Archive - Mar 29, 2012

 The ponzi will fail, and the economy will reset - the only question is when.

How to profit by shorting fruit! I warned on this rotten berry 2 years ago & the model that I released proved quite useful!

David McWilliams (of Punk Economics) is back (previous discussions here and here) and this time he takes on the the flood of liquidity and the false recovery that has been created. Starting with a discussion of gas prices and the central banks' recklessness behind it, he swiftly shifts to the 'shambles in Greece' where more debt is supposed to solve the problem of too much debt yet again. From extreme highs in Greek rates to extreme lows in rates among the major developed economies he juggles with the conundrum of injecting liquidity to reflate a bubble in order to avoid the consequences of the bursting of a bubble - brilliant (as those Guinness chaps would say) - as this merely pushes the next crash out a few more years but making it bigger and more devastating. Global Central banks have pumped $8.7tn into the banking system to 'save the world'. Saving the banks has cost more money than it cost to fight WWII, the first Gulf War, put a man on the moon, clean up after last year's Japanese Tsunami, and the entire African aid budget for the last 20 years all put together. Context is key - is it any wonder asset prices have risen since there has been so much cash looking for a new home - why hold something that is printed everyday (cash) when you can hold something that is actually running out like oil or gold. The punchline is what goes in must come out - and that means inflation - as the 'trip' of excess liquidity comes home to roost. Must watch.

The guesstimates have all the accuracy of a coin flip.

The one indicator which the Chinese Politburo can not fudge: power production and hence: demand, speaks volumes about the true state of China's economy.

The following chart from the OECD via Goldman, speaks volumes as to just why it is that the "democratic" process is slowly but surely completely breaking down in the US. Of virtually the entire developed world, American voter turnout is the second lowest of all countries, and only modestly higher than South Korea, but well below 50% in either case. Furthermore, since the voting population is roughly equally split along the middle in its party affiliation, it is astounding that less than 25% of America's voters set the political stage every four years. One wonders just what the source of this record apathy may be: perhaps it is that as empirical data demonstrate, neither party actually represents any longer the interest of a majority of the US voters, but merely those of corporate lobby groups and, of course, Wall Street. As such, over 50% of voting age Americans don't even bother to make it to the ballots. It may thus be only a matter of time before disenfranchised if silent majority finally says enough, rereads some of this country's founding documents, and agrees that taxation is only fair with representation. Actually never mind: since about half of America pays no taxes whatsoever, the data actually makes perfect sense. And so the pillage of what's left of the American middle class will continue, with nobody batting an eyelid, until such time as the only items left in said class' possession are various weapons of assorted muzzle velocity and other sharp and/or dull but heavy objects.

Ever feel like standing in Benny and the Centrally Planned Inkjets' shoes while in the comfort of your own home? Don't. As the following table demonstrates, doing what the US government does on a daily basis is likely to get one incarcerated, prosecuted, exiled, guillotined, bound and quartered, and most likely scapegoated by a member of the administration.

The lecture series is complete and Ben can creep back behind the green curtain once again. Today's lecture focused on the aftermath of the crisis and a quick summary of just where Bernanke believes the recovery lies - Fed 95: Government 11. Unfortunately the word 'Progress' only appears once. When we asked Wordle to consider the speech, it gave us back what appeared to be a deus-ex-machina created tear-drop shape - somewhat ironic perhaps. Interestingly the words 'Credit Backs Just Markets' were at the very top of the pyramid and that led to the 'Financial Economy' making it clear just what is going on here. In an echo back to the last lecture on the crisis itself, there is some subliminal messaging with the phrase 'Mortgage Regulators Housing Crisis' appearing spookily close together. Rest assured though, Ben is not entirely self-aggrandizing as he used the word 'tool' a magnificent 30 times. Full presentation embedded in all its glory.

Simply said: the results were not bad enough. And with 60 million shares short, or almost a doubling in the short interest in a few months, absolutely everyone is bearish, and one may just see a SHLD type squeeze in the stock if and as a covering panic picks up.

