Archive - Sep 5, 2012

Fundamentals rule the day at the MSM today...

Fresh from his vacation with Mickey and Minnie, CNBC's Rick Santelli is back and mind-blown at the total cognitive dissonance of the fact that we just broke through $16tn debt. The relaxed Chicagoan summarizes, in words and tables that any Disney-princess-loving 6 year old girl could comprehend, why "a trillion is a big number" and while not dissing the first lady's speech, he notes that unlike her "money's not important to Barack" comment, when the number gets this big, it better matter to someone.

And NOTHING Has Changed ...

Back in early July we wrote that contrary to expectations, veteran Middle Eastern aircraft carrier CVN-74 Stennis would end its shore leave far earlier than expected, and be redeployed back to its usual stomping grounds just off Iran months ahead of schedule. As of days ago, the Stennis has quietly departed Naval Base Kitsap-Bremerton and is off. It will join CVN-65 Enterprise (which is doing its last tour of duty ever before being decommissioned) and CVN-69 Eisenhower in the Arabian Sea, aka off the coast of Iran. This will be one of the only times in history when the US has had three aircraft carriers in close proximity to those evil Iranians who are hell bent on global domination. Expect Stennis to reach Iran (and be available to support an Israeli attack of Iran) in the last third week of September. Then determine when the next full/new moon is following the arrival of Stennis at its destination, and buy Brent calls just ahead. Finally, profit.

The cheek of it! They raised the price of our favorite ice cream. Actually, they didn't increase the price; they reduced the container size. Raising prices is one thing. We understand raw-ingredient price rises will be passed on. But underhandedly reducing the amount they give you… that's another thing entirely. It just doesn't feel… honest. You've noticed, we're sure, how much gasoline is going up. Food costs too are edging up. Kids' college expenses, up. Car prices, insurance premiums, household items – a list of necessities we can't go without. Regardless of one's income level or how tough life might get at times, one has to keep spending money on the basics. According to the government, we're supposedly in a low-inflation environment. What happens if price inflation really takes off, reaching high levels – or worse, spirals out of control? That's not a rhetorical question. Have you considered how you'll deal with rising costs? Are you sure your future income will even keep up with rising inflation? If your monthly expenses are about $3,000/month, you need 45 ounces of Gold to cover two years of high inflation.

It is remarkable that we greedy ignorant short-term-focused human beings never seem to learn that driving forward and looking in the rear-view mirror can only end in disaster. Forget 'dancing while the music plays' or other such 'defenses' of herd ignorance, the most recent data regarding Auto Loans is simply mind-blowing:

• Subprime borrowers received 56.46 percent of loans on used cars in the quarter, up from 52.70 percent a year earlier.
• The average loan-to-value on new cars was 109.55%
• The average used car loan-to-value ratio rose to 126.62%
• 77% of Subprime Auto Loans are for a period greater than five years

As Yahoo notes, citing some monkey, "Despite the rise in subprime loans overall, there is still a strong sense of managing risk. Because the overall lending environment has improved, lenders are making loans available to a wider range of customers."

Monetary Outright Transactions - MOT

Moths??? Like those burning up on light bulbs??? Or like in “to mothball”, buy and store?

That the SEC is the most incompetent, corrupt, irrelevant and captured organization "serving" the US public is known by everyone. And while the details of the SEC's glaring lack of capacity to do anything to restore investor confidence in the capital markets, which has become a casino used exclusively by Wall Street to defraud any retail investor still stupid enough to play (which lately a moot point as there have been no material retail inflows into mutual funds in over three years), are scattered, courtesy of Bloomberg we now have the best summary of just how the utterly clueless SEC is a muppet plaything of Wall Street, and together with it, the "grand regulation" that was supposed to keep Wall Street in check, is nothing but what Wall Street demand it to be, and forced the SEC, way over its head on regulation, to accept every change, that the very banks that are supposed to be regulated, demands as part of Dodd-Frank reforms. In short: everything we know about Wall Street 'regulation' has been a farce, and a lie, exclusively thanks to corruption rampant at the now documentedly incompetent Securities And Exchange Commission.

The disregard for the future and the fundamentals of fiscal well-being is about to reap consequences. The Powers That Be counted on "time healing all," as if the mere passage of time would magically heal a broken economy and political machine. Time heals all--unless you have an aggressive cancer. The system has been pushed to extremes: the expectations are impossibly high, the promises are impossibly generous and the sums of money demanded by the vested interests "just to stay afloat" are stratospheric. The "run to fail" levers have all been pushed to the maximum, and it is simply too politically painful to make any real-world adjustments that might save the system from imploding. Nobody wants a crisis, yet a crisis is the only thing that can save the system from implosion.

You've seen Spanish youth unemployment rates soaring; been brow-beaten with data on the dramatic rise and acceleration of Spanish bank non-performing loans; and the rate of Spanish capital outflows chart is now ubiquitous; but where there is pain, there is also pleasure. As we are always looking on the bright-side and trying to find a silver-lining, Michael Cembalest provides just such a chart. To wit, the unprecedented surge in corporate bankruptcies in Spain; without question, a boon for the bankruptcy-lawyer industry and perhaps just the economic boost the country needs. Tongue-out-of-cheek, this is just a disastrous chart of reality on the ground.

Breaking news from now from France 24, which follows the massive7.9 Costa Rica earthquake moments ago.

• BREAKING FRANCE: FIRE BREAKS OUT AT FESSENHEIM NUCLEAR PLAN, INJURIES REPORTED

Fessenheim is France's oldest nuclear power plant located in the Alsace region.

In the words of Sesame Street, one of these spending components of the long-run budget plan is not like the others; one of these entitlements is not the same; can you spot which one? As BofAML notes, "no long-run budget plan would likely be effective if this rapidly growing program is not significantly constrained. This cost reflects growth in the economy, an aging population and an 'excess' growth factor that includes both medical advances and presumably inefficiencies."

Whether it is "buying-the-rumor" to "sell tomorrow's news" or some contagion from domestic bank-to-sovereign credit arbitrage, European credit markets are giddy with the Draghi rumors. European sovereigns are better but are leaking back a little now - with 2Y limping higher in yield. European stocks seem thoroughly unimpressed for now broadly-speaking (despite EUR strength helping drag US equities higher?) The world, it seems, has no idea what is going on once again... and then Merkel adds this:

• *MERKEL TELLS LAWMAKERS SHE OPPOSES UNLIMITED ECB BOND PURCHASES
• *MERKEL CAN ACCEPT TEMPORARY ECB BOND BUYING, BARTHLE SAYS
• *MERKEL CAN ACCEPT ECB BOND BUYING OF SHORT MATURITIES: BARTHLE

Which sends EURUSD into spasm...

Just a few hours before someone (cough Draghi cough) leaked the details of the sterilized - though unlimited, peripheral spread-reducing - though not capped or fundamentally-based, SMP 2.0, Goldman Sachs released their 'view' of what Super-Mario will do. Rather unsurprisingly, almost verbatim, the rumors fit that 'guess' rather well as the chaps at Goldman fully expected demanded this 'compromise' solution. They also expect no rate cut - since economic data is not a broadly dismal and falling as it was - but do expect further non-standard measures including collateral-easing (which has been pre-announced to some extent in the 'credit-easing' camp).

It appears China's growth trajectory just dead-cat-bounced and is now resuming its downward trend. With Industrial Production at its lowest since March 2009 (though we are sure we will be told - "yeah, but it's still growing at 9.2% YoY"); perhaps it is better to look at this chart with no 'government-sponsored' y-axis since the bottom line is - it's bad and getting worse (and the PBoC remains 'stuck').