Archive - Mar 2012

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.

I looks like a few home runs are in the making...

A safe bet on yellow...

We discussed earlier about the Fed's ZIRP policy and the transmission mechanism through which its free-money ends up in the real-economy (or not as the case in point). Brevan Howard agrees that the outlook for the US is not plain-sailing and that US growth does indeed face cross-currents, with the labor market improving at a steady pace while aggregate demand slows. While the firm remains more stoic, seeing a generally favorable macro backdrop, they note three uncertainties and one certainty that keeps them up at night. The pace of the drop in unemployment against only trend growth leaves its sustainability uncertain; the potentially temporary easing of the European financial crisis seems increasingly uncertain; and the growing tensions in the Middle East and the uncertainty over gas prices derailing the fragile economy. However, it is the one certainty that worries us most (and them, it seems), and that is the enormous fiscal drag the US faces in 2013 which unchecked could reduce real GDP growth by more than 3 percentage points. Even if the President and the new Congress cut this by half it would still be a noticeable drag on growth.

This is truly Orwellian: the latest and greatest Executive Branch/Federal Reserve power grab is labeled "consumer protection." I am indebted to correspondent Jim S. who seems to be one of the few Americans to have actually sorted through this monstronsity and gleaned its true nature: an unprecedented extension of Executive (i.e. Imperial Presidency) and Federal Reserve power. Let's start by recalling that the Federal Reserve is a consortium of private banks. Calling a private consortium of banks the "Federal Reserve" is the original Orwellian misdirection, for there is nothing "Federal" about the Federal Reserve. It is not a government agency. Now guess who will fund and control this vast new bureaucracy of "consumer protection"? Yes, the private consortium known as the Federal Reserve. "The Consumer Financial Protection Bureau (CFPB) will be an independent unit located inside and funded by the United States Federal Reserve. It will write and enforce bank rules, conduct bank examinations, monitor and report on markets, as well as collect and track consumer complaints." Since managing the money supply and interest rates is the ultimate "consumer protection," we can ask how well the Fed managed those tasks in the past 15 years: alas, their management has been catastrophic for the nation and the middle class, which has been gutted by their policies of serial bubble blowing, leveraged speculation and bank predation.

Much of the fiscal and monetary insanity that has come out of the EU over the last two years can be summated by one of my central global theses: politics determine Europe's policies, not economics. And Europe now appears to be shifting towards a more leftist/ anti-austerity measure political environment. If this shift is cemented in the coming Greek, French, and Irish elections/ referendums, then things could get ugly in the Eurozone VERY quickly.

Presented with little comment except to note the incredible 29 year-long projection of the mid-80s trend-line (on the log-scale chart of AAPL share price) perhaps offers some resistance and the corrective 'echoes' that have occurred at these inflections before.

Unlike yesterday's 5 year bond auction, which priced at the lowest Bid To Cover since August, there were no major surprises during the just concluded issuance of $29 billion in 7 Year bonds. The closing high yield was 1.59%, just as the When Issued predicted, which is the highest rate since October. The internals were more or less inline - Indirect takedown of 42.79% was the highest since August's 51.72%, Directs decline modestly from February's soaring 19.27%, to just 13.40%, which still was quite a bit higher than the TTM average 12.23%. Dealers were left with 43.81% of the auction, about 3% below their average. And while the market was sensing a weak auction ahead of the pricing, the subsequent favorable response in the Treasury complex has sent the entire curve tighter again, and money flowing out of stocks, which had hit an intraday high just before the auction completion. In other news, total US debt is now over $15.6 trillion.

Today at 12:45pm will be the 4th and final lecture given by the CTRL+P spinmaster himself to young and easily impressionable GW students. The propaganda tour will conclude as Ben shares his views on the "The Aftermath of the Crisis" where we will most certainly learn that the primary consequence is a parabolically rising global balance sheet, where $7 trillion in excess liquidity has been dumped in the world in the past 5 years by the big 5 central banks. That and the fact that virtually all energy commodities are trading at or near all time records. We will likely also learn that while it is speculators' fault that gas is at an all time high for this time of year, it is not speculators fault that the S&P is at a 4 year high. In fact, we will learn a whole lotta stuff that those who took the red pill some time ago, may have forgotten. Watch it live below.