Archive - Sep 2011

Because who needs prime time entertainment when you have a bunch of semi-educated involuntary comedians dying to be the next president.

Wimpy was a glutton, and would consume burgers at a ferocious rate but could rarely pay for his habit. The phrase implies the underlying feeling that the person will unlikely actually pay for the hamburger (or whatever) on Tuesday (or ever, for that matter). Does that describe the United States of America in general and specifically our Keynesian President Barack Obama? Obama’s speech tomorrow night is no longer a secret. For whatever reason, the White House purposely leaks the major themes of the speech. Based on the Bloomberg article below I’d say my article from two weeks ago anticipating Obama’s plan is about 99% on the mark. How stupid and gullible can the American people be? One month ago Obama signed a supposed $2.1 Trillion deficit cutting bill over ten years with 60% of the identified cuts between 2018 and 2021 (TUESDAY). A full 1% of the total cuts ($21 billion) were slated for 2012. The left wing libtards screamed like a stuck pig about these horrific cuts that would destroy the American economy and starve orphans and old people. Paul Krugman’s head started to spin and green vomit was projected all over the NYT press office. Well our cost cutting, spending focused, deficit hawk president (WIMPY) held the line on spending for exactly 30 days. He is asking for $300 billion of burgers for 2012 and he promises to pay for them at some time in the future (after his hoped for 2nd term is up in 2016). The balls on this guy are immense. Not only that, but its the same bullshit he’s been peddling for two and a half years.

JP Morgan, whose Banker In Chief has not spared harsh words in the past to describe the POTUS, has released its just as uncompromising assessment of tomorrow's Obama speech which if predictions are correct, will be such a load of hot air, that the mere non-news factor alone should send the market into a volumetric coma on Friday, hence pushing ES limit up easy by close of Friday. Michael Feroli's take: "Cynically, one could say this is merely pushing back the fiscal drag past the time of the next election. More constructively, one could argue that this is pushing back the fiscal drag to a point in time when household sector balance sheet repair has hopefully progressed enough that the private sector can generate self-sustaining growth momentum. Either way, the Republicans in the House are unlikely to be easily impressed by the President's arguments. None of the major programs proposed has received much support from Republicans, and if any were eventually passed it would probably only be after bruising negotiations later in the year. All in all, we anticipate that little will come out of tomorrow's speech to make us re-think the near-term outlook." The outlook, in question and presented previously, being one that jives with the S&P at 900, and certainly not at 1200.

While volumes have been very low the last couple of days, as one would expect given the seasonals, market schizophrenia has been very surprising. Financials went from worst to first and managed to pull out a rather edifying 1.2% rally in the last 20 minutes of today - now up almost 3% since Friday's close. High Yield Bond ETFs also diverged notably from the equity markets.

For those wondering why David Tepper will be strangely missing from CNBC for his annual pre-QE cheerleading appearance, we now have the answer. As Institutional Investor reports, the Appalloosa head man, who was long everything but mostly financials in the form of BofA and Citi last year, and managed to get out just in time before the wipe out which left his colleages at Paulson and Co. dazed following a 34% YTD loss, has decided to invest in a strange asset: cash. "Sources say he has gone 30 percent to 40 percent in cash, which is very high for him. Some of his cash is invested in U.S. Treasuries, which have in turn risen in value in recent weeks." II clarifies: "Keep in mind that Tepper had about 30 percent in cash entering 2009, shortly before he started buying up banks such as Bank of America before anyone else had the guts to do the same and racked up triple-digit gains by the end of the year." And in a very odd development for the man known to take aggressive risks ahead of everyone else, we learn that "he will remain cautious until there is improvement in the European bank crisis. Of course, if the markets tank, you can be sure he’ll be aggressively scouring for bargains." Alas, the markets refuse to tank on generic expectations that the second market start to tank, dip buying materializes on vapor volume and expectations that the Fed will once again kick the middle class in the gonads only to make stock chasers whole. Yet if even Tepper is staying on the sidelines, just what informational advantage does the HFT momentum pursuing crowd have?

Access to Fed backup support “leads you to subject yourself to greater risks,” Herring says. “If it’s not there, you’re not going to take the risks that would put you in trouble and require you to have access to that kind of funding.” All of this might conceivably make citizens revolt against an entity that uses their money to secretly fund the “Wall Street aristocracy.” It might make them vote for a Gary Johnson or a Ron Paul, someone who favors dismantling the Fed. Or not. When a story as big as this one generates a bare minimum of media coverage, you know it’s probably headed for that huge waste bin in the corner of the parking lot. The one marked Bailout Fatigue.

