Archive - Aug 2011

RANsquawk Market Wrap Up - Stocks, Bonds, FX etc. – 17/08/11

If you thought the first Round of the Financial Crisis was bad, wait until you see the next one. Indeed, I fully expect that what’s coming is going to be 2008 on STEROIDS. I’m talking about market crashes, civil unrest, riots, bank holidays and more.

In all the excitement over the recently uber-broken market, some may have forgotten America has a muni problem. Here is Fitch with a reminder, as it downgrades New Jersey general obligations from AA to AA-, and continues: "The downgrade of New Jersey's GO bond rating to 'AA-' from 'AA' reflects the mounting budgetary pressure presented by significant and growing funding needs for the state's unfunded pension and employee benefit liabilities, particularly in the context of a weak economic recovery, a high debt burden, limited financial flexibility, and persistent structural imbalance."

Flashing headlines:

• GRASSLEY ASKS SEC TO ACCOUNT FOR ALLEGED DOCUMENT DESTRUCTION
• SENATE'S GRASSLEY MAKES REQUEST IN LETTER TO SEC'S SCHAPIRO
• GRASSLEY: WHISTLEBLOWER CITED `UNLAWFUL DESTRUCTION' OF RECORDS
• GRASSLEY CITES ALLEGATIONS IN LETTER FROM SEC WHISTLEBLOWER

As a reminder, Grassley is after Stevie Cohen. If Mary Schapiro indeed willingly destroyed docs that exposed SAC as a criminal organization, she is going to prison. And if indeed this is true, in the aftermath of Madoff, that is where she belongs.

The first (of many) 21st century expropriations of the only true money begins today, after Hugo Chavez just announced that he will "nationalize the gold industry, including extraction and processing, and use its output to boost the country's international reserves." And who can blame him: he is merely doing what FDR did so well back in 1933 with executive order 6102. Our only advice is that he should wait before he sells: with the only option for the central planners now that we are reentering the downslope of the depression, being, as always, to print more money (it can be called anything, but at the end of the day the principle is clear), there is little probability of gold declining substantially for the foreseeable future. As for foreign investors in Venezuela who opened gold mines, we can only hope they were not all that surprised: "The move follows a dispute between his government and foreign miners who say the rules limiting the amount of gold that can be exported from the South American nation hurt their efforts to secure financing and create jobs. The gold industry will be just the latest part of the economy to be put under state control by the socialist leader, who said he would issue the necessary decree in the coming days and called on the military to help control the sector." The good news: gold may finally dip modestly which will simply provide yet another entry point for everyone (increasingly more and more) who has taken Jeremy Grantham's advice and is now fighting the Fed.

The political and social environments in the US are growing increasingly anti-loose money from the Fed. The Fed knows this which is why we’re seeing dissent internally (see Dallas Fed President Dick Fisher’s comments from earlier today).So absent some kind of catastrophic event, QE 3 isn’t coming any time soon. Which means the floor has come out from under stocks (it just did). Which means…

Billionaires and POTUS are not welcome in this thread...

Funny how much can change in a month. After everyone was making fun of David Rosenberg as recently as June, not a single pundit who owns a suit and can therefore appear on CNBC dares to mention the original skeptic. Why? Because he has was proven correct (once again) beyond a reasonable doubt (and while we may disagree as to what asset class is best held into the terminal systemic collapse, Rosenberg has been one of the most steadfast and consistent predictors of the 'non-matrixed' reality in the world). Yet oddly enough there are still those who believe that a double dip (or, more accurately, a waterfall in the current great depressionary collapse accompanied by violent bear market rallies) is avoidable. Well, here, in 12 bullet points, is Rosie doing the closest we have seen him come to gloating... and proving the the double dip or whatever you want to call it, is here.

Remember how a whopping month ago the Dow Trannies were supposed to be the Dow Theory signal that was sure to send the S&P above the 1500 resistance? It is time to revisit the chart, which after a furious collapse has just followed the S&P into entering the Death Cross. It is truly odd how we never hear about the Dow Transports any more on Comcast's finance-stand up comedy fusion station any longer.

Courtesy of Fed dissident Dick Fisher, who made it clear that for the first time in history, the Fed is no longer in the plunge protection business, ES wasted no time to react appropriately and take out the 1184 technical support level, a $20+ swing in a few hours. Remember: the Treserve needs someone to boost purchases of Treasurys now that Obama is about to announce that the 2012 budget deficit will be a few hundred billion larger (funded, naturally, through bond issuance), so the old song and dance where the S&P has to be under 1000 for QE3 begins anew...

