Archive - Sep 24, 2012

These days every pundit and his barber are suddenly central banking gurus and monetary transmission mechanism experts, but while some of them may have an educated guess as to the reality of the matters at hand, none can envisage that which the Fed is able to.  What is almost never considered by most wanna-bees  is that no one in the world has access to as many economic and financial data sets, metrics, and indicators, and the synthesis thereof, as the United States Federal Reserve.  Ben may make mistakes, but he is no fool.  When he acts, he either sees present reason to do so, or he is bracing for a future shock. It is just a matter of time before markets lose complete faith in the recklessness of central planning Ponzi artists.

While oil prices have slid in their ubiquitous post-QE manner in the last few days, they remain notably elevated amid growing tensions in Iran and central bank largesse spillovers. These short-term fluctuations, however, pale in significance to long-run implications of peak-oil and whether it exists or not. From cost implications to technological innovation and demand destruction and supply constraints, the feedback loops of oil prices over time provide vicious and irtuous cycles for the global economy as we know too well. This brief clip provides all the color we could need on the matter of fossil fuel dilemmas and the diverging opinions of Astenbeck's (ex-Phibro) Andy Hall and Goldman's Michele Della Vigna provide the depth.

Today's Zero Hedge articles in audio summary! "Ponzi blah blah blah." Everyday 8-9pm @ New York Time!

Following closely on the heels of our recent (now must read) discussion of the potential illegality of Draghi's OMT, Reuters is reporting the somewhat stunning news that the ECB and Bundesbank are getting lawyers to check the legality of the new bond-buying program. Germany's Bild newspaper - via the now ubiquitous unnamed sources - said in-house lawyers were checking both what proportions the program would have to take on and how long it would have to last for it to breach EU treaties (that specifically ban direct financing of state deficits). While Draghi - full of bravado - likely said whatever he felt was necessary at the time to stop the inversion in the Spanish yield curve, it is becoming clearer that, as usual, the premature euphoria (in the complacent belief that central banks can solve every problem with a wave of the magic CTRL-P wand) was misplaced. Bild goes on to note that this matter could be referred to the European Court of Justice - and the ECB/Buba were preparing for such an event. Of course, since every other rumor in recent months, most of which have originated in credible media, has proven to be a lie, it is likely this is also merely leaked disinformation to push the German case, i.e. anti-Europe.

If you thought it was complicated when "only" China and Japan were disputing the recent escalation in property rights over who owns those three particular rock in the East China Sea, to be henceforth called the Senkaku Islands for simplicity's sake because things are about to get far more confusing, here comes Taiwan, aka the Republic of China, not to be confused with the People's Republic of China for the simple reason that the latter officially asserts itself to be the sole legal representation of China and actively claims Taiwan to be under its sovereignty, denying the status and existence of ROC as a sovereign state (yet one which benefits from US backing), to also stake its claim over the disputed Senkaku Islands. It has done so in a very confusing manner: by replicating what it thinks China did some days ago when an "armada" of 1000 fishing boats set sail in an unknown direction and which the trigger happy media immediately assumed was in direction Senkaku. It subsequently turned out that this was not the case and as we reported, "China's fishing season stops every year in June-September in the East China Sea, where the islands are located. This year, the ban was lifted on Sunday." In short the (PR)China fishing boat amrada was not headed toward the Senkakus. Taiwan however did not get the memo, and as NKH reports, "several dozen Taiwanese fishing boats have set sail for the disputed Senkaku islands in the East China Sea, to claim access to their fishing grounds."

In the aftermath of the recent stories about Tungsten-filled 10 ounce gold bars discovered in midtown Manhattan, there have been two broad sentiments expressed by the precious metals community: i) that this is as many have expected, and that of the physical inventory in circulation, much is fake (particularly that held in official hands, either via ETFs or in sovereign repositories which for various reasons still can not be publicly assayed) and ii) is the comfort that while it is relatively easy and cost-effective to use tungsten to falsify larger gold bars and bricks, those who own primarily gold coins are safe as for some reason, it is less economic, feasible or widespread to counterfeit smaller precious metal denominations. Sadly, while i) may be true, ii) is patently false. The proof comes courtesy of a firm called ChinaTungsten Online which proudly markets its broad "tungsten-alloy services" including, you guessed it, the gold plating of various tungsten formulations among them "gold" bricks, bars and, yes, coins. Oh did we mention a Chinese company openly advertizes its tungsten gold-plating and precious metals replication services, something which the tabloid media's CTRL-C/V majors openly mock as improbable conspiracy theory. Well, as they say, it is only conspiracy theory until it becomes conspiracy fact.

