Archive - Oct 29, 2009 - Story

Main charts to keep an eye on over the next week, via Goldman Sachs, which sucks at predicting GDP but is good at providing "market color." Remember: when in doubt use cephalopod reverse psychology.

September steel imports staged a moderate comeback, after dipping to recent record lows in August. The September total came in at $1.0 billion or 1.1 million metric tons. As announced by the census bureau, the increased activity was reflected "primarily in blooms, billets, and slabs. Monthly increases occurred primarily with Canada." Year to date data, however is nothing to chear about, with a 50%+ decline year over year: "The year to date final statistics through August 2009 showed steel imports of 9.6 million metric tons compared to 19.4 million metric tons through August 2008. The largest commodity decrease was in blooms, billets, and slabs. The largest country decrease was with Canada."

One of our favorite economic data series, the AAR weekly traffic report, was released today, and even as the data moves ever further from the Lehman anniversary when the economy presumably went into a standstill, the October 24th data still demonstrates a healthy -14.8 weekly YoY drop, and a little changed -18% YTD drop compared to the prior week's -18.2%. Interestingly, the AAR is commencing to show not just year over year data, but year over two years (YoTW?) going forward, ala what CNBC is trying to do to deemphasize the drop off in their audiences. Although while CNBC's 2008 spike was beneficial, the AAR will effectively be focusing on the major drop from an "old normal" economy. This kind of unbiased objectivity and benchmarking should raise red flags all around.

Even as Tim Geithner was boldly lying today on national TV, claiming that he abhors the concept of too big to fail, and condemns moral hazard, behind everybody's back he, together with the entire Obama administration, was trying to pass a law that would shift TBTF from a temporary program into officially canonized law. This is a scandal that has gotten little recognition in most of the MSM: in essence it guarantees that the massive mega banks like Goldman Sachs, BofA, and JPM will take on so much disproportionate risk the next time around (and with a moral-hazard encouraging Federal Reserve as risk regulator virtually guarantees their implosion) that not only will they blow up spectacularly once again, but that their bailout next time around will surely force America, already strapped with trillions of new upcoming debt courtesy of stimulus after stimulus, into sovereign insolvency.

He came, he saw, and he couldn't believe his eyes... or ears. It is almost painful to watch David Rosenberg smack the Managing Partner of Seygem Asset Management like the puppet doll the formerly insightful anchor has become. The same goes for the balance of his CNBC colleagues as they proceed to ask highly (ir)relevant question after question.

Watch gold and its price reaction in the post recession environment to come. It’s in the divergences relative to historical experience, if they occur, that the important messages will be found for the current cycle. In fact, this is one of our primary focal points of the moment – divergences. Gold just may become quite the very meaningful macro economic character marker that few seem focused upon for this reason. But if indeed gold tells us something very different is afoot in the current cycle, it will also have direct implications for equities, fixed income assets, etc. and the investment community in general that have been trying to discount a typical post recessionary outcome for a good number of months now already. Gold as the very important report card? Exactly.

The surrealities of a "healthy" economy never end. The latest indication of the new banrkupt normal is New York State itself. A new report by NY state comptroller Thomas DiNapoli entitled "Highway Robbery: State's ailing road and bridges robbed; State siphoned money to pay for operations and debt service" tells you all you need to know about just how prosperous the ailing economy really is. According to DiNapoli, "only one-third of the money in the Highway and Bridge Trust Fund has actually been used to pay for highways and bridges. The rest has been siphoned off to pay for debt service on back-door borrowing and to fund operational costs for the DMV and the state Department of Transportation." Is that lack of stolen pocket change Mr. DiNapoli can believe in? Apparently not - Mr. DiNapoli's words: "I think outrage and anger is certainly appropriate; we need to channel that into thoughtful public policy." Yet anger is so September 2008. Welcome to the Xanax highs of the new credit bubble.

"Moody's now expects that a trough in home prices will not be reached until the middle of 2010. In addition, based on recent loan loss severities, Moody's will increase its projected lifetime loan losses for pools backing U.S. Jumbo, Alt-A, Option ARM, and Subprime RMBS issued between 2005 and 2008." - Moody's Investors Services

Mark the last 3 days down. Yet another classic. Goldman lowballs the GDP and panicked deflationists sell anything and everything "risk" related and pile into dollars and Treasuries. Then the "inflated" GDP is released, and suddenly risk assets of every race, gender, stripe, color, and ethnic origin are once again embraced.

I shall not comment on the GDP number, nor the fact that estimates were revised down yesterday. Anybody who pays half attention to the market knows that it is an old trick used on a down day ahead of numbers to suck the last sellers in before the bounce. Last NFP day is a good example that should be fresh enough to most traders' memories. Let's focus on where we are now after this rally.

"You can not fight the government, you can not fight the Fed" - Joe Saluzzi

Who knows, maybe he is wrong

"As the Fed approaches the end of its Treasury purchase programme - the 59 reverse auctions to date total $298.064bn - and while new supply rises apace, there is already significant upside pressure on US benchmark yields. As long positioning in risk assets looks crowded, as it does, the prospect of early tightening from the Fed could prove to be a catalyst for unwinds. As such, while a positive GDP result may be good news for the economy, it could also stoke interest rate expectations and put further upside pressure on yields. It could shift the Fed's overall monetary policy profile as well. We look at some of the linkages between growth-positive economic data and interest rate expectations and note that in the current economic and policy context, better growth figures may prove more harmful than helpful for risk." - UBS

Not much commentary needed here. Algorithms have succeeded in creaing another bear trap, as a function of a low-volume short squeeze, as all those who sold yesterday, remain out.

The following video clip, courtesy of Stratfor, provides a quick glimpse into the ongoing power struggle between Russia's two key political factions. As Russia is now the world's largest exporter of petroleum and proven to be one not likely to comply with OPEC's onerous quotas, the political situtation in Russia has substantial bearing for global commodity prices, in addition to various impact on local capital markets (although after last's year performance those have been mostly deserted by foreign investors).

• Yields 3.141%% vs. Exp. 3.120%
• Bid-To-Cover 2.65 vs. Avg. 2.65 (Prev. 2.79)
• Indirects 59.3% vs. Avg. 57.17% (Prev. 61.72%)
• Indirect Bid-To-Cover 1.20
• Allotted high 46.79%