Archive - Oct 5, 2010 - Story

One of the more amusing implications of Bernanke's relentless desire to destroy the world is that he is causing a surge in profit margins for retailers like costco which are now actively engaged in provisioning for the upcoming monetary policy-induced apocalypse. And here is the deal of the day, courtesy of producer shelf reliance ("your premier source for food storage and emergency preparedness planning") as Bernanke is apparently dead set on immitating the BOJ in purchasing ETFs openly, as opposed to using its secret Citadel dark pool channels: $799 buys you a 1-year food supply for 1 person or 5,011 total servings. Thank you Bernanke - your actions have now lead people to believe you are the antichrist. We can't decide if Geithner is famine or pestilence.

As oil sees its image tarnished from the disastrous oil spills that took place off the coast of the Gulf of Mexico and off the coast of Dalian, China, and as the most promising oil fields remain off limit to the Western oil majors, gas is gaining in popularity. Gas is present in large quantities and in many countries of less questionable reputation such as in the United States and is also less harmful to the environment than oil. Though gas is not intended to replace oil, some gas-rich countries such as Russia and Iran are strongly advocating for a gas cartel to regulate the industry, which can explain the reluctance of Russia to adopt sanctions towards Iran at the United Nations as both countries heavily rely on the income generated by their natural resources.

Too many buy orders will do that to even the best html code taxpayer money can buy. Contrarian indicator? In the meantime, US clients are advised to twiddle thumbs.

From the Fed's Evans: "If we were to do more large scale asset purchases, namely Treasurys, that would have a beneficial effect. There would be some reduction in long-term yields. That would be of some help. But given the nature of the outlook, much more accommodation than that is probably what’s called for. We have to think a little more carefully about the potential tools that we have available to us."

$10 gallon gas is one step ever so closer. The administration is committing suicide by pursuing a hyperinflationary path. Never too late to the party, spot gold just passed $1,340 for the first time ever.

Some rather scary predictions out of Paul Farrell today: "It’s inevitable: Wall Street banks control the Federal Reserve system,
it’s their personal piggy bank. They’ve already done so much damage, yet
have more control than ever.Warning: That’s a set-up. They will eventually destroy capitalism,
democracy, and the dollar’s global reserve-currency status. They will
self-destruct before 2035 … maybe as early as 2012 … most likely by
2020. Last week we cheered the Tea Party for starting the countdown to the
Second American Revolution. Our timeline is crucial to understanding the
historic implications of Taleb’s prediction that the Fed is dying, that
it’s only a matter of time before a revolution triggers class warfare
forcing America to dump capitalism, eliminate our corrupt system of
lobbying, come up with a new workable form of government, and create a
new economy without a banking system ruled by Wall Street." And just like in the Hangover, where the guy is funny because he's fat, Farrell is scary cause he is spot on correct.

RANsquawk US Afternoon Briefing - Stocks, Bonds, FX etc. – 05/10/10

Jan Hatzius, who has been spot on in every prediction so far this year, provides the following rhetorical Q&A on what is now a definitive QE2 announcement in less than 30 days (and if one doesn't come, the mid-term elections will be accompanied by a whole host of flash crashes). In a nutshell: "we continue to believe that these purchases will ultimately involve at least $1trn, possibly quite a lot more...more importantly, QE2 works on other elements of financial conditions, including equity prices and the exchange rate." In other words, look for gasoline at $10 at a gas station near you within 6 months, promptly to be followed by complete economic collapse and a 25% chance of revolution on the side.

Today's POMO is over, as the Fed monetizes $5.19 billion in 11 bond CUSIPs. The Submitted to Accepted ratio plunges once again, this time to 4.6x, as the Fed is desperate to absorb ever more of what the PDs put to it. The money has already flowed through risk assets, and now the traditional POMO fade begins (although we have yet to hear if the SPY buy ins are proceeding as State Street has demanded, or if that wild card will still be pulled later today). The next thing to look for on the central bank intervention front is imminent BOJ intervention, now that the USDJPY is back to the critical 83 threshold level.

The now traditional ramp in all risk assets continues to underperform the increasing fund flow into gold: a phenomenon we last disclosed after the most recent FOMC meeting. In other words, the S&P expressed in gold is down for the day. Which basically means that even with today's joke of a market move, the purchasing power lost as a result of now global currency debasement is not offset by some high beta name surging to all time highs. Even basicalier, it means that gold continues to do better than stocks every time there is a central bank intervention. And there will be much more central bank intervention before the location of the next world war release party is officially disclosed. Basicaliest: stocks ramp, gold ramps more. Nuf said.

