Archive - Sep 2012

So what will QE 3 bring? The short answer is: nothing pretty. Gas and food prices were already high before the Fed announced QE 3. They will be going much higher in the future (Oil is currently falling based on Saudi Arabia working with the US Government to suppress prices).

Meet the man, who many say (most of whom correctly) has been running pretty much everything from deep behind the scenes.

While the US is only now embarking on QE3, on Tuesday night, to much fanfare, the Bank of Japan, in sympathy to the Chairsatan, launched QE 8. As we reported, the entire JPY10 trillion incremental intervention was fully priced in and digested less than 9 hours later, confirming that monetary policy is now completely helpless to do anything but destabilize currencies for a brief period of time (and at every greater dilutions). Here is how this farce of central-planner hubris looked through the eyes of UBS' veteran trader Art Cashin.

It would appear the concerns regarding rising rates in the Treasury Bond market are overblown - no matter how much the inflation break-evens spike. Implied volatility for the Interest Rate market is practically at all-time record lows currently as the Fed continues to remove duration and high convexity assets from the market. One thing concerns us though - the velocity of spikes in volatility once it gets down to these levels has empirically been tremendous - though we are sure this time it's different. In fact this time is different, since this time it is the Fed (as majority owner) that faces the pain from the now-marginal Minsky-like seller of Treasuries running away from inflation-flares (or China/Japan tensions) - and what would Treasury do without that pass-through ponzi revenue from the Fed's winnings? Or as Taleb wrote: "There is no freedom without noise - and no stability without volatility."

The Philly Fed's current September Business Indicators index, long ignored when bearish and cheered when bullish, came slightly above expectations of -4.5, printing higher from last week's -7.1 to -1.9. This was the fifth consecutive negative print. And while there were no major highlights in the index, whose New Orders rose from -5.5 to 1.0 at the expense of Shipments and Inventories, both of which imploded to worse then -20, the real story is the Six Months expectations index, which exploded from 12.5 to 41.2: this was the biggest spike may not ever, but certainly in the past 22 years! Is there any wonder why everyone is transfixed with hope that Q4 will be the deus ex that saves the US economy. And so we are back to being a hopium driven economy - when reality sucks, there may not be much change, but there is always hope that finally, the central planners will get it right, and the future will be so bright you've gotta wear Made in China shades. One word of caution: if the so very much anticipated and 100% priced in Q4 recovery does not materialize, and with the fiscal cliff and debt ceiling issues still unresolved, get the hell out of Dodge, as the spread between hope and reality comes crashing.

We explained last week why the initial exuberance from QEternity was likely to fade since it basically removed all suspense from futures FOMC announcements - i.e. that bad news would once again become bad news as opposed to bad news stoking the hopes or more-er QE. Well this morning's bad news - to wit: China PMI, Europe PMI, and US initial claims - has indeed had a detrimental impact on S&P futures as they approach fresh post-FOMC lows.

GOP presidential candidate drop out Tim Pawlenty, who until recently was considered a top VP running mate candidate for Mitt Romney, has shown his true colors, and has become the head of the Financial Services Roundtable, a U.S. bank lobbying group that represents JP Morgan Chase & Co and Wells Fargo & Co , among other financial companies, the group said on Thursday. This is also known as the TBTF consortium. From Reuters: "Pawlenty, who dropped out of the White House race early and quickly backed Mitt Romney for the nomination, takes over as president and chief executive office of the industry group on Nov. 1, it said in a statement. As the industry's top lobbyist, he will play a major role in the industry's efforts to make new Dodd-Frank rules, which Congress passed in 2010 in response to the 2007-2009 financial crisis, more favorable for Wall Street as regulators implement the law. The measure - a response to the crisis fueled by risky financial swaps trading at some firms that required multibillion-dollar tax payer bailouts - has yet to be fully enacted. "Few industries have more impact on the entire economy - and on the lives of average Americans - than financial services. I realize there is still work to be done to continue to earn customers' confidence," Pawlenty said in the statement. "Our members will best accomplish that goal by responsibly investing every day in our communities and job creators," he added."

Imagine CNBC/Bloomberg TV like this! What the hell did you think would happen when you divert resources into buying mortgage derivatives to save banks instead of supporting job growth??? People buy MORE discretionary items without a job?

