Congress include spending cuts and reforms that are greater than the accompanying increase in debt authority being granted to the president. We will not succeed in balancing the federal budget and overcoming the challenges of our debt until we succeed in committing ourselves to government policies that allow our economy to grow. An increase in the national debt limit that is not accompanied by significant spending cuts and budget reforms would harm private-sector job growth and represent a tremendous setback in the effort to deal with our national debt." The full list of signatories is below. Among them are Nobel prize winner and Euro scourge Robert Mundell, John Taylor, Alan Meltzer, Douglas Holtz-Eakin, as well as former U.S. Secretary of State George P. Shultz, and many more. Suddenly the idea of buying US CDS does not seem so outlandish.

And so the thunderous herd of highly overpaid and always wildly inaccurate Wall Street lemmings better known as "economists" starts moving. Yesterday it was that paragon of the 0.000 batting average Joe LaVorgna who cut his NFP forecast from 300,000 to 225,000 (a number we expect will be cut to about 155,000 today, or indicative that little Joey was off by about 100% as usual), and today Morgan Stanley has already fired the reactionary salvo, trimming its NFP forecast for this Friday's number from 175,000, accompanied by Credit Suisse which cuts from 185,000 to 120,000. And these lemmings are paid 7 digit salaries why again? So far the most resilient is Goldman's Jan Hatzius, who just threw up all over the ADP number, but has so far refused to cut his NFP prediction of 150,000. We give him at most 48 hours before he does following today's upcoming abysmal CPI number.

Banks, balance sheets, guaranteed crashes, and why no one ever asks who's going to backstop all of the sovereign debt CDS being written out there...

The latest economic data is out and it is horrendous: with expectations for the ADP employment number to come at 175K, following a downward revised 177K print previously, it tumbled to a puny 38K in May. While this number is extremely irrelevant in terms of correlating to the actual NFP number due out this Friday, expect to see a spate of downward NFP revisions on this latest confirmation that the US economy has stalled even with QE2 still in effect for another 29 days (and soon to be extended). From the report: "Today’s ADP National Employment Report suggests that employment growth slowed sharply in May. Employment in the nonfarm private-business sector rose 38,000 from April to May on a seasonally adjusted basis.  A deceleration in employment, while disappointing, is not entirely surprising. In the first quarter, GDP grew at only a 1.8% rate and only about 2¼% over the last four quarters. This is below most economists’ estimate of the economy’s potential growth rate and normally would be associated with very weak growth of employment." Precisely as expected by Zero Hedge.

The hacker collective Anonymous Operations may not be the most organized but they sure are passionate. Following the latest disinformation campaign of a Greek bailout, the hackers, which had previously expressed their solidarity with the Greek people (see below) have no made it clear that the latest target of their wrath (which a few months ago was the Federal Reserve) is now the IMF. Or at least its website. As of a few minutes ago, "Anonymous" tweeted that the target of its imminent DDOS attack will be www.imf.org. Alas, since the IMF has always been merely a figurehead for global bailout efforts, in this particular case spearheaded by various banking interests, we give Anonymous a few days before they realize that the target of their "anti oppression" move has a website with a .com suffix, not .org. And regardless of how (in)effective this action is, at least it sends the message that someone is willing to do something to at least protests against the rape that will soon occur in Greece, hidden by the very polite word: "privatization."

Markets around the world are still creeping higher, while economic fundamentals are crumbling everywhere. And there are more signs on the horizon that things about to make a change for the worse: collapsing cattle prices!

• Is bond trading dying? (Reuters) - of course it is; everyone is trading CDS
• Russian president comments on wheat export ban lift (Kremlin)
• Europe struggles towards new Greek rescue deal (Reuters)
• A new Greek deal with troika imminent (Kathimerini)... since refuted... then confirmed... then refuted again... then confirmed again... etc
• Rehn Sees Greek Solution in Bond Rollovers, Cuts (Bloomberg)
• Kan Ouster Risk Rises as No-Confidence Vote May See DPJ Split (Bloomberg)
• China May Assume Some Local Government Debt (Bloomberg)
• SAC Faces Probe Of Biotech Trading (WSJ)
• Australia GDP Falls Most Since 1991 (Bloomberg)
• NATO extends Libya operations to September (Reuters)... 2020...
• World’s Wealthy Rose by 12%: Boston Consulting (Bloomberg)

The ISM, ADP, and vehicle sales for May: all expected to be horrible. In other rhetorical observations, what kind of stingy depressionary economy won't let a Fed chairman buy a virtuous economic cycle for $800 billion?

Bloomberg reports this morning that Turkey imported 25.7 tons of silver in May, up from 61 kilograms in April, the Istanbul Gold Exchange said in a report on its website. This is a huge increase in demand and suggests that Middle Eastern demand for silver, which has not been noteworthy to date, may soon become an important catalysts for higher silver prices. Silver demand is particularly strong in China and Asia and among a minority but increasingly vocal and influential band of silver advocates who believe that silver is a superior form of money and will help protect people from developing problems in the western and global financial and monetary system. Bloomberg reports this morning that U.S. silver eagle coin sales through May 2011 are the best since 1986 (see news below). 18.9 million ounces have been sold so far in 2011. While that may seem like a lot, to put that number in context, it is only worth some $661 million. Ireland, a small country, may need an extra €50 billion to be made available under the EU/IMF programme to allow it to remain out of the markets for a longer period. The average daily turnover on foreign exchange markets is in excess of US$4 trillion. The US has monthly budget deficits of over $200 billion.