Today's POMO eligible CUSIP list has been released: 28 different securities means a solid $3-5 billion in tender interest, although judging by last week's paltry notional submission in the long-end POMO, we wouldn't be surprised if more and more PD opt to hang on to whatever is providing any yield in this market. On the other hand, why wait a year to collect 1% when you can just buy Netflix and collect that in one 4 hour flip. The full results and the traditional fade begins at the usual 11:00 am time slot. What is distrubring is that ever more CUSIPs make the exclusion list: today 11 bonds are ineligible for repurchase, because, we assume, 35% SOMA holding limits and cheapest to deliver thresholds have been breached. Little by little the Fed will have increasingly less open market optionatlity and will be forced to monetize directly at auction.

So the ISM Manufacturing miss caused the market to surge, and the ISM non-manufacturing beat caused markets... to surge. ISM non-manufacturing came at 53.2 up from 51.5, slightly beating expectations of 52.0. The various components come as follows: New Orders: 54.9 vs. Prev. 52.4; Employment: 50.2 vs. Prev. 48.2; Prices: 60.1 vs. Prev. 60.3; Business Activity: 52.8 vs. Prev. 54.4.Although the one most important metric, and definitive outlier, was the Export New Orders, which exploded at 58, an increase of 11.5: the highest since June 2007. Thank you weak dollar: it appears the US is once again exporting weapons of mass financial destruction.

While developing my outlook on the US dollar, Bob Farrell’s rule number 9 comes to mind- “When all the experts and forecasts agree––something else is going to happen”. The number of dollar bears is disturbing. I find my own forecast moving inversely from the growing consensus; while I am not officially bullish on the currency yet, the time may come in short order.

The Bank of Japan is back pounding the QE/debasement/Keneysian madness table: this time they don't buy bonds, they buy REITs and ETFs. Did you hear that Mr. Bernanke? You no longer have to wait for a business to be insolvent to buy (bail?) it. More and more countries are in the pool. Central banks joining the game range from Peru with a few millions worth of USD, Brazil, to Japan committing to $300Bn of FX intervention with the first $20Bn unsterilized, to the Fed where estimates for QE 2.0 range from $300Bn to $500/750 Bn every quarter. Commodities love it obviously and last night Japanese quantitative escapade did not leave Copper or Gold insensitive as they scream to new (recent or all time) highs. - Nic Lenoir

In an advance preview of what will happen in the US once tens of millions of "homeowners" are forced to actually start paying their mortgage bills, Iceland's disgruntled population "gathered in their thousands, beating makeshift drums and hurling red paint at the legislature." As Bloomberg further describes the festivities: "protestors lit a bonfire and threw firecrackers at police while others threw eggs, tomatoes and paint at the parliament as they tried to break through the steel fence protecting the building." And while 8,000 protesters seems like a de-minimis number, keep in mind it is 2.7% of the country total population, and would be equivalent to 9.5 million American lining up to throw rotten vegetables at Ben Bernanke. Seeing how not even one has done so ever, it appears the Volcano dwellers have infinitely more guts than their infinitely more weaponized American equivalents. As to what sparked the ire of the egg-throwers: "A six-month freeze on mortgage repayments put in place by the government expired on Thursday, triggering the anger of many Icelanders who will fall short on home payments." Perhaps when in a decade or so, Americans are once again forced to pay down their debts, we may actually see comparable footage in the US as well. Too bad the world's central banks will start a world war long before that.

Remember when once, less than 8 hours ago, the BOJ decided to punish its currency in yet another rate reduction-cum-QE decision? Neither do we, and neither does the market - the half-life on currency intervention by the Japanese central bank is now 4 hours (and dropping), as the USDJPY is lower than where it was pre-intervention.According to market rumors, Shirakawa is preparing to take the honorable way out as he has now lost all control. Either that or LBO Radioshack. As for what does matter today, there are only two thing: $3-4 billion POMO today is currently being front run by millions of tiny, hollow vacuum tubes, while the 2-3 traders remaining are fully aware that SPY and IWM are on the Reg SHO 'suggested' buy-in list. All else is noise as the Fed will get the market higher today period. Also, don't look now, but gold just passed $1,330 - and you still can't eat the damn thing!