Did you know that the word ‘idiot’ is actually derived from the origins of democracy in ancient Greece? Thousands of years ago, a Greek citizen who demonstrated disinterest in politics was labeled ‘idiotes’; it literally meant ‘private person,’ which curiously enough was a term of derision at the time. Fast forward to the pitiful excuse we have for a democratic process in the world today, and the opposite is now true: you have to be a complete idiot to invest yourself in these politics.

The quote, again, for those who missed the headline, is:

• My long-standing belief is that the Federal Reserve should never enact such asymmetric policies to protect stock market traders and investors. I believe my FOMC colleagues share this view.

Oh, so 3 years after doing everything in their power to "protect" the dumbest momos ever conceived, spawning countless newsletters and twitter services that believe they provide value but merely fool others into chasing momentum, the Fed gets religion?

No thanks Dick, please Fed continue protecting stock traders: that way when you finally blow up you will take every idiotic, momentum chasing Tom, Dick and Harry with you.

Once abundant aquifers worldwide are being rapidly depleted, and resolving this is expensive and requires growth controls and sacrifice.

While we are not sure if this is the biggest weekly outflow from mutual funds (the weeks after the Lehman bankruptcy potentially being larger), we do know that the week ending August 10 saw a near-record amount of redemptions from domestic equity mutual funds, amounting to an unprecedented $23.5 billion. This brings the total for August along to $34 billion: just $13 billion in outflows more and this will be the single biggest outflow month in ICI history. This is obviously a problem because as of the end of June mutual funds once again held a record low just 3.4% in cash. And the outflow was not limited to just US stocks: investors pulled cash from every single asset class for the third week in a row, including foreign stocks, bonds and munis. In fact, in the last three weeks a total of $67 billion has been withdrawan across all asset classes. Going back just to US stocks, this is the 16th consecutive week of outflows since April 2011, amounting to $87 billion in total outflows, and also about $172 billion in domestic equity fund outflows since the beginning of 2010. One thing is certain: there is no way that mutual funds have survived this veritable stock market run unscathed. We expect to find just which funds have blown up as a result in the next few weeks as the news of wholesale terminations can no longer be contained.

First they cut the rating of the US, then the went and downgraded Google, now S&P is going for the "treason trifecta" by just releasing a report which literally takes the US to the toolshed. Among many other things, the rating agency just cut US growth for the next 3 years. To wit: "While July data finally showed a slight improvement in the U.S. economy, it's not enough to support expectations that the second half of the year will see a bounce in growth. We now expect to see an even slower recovery than the half-speed we earlier expected. We now expect just 1.9% growth in the third quarter and 1.8% in the fourth, to bring 2011 calendar year growth closer to 1.7% instead of 2.4% we earlier expected. We also downwardly revised growth expectations for 2012 and 2013, as a more drawn-out recovery is factored into our forecast." We wonder how soon before the realization that the US is in fact contracting will force S&P to downgrade America even further, a move which will force Moodys and Fitch to come up with a AAAA rating for the US in order to keep the weighted average rating at current levels. It gets even worse though as S&P now openly brings the 2008 analogy: "The markets' violent swings in early August resurrected fears of the market meltdown, such as the one in 2008 when Lehman Brothers went under and Reserve Fund broke the buck. Currently, the crisis is considered to be much more severe, with U.S. sovereign debt at risk of default. The low Treasury yields indicated that markets were expecting Congress to come to its senses and reach a deal. However, the wait and the last-minute deal, which left a lot to be desired, only increased worries that the government will do more harm than good. Confidence in the recovery and in U.S. policymaking has hit new lows. After U.S. sovereign debt lost its triple-A status and financial markets unwound, consumer confidence hit a 31-year low and manufacturing sentiment readings contracted." And the kicker: S&P, yes S&P, makes fun of the Fed, and specifically the "transitory" nature of the economic collapse: "Continued weak growth after sharply downward GDP revisions has made the "temporary argument" a less plausible explanation for the slew of bad news for the first half of the year. At least the GDP revisions make the persistently high unemployment rate make more sense. But the revised data also indicate a much weaker outlook than we previously expected. As the boosts from rebuilding inventories and fiscal stimulus unwound, consumer spending and housing couldn't cover the hole, because the former is still working off excess debts and the latter excess supply. The recovery comprised a first-half average growth of just 0.8%." And that is how you respond to endless scapegoating that now blames the S&P for the collapse. Look for S&P to make the FBI's most wanted list very shortly.