Archive - Apr 2012

But, but... the clients' interests came first.... And Goldman was providing liquidity...

The introduction of the “Mintchip” is really just another extension of the state’s effort to wield supremacy over private affairs.  It is creeping socialism under the guise of efficiency.  But, as anyone familiar with the nature of state understands, government efficiency is an illusion.  As anonymity in free transactions goes, so goes another barrier on further centralized planning. The trick here is that nothing government does is voluntary.  The forced usage of the Canadian dollar via legal tender laws renders the assertion of “voluntary” laughable.  The Mint claims the chip can be used anonymously but this assurance comes from the institution in cahoots with a central bank that can’t manage a simple metal standard for more than a few decades. 

A Monetary Cliff or a Fiscal Cliff: these are the two poisons that Barton Biggs sees rushing straight toward America, with little hope of an uneventful collision. While we have not been shy of our opinions on Barton Biggs' flip-flopping positions, his note on the US "as a nation of totally self-centered special interest groups that terrorize our politicians" struck a chord and deserves praise in its clarity. Noting that Europe seems stuck again, he points to the US market being data and Europe-dependent for the next month and believes the correction is little less than half way over (in terms of size not time). In Biggs opinion "although the Monetary Cliff is more long-term dangerous, the proximity of the Fiscal Cliff, if not dealt with, will trigger the dreaded double-dip recession we are all terrified of and bring on another financial crisis."

The week's final bond auction has closed in a manner comparable to the prior two: uneventful. Minutes ago the Treasury sold $13 billion in 30 year bonds at a yield of 3.230%, down from the 3.381% in March (the highest since the August US downgrade) precisely where the When Issued had been trading, and with a Bid To Cover of 2.76 just modestly better than the prior March auction's 2.70 and the 12 TTM average of 2.67. The internals were also quite boring with Direct taking down 13.4%, Indirects as usual stuck with just under a third, or 30.7%, compared to a 32.9% average, and Dealers taking down 55.9% of the total, an amount which will be promptly rehypothecated in various repo channels, thereby allowing the banks to convert cash into cash, but in the process fund more than half of yet another "successful" auction - just like always. This week's final auction brings total US debt to $16.66 trillion give or take.

"In the last three plus years, central banks have had little choice but to do the unsustainable in order to sustain the unsustainable until others do the sustainable to restore sustainability!" is how PIMCO's El-Erian introduces the game-theoretic catastrophe that is potentially occurring around us. In a lecture to the St.Louis Fed, the moustachioed maestro of monetary munificence states "let me say right here that the analysis will suggest that central banks can no longer – indeed, should no longer – carry the bulk of the policy burden" and "it is a recognition of the declining effectiveness of central banks’ tools in countering deleveraging forces amid impediments to growth that dominate the outlook. It is also about the growing risk of collateral damage and unintended circumstances." It appears that we have reached the legitimate point of – and the need for – much greater debate on whether the benefits of such unusual central bank activism sufficiently justify the costs and risks. This is not an issue of central banks’ desire to do good in a world facing an “unusually uncertain” outlook. Rather, it relates to questions about diminishing returns and the eroding potency of the current policy stances. The question is will investors remain "numb and sedated…. by the money sloshing around the system?" or will "the welfare of millions in the United States, if not billions of people around the world, will have suffered greatly if central banks end up in the unpleasant position of having to clean up after a parade of advanced nations that headed straight into a global recession and a disorderly debt deflation." Of course, it is a rhetorical question.

Back in August 2009 we asked a very simple question: "Is Goldman's Selective Trading Disclosure A Legal Way For Preferred Clients To Front Run The Market?" Today, nearly three years later, the SEC answers our question. The answer - a resounding yes.

The latest consumer-credit data showed a slowing in the growth of the borrow-to-spend trend that had re-appeared through the holiday shopping period. This deceleration signals the deleveraging of the consumer is back and as the following charts from Morgan Stanley shows once people start saving historically, they have tended to remain saving; and that in the kind of low-/no-growth environment (or more specifically a balance sheet recession) we see a lack of credit demand even as credit availability is high. The momentum of saving and the correct focus on debt minimization as opposed to profit- (or living-standard) maximization will eventually outweigh the ever-increasing need for dollar-debasement money-printing flow to maintain the social market status quo. Add to this deleveraging concern the fact that Europe is seeing bank lending contract absolutely (notably weaker than in the US for now) amid tighter lending conditions and this is just another example of the cloggage in the Fed/ECB's transmission channels in this environment.

Update: all clear has been given.

Those curious about the unfolding developments in the WTC 2 evacuation case, where according to latest press reports, a grenade was found in a package, can do so at the following live feed.

For those who believe in this sort of thing, here is JPM's Chief Technician Michael Krauss, who says that "The “one way” market rally since Dec-Jan is over. Expect weeks, if not months of lateral movement." Well, there's that. Then there is the only thing that matters in "markets" these days - which way Ben Bernanke sneezes. Everything else is meaningless: McClellan oscillators, Ichimoku clouds, RSIs, oh and of course, fundamentals.

All it took was a Frenchman losing his nerve, some chatter on QE, and a few more weak US and EU data points, and hope for better Chinese GDP, and sure enough - free-money-flow is back on the table and risk assets are responding. European equity and credit markets have all but totally recovered to their Thursday closing (pre-NFP-plunge) levels. European sovereigns are mixed with Portugal 27bps wider than pre-NFP, Spain unch, and Italy -11bps but EURUSD is higher on the day and now back above last Thursday's highs as we note Europe's VIX dropped in sync with US VIX today - still maintaining relatively elevated levels historically relative to the US.

Update from New York Daily News:

• Police investigate package sent to World Financial Center with what appears to be a grenade

Just some headlines crossing the stream:

• NYPD SAYS IT IS INVESTIGATING SUSPICIOUS PACKAGE DOWNTOWN
• SOME BUILDINGS AT WORLD FINANCIAL CENTER BEING EVACUATED

And from NYScanner:

• World Financial Center Area being evacuated due to a suspicious package NYPD ESU on scene awaiting Bomb Squad.

And the plan was going so well. The plan, of course, being to dispose of German budget sovereignty and transfer decision-making authority to a fully immune organization seated in Luxembourg, which just happens to be a tax haven, in the process stripping not only all of Europe, but also Germany of sovereignty, with the ESM being run by a few bankers, held accountable to no one(explained here). German FAZ has just announced that jurists and 2 political parties in Germany are going to appeal to the Constitutional Court, and demand an end of the Merkel Fiscal pact and the ESM, both of which have been implemented without so much as an inquiry as to what the people think, those millions of ever angrier Germans we wrote about back in July. That may be finally changing.

We all have had our fair share recently of Gartman the "market timer" (here and here). However, little have we experienced of Gartman "the historian". Here he is, by way of Art Cashin, being off by 300 years notwithstanding, describing something that he has intoned on recently in his ever-so-frequent appearances on CNBC: the "they" who are in control, or in this case the central planners whose decisions ultimately lead to nothing but ruin.

This is the mother of all bombshells in Europe and no one is talking about it. Germany basically announced that it will allow German banks to DUMP euro-zone government bonds off their balance sheets. It also announced it will provide up to 400 billion euros in backstops and 80 billion euros for bank recapitalization.

Bankruptcies, jobs, and the hoped-for deus ex machina....