Archive - Aug 22, 2011

This reveals QE for what it really was: just another “hit” for drug addict that is the global debt system. We’ve already passed the point at which the negative effect of monetary easing (inflation) outweigh its positive effect (markets rallying). This is similar to the state of drug addiction in which the drug barely creates a “high” but is ravaging the user’s system with health problems.

We take this moment from your busy schedules to update you that the CDS of Bank of America has reached escape velocity and has now entered suborbital traffic. At 370 bps, which is where the CDS is trading as of this moment, it is only 30 away from the 400 it hit in March of 2009 when the world had to be bailed out by the Fed: a ploy which this time will not work since every central bank has already doubled down to the hilt. In other news, expect bashing of evil bloggers who indicate BofA default risk spikes to commence momentarily as obviously it is only they who are to blame for BAC's upcoming bailout.

It may not be quite Obama telling us to buy stocks as he did on March 6 due to attractive "profits and earnings ratios", but it is about as close as him advising it is time for everyone to do their patriotic duty and buy shares of floundering Wells Fargo:

• OBAMA CALLED BUFFETT TO DISCUSS MEASURES FOR SPURRING ECONOMY

We can't wait to hear what 'altruistic', taxpayer bailout-funded ideas the Octogenarian of Omaha had. In the meantime we wonder: just why does Obama have an economic advisory team. Oh wait, after everyone bailed on him, Obama has no economic advisors left at all. Carry on then.

BAC CDS is 30 wider, and back to 360.  Its stock is getting hurt.  How long before some renewed focus is applied to the other banks here.  Every day it seems that it is news about real estate that drags down BAC.  The residential problems are at the forefront, but there are problems with the commercial market as well.  Rating agencies, burned so badly before, may be reluctant to provide such generous ratings when deals need to be re-financed.  And in a country where commercial building continued for the past 3 years, but jobs haven't reappeared, how much pricing power is really there?  The CMBX are hitting one year lows (in price terms).  Since commercial real estate problems haven't been grabbing the headlines, I suspect there is more room to go on banks. In Europe, the banks are all under renewed pressure.  This is morphing into both a sovereign debt problem and now a senior bank debt problem.  Stories of some difficulties getting overnight funding abound.  Most stories are probably just rumours, but in this environment, they are believable.

Our congratulations and belated birthday wishes to Ron Paul, who yesterday raised a sizable $1.8 million in a "money bomb" fund raiser in under 24 hours. As a reminder this is merely an appetizer of what Paul's loyalists can do, considering back in 2007 Paul raised over $6 million in the same time frame. Nonetheless, we find it ironic that the very same fiat confetti that Bernanke prints with reckless abandon is the same that will be used to hopefully one day end the tyranny of central banking.

Some investment and trading tidbits about the Squid that somehow have miracurously escaped both the pop media and sell side Wall Street... Hmmm....

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

Courtesy of Morgan Stanley's Huw van Steenis, we present the only chart one needs to see to understand what is going on in Europe.

Can we all just fast forward to Tim Geithner making apocalyptic threats if he doesn't get TARP 2 to bail out Bank of America (which in turn will "help" Rick Perry) please?

And so we return to that point when the most engaging, yet useless, topic of discussion is what Bernanke will say or the Fed will do, in this case this coming Friday at the 2011 edition of the Jackson Hole Fed meeting, and specifically Ben's keynote speech. By now we have seen endless iterations of what pundits expect will happen: from nothing to another round of QE. Today, we present SocGen's take which is that while an outright third round of monetization is unlikely for now, the Fed may well proceed with a lite version of QE in the form of "sterilized" operations, or curve targeting, aka Operation Twist, as was noted here some time ago. One thing we certainly agree with SocGen on: "If markets remain under pressure, Bernanke could be forced to commit to something next week." The market obviously knows this, in which case if the market case is for QE3 or bust (and remember: Wall Street is still stuck in beta levered world where the only P&L comes courtesy of the Fed this will be most welcome) today's latest vapor rally will be promptly nullified by Wall Street which has only 4 days left to send a very loud message to the Chairsatan.

I warned to get defensive several weeks ago. That warning is even more important now. I would avoid stocks and Treasuries as neither are particularly safe. I’d have increased exposure to cash and PHYSICAL bullion (Gold and Silver). If you have to remain long stocks shift into large-caps and companies that will exist a year from now (brands and industries people will need regardless of how bad the economy gets).

(But yes, @Nouriel, we need central banks, and moral hazard and FRB did not exist before 1913...Q.E.D., right?)

Following last week's €22 billion in secondary market bond purchases, this week we get a new total of €14.291 billion in settled Italian and Spanish bonds monetized: the third highest weekly total ever, bringing the cumulative total E110 billion. This follows on the heels of the BOJ intervening (or not) in the JPY market and the SNB buying 1 month CHF futures (leverage, leverage, leverage). What can one say but free, efficient, and central-bank free markets as far as they eye can see. Also guess what will happen when political pressures push the ECB to stop monetizing: all the moves tighter will be unwound in a manner of nanoseconds, and then a whole lot of "some."

The bounce has started (again), but don't get overly bullish.....