Archive - Nov 2009 - Story

The bigger the equity fund outflow, the better the outperformance of the market. Or so it seems based on ICI data. Last week posted the 13th straight equity fund outflow since the beginning of August: the total outflows amount to over $36 billion, and yet the S&P has increased by over 11% over the time period! With ever decreasing relative volume, and thus an ever increasing impact of the marginal purchaser, the question of who on earth is buying should be addressed to 33 Liberty Street, Floor 9.

As more and more pundits go for the whole "anchoring" thing and throw around numbers anywhere between $6,300 and -$0.99 per ounce as what the price for an ounce of gold should be, we present some actual data which demonstrates core supply and demand trends in the gold market. The World Gold Council's latest "Gold Demand Trends" quarterly update has been released, with the key message being that while end customer demand is collapsing (gee, the consumer must not be drinking Timmy's Kool-Aid just yet), "the central bank sector presents a positive story, with the underlying trend of improvement expected to remain intact. As with private investors, central banks are looking for diversifiers, and in particular, ways of diversifying their dollar exposure." Nuff said.

We'll have whatever Timmy is drinking. Even as Mr. Geithner, in prepared congressional testimony, claims that the economy is "recovering", the MBA announced yet another record number of mortgage delinquencies. At over 14%, the number of American homeowners either in delinquency or in foreclosure was an all-time record in September, representing a ninth straight quarterly increase. According to the AP: "The Mortgage Bankers Association's quarterly report adds to fears that the housing market's recovery could be thwarted by the continuing surge in home loan defaults, especially as the unemployment rate keeps rising. Lost jobs, rather than the shady loans made during the housing boom, are now the main reason homeowners fall into default." Our hope is that maybe Mr. Geithner will also testify also as to what particular brand of Kool-Aid he drinks when he makes such baseless and irresponsible statements.

With everyone focusing on Bernanke's liquidity pump and its favorable near-term consequences on US stock markets, which have shifted from a leading indicator to a liquidity indicator, one of the true decopulings, and not in the mythical China-US realm, as both those countries are joined at the vassal hip in perpetuity, has been the Nikkei's divergence from global equity markets, and from the S&P 500 in particular. In fact, over the past several months the Nikkei has been underperforming the S&P dramatically. As deflation has once again gripped Japan, after two decades of failed Bernanke-style policies, it is only a matter of time before it becomes all too clear that the Japan experiment is doomed to be repeated by the US, with the same deplorable results.

The market mogul's latest thoughts.

SocGen extended view on how to protect yourself against economic collapse as world debt doubles in 10 years:

Sell the dollar

Buy government bonds

Cherry pick equities and commodities

• Ron Paul and Jim DeMint: Americans deserve a transparent Fed (WSJ)
• Goldman's lost glister (FT)
• Hoyer says financial transaction tax "on the table" in Congress (Bloomberg)
• South Korea banks told to hold liquid foreign assets to prevent repeat of last year funding crunch (Bloomberg, h/t Adam)
• Weil: Wells Fargo needs TARP more than it admits (Bloomberg)
• Evans-Pritchard: Is $6,300 fair value for gold (Telegraph)

• Asian stock markets mostly higher Thursday, gold hits another record high.
• China Commercial Aircraft to build homegrown C919 jetliner in Shanghai.
• China shares rise for 5th day on hope domestic consumption will drive new growth
• Euro lower at $1.4880 in European morning trade; Fed comments that rates may stay low.
• Equities in Brazil came under addln pressure on a 1.5% tax on trades in its ADRs.
• French 'Big Loan' to spur growth raises concerns over skyrocketing debt, deficits.

Inkmaster of Zero Hedge, John Redmann explores the problem of post-liquidity clean-up.

Marc Faber on Helicopter Ben flooding the market with pieces of paper if the S&P were to hit 800 again. The problem with this assumption is what happens to treasury rates. Already all the excess liquidity is bypassing stocks (and definitely bonds which at 3-4% have little room to grow) and going straight into gold. As the US government has to extend and roll maturities, thereby making 30 Years attractive, we would take the other side of the Faber bet: there will come such a time in the near future, when the flight from risk assets, engineered by the Fed, will become as pervasive as today's dollar carry trade. Ultimately the Fed is more interested in low rates than 100x+ P/E's (one hopes, or else a gaggle of retarded monkeys can do Bernanke et al's job better). And with Treasury QE done, and MBS being gamed to the point where the FRBNY is doing all it can to obfuscate just what is really going on in that particular market, one can be sure that Bernanke will be all too happy to sacrifice equities at the bond altar.

Some dramatic moves in CDS action today, with GASBG 5 Yr Senior Protection flying after the CNBC announcer and bestselling author extraordinaire called for the ouster of god's true broker.

"The New York Fed anticipates that, through the balance of the [Quantitative Easing] program, the trading days on which its own staff conducts the program's purchasing activity will gradually increase relative to those trading days on which Wellington executes the program's purchasing activity." - FRBNY, on taking over trading in MBS Agency products and eliminating any and all trading transparency

Goldman Sachs, which lately has been caught in a toxic spiral of potential misrepresentations (courtesy of the SIGTARP report which plainly refuted the firm's claims that it was not on the hook vis-a-vis AIG, and by the way, Ms. Tavakoli, we are waiting for you to retract your apology to the 85 Broad team) and horrendous PR (first Blankfein apologizing for something, then Gasparino telling Lloyd he should step down), may be the final straw that finally breaks open the Fed's "book of death" (for the middle class, f/k/a "book of life" for the banker cartel). Ahead of tomorrow's hearings on various Fed transparency initiatives, Rep. Elijah Cummings is calling for a complete tear down of the existing Fed structure, and demands an overhaul to the "minimal accountability" that the Fed issubject to courtesy of the current Wall Street perpetuated ( and lobbied) status quo.

Despite his recent admonitions about market participants never learning from the past, Howard Marks is more than happy to take advantage of just the kind of gullibility he writes about in his expansive investor letters. In fact, the manager of over $67 billion in assets is launching a $250 million 10 year bond deal which Bloomberg expects will price as soon as today. Full roadshow presentation attached.

Mark it down, today was another big winner for the options market makers. Any stock that was in an uptrend this month was instantly shanked (retail, oil service, semis). And any sector which was in a strong bear trend before this week was powerballed (shippers, steels, fertilizers, banks). All large put and call positions in these sectors will be effectively vaporized by Friday.