Archive - Aug 9, 2012

Five years ago today BNP Paribas stopped withdrawals from three of their investment funds - because they couldn't value their holdings following the subprime fallout - and arguably marked the start of the Great Financial Crisis as money markets seized up and the ECB did its first emergency liquidity pump. In the five years hence, as Deutsche's Jim Reid notes, its been a pretty good run for commodities and most fixed income assets. Given all that's gone on over this period it’s fair to say that returns have been pretty good if you've been in the right areas. The authorities have played a big part in ensuring the period wasn't a disaster even if there have been frightening periods and very poor returns in some areas. Given that there are still numerous unresolved issues, the authorities need to continue to be on full alert for the next 5 years to ensure that when we do the 10 year anniversary there haven't been set-backs in many of these assets.

Today, at 8:21 am, 9 minutes before the official BLS claims release, we received an update from Stone McCarthy which had a rather starting subject line: "Claims Out Early 361,000 -6,000." The email body essentually said what everone would find out was precisely the case subsequently: "Initial Claims for Unemployment Insurance fell 6K to a level of 361,000 for the week ending August 4th. The prior week's level was revised to 367K (previously 365K). SMRA's estimate anticipated a level of 365K for last week's claims. The Bloomberg survey's median estimate was 370K, and individual estimates ranged from 359K to 385K..."  We noted this at the time. Subsequently, Bloomberg confirmed all of this: "Jobless claims data were available on Labor Dept. website about 15 minutes before scheduled 8:30am release today, Stone & McCarthy Research Associates economic analyst Terry Sheehan says." Now aside from the fact that SMRA should be commended for chacking the DOL.gov website early and getting a critical advance look at today's most important data point, we have some questions:

As we noted last night, inventory destocking is the great unknown as far as consensus expectations and the wholesale inventories data this morning just confirmed that this is a worrying trend. With the first drop MoM since September 2011 and dramatically missing expectations, inventories dropped 0.2% and perhaps more worryingly - given the drop in inventories - is the critical inventory-to-sales ratio has now risen two months in a row as clearly sales are dropping faster than companies were expecting.

Bloomberg's Consumer Comfort index slipped back below -40 this week (despite all the market ebullience) indicating empirically at least a period of severe economic discontent among the most critical segment of our economy. Worst still, the outlook for the economy is its weakest in six months and the last two months have seen confidence on the economy plunge its fastest in 13 months.

The "Honorable" Jon Corzine may have prudently disappeared form the face of the earth, but that doesn't mean he is not accessible. In fact, in the parlance of our Bloomberg times, he is "Green" and anyone out there with a terminal can have a live Q&A with the former head of MF Global and Goldman Sachs.

The Zero Hedge audience have always been tough task masters and will hold people's feet to the fire. While markets have been a little tempestuous to say the least recently, TrimTabs' Charles Biderman comes out swinging with a spirited and honest defense of his calls - and quite frankly we still tend to agree with his bigger picture view of where this ends. From his Facebook miss to short-term fluctuations in the equity market (that now seem precipitously away from credit market reality), Biderman responds to comments here and elsewhere on both position sizing and perhaps most importantly risk management - adding (and this is where we believe he is dead right though timing the call is practically impossible) that "when the collapse happens it will happen overnight - that is why [he wants] to be short but safe at the same time."

Update: USPS STILL EXPECTS TO RUN OUT OF CASH IN OCTOBER - well, this is the bailout request that Draghi was waiting for. All your ECB - get involved.

The epic collapse of one of the most bloated government institutions continues at a ridiculous pace. From Bloomberg:

• U.S. POSTAL SERVICE LOST $5.2 BILLION IN THIRD QUARTER
• POSTAL SERVICE LOSS Q3 COMPARES WITH $3.1 BILLION LOSS YEAR AGO
• POSTAL SERVICE 3Q REVENUE FALLS TO $15.6 BILLION FROM $15.8B
• POSTAL SERVICE `LIQUIDITY CHALLENGES' REMAIN IN 2013
• POSTAL SERVICE MAIL VOLUME FALLS 3.5 PERCENT IN THIRD QUARTER
• POSTAL SERVICE WILL CONTINUE TO PAY EMPLPOYEES, SUPPLIERS

And it gets better:

• POSTAL SERVICE LOSS INCLUDES SKIPPED PAYMENT TO TREASURY - in other words the taxpayer bailouts of the USPS have begun... and the loss would have been even bigger.

