Archive - Oct 7, 2010 - Story

Harley Bassman, who used to run Merrill's successful RateLab and is now a prop trader, has sent the following note to clients. Note the bolded text: "The market has become dispeptic about the Payroll event. It is unclear if the FOMC is the BIG event (irrelevant of the data) or do the core inputs matter more. In a nutshell, will tomorrow's data shed any light on the next FOMC ? Last week the options market did now know what to think about QE2. That has all changed....or at least a few large customers have changed our collective minds. Massive option selling has reduced the cost of risk by over 12% in in two days. At least a few customers "know the number" of the FED." Our question: when, if ever, will the market become a level playing field, where everyone acts on the same information? How long will such wholesale approved and encouraged insider trading be permitted for the select few? And, lastly, when will the world rid itself of the Fed once and for all?

SITUATION: One indirect consequence of the Gulf of Mexico oil spill is the impact it may have on the financing of the many tourism projects that have sprouted along the Caspian Sea. Bordered clockwise from the North by Kazakhstan, Turkmenistan, Iran, Azerbaijan, and Russia, the Caspian Sea is one of the largest bodies of water and an object of strategic ambitions. Though the global financial crisis put may grandiose Caspian Sea tourism projects on hold, some of them are coming back to life, but investors should be alert to tourism trends, corruption, and unanswered questions about demand and potential profit.

As we expected, and suggested last night, Obama would not enact H.R. 3808 for fear of the populist fallout that would follow. Indeed, Dow Jones has just confirmed that Obama will "Pocket Veto" the notarization bill, eliminating the last possible roadblock for a tsunami of legal action against mortgage servicers.

The hits just keep on coming for the administration's failed economic policies. While everyone is focused on tomorrow's NFP which will likely indicate a 9.9% unemployment rate, Gallup today confirmed that the unemployment rate has once again pushed into double digit territory. "employment, as measured by Gallup without seasonal adjustment, increased to 10.1% in September -- up sharply from 9.3% in August and 8.9% in July." Conveniently for the BLS, the deterioration in labor markets occurred late in September and will likely not show up until the October report: "Much of this increase came during the second half of the month -- the unemployment rate was 9.4% in mid-September -- and therefore is unlikely to be picked up in the government's unemployment report on Friday."

The U.S. Federal Reserve, which is in charge of the world’s reserve currency has gone completely and totally insane. Every time the stock market is down 2 points some maniac academic with a printing press delivers a speech about how much money they are going to print, basically daring anyone to short or sell the market. No one is smart enough to know how much QE is priced into the market, is it $500B? $1 trillion? $3 trillion? No one knows, but what we all do know is that the Fed through its non-stop yapping has now set up the ultimate moral hazard in financial markets. It doesn’t matter if all of the economic data miraculously comes in extraordinarily bullish over the next three weeks. The markets have put the Fed into the biggest box they have ever been in. They must do QE2 at this point and they probably have to do it big. The problem is, with the equity market up at the levels it is I don’t think ANY amount of QE2 will cause a rally. In fact, this might be the biggest “sell the news” event in the history of the stock market. If you are smart you will take appropriate actions while you can and sell to someone with less of a clue (believe me there are plenty out there). - Mike Krieger

Missed the first Ira Sohn west conference? Here is your chance to catch the complete notes via BTIG's Mike O'Rourke. Presenters included John Burbank of Passport, Barry Rosenstein of Jana, Brian Zied of Bridge Capital, Mitch Julis of Canyon, Jeffrey Ubeen of ValueAct, Robert Rosner of Buena Vista Fund, John Taylor of the John Taylor Rule, Chris Chabris, and Richard Farber of Kayne Anderson. Ideas discussed include the future of the world, Dutch company TNT, Charles River Labs, Sirius XM, Valiant Pharma, Taiwan Semi, the Libor-OIS spread, Natty and Patriot Coal. So for all those who still hold on to the illusion that alpha is possible in this market, read on.

RANsquawk US Afternoon Briefing - Stocks, Bonds, FX etc. – 07/10/10

Actual Bloomberg headline just posted:

BN  *BRAZIL CENTRAL BANK TO BUY DOLLARS XX:XX-XX:XX P.M. LOCAL TIME

Yup, the filler pretty much says it all.