Presented with no comment - except to suggest that perhaps it is time to revise the near-daily "China bails out [insert insolvent "developed" country here]" rumor algorithm...

We have seen consecutive weeks of bullish strength in the gold and silver markets. Gold has completed what is known as a ‘Golden Cross’ and silver is poised to complete one in the coming days. A ‘Golden Cross’ occurs when not only the current price, but also shorter-term moving averages such as the 50 day moving average “cross” or rise above the longer term 200 day moving average. Gold’s 50 day moving average (simple) has risen to $1,651/oz and is now comfortable above the 200 day moving average (simple) at $1,645/oz and accelerating higher. Silver’s 50 day moving average (simple) has risen to $29.86/oz and will soon challenge the 200 day moving average (simple) at $30.47/oz.

We have seen a number of leading indicators recently (for example, we were first to note the FedEx implications for GDP) that point to a rapidly rising probability of recession. Today, via Bloomberg Brief, is a look inside the Philly Fed state economic indexes. To be specific, we look at the six-month ahead outlook for each state. Only once in the last 30 years did 20 states possess a negative outlook and the overall economy avoid recession.

Today's initial claims print was the 5th week out of 6 in which expectations missed: instead of coming in at the consensus number of 375K, down from last week's 382K, the BLS reported a miss to expectations of 7K, resulting in a seasonally adjusted number of 382K, or what is now once again secular shift higher. But, wait big miss was actually good news: why? Because the ever data-massaging BLS was kind enough to revise last week's print upward (for the 86th week in a row) from 382K to 385K (just as we predicted last week) which in turn led to such farcical headlines as " U.S. weekly jobless claims drop slightly to 382,000" from the WSJ. And so bad news is now great headlines: Orwell would be proud. Here is an alternative and realistic headline: "Initial Claims Rise Post Next Week's Upward Revision."

Over the past week much has been made over a picture of what appears to be hundreds of Chinese fishing boats which subsequent media plot goalseeking "assured" was headed toward the Senkaku islands. Turns out this may have been merely wishful sensationalist thinking on behalf of the press. According to JIJI press, information that a large number of Chinese fishing boats are heading for the Senkaku Islands in Okinawa Prefecture is false, the chief of a Japan Coast Guard office in the southern prefecture said Tuesday. "Hiroshi Majima, who heads the 11th Regional Coast Guard Headquarters in Naha, told Okinawa Lieutenant Governor Yoshiyuki Uehara visiting the office that talk of the fishing season's start and the departures of Chinese boats from their ports may have been misunderstood. According to the coast guard headquarters, 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. According to Uehara, Majima told him said that there is no evidence that Chinese fishing boats are gathering near Okinawa. In their meeting, Uehara requested the coast guard ensure the safety of Okinawa fishermen who operate in waters around to the islands."

One of the classic short cons, three-card Mario is a new swindle that uses official and misleading statements and trickery to swindle victims out of large amounts of cash. It’s one of the oldest cons around, and dates back to “the shell game,” a similar scheme that was popular during the Middle Ages. The new version uses a Central Bank and a Ponzi Scheme that loans money for debt, substitutes debt for collateral and then returns cash back to the grifter as he pledges the collateral back to those that lent him the money. This new European con has eliminated the use of cards in its play. Investors are the ‘marks’ and governments are the perpetrators.

Curious why nearly 4 years ago to the day Ben Bernanke and Hank Paulson told Ken Lewis to purchase Merrill Lynch "or else" (but to make sure everyone gets paid their bonuses bright and early with no cuts)? It certainly had to do with the stock price and preserving the wealth of the shareholders. It had little to do with making the company viable in the long run, unfortunately, as the just announced news of a massive tsunami of 16,000 imminent terminations at the company confirms. All BofA did then was to take on dead weight at gunpoint, which it now has to shed. It also shows that despite rumors to the contrary the US economy is not getting better, the US financial system is not getting stronger, faith in capital markets is not returning (based on future staffing needs at banks), US tax revenues by the highest earners will go down, and the closed loop that is a procyclical economic move will just get worse as there are fewer service providers providing financial services, in the process taking out less consumer debt to keep the GDP "growing." What will also happen by January 1, 2013 is that BofA will no longer be America's largest employer, with the total headcount of 260,000 at year end being the lowest since 2008, and smaller than JPM, Citi and Wells.