Archive - Nov 8, 2009 - Story

With the dollar preparing for another day of Uncle Ben inspired self-flagellation, gold is already enjoying a flying start at north of $1,100. The complete multiasset melt up appears to be at most days away.

In what may end up being one of the best things for CNBC, if not for many of its anchors, the WSJ reports that the Comcast-GE deal for NBC Universal is practically complete. Next stop for the Englewood Cliffs brigade: 15th and Market. Fear not: the Walt Whitman rush our traffic is much more manageable than that of the George Washington. Also, Smokes has a 3 for 1 special for 40 year old anchorettes who will do anything to adjust the weighted average age of their bodies by 5 to 10 years lower.

Recently the dollar has become the carry currency of choice for virtually anyone who breathes, let alone manages even one dollar in assets, courtesy of unprecedented Wall Street-Fed complicity. And while there is no longer any speculation about the carry trade's prevalence, it is interesting to observe how the topic of DXY-SPX -1:1 correlation has developed over the past two years. While digging through the annals of the Internet, we came across this essay by Brad Setser, in which the current Administration think-tanker is proven not exactly correct: "In my view, it will be hard for the dollar to emerge as major funding currency." Right.

Zero Hedge's Inkmaster in Residence John Redmann with tomorrow's cartoon, today.

From Goldman Sachs, primary unfolding Q3 themes:

• Theme 1: Consumer Outlook remains weak; “End demand” in question. In a marked change from last earnings season, when companies discussed a “stabilizing” economy, this quarter’s conference calls focused on the continued challenging environment for the US consumer, a slow economic recovery in 2010, and the lack of underlying “end demand”.
• Theme 2: Pricing Power remains weak due to low Capacity Utilization. Most management teams cited weak pricing power in the current environment. A few even expressed deflationary concerns. Firms tied to commodities-related businesses tended to have a slightly more favorable
  outlook on pricing power. Several calls referenced low capacity utilization rates and the probable lack of pricing power until utilization rates rise.
• Theme 3: Cost Cutting: Still at rapid pace, expect more in 4Q and 2010. Management teams pointed proudly to their ability to cut costs faster than expected in recent quarters and alluded to further expense reductions ahead. Only a few firms mentioned a willingness to re-hire staff into their company. Rather, companies tended to emphasize the permanence of expense reductions.
• Theme 4: Use of Cash: Appetite for capital spending slowly growing. In contrast with earnings seasons during the past year when companies emphasized the importance of cash positions on the balance sheet, management’s 3Q comments expressed a growing tolerance for capital
  spending. Although not all companies had ramped up spending plans, most teams mentioned some sort of revitalization in spending via dividends, share repurchases and/or capital expenditures.

• "I'm doing God's work." Meet Mr. Goldman Sachs (TimesOnline) [Goldman getting trading tips from the big guy himself explains their Q3 P&L]
• Obama's failure in his core mission: curbing unemployment, which is now 50% higher than a year ago (NYT) Expect several dozen TV appearances on Monday to explain what really happened
• House passes $1 trillion U.S. healthcare overhaul legislation (Bloomberg)
• Why can't the Fed just buy Yuan? (Worthwhile Canadian Initiative)
• What rebalancing of Chinese and American consumption (China Financial Markets)
• Gordon Brown joins call for Tobin Tax, denied by Turbo Tim, Canada and IMF (FT, Telegraph)

The earlier discussion of CDS, Einhorn, and the US UST-CDS basis trade, sparked a flurry of queries on the topic of "really big numbers." Therefore, even as ZH staff awaits the most recent data out of the BIS, we present for your numeric (in)comprehension pleasure lots and lots of zeroes. The chart below summarizes the biggest relevant numbers currently out there, appearing as pixels occasionally on every single computer in the financial world. And what does it say? That the total notional value of all OTC derivative contracts as of the most recent count (sucks to be on the recount committee), was $592,000,000,000,000.00 at the end of 2008. Fear not: this number is actually a reduction from the most recent previous read of $683,700,000,000,000.00 in June of 2008. Well wait, that thing we said about fear not, ignore that: because the net notional, or the market value of all OTC contracts, i.e. what someone (cough taxpayer cough) would be on the hook for when the Fed's plans go astray, increased by 66.5% over the same period, to $33,900,000,000,000.00. Like we said, big numbers - and this is just OTC. The real number includes regulated exchanges, and to estimate that, double the numbers above. In totality, the "sidebets" on everything from interest rates, to F/X to corporate default risk, amount to about $1.3-$1.4 quadrillion (that's 15 zeroes before the decimal comma) in terms of uncollateralized liquidity (think inflation buffer): take all those zeroes away and the value of the dollar would go down by 1E10-15: you listening yet American middle class? And the actual exposure, or "money at risk" is roughly $60 trillion: a number which is about the same as the world GDP if one were to remove all the various stimulus programs. Take away Goldman, JP Morgan, and all the other wannabe BSD's, and this is what you end up with: the heart and soul of the Too Big To Fail monster itself. And there is no way on earth to stop that mangled, mutated heartbeat without destroying the very fabric of both our capital markets and societal system. Please give the FederalReserve a golf clap for this truly amazing accomplishment.