Archive - Sep 12, 2011

Kim does Kantor...

If you feel like the market took one sniff at the much anticipated Obama, cue horns, bassoons and oboes, "American Jobs Act", and threw up all over this latest Keynesian abortion, you are not alone. Here is David Rosenberg explaining how, unlike Goldman which thought the plan is more than expected, is actually nothing more like a tiny flatulent wind in a feces-storm. He summarizes it best: " I'll put it to you this way. Assuming (i) that the House Republicans do not accept the Obama spending measures, and (ii) half of the tax relief goes into savings and debt reduction, then we are talking about the grand total of $35 billion of net new stimulus from this "jobs plan". That's principally because so much of it is merely extending what is already in the system. At an annual rate, that is a 0.2% boost to baseline GDP growth. In other words: much ado about nothin'. It doesn't even come close to offsetting the ongoing drag from the retrenchment at the state and local government levels." So anyone looking for an explanation why the market is down 4.3% since Thursday, here it is. And what is more disturbing, not even rumors of additional QE on top of the widely priced in Operation Twist, have had any impact. In other words, the time for another Hugh "I suggest you panic" Hendry soundbite is nigh.

Folks, this is the hard truth: the US is broke and our leaders have no clue how to solve any of the structural issues our economy and markets are facing. They’ve spent TRILLIONS propping up the stock market but haven’t created new jobs nor have they improved Americans’ quality of life in the last two years.

Last week, Zero Hedge first brought to readers the infamous UBS report, which has since made the global rounds, and which essentially laid out the binomial tree for Eurozone survival as follows: either the EUR survives, or we get Civil war. In keeping with the schizophrenia of the TBTF banks whose number one goal is to cover their ass by predicting the two opposite possible outcomes, so as to avoid being sued by sovereigns once the dominos start falling, here is the firm's much respected economist George Magnus, who in his latest release of "By George", does a comprehensive framing of the agenda in the Eurozone. His conclusions: don't believe the European bureaucrat PhDs - there is much more here than meets the eye. To wit: "The dilemma over where to draw the lines between integration and sovereignty lies at the core of the fiscal union debate. The policy agenda has to recognise this, and not assume that fiscal union, one way or another, is eventually a ‘gimme’, even though logic would say it should be. Parallel to the logic are the politics and vested interests, the German Constitutional Court notwithstanding, which say fiscal union only one theoretical outcome, and maybe a long shot. Most likely, the political limits to fiscal integration have not yet been reached, but if there are further moves towards but not reaching this goal, they will most certainly be on German, and therefore, limited, terms. We may conclude that while the Euro system is not about to break up, its viability as it stands is far from assured." Maybe not "about" - give it a few weeks though...

One justification for bailing out Wall Street was that it would ultimately help Main Street.  ast time we looked at the diamond price index for 1-ct diamonds. Today we investigate the effects of QE2 on that most Main Street of businesses--the high-end diamond retailer. At the prices quoted, a single diamond of this size would set you back about $110,000. Hopefully she's worth it. There are two significant periods of rising prices--early 2010, and November 2010 to June 2011, during which time prices rose about 30%. The official CPI (excluding food and energy) was 1-2% over the same interval. We note that this last interval corresponds approximately with the timing of QE2, and congratulate the Federal Reserve for aiding Main Street business.

Earlier today we reported that 3 Month USD Libor hit a year high of 0.343%, jumping from 0.338% on Friday. The reason we bring this up is that the US Treasury just priced $32 billion in 3 Year Bonds (chart 1 below) at a yield that is below that of 3 Month Libor. As for what that means we leave the explanation to anyone who believes that a 0.000% on the 30 Year (which courtesy of Operation TurboTorque we may soon see) is perfectly normal. For those who prefer empirical evidence, the last time this spread inverted was back in early 2009 before the Fed bailed out the world for the first time (chart 2 below). Now, on the question who bails out the world this time around, with all the central banks "all in" already, we are not too sure. Either way, completing the auction details, was a Bid to Cover of 3.148, slighly lower than recent averages, a Dealer take down of 53.7%, or more than half, and Indirects accounting for 35.7% or about their average. The non-eventfulness of the auction was confirmed by the lack of tail, with the When Issued trading at 0.34% at 1pm.

In order for a move of that caliber to occur in the US Dollar, we’ll need to see a full-scale crisis to hit the markets (the last two US Dollar rallies occurred during the 2008 collapse and the 2010 Euro Crisis). So expect greater downside risk in stocks in the near future.

With the US economy in free fall, European liquidity imploding, NASA on beneficially inclined and extremely solvent extraterrestrial life alert (someone has to bailout the world after all), at least we have political circuses, if not so much bread... or cake. Here is what DC has in store for us over the next five days. Luckily, we can forget our trials and tribulations tonight when 8 pm brings with it the second Republican presidential address in which Ron Paul will once again be the undisputed winner and will be largely ignored by everyone in the mainstream, financially-funded media.

We now know that the US is an Onion Republic, which leaves open the question: what is Greece... because we are getting very vegetably challenged here. According to the Bank of Greece, household and corporate deposits declined for the 7th month in a row, dropping by €1 billion euros in the July. Since January 2010, total deposits have declined from €233 billion to just €187 billion, or €46 billion, or 20% of the entire deposit base. Once again, we make it very clear that no matter what the government does with sovereign tax collections, spending cuts and stop gap liquidity boosts, as long as the deposits outflow continues, nothing else matters. And speaking of tax collections, according to Dow Jones, completing the unbelievable Greek farce, is the news that tomorrow in addition to the now standard customs officials and taxi drivers, among those striking will be the country's tax collectors as well. So.... just how will Greece collect those so very precious taxes it needs to pretend it is in compliance with the Troika's demands for deficit cut compliance in order for the country to get the next IMF tranche which will stave off bankruptcy for one more month. As a reminder, Greek cash runs out on October 17.

Since President Obama missed the best opportunity three years ago, it is too late for a do-over now.

The irony could.not.possibly.be.any.damn.funnier; Just as Sgt. Obama had the not so lonely unemployed club band huddled around him to tell America to "PASS THIS BILL", literally that very minute Bank of America released a statement it is sacking 30,000. Because Banana republic is so 2010, we are now officially an Onion republic.

It is quite refreshing to see some real and objective analysis come out of the sell side, particularly from one bank regarding another, but I must admit that if I had to pick a bone with Lim's analysis, it wouldn't be the content or quality, but the timeliness. What the hell took you so long to come to these rather astute observations, dude?

Just after the FTSE Mib announced it is in process of breaking once again, we get notification that the Italian banks are resuming their rolling halts as predicted earlier this morning, with Intesa the first to go offline after plunging 7.9%. What next: any selling will be punshiable by death? Or will the Society for the Prevention of Cruelty to the Status Quo^TM not go that far?

It is a day ending in -y, which means the TOTUS will be out there, somewhere, sharing all the juicy fiscal wonders still untapped and hidden deep in his magic sleeve, from whence they will be pulled after the American Jobs Act (the most recent Keynesian flashbang grenade to be lobbed at the middle class), fizzles out. Watch it live here.