Archive - Sep 2011

Tim Geithner, in his third third annual pilgrimage to Europe, the first two of which concluded with one after another more discredited stress tests (because in Mark-To-Unicorn America they worked sooooo well), has a slightly different message to the locals on how to run their failed monetary union. From Reuters: "Treasury Secretary Timothy Geithner is likely to urge euro zone finance ministers on Friday to speed up ratification of changes to their bailout fund and consider boosting its size, an EU source said on Tuesday. The official said Washington was worried that the euro zone was not acting fast enough to enhance the EFSF fund and that the stability of the global financial system was at stake. He is likely to tell the ministers that they should consider increasing the size of the EFSF to equip it better for the needs of potential bank recapitalization. "He will probably tell Germany to give up its resistance to an increase in the size of the EFSF," the source said. A well connected fund source told Reuters Geithner had been pushing for a solution for European banks along the lines of the TARP program in the United States, but had not made much headway." Translation: Germany has to immediately throw billions more of taxpayer money into the insolvent bank pit (just like America did), or else Tiny Tim will get angry. Well, if Germany's ruling class was against pledging over 100% of its GDP to bailout Greece and the other insolvents, it will surely be persuaded to commit political suicide after the last man standing from Obama's administration, who still inexplicably has not been fired for gross incompetence (and also prosecuted for tax evasion), has his say. And just as the short selling ban lasted all of one week before Europe's banks tumbled, even a favorable uptake of the idiot's proposals will at best lead to a 24 hour spike in prices followed by what will likely be the terminal tumble into the abyss of failed Keynesian-Bernankian experimentation.

This market seems completely broken. The S&P could be at 1,300 or 1,000 in a week, and neither move would be a complete surprise. One way or the other, moving 1% on a headline that really didn't seem to add any new information is scary. The S&P now seems to move in 5 pt increments. Certainly when credit markets get that illiquid they have at least one good move wider before providing some big relief rallies. The market for SOVX started exhibiting severe lack of liquidity back in June. Since liquidity broke down, it has generally traded wider, with some big sharp rallies. Almost all the other credit indices followed the same pattern as their liquidity broke down. I don't see any reason for equities not to follow. Some might argue that we are at levels where we are due for the relief rally. I'm betting that we aren't. The manic nature of the stock market seems to have increased lately and we are too far off the lows to be comfortable that relief rally is ready.

While Goldman continues to resolutely predict that the EURUSD will any minute now go back to 1.50 (and 1.55 in 12 months or so), Morgan Stanley has for once decided not to ape its far more capable and client "fornicating" competitor Goldman and has thrown up all over the EUR, slashing its EURUSD forecast "significantly lower"  to 1.30 by year-end and 1.25 in Q1 2012, before stabilizing in the second half of next year because the now second rate bank believes that "economic, political, constitutional and monetary policy developments in Europe have now become more challenging for the EUR, while international support is likely to decline." Its conclusion: "As a result, the EUR's attraction as an alternative reserve currency is likely to be reduced." So, let's do the math: EUR: not a reserve currency? Check.  CHF: not a reserve currency? Check (and pegged to the former). USD: about to be gang banged by the windowless corner office at the Marriner Eccles building housing America's central planners? Check. So.... what is left if one is looking for a reserve currency?

While the fact that a record number of Americans are living in poverty should not surprise anyone at this point, what should surprise many is that according to Table P-5 of the Census report of (Lack of) Income, the median male is now worse on a gross, inflation adjusted basis, than he was in... 1968! While back then, the median income of male workers was $32,844, it has since risen declined to $32,137 as of 2010. And there is your lesson in inflation 101 (which we assume is driven by the CPI, which likely means that the actual inflation adjusted income decline is far worse than what is even reported). The only winner: women, whose median inflation adjusted income over the same period has increased by 188%. That said, it is still at 65% of what the median male makes. So injustice all around. And now, it is time to be patriotic again and buy a Pontiac Aztek.

The similarities between 2008 and today are growing even more eerily similar. We’ve seen a mega-bailout similar to Hank Paulson’s “Bazooka,” we’ve also seen short-selling bans and sovereign bailout rumors (China and Middle East for Wall Street in 2008 vs. China for Europe today).

The US Census Bureau has released its annual Income (not so much), Poverty (much) and Health Insurance Coverage report for 2010. The full thing is below but the highlights are as follows: i) Real median household income in the United States in 2010 was $49,445, a 2.3 percent decline from the 2009 median. ii) The nation's official poverty rate in 2010 was 15.1 percent, up from 14.3 percent in 2009 ? the third consecutive annual increase in the poverty rate.  There were 46.2 million people in poverty in 2010, up from 43.6 million in 2009 ? the fourth consecutive annual increase and the largest number in the 52 years for which poverty estimates have been published; and iii) The number of people without health insurance coverage rose from 49.0 million in 2009 to 49.9 million in 2010, while the percentage without coverage ?16.3 percent - was not statistically different from the rate in 2009. Breaking it down by ethnicity, living in poverty were 27.4% of all blacks, and 26.6% of all Hispanics. White, non Hispanics and Asians were doing better at 9.9% and 12.1% respectively. At this point we could interject with a joke about the "wealth effect", "edible iPads", and/or "health insurance", but frankly, all those are way overused by now. Hence, we leave such creativity to our readers.

