Archive - Jul 2011

That giant whooshing, and humming, sound you hear are all the printers at the basement of Marriner Eccles getting refills and start the warm up process. Because according to the Fed Charles Plosser the Federal Reserve is actively preparing for the possibility that the United States could default. Which can only mean one thing: an immediate paradrop of millions of $100 bricks to every man woman and child in the US since as we all know by know Tim Geithner has repeatedly confirmed the Treasury has absolutely no default plans. None.

Podcast of Lee Adler and Russ Winter at Wall Street Examiner discussing the debt ceiling, gang of 6 and the impossible situation facing the government.

For those who are about to get cerebral hemorrhage trying to figure out the ensuing math, don't worry: it is all based on Marx to Myth.

Shocker: the bank of Warren Buffett, that paragon of virtue and decency, busted by the capo di tutti ZIRP capi itself for lying to grandma? Surely WFC investors, who don't have to deal with their investment either admitting or denying wrongdoing, can "suck it in" and we can get Charlie Munger to preach some more fire and brimstone morality about the evils of gold and the miracles of taxpayer bailouts.

You know you want to know who has been named...

Morgan Stanley, traditionally the second most Kool-aidy bank on Wall Street, just after Deutsche Bank (and specifically the Germans' head economist) begins its latest report on the challenges facing the "global central bank" on a rather downbeat note: "Slowing growth is threatening the creditless, jobless recovery in the US and the Fed stands ready to act. The European flu has flared up and the risks to the ECB’s strategy of normalising policy have risen markedly. And emerging market central banks are balancing domestic growth against downside risks to developed market economies as they keep policy from becoming restrictive or even tightening too quickly. The world today appears to be in an eerily similar place to mid-2010." Hmm, where have we heard this 2011=2010 theme before... Anyway, it gets worse: "there are some important differences too. This time, the US and euro area economies are facing downside risks to growth just as normalising monetary policy is slowing EM economies down too. A year ago, EM monetary policy was still stimulative and domestic demand growth was encouraged as output gaps were still negative. The risks to global growth today are thus broader now than they were last year. At the same time, the thresholds for central banks to ease appear to be higher this year too. Rising core inflation in the US, elevated inflation in the euro area and a recent battle with inflation in the EM world all make it difficult for central banks to abruptly reverse the direction of policy. A look at the challenges facing DM and EM central banks has the Fed, the ECB and the RBA facing the biggest downside risks to growth in the DM world while the ECB (again), the BoE and the Riksbank face immediate inflation concerns. In the EM world, central bankers have no time to rest despite a recent victorious battle with that old enemy, inflation. European contagion and weaker global growth should keep policy-makers there on their toes for the next few months." Indeed it should, but with so many central bank actors, each of which experiencing their own set of unique challenges, who can keep track of all the often times opposing responses that the central planners are presented with? Well, courtesy of this handy, dandy tearsheet from MS, now you can too.

The EU accounts for roughly $400 billion of China’s exports, making it China’s single largest export market. So if Europe collapses, China’s economy takes a BIG hit. Remember, China is a centrally controlled economy, NOT a dynamic open market economy. Put another way, the entire China “economic miracle” is based on the current system continuing to operate in some form (China can continue to export, rip off intellectual property that is developed elsewhere, throw its weight around, etc).

I looked at Brown & Brown about a year ago (May 2010), here are my thoughts which are still relevant today:

A must watch profile of the man at the heart of the "The Big Short" and one of the first to come up with the subprime trade.

Time for the hourly update on the Congressional soap. The Hill reports that "Congressional Democratic leaders are headed back to the White House on Wednesday for more talks on raising the debt ceiling. White House press secretary Jay Carney announced House and Senate Democratic would meet with Obama at the White House at 2:50 p.m. Obama called Senate Majority Leader Harry Reid (D-Nev.), Senate GOP Leader Mitch McConnell (Ky.), Speaker John Boehner (R-Ohio) and House Minority Leader Nancy Pelosi (D-Calif.) on Tuesday night." It adds that after the release of a new proposal Tuesday by the bipartisan Senate Gang of Six, Obama told reporters it was time for leaders to "talk turkey" and work to reach a deal. And while there has been a recent increase in voices against the $3.7 trillion "plan", the fate of the McConnell fall back plan, which as expected is the most likely to pass as it is completely toothless, is also looking shaky:"House Democratic leaders are attacking Senate Minority Leader Mitch McConnell’s (R-Ky.) debt-ceiling fallback plan, characterizing it as a political ruse intended to scapegoat Democrats and taint them at the polls. “I’m not a fan of the McConnell proposal,” Rep. Chris Van Hollen (Md.), the senior Democrat on the House Budget Committee, said Tuesday during a press briefing in the Capitol. “It’s designed to protect mostly Republican members of Congress from taking responsibility for votes that they’ve already made." How this plan makes sense in light of Obama's earlier statement that the House would not compromise a debt ceiling plan based on one time increases to the limit, without a long-term debt ceiling extension is unclear, nor is it clear how any of these plans which are simply window dressing will pass muster from the rating agencies, where even Fitch earlier announced any plan would have to be comprehensive for no downgrade of the US to occur. Translated: the CRAs need more stuffing for the Christmas stockings.

The negative trend in Bank of America's financial results over the past several quarters is deeply troubling and, as we have long predicted, may suggest an approaching Dodd-Frank restructuring is in the cards.

In the past two weeks, one of the curious development the monetary aggregates, in addition to a spike in the Adjusted Monetary Base (discussed previously here), was the $88.7 billion surge in the M2 for the week ended July 4, the third largest jump in the broadest tracked monetary aggregate in history. Some have speculated that this number may be indicative that the money multiplier has once again started working as bank reserves after 2 long years, finally start making their way into the broader market. Unfortunately as Stone McCarthy explains this is not the case at all (sorry Fed: QE is still a failure) but merely has to do with the repeal of Regulation Q (explained here) which has resulted in a surge in small tie deposits inclusive of money market deposit accounts, which have jumped by $110 billion in the past two weeks, coupled with an accelerating shift of dollar deposits back to banks domiciled in the US. In other words: regulation explains the entire move. There is, however, a kicker, and it goes to another indicator of "economic growth" - the leading economic index, which is actually driven by M2. This means that the fake surge in the M2, will result in an all too real jump in the LEI, which in turn will push the market higher as vacuum tubes interpret the data as positive for the economy as opposed to merely driven by a regulatory forced shift of money from Pile A to Pile B. Expect stocks to surge once the next LEI reading is announced as a result.

A snapshot of the European Morning Briefing covering Stocks, Bonds, FX, etc.
Market Recaps to help improve your Trading and Global knowledge

There's regular debt honestly incurred - which people shouldn't be deadbeats on. We should be responsible and repay our debts! Tut then there's "odious" debt ... a different animal altogether

Bloomberg has just released some additinal details from the proposed plan based on a document it has received:

• GANG OF SIX SETS TOP PERSONAL TAX RATE BETWEEN 23% AND 29%
• PLAN LOWERS CORPORATE TAX RATE TO MAXIMUM OF 29% MINIMUM OF 20%
• SENATORS' PLAN URGES 'REFORM' OF MORTGAGE, CHARITY TAX BREAKS

We will bring you more if we get the full document.