Market in squeeze fashion as we wrote of yesterday. Look to short into the HFT overshooting....

While it is all too clear that a year from today, right about the time QE4 is gearing up for deployment, QE3 will have had absolutely no impact on the economy (in the upside case; the downside case would imply millions in job losses primarily in the financial sector courtesy of record low 2s10s and even lower Net Interest Margins, aka Carry Trades), just as QE2 ended up doing nothing not only for the US economy but for the stock market as well, what is somewhat disturbing is that the only primary purpose of Operation Twist, namely the lowering of 10 Year bond yields in order to make consumers "weathier" through cheaper refis, has already failed. Presenting Evidence A: 10 Year Treasury Yields (inverted axis where lower yields are plotted higher) and the MBA Refi Index, which today dropped by 6.3%, the third week in a row, sending the Refi index to 3169.4 from 3915.5 in the beginning of August. As the chart makes all too obvious, the correlation between the two series has been as close to 1 as possible... at least until talk of QE3 via Operation Twist not only picked up but was made virtual fact through Wall Street's wholehearted acceptance of more monetary easing. What has happened recently is a substantial break between dropping yields and increasing refinancings. It thus begs the question: if an ever flatter 2s10s curve, the explicit objective of Op Twist which has gotten priced in in the past several weeks, has no impact on the housing market currently languishing in a historic depression, then just why is the Fed focusing on lowering long bond yields even more?

The September Beige Book, which had exactly zero new informational content, had just the right amount of impact on the market: zero.

The good old Iraq playbook is being played to the dot, just less than a decade later, and now with Iraq neighbor off by just one letter: Iran. According to Haaretz, the UN Security council "denounced Iran's failure to abide by United Nations resolutions demanding an end to the possible weaponization of its nuclear program. The Denouncement comes after International Atomic Energy Agency submits a report claiming Iran continues to make advances in uranium enrichment beyond its needs for medical applications. The United States, Germany, France and Britain joined forces in exposing Tehran's advanced 20-per-cent uranium enrichment, which is considered military weapons grade. Tehran said its enrichment program was needed for medical and civilian uses. But the UN said Tehran has not been transparent and failed to cooperate with the Vienna-based International Atomic Energy Agency (IAEA), which recently submitted a report that Iran continued to make advances in uranium enrichment beyond its needs for medical applications." Whether the US, pardon the UN, will follow up with ever escalating following directives that ultimately lead to nothing short of a land invasion is unknown for now, but if history tis any precedent, the answer is a resounding yes. Furthermore, today's decision should be taken in context with the major article in the WSJ "US Eyes Covert Plan to Counter Iran in Iraq" which does nothing but set the scene for what will inevitably follow in a few weeks or months. Expect a flare up in anti-Iran rhetoric in the next few days.

Man does this stink!

The Italian parliament is currently voting whether to make the first, massively watered down, faux-austerity program into law. As reported earlier, this vote is widely expected to pass as it has practically zero measures left in it that are actually austere. It will, therefore, be followed up by another vote in a month in which Italy will be forced by the ECB to repeat the same spectacle all over again. Then again... And again. In the meantime, we fully expect robots to add at least 5-10 ES points on the non-news that is the inevitable favorable result.

tyrants, of all-out forcible insurrection in the name of freedom and change. From a celestial perspective, however, ‘revolution’ denotes one complete orbit of a planetary body around its center, as in the earth’s revolution around the sun. In other words, after a revolution, you end up right back where you started. Same word, two completely different meanings– on one hand you have change, and on the other you have more of the same. This is exactly what has happened after Egypt’s revolution this year....When you think about it, this is how things usually work out in politics. How many people have campaigned on the ‘change’ platform, only to end up following the same path as the last guy? As the saying goes, ‘the more things change, the more they stay the same.’  Egypt is due to hold parliamentary elections in a few months’ time. It’s questionable whether Tantawi will give up his supreme, unchecked power… but whatever happens, one thing is clear: a new power elite will emerge in Egypt that helps itself to wealth and privilege at the expense of everyone else. This is the great weakness in any political system: ‘government’ is based on the idea that some individual or organization is awarded power than no human being should possess– the power to kill, to declare war, to steal, to defraud, to counterfeit.

ABSOLUTELY NO COFFEE OR DONUTS PERMITTED NEAR THIS POST!