Archive - Oct 2, 2009 - Story

For one of the most insightful perspectives on long bonds, we present Bob Kessler's most recent, "Full economic recovery, U.S. inflation, and the Fed removing accommodation – still years away" masterpiece. Absolute must read.

Update: It is a celebration that we were long (waaaaay long) Brazilian pickpockets going into the week.  Accordingly, Radio Zero goes live 9:00(ish) ET.

Listen here: http://cdo.zerohedge.com:8000/listen.pls

Or pick up our West Coast Mirror (with 1000 slots) here: http://216.218.252.88:8000/listen.pls thanks to the mind-blowing generosity of EGI Hosting.

Chat up the DJ (send your .mp3 files) here: radiozh.

Or... #radiozh on EFNet (for the real chat nerds).

Rare earth elements (REEs) have been the mystery metals of the mining world for years. Now, suddenly, everyone’s heard about them. Before we delve into the reasons behind all the publicity, here’s the basic skinny on REEs: One, they are rare, at least sort of. Two, they are indispensable to modern technology. Three, the number of active, dedicated producers is tiny, with more than 90% of the world’s supply coming from China.

A dangerously snarky Rosie for a late Friday afternoon:

"We still marvel at the shills who believe that the market is fairly valued and that somehow it is not fair to compare how far the market has ballooned over the March lows since those lows were “artificial”. Excuse me. The 676 closing low on March 9th was any more of an egregiously oversold low than the October 9th/02 low of 776? Or the August 12th/82 low of 102 when the S&P 500 was trading at an 8x P/E multiple, a 6 1/2% dividend yield and below book value? It always appears to be an oversold low at the trough, with the benefit of perfect hindsight. But the stock market, at the lows, was merely pricing in reality, a -2.5 GDP growth trajectory which is exactly what we will see posted for 2009 when the books are closed for the year. The market was down 60% from the highs, but guess what? So were operating earnings. And reported “unscrubbed” profits tumbled 90%. To think we can have a 60% rally from the lows in six months and believe that somehow this is normal – please. By the time the market is up 60% from any low, it usually is up that amount in three years, not six months; and over 2 million jobs have been created. This is the first time the market has rallied this much with the economy shedding 2.5 million jobs."

- David Rosenberg

Yet another indication of just how dismal the economy is, was the recently announced non-existent demand for raw material imports, particularly steel, which saw was a mere 775k tons in August imports, a 66.5% decline from August of 2008, or a dollar value of $758 million down 76% from the $3.2 billion imported in August 2008. After a brief "second derivative" headfake in July numbers, the August results indicate that even as economists expect a massive pick up in inventories and what not, domestically America is using raw materials at a fraction of even 2008's run rate.

Things are really getting out of control now, as the "V-Shaped Recovery" vs. "Great Depression II Bust" macro strategies are now being daytraded on a 5-minute chart by the fast-triggered 19-year old chart monkeys now in charge of billions under management at the biggest fund firms, endowments, foundations, etc.

In a rare example of corporate accountability and humility, the president of Toyota, arguably the best run auto company in the world, Akio Toyoda, had some very harsh words for not just his company's recent decline, which he characterized as "grasping for salvation", but for his own failure at prevent this collapse. One wonders when Mr. Toyoda's American counterparts, whose own failures are orders of magnitude worse, will do admit even a minor fraction of comparable culpability.

Crapslers, Cadillacs for Cheap People, Dodge Disasters, call them what you will, but the historically significant yet often poster child for failure; will the good ever be seen again out of Chrysler? Or will the comapny that's always trying to reinvent itself, fall victim of being yet another fad?

The prior week's insider transaction indicated a significant "moderation" in insider selling, with insiders selling only 27.7x more than they bought, at $106.1 million vs $3.8 in buys versus sells, respectively. Obviosuly insiders are catching wind that things are now truly back to normal.

A part of today's BLS announcement that has not received much attention is the BLS' own disclosure that it "may" have lost an additional 824,000 jobs in LTM period ended March 2009, in addition to the already disclosed 4.8 million job losses.

"Long-term let's change the mission of the Federal Reserve: let's codify something that prevents it from running amok, like it did for the past ten years" - Paolo Pellegrini

The usual suspects did a great job at managing the market expectation yesterday, which is why we dipped ahead of the number, and shorts took profit following the release. Congress's Finance Committee get the numbers at 2PM the day prior, why shouldn't the right institutional traders get them too? Obviously this softened the blow delivered by the news. The key is that economic news has started to roll over a bit, and if this trend continues then it will be hard for the market to shrug it off. Most indications coming out of the credit markets show that the widening in CDSs is continuing for now. As this happens this will also put pressure on the stock market.

Just in case you thought Tim Geithner was telling the truth about desiring a strong dollar, here is an opinion by Jim Rickards on why the US is getting increasingly wrapped up in its stock market bubble, middle class and imports be damned, and why the dollar's value will get cut in half in the near future.

There are only two real precedents for the deleveraging cycle that the U.S. economy faces today: 1)
The Great Depression & 2) Japan in the 90’s (I am excluding Sweden from this exercise due to their
small size – “what’s wrong with a Swedish model” is always worth a read, however). I have said
that the current deleveraging cycle is actually not all that similar to the Great Depression –
primarily because our economy is much more mature and stable, and also because there are certain
safeguards in place that help prevent such an event from occurring again (the FDIC is a great
example). The similarities to Japan, however, are quite frightening. Goldman Sachs recently
wrote a piece noting the same thing with a few counterarguments. Just how similar to Japan is the
current deleveraging cycle in the United States? Let’s take a closer look.

CNBC is well aware that if you repeat a lie long enough, it becomes true. The argument: "buy on the dips" as the gobs of sidelined money just can't wait to rush in and lose whatever, well, money it may have left. Alas, it does not work like that. This proverbial money on the sidelines, while it may care about seeing an SPY downtick compliments of a blown fuse at JPM ETF HQ, it is even more concerned about what may happen tomorrow, and whether the risk/return on throwing money into a market that as recently as a year ago showed how it can go down by 50% in a very short amount of time, justifies the risk of being unemployed tomorrow.