Archive - Oct 8, 2009 - Story

Not much commentary needed here.

The hot topic of the day is "Inflation or Deflation?" and the camps are firmly divided into the inflationistas and deflationistas. When asked which camp I am in, I reply "Yes." Some would say that puts me in the confusionista camp, but I actually have an explanation for why are living in a world of 'both.' From a technical perspective we are absolutely in one of the most powerfully deflationary periods in history, yet besides housing prices and a few over-produced consumer goods, we find that stocks, bonds and commodities are all well bid at the moment. While we can ascribe some of this to the artificial wall of liquidity (come to think of it, is there any other kind?) being thrown into the financial market(s) by the Fed, it leaves hanging the question of why that money is not being completely swallowed into the bottomless black hole that the deflationist camp says lies at the heart of our current financial system. - Chris Martenson

Steve Sakwa, who we may have had some harsh words for in the past, primarily during his Merrill Lynch tenure, shares some perspectives on Commercial Real Estate. His observation:

"From a financing standpoint things are far worse; from a fundamental standpoint things are certainly getting worse."

The latest trend among financial analysts is the ongoing circular upgrading of banks by other banks. The most recent example is yesterday's report by Morgan Stanley "Q3 remains constructive for wholesale banks." In the piece, analyst Huw Van Steenis sees nothing but blue skies ahead of the financial sector, especially Credit Suisse and Deutsche Bank. The verdict: "We remain positive on some of the wholesale banks as we expect them to be beneficiaries of low rates, steep curves, compressing risk spreads and refinancing needs." The fact that banks are now effectively liquidity proxies for various printing presses, especially that of the Fed, which continues throwing liquidity into the market at a $35 billion a week clip, is strangely missing from the analysis.

In keeping with the warnings presented by Kyle Bass warned that the entire housing bubble is now being ported over to the taxpayer's balance sheet, Edward Pinto, a former chief credit officer for Fannie Mae claims that the Federal Housing Administration will likely require a major taxpayer bailout "in the next 24 to 36 months" as it is likely to incur $56 billion more in losses than it can withstand.

Even as the dollar keeps hitting new daily lows, which continues being seen as a positive for the stock market, if not so positive for what little remains of world trade, not much has been said about the efforts by Latvia to do all it can to devalue its currency in the wake of a failed bond auction. The consequences are already metastasizing, as seen by the increasing volatility of related currencies, particularly the Swedish Krona which has been hit hard against the Euro on concerns of the country's exposure in Baltic states. Proposals by the Latvian government to rectify the lack of trust and to adopt a mortgage holder liability cap have not been met with enthusiasm. According to Commerzbank analysts any improvements attained from this, and other comparable devaluation approaches, would not achieve long-term goals and at best would result in short-term benefits.

"If we do not break and extend, the Elliott wave 5 target of the move extension initiated yesterday morning is 1,075 on the nose, and the target for the move on 10/02 at the lows is 1,073. Given the previous highs are at 1,075.5, barring a break of 1,062 in the next few hours of trading it seems we are due for a retest." - Nic Lenoir

• Must read from Buiter: After subverting bank insolvency, our leaders are now about to make a mess of liquidity (FT, h/t Paul)
• The weak-dollar threat to prosperity (WSJ)
• Fed aims to rein in bank pay abuses way below top execs (USA Today)
• Boomers seen driving $10 trillion wealth management shift (Reuters)
• Buffett selling means you shouldn't be buying (Bloomberg)

• Asian stocks rise on Australian jobs report, Alcoa earnings; alumina gains.
• Australian firms unexpectedly add jobs, driving bets of second rate rise.
• China car sales growth will slow in 2010: China Auto Logistics Chief says.
• Consumer credit outstanding fell $12B in Aug, reflecting reluctance to hold debt.
• Dollar slips against rivals ahead of ECB, BOE meetings.
• Gold advances to third record, oil gains on outlook for weakening dollar.