Bill H.R. 3808, the Interstate Recognition of Notarizations Act of 2010, which was discussed yesterday, and which according to both Reuters and the NYT may have a material impact on mitigating the impact of the High Freq Signing scandal, at least on the servicers, is now open for public comments at the white house.

Those wishing to tell the president how they feel, may do so at the following link:

http://www.whitehouse.gov/webform/comment-legislation?billname=H.R.%203808%20-%20Interstate%20Recognition%20of%20Notarizations%20Act%20of%202010

Very much as expected courtesy of 100% correlations, and following the earlier drubbing in the EURUSD, gold is now falling after the central banks of America, Europe, and Asia have all issued press releases they are henceforth ceasing all currency debasements and will never monetize debt ever again. Seriously, though, following the parabolic move higher earlier, as the widely predicted and expected correction is taking place (see Rosenberg's note from yesterday), which has brought gold to the level last seen two long days ago, all the new price does is provide a cheaper entry point to a self-created gold standard. Thank you LBMA.

Daniel Gross, who while at Newsweek saw the end of the recession even as the depression was merely stretching its wings, and generally drank Kool Aid by the supertanker, only to see his media venue blow up (some recovery) and by forced to move to that other bastion of creative thought Yahoo!, gets pummeled in today's letter by David Rosenberg for his most recent lunatic ramblings which not at all surprisingly made it into Paul Krugman's New York Times. Frankly, it was about time someone explained to Mr. Gross that reality is actually quite visible, if only one puts down the mild hallucinogens for at least a minute.

The sudden plunge in the EURUSD can only be attributed to Waddell and Reed rushing to sell a few nickels worth of the FX pair, as the JCT ECB press conference has ended, and contrary to what some are saying, had nothing notable in it. In fact it was the usual liefest, in which the Europe Fed big man had the gall of saying the US wants a strong dollar: who appoints these pathological liars? Here is Goldman's Erik Nielsen with a rounddown of the bulletin of bullshit.

When I wrote last week about the emerging problems in foreclosures, I opined that the problem could get much bigger and more complicated. Boy, has it ever. It was noted how quickly this had morphed from a potentially isolated processing problem at a single institution (GMAC) to an industry-wide disaster that may threaten the very concept of securitization. That would be a major problem since at the top of the bubble, it was estimated that nearly 80% of all credit came from securitization.That’s a hole that no fleet of Fed helicopters can fill. - Art Cashin

Oh the joys of austerity. In Greece things are finally warming up, even as the weather is cooling off, and vacation bills come due. Don't expect to see any live footage on CNBC, as Waddell & Reed may be forced to sell 10 ES contracts and wipe out the entire market, but back in Athens things are right about where we left them off on May 6: Greek civil servants have stopped work for 24 hours, "pushing ahead with protests against EU/IMF prescribed austerity measures despite a waning turnout." Reuters reports: "Tax offices, public schools and some public services shut down, while public hospitals worked with emergency staff. Flights to and from Greek airports were to be grounded for four hours up to 1600 GMT, when air traffic controllers joined the action." For the sake of keeping the ponzi alive, we hope at least Fed helicopters are allowed to make emergency landings in the general area of the Acropolis, or to at least paradrop buckets full of green colored linen to keep the peasantry content for a few more weeks.

Underrepresented jobless claims, which just like last week and now 23 out of 24 weeks prior, will be revised notably higher next week, came at 445K, on expectations of 455K, after last week was revised from 453K to 456K. Continuing claims, on the other hand, increased from 4,45K to 4,462K, while last week was revised, surprise, upward from 4,457K to 4,51K. At this point, however, good news is bad news, as any economic data that shows even the slightest positive inflection point weakens the QE2 argument. And if November 3 does not see Bernanke announce further easing, stocks will plunge. As for the tail end, those on extended claims and EUCs continue to seesaw, this time jumping by 255K in the week ended September 18, with extended claimants once again passing 1 million and those on EUCs over 4.1 million.