Besides gold and silver, there is nothing that scares Central Planners (Bankers) more that oil.  In their delusional world where they play god with our futures, they think they can make the sheeple do whatever they want by adjusting the settings on a printing press and can thus determine the fate of the global economy and humanity itself.  What they hate more than anything else is when all of their money printing causes things like oil to rise because it exposes them for the charlatans that they are.  This is why Obama is constantly attacking speculators and oil companies.  It is all an attempt to scapegoat someone else for the financial nightmare that is hitting everyone’s wallet.  This is why they floated the absurd idea of releasing more oil from the U.S. Strategic Petroleum Reserve and then denied it once the market failed to react vigorously enough to the rumor.  This is also why Obama surely has called the Saudis up repeatedly as of later to remind them that they might see regime change unless they ramp up oil production to help his reelection.   This brings us to one of the most important aspects of the entire global economy at the moment.  Saudi oil production is hitting record highs at the moment.  In fact if you look at the chart below you will see that the Saudis have never consistently pumped more oil than they are right now.     

And the numbers are out:

• RESEARCH IN MOTION 4Q REV. $4.19B, EST. $4.51B
• RESEARCH IN MOTION 4Q ADJ. EPS 80C, EST. 81C

No more guidance:

• RIMM WONT' GIVE QUANTIVE VIEWS DUE TO LONG TERM FOCUS

But here is what the market will focus on:

• RESEARCH IN MOTION REVIEWING STRATEGIC OPPORTUNITIES

UPDATE: FX followed the same path of USD selling post EUR close but Treasuries did not and rallied to their best levels of the week.

In case you overslept yesterday and missed the U-turn shenanigans, today was almost perfectly the same. Equity, credit, and volatility markets all weakened notably into the open, kept sliding aggressively into the European close and then equities and vol (and not credit) turned on a dime and accelerated all the way back. The other similarity was the high volume dump, low volume pump and then considerably high average trade size around 1400 (in ES) into the close.

One would think workers commit suicide out of enjoyment at their labor conditions. One would be wrong. From Bloomberg:

FOXCONN AUDITOR FINDS ‘SERIOUS’ VIOLATIONS OF CHINA LABOR LAWS
FOXCONN AUDITOR FINDS CASES OF EMPLOYEES WORKING TOO MANY HOURS
FOXCONN PLEDGES TO CUT WORKING HOURS, GIVE EMPLOYEES OVERSIGHT

So China does have labor laws... In other news, more margin contraction for companies reliant on Foxconn slave labor... pardon... delightful work conditions.

In an essay by Pimco's Tony Crescenzi, using the old and worn out title "To QE or Not to QE", which asks just that question, one of the lines of analysis focuses on the traditional conventional wisdom relationship between the jobless rate and initial claims for unemployment insurance. Tony says that this correlation leads him to believe that the unemployment rate is lower than where it official stands because, "Progress has been made, for example, on the employment front, with the six-month moving average for private payroll gains increasing to 214,000 per month in the six months ended in February 2012 from 160,000 per month in the 12 months prior. Importantly, weekly filings for initial jobless claims have fallen to a four-year low, fully 100k below year-ago levels and in territory consistent with a further decline in the unemployment rate (see Figure 1)." So far so good, and indeed if one very simplistically tracks merely the unemployment rate to jobless claims, the picture does indeed seem rosier than it currently is. The problem however, is that as always happens in this case, initial claims reflect only a discrete component of the true unemployment situation in the New Normal, which more than anything is characterized by one specific feature: the avalanche like implosion of the labor force, and the departure of millions of people, almost monthly from the labor pool, noted so very often on these pages, and recently forcing even Goldman and JP Morgan to ask whether Okun's law is not in fact broken precisely because of this. As such there is one other correlation that in our humble opinion should be tracked far more closely when trying to anticipate the unemployment rate: that of the unemployment rate but not just to initial claims, but rather to initial and continuing claims, as well as extended benefits and EUCs, which provide a far better picture of those who are truly falling out of the labor pool. And as the chart below shows, when using that far more accurate New Normal correlation, the picture is decided worse. In fact, instead of a sub-7% implied unemployment rate, the true implied unemployment rate is just over 12.5.