Archive - Oct 2009 - Story

"I think we’ll get more of a “square root” shaped recovery, a “V” followed by sideways to a gradually upward sloping grind. We’ve already had the “V”. Markets are overpriced. I don’t see how we can have huge economic growth with capital-constrained banks, catatonic consumers, and commercial real estate troubles up the wazoo. One of the only positives is the weak dollar, which makes everything we sell to the rest of the world cheaper. This is good for our multi-national companies, good for our exporters. So far, the dollar is on a grinding, controlled move down, which is good. But if the dollar’s fall accelerates, it would not be good. A real dollar panic would lead to the widespread dumping of dollar assets, and commodity prices would explode. Then we’ll get to $2,000 for gold and $40 for silver very quickly." - Mad Hedge Fund Trader

The government reflation experiment has ensured that company costs cannot reach equilibrium with weak final goods markets. This is similar to the Great Depression except that artificial wage inflation has been replaced by artificial commodity inflation to create the disequlibrium. To cut rising costs, the only option is to reduce salaried employees, or shut down completely due to losses in core operations. Rising unemployment will create further weakness in final goods. This portends continued macroeconomic performance below trend for a length of time not seen since the Depression. Asset prices will eventually fall to the market solution, government intervention aimed at avoiding this harsh reality will only delay the inevitable and probably assure a more painful destination in the process.

One of the foremost experts on structured finance and derivatives presents a holistic overview of not only the current economic fiasco, and in 10 brief minutes with Max Keiser she provides more succinct, unbiased and relevant information that most pundits are able to convey in years on and off TV, but also highlights the bigger problem of how the administration keeps treating the US public as a bunch of stupid infants, throwing paper blankets over raging systematic fires that are anything but doused. And yet, the administration's ploy so far is successful, unfortunately speaking volumes about the intellectual rigor of the average American.

It looks like 1080 on the S&P is an intermediate-term high, with the potential to become a major multi-month—dare I say year—high. Sell the pigs that flew the highest in this rally now.

"Indeed, this simultaneous underperformance of all our themes suggests to us that a disruption may have been (or still is) occurring in this space. This sobering thought has me searching for the appropriate words and so I find it necessary to turn to my truest and most reliable muse but I am still struggling to find the most appropriate reference. Is it best to paraphrase the opening of Side 1 of Darkness on The Edge of Town – that is the song, Badlands? Or is better to allude to the eerily appropriate last song of the vastly underrated and misunderstood Nebraska album – that is, Reason to Believe? Or still yet, is it the newest Springsteen song which world-premièred Wednesday night at the Meadowlands, where yours truly was privileged enough to be among the lucky people standing inches from the stage as The Boss belted out, for the first time, Wrecking Ball?" - Barclays Capital

It's funny cause it's so not true true

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.