Archive - Oct 28, 2010 - Story

I think what the Fed does will be irrelevant in terms of economic impact, and the more I talk to people about it the more I realize most share this view. The market is solely focused on the Fed and not the election as it is relatively understood that politicians are useless even though the list of tasks to fix our economy should in theory provide them an opportunity to make themselves useful. Given they will not rise to the challenge and will keep failing to deliver any concrete measures that could lead to progress, and that rates are at 0, as Bill Gross said the only thing for the Fed to do (OR NOT) is QE. I see no value but since they have made it their mandate to target inflation and now GDP I suppose Mr. Bernanke is at least consistent within his delusion. It is interesting however that even Bill Gross has joined the bandwagon. The ECB has also said the Fed is going in the wrong direction even though I bet they would be hard pressed to explain who is buying all these Spanish, Portuguese, Irish, Greek bonds and other turds they are trying to keep afloat. In that sense their only saving grace is that they sterilize their purchases, but they too are engaged in asset price fixing aiming at controlling GDP. Fighting a structural deficit and unemployment printing money is a bit like taking a leak in the ocean to warm it up, and you have to be careful because if the wind comes at you it can backfire. - Nic Lenoir

In the popular view, a coup d'etat is a sudden event, over in a few hours or at most days, a drama played out in impoverished Third World nations. The stealth coup which has occurred in the U.S. is an entirely different kind of coup--one that has operated in stealth mode for the most part, a process of gradual infiltration and opportunistic grasping of key levers of dependence and control.

RANsquawk Market Wrap Up - Stocks, Bonds, FX etc. – 28/10/10

As Zero Hedge will be unable to post news updates over the next several hours, feel free to use this open thread as a forum for any important developments and observations.

In September 2008 the US came to a fork in the road. The Public Policy decision to not seize the banks, to not place them in bankruptcy court with the government acting as the Debtor-in-Possession (DIP), to not split them up by selling off the assets to successful and solvent entities, set the world on the path to global currency wars. By lowering interest rates and effectively guaranteeing a weak dollar through undisciplined fiscal policy, the US ignited an almost riskless global US$ Carry Trade and triggered an uncontrolled Currency War with the mercantilist, export driven Asian economies. We are now debasing the US dollar with reckless spending and money printing with the policies of Quantitative Easing (QE) and the expectations of QE II. Both are nothing more than effectively defaulting on our obligations to sound money policy and a “strong US$”. Meanwhile with a straight face we deny that this is our intention. It’s called debase, default and deny.

Yesterday we made a big stink over the Fed's reverse inquiry into the PD community over how much QE2 it should launch. Today, we find out what the distribution is: as Merrill's Harley Bassman points out: "Four dealers are predicting a $1+ Trillion buy program." It is good to finally know what the bogey is.

It seems like it was yesterday that Bill Gross was bemoaning the sad American state of a QE2 driven affairs. Oh wait, it was. Yet less than 24 hours later, courtesy of some dealer insight into the market we realize that it is precisely this same Bill Gross who is aggressively anticipating to profit specifically from the launch of QE2 in less than a week. To wit:

In the U.S., PIMCO still crushing the 10yr Volatility selling your amount of strangles, they are now short about 200K TYZ0 strangles, various strikes including and inbetween 124P and 129C.....

Good of Bill to hand out indulgences with one hand, and to wave bonds in (sell vol) with the other.

It appears not everything is dead and buried in the Gulf of Mexico. Halliburon shares are now plunging on a Bloomberg report which finds that the cement Halliburton Co. recommended to seal BP Plc’s Macondo well was unstable in tests and may have contributed to the April 20 blowout, the staff of a national commission investigating the accident said. HAL down 3.7% at last check.

Today's $29 billion 7 year auction closed at a high yield of 1.97%, which following suit recent 2 and 5 Year auctions was an increase in the stop out yield. Still, it was the second lowest recorded since the reintroduction of the 7 Year in February 2009. More interestingly, the Bid To Cover came at a record high of 3.06 compared to 3.04 previously and 2.84 average in the prior year. This means the belly of the Treasury curve continues to be very well bid, although with the majority benefit of the Primary Dealers. PDs took down 50.22% of the auction (compared to a 50.34% average), leaving 10.9% to directs, and 38.88% for Indirects. This was an increase in the Indirect take down from 36.4% previously, and ends the decline in Indirect bids seen previously in the 2 and 5 year, confirming that even foreigners continue to seek yield above all. Bottom line: with QE2 around the corner, there is no shortage of demand for paper.

Paulson and David "Balls to the Wall" Tepper just can't catch a break these days...

William Black continues with his campaign to not only bring sanity and transparency to an administration wrapped in secrecy, legacy cover ups and fraud, but to finally do what had to be down two years ago: bring down the big banks, force a balance sheet restructuring at the TBTFs, and force a systemic reset which is the only thing that could bring the much promised "change for good" to this country. " Don't talk about doing the right thing -- do it -- and do it to a major contributor. Don't do it because it's a contributor, but because a bank that commits tens of thousands of frauds should immediately be placed in receivership." We once again hope that more people like Bill Black (if not he himself) will decide to run for president, and make the difficult choices necessary to begin the impossible task of truly fixing the mess this country finds itself in.

Nothing too surprising in the WGC's Q3 Gold update report: "The gold price continued its upward trend during Q3 2010, ending the quarter at US$1,307.00/oz, on the London PM fi x, 5.1% higher quarter-on-quarter. Gold’s average volatility of 13.2% in Q3 was not only lower than previous quarters but remained below that of equity and commodity indices. Concerns over the health of economic growth in the developed world, quantitative easing, continued purchases from central banks in emerging markets, healthy jewellery consumption in regions like China and usage in technological applications have all ensured that gold remains a sought after asset...The WGC expects demand to pick-up further in Q4 on the back of the main festive season. In China and Hong Kong, the gold market appears to have maintained its strong momentum, suggesting continued positive growth during Q3 2010 relative to year-earlier levels. Sales by European central banks remained negligible while their counterparts in emerging markets continued to increase their gold reserves.." Nothing but bullishness here.

Following the recent strategic move by China to minimize rare earth mineral exports, the speculative investing crowd has suddenly found a new momentum darling: the REMs. And the growing chorus of voices that has emerged calling for a bubble in the rare earth space may certainly be on to something: to be sure many of the companies will not be profitable for years with quite a few likely not to even generate revenues for a decent amount of time, implying valuations are once again based on "stories" and hype. Today's launch of a rare earth ETF is surely a validation of the bubble theory. Amidst the bubble talk, the question of how long constricted supply demand conditions is certainly key. However, are there diamonds in the rough among the chaff? In other words, are there stocks that could be good pair trade or long hedge candidates to a short basket? Today we take a closer look at Lynas Corp, which was highlighted in the latest 13D.com (a newsletter we can not praise enough) report as "its favorite in the field."

RANsquawk US Afternoon Briefing - Stocks, Bonds, FX – 28/10/10

I believe we have finally breached the tipping point in the socio-political landscape of the United States of America. There will be no going back from here. Everyone on all levels of society including the elites must make a choice. Will you stand for real reform and an end of the feudalistic rule of the oligarchs and their paid-off puppets that line the streets of Washington D.C., or will you keep your mouth shut and play the old and dying game in the context of a completely different cultural environment? While many will disagree with what I am about to say, I believe the oligarchs and the Federal Reserve have already lost. - Mike Krieger