The punchline:

• POSTAL SERVICE WILL `NEVER' CEASE DELIVERING MAIL: MARSHALL

There are no hyperbole in this headline. Nepotism is not just alive but it is blatant and thriving in Greek politics. As Athens News reports revelations that Vyron Polydoras, who held the position of speaker for just a single-day during the hung parliament of May 2012, rushed to hire his daughter - Margarita - as an employee of his office. Not only did he hire her on his one and only day in office, despite defending himself by stating he was entitled to hire up to six staff, but he also managed (all in this one day remember) to approve a two million euro 'election bonus' for his staff and police. We suspect the TROIKA will be permanently boots-on-the-ground here for a lot longer than anyone believes - and if we hear the word 'committed' or the phrase 'trust us', we know its all over.

The surprising economic beats, even as Europe and now China slide, continues, following better than expected initial claims, which were released early as someone broke the news embargo, and trade deficit data. In the week ended August 4, 361K people filed initial jobless claims, lower than the upward revised 367K, and below expectations of 370K. This is the 5th week out of 6 in which claims have beat expectations, and heading into the September FOMC meeting, especially in the aftermath of the "blistering" August NFP report, any hope that the Fed will do anything forceful can now be taken off the table. Continuing claims rose by 53K from 3,279K to 3,332K. Adding to the economic tailwind was the June trade deficit, which narrowed by 11% in June, down to $42.9 billion from $48.7 billion, and well below the expected print of $47.5 billion, down on sliding energy prices (back in June - as a reminder crude has soared 20% since then). The reason was a 0.9% rise in exports and 1.5% drop in imports. As Bloomberg observes, "this is likely the last report that shows the narrowing of the deficit this quarter." Finally, perhaps the most notable move that will pass largely unobserved is that in the week ended July 21, a whopping 127K dropped off extended claims, which means no more free $400 weekly checks, and a corresponding hit to iGadget purchases and retail sales.

The best way to disarm disinformation agents is to know their methods inside and out. This gives us the ability to point out exactly what they are doing in detail the moment they try to do it. Immediately exposing a disinformation tactic as it is being used is highly destructive to the person utilizing it. It makes them look foolish, dishonest and weak for even making the attempt. Internet trolls most especially do not know how to handle their methods being deconstructed right in front of their eyes and usually fold and run from debate when it occurs. The truth is precious. It is sad that there are so many in our society who have lost respect for it; people who have traded in their conscience and their soul for temporary financial comfort while sacrificing the stability and balance of the rest of the country in the process. Disinformation does not only threaten our insight into the workings of our world; it makes us vulnerable to fear, misunderstanding, and doubt: all things that lead to destruction. It can drive good people to commit terrible atrocities against others, or even against themselves. Without a concerted and organized effort to diffuse mass-produced lies, the future will look bleak indeed.

The initial boost given to European equities following weaker than expected overnight data from China, which renewed speculation of more stimulus measures, has faded throughout the morning. The major European bourses are now trading in negative territory at the North American crossover. The DAX is underperforming, weighed down by the likes of Commerzbank and Deutsche Telekom who both failed to impress markets with their earnings reports pre-market. However, thin summer volumes and another light economic calendar have once again been the theme for the morning, with only the UK Trade Balance for June gaining some market attention. Despite the larger than expected deficit, the ONS said that the figure is likely distorted by the extra public holidays.

This Monday, a few shorts days after the Knight algorithm decided to do what it and the Fed does best, and go on a shopping spree, gobbling up $7 billion in stocks in 45 minutes and in the process almost destroying its host like any self-respecting virus, something weird happened with the 1.20-pegged EURCHF in the minutes after the marked closed: it shot up for no reason, only to slam right back down. Some speculated it was a fat finger. Turns out they were right. Only with a twist, as first it appears it was purely human error, which in turn set of an avalanche of algo trades which had no idea why they were buying, except that someone else was buying, so they had to be buying: the purest definition of momentum trading insanity, where one buys or sells with no rhyme or reason, but simple because someone else, marginal enough, is moving the market. And that is why every single capital market: stocks, bonds, commodities and FX, is always one trade away from total collapse.

From the perspective of ethics, the fiscal profligacy of the US government and related behavior in the private sector is the cause of the financial crisis

• Gu Kailai Trial Has Ended, verdict imminent (WSJ)
• Greek unemployment rises to 23.1 pct in May, new record (Reuters)
• Greece’s Power Generator Tests Euro Fitness Amid Blackout Threat (Bloomberg)
• Fannie Mae, Freddie Mac Results May Ease Wind-Down Push (Bloomberg)
• Monti takes off gloves in euro zone fight (Reuters)
• U.S. Fed extends comment period for Basel III (Reuters)
• HP in $8bn writedown on services arm (FT) - must be good for +10% in the stock
• News Corp in $2.8bn writedown (FT) - must be good for +10% in the stock
• Japan to Pass Sales Tax Bill After Noda Avoids Election Push (Bloomberg)
• China May Set New Property Controls This Month, Securities Says (Bloomberg)