Update: Italy Hasn’t Asked for Any Help From China, Deputy Min Says... Yeah. Full Retard

Wondering why stocks are soaring and the EURUSD is above 1.37 again? Why, nothing short of the latest rumor, this time that Russia will bail out Europe. Bloomberg reports that Russia may use its international reserves to buy common euro-area bonds if European policy makers back joint debt issuance, Reuters reported, citing an interview with Finance Minister Alexei Kudrin... Sorry, we just report them. Time for the trader diary to get its latest update. The only problem we see with this strategy of rolling daily bailouts is that after China and Russia, who would be far smarter to participate in a stalking horse bid of European assets than to invest general unsecured pre-petition claims, there will be nobody left to "rescue" Europe: after all who else is out there? Zimbabwe? Japan? Argentina? Iceland? We doubt even the 80286's will buy that...

In a brief moment of humility, JPM's masters of the universe admit, well, they are not. The firm sees markets revenue -30% from Q2 2011, sees lower asset management revenues, expects a modest loss in private equity, and will recognize additional litigation expenses. Overall corporate net income is expected to be a small loss.

While the market continues to trade purely on rumor, counter-rumor and refutation of a refutation, the facts demonstrate that Europe is ugly and getting worse. Today's now daily update focuses on continuing deterioration in both liquidity and solvency. First, the usage of the ECB Deposit Facility soared to €198 billion on Monday from €182 billion on Friday. This is a massive €118 billion increase in the past month alone. As the chart below demonstrates, a good word to describe the chart is parabolic. Furthermore, USD Libor continues to rise and has now risen nearly 40 days in a row. While not nearly parabolic, it is time to shift attention away from Credit Agricole, which is still the most "funding challenged", and focus on CSFB which once again rose by 0.01%, and threatens to overtake the troubled French bank in pole position. Time to refocus the shorts from France to Switzerland? Lastly, the CDS are ugly across the board.

Morgan Stanley continues to demonstrate just how badly it lags Goldman. While the vampire squid is mostly known for sending its employees to run such places as the US Treasury, the New York Fed and the ECB (in 2 short months), Morgan Stanley has to be content with the inverse, i.e. hiring former Fed apparatchicks, in this case former long-time Fed advisor Vince Reinhart, who among other things is best known for collaborating with Ben Bernanke on discovering that Operation Twist does not work, and, of course, proposing the currently overt Treasury manipulation operation (for those times when QE is not sufficient) which involves selling puts on Treasury futures (link).

Ever wonder what a page in the daily diary of a "sophisticated" institutional trader looks like? Wonder no more.

Let’s be honest here. Neither China, nor the ECB, nor the Federal Reserve can stave off the collapse that’s coming. Indeed, the Fed spent $900 billion and nearly one year to prop the markets up… and we’ve wiped out ALL of those gains in just one month.

Today's Import and Export Price Index, while not market moving, showed that the US still has some residual inflation to import (Prices of goods imported from China rose by 0.1% in August, and 3.6% from a year earlier). The August headline number came at -0.4%, on expectations of a -0.8% drop (0.3% previously), driven entirely by Fuel Imports which dropped by -1.8%, following a 0.4% increase in July, and a drop of -2.3% previously. In other words, the Fuel component of importer prices follows the Russell 2000 with a correlation of 1.000. AS for non-fuel imports, these was positive as has been the case for 12 months in a row with the exception of June 2011, when it was unchanged. Should QE3 be announced and priced in in one week, look for Brent, and its far less relevant cousin WTI, to soar, sending import prices to the moon once again, and so forth: we all know how the play ends.

Just when we thought Europe was fresh out of rumor ideas, they prove us wrong once again. From Reuters: "Greek Prime Minister George Papandreou will hold a conference call on Wednesday with French President Nicolas Sarkozy and German Chancellor Angela Merkel, Greek state television NET said on Tuesday. NET did not cite any sources and there was no immediate, official confirmation of the call." Judging by the market reaction, which is a big fat yawn, Europe will have to come up with something much better than this.  And we are sure they will oblige: look for the rumor mill to work overtime spewing furious gibberish all day, until something finally sticks to the wall. The end goal is insight: must prevent the unwind of the Eurozone for just 3 more hours when the market closes. And in the meantime, making sure she shoots herself in the foot once again, Merkel said she’s "very optimistic" that Finland’s demands for special collateral as part of the Greek bailout package "will be met within the parameters of measures agreed by euro-area leaders." Funny, because this is 100% backtracking on the official German position as of a few short days ago which was that no collateral would be granted to anyone. Sigh.