A terse official action plan for when the big S hits the fan.

With global growth slowing, global trade tumbling, and earnings revisions falling rapidly, equity market outperformance has been (as we noted earlier) based on the Fed/ECB's largesse. The unanswered question is - how much is now priced in? Given recent 'stability' post-FOMC, it seems the follow-through is not there (especially if we look at sectoral performance) and based on David Rosenberg's estimate of Fed QE's impact on stocks, we think we know why. In the last three months, the S&P 500 has 'outperformed' the Fed balance sheet by around 220 points - which equates to a pricing-in of around 11 months of additional QEternity.

If you answer 'yes' to more than five of the questions below, you might be a conspiracy theorist.  You also may be on the government’s terror watch list.  Be very alarmed and report it to the authorities immediately should you discover your neighbors engaged in such uncivilized thought.

UPDATE: CAT is sliding AH after noting higher chance of recession and cuts 2015 EPS guidance from $15-20 to $12-18 - Slide attached

Following Friday's two-year high volume levels on the NYSE - as OPEX and rebalancing dominated - today saw reversion to the dismal mean in both cash and futures market volumes. It seems sell-the-news was the meme today as builders (LEN earnings exuberance) and AAPL (less than whisper sales) sold off and broadly speaking we saw the month/quarter's winners lagging as safety and stability lead the way.

It looks like someone took a page from the Bernanke open-ended playbook, who when tasked by Chuck Schumer to "get to work, Mr. Chairman", and realizing his job is on the line, literally bet the Fed's political ranch on the biggest liquidity tsunami ever conceived in Keynesian history with consequences which as Gary Kaminsky explained earlier, will be akin to a Kamikaze pilot, if one who has over 310 million passengers. That someone was one or more German safecrackers in the town of Nottuln-Darup, who were eagerly pursuing their New Normal patriotic duty to release some bank reserves into broad circulation by blasting through a safe on Sunday night, when they used some extra laced C-4, in the process blew up the entire bank, shattering windows across the street, and causing hundreds of thousands of euros worth of damage. Perhaps this, more than anything, is the best visual of just what Bernanke's attempt to unclog the "bank plumbing" will look like in the end, even better than Zimbabwe coordinated 1 million man flush. The silver lining: at least they added to German GDP: if today's Ifo number is any indication, Germany desperately needs it.

QE3 is more like a longer but lighter version of QE1 Extension (given its size and composition) and as Morgan Stanley's Adam Parker points out, despite two outsized weeks of MBS buying the impact had a much more positive affect on HealthCare and Financials than on Technology and Discretionary sectors (though with oil prices already high this time - the negative feedback into the economy and equity markets is potentially different). However, as we noted recently, it seems fundamentals matter less than ever as S&P 500 return correlations to the Fed balance sheet are as high as ever and while hope springs eternal, unconventional policy remains a far more statistically significant driver of equity performance than European sovereign spreads, jobless claims, or even earnings revisions. Critically, the S&P 500 would be dramatically lower given over a year of rolling six-month negative returns if we adjust for the Fed's exuberance - and the symmetry of market-to-Fed reactions bodes ill for any deceleration in balance sheet expansion. So it truly seems to be QEternity or bust.

As we reported earlier, Camden may be broke, the local police may now be history, unemployment may be 50%, it may be nothing more than one big crack cocaine depot and driving through downtown at less than 88 mph may be hazardous to your health, but that wasn't always the case. In fact, back in 2009 the city had enough money to afford billboards. Such as this one on the intersection of Dr Charless Brimm Blvd and S. Broadway, courtesy of Google StreetView (sorry iPhone 5 users: you can't see this). Brought to you by www.joncorzine09.com

SS Ponzi is approaching a cliff.

"Do not play with the feelings of the Catalans" is the totally unveiled threat after Catalonia's beggars-can-be-choosers demand for an unconditional bailout fell on deaf ears. The traditionally separatist-minded province has decided, according to ANSAmed, has decided to pull a Greece - and escalate with a move to secession. A resolution, on the right of the Catalan people to cut off ties with the Spanish state, will be voted on Thursday by the regional parliament. This statement of "the will of Catalan people to vote on the bond with the State of Spain" opens the way for forthcoming elections on November 25 to become a referendum on the sovereignty of Catalonia. The Spanish military are not taking this lying down with the counter-threat that these 'separatists' and their 'inappropriate and unacceptable' threat to break-up Spain shall be, according to El Economista, charged with high treason. We are sure Draghi has a 'grand plan' for this.