Archive - Oct 2010 - Story

Q3 growth in line with consensus expectations-but slightly higher than ours due to faster-than-expected inventory accumulation. Growth in real final sales was a touch weaker than expected, due mainly to another large trade drag. Consumption growth was healthy, though slower than we thought, while federal government outlays and business fixed investment (mainly construction) were higher. Meanwhile, moderation in employment costs reflects budget pressures of state and local sector.

Sunday is Halloween and that means next week the “sell in May and go away” cycle is replaced by its bullish opposite. Traders, however, will also note that it marks the beginning of a new tax sale fiscal year for mutual funds. Traditionally, trading profits taken by mutual funds before Halloween result in a taxable event for the fund holder in the same year. Profits taken after Halloween are not taxed until the following year. So, are mutual funds sitting on a batch of profit-taking sales starting next week? There may be more to think about than elections and QE2. - Art Cashin

Total Q3 GDP of $13,260.7 billion, an increase of $65 billion, of which $23.7 billion are personal current transfer receipts. The underlying data is not good, as the meet was driven by inventories, which increased by $115.5 billion in the third quarter, following increases of $68.8 billion in the second quarter and $44.1 billion in the first. This is a forward growth "draw" because as Goldman noted a higher than expected inventory number "becomes a negative risk factor for Q4 or Q1." Other indicators: US GDP Price Index (Q3 A) 2.3% vs. Exp. 1.8% (Prev. 1.9%); Home building fell 29% by 2 points, investors add 1.44 points; US Q3 consumer spending rises 2.6%, most since Q4 2006; US Personal Consumption (Q3 A) Q/Q 2.6% vs. Exp. 2.5% (Prev. 2.2%), highest since Q4 2006; Core PCE (Q3 A) Q/Q 0.8% vs. Exp. 1.0% (Prev. 1.0%); Employment Cost Index (Q3 A) Q/Q 0.4% vs. Exp. 0.5% (Prev. 0.5%)

Is the world about to see a new Chinese export ban? Is it time to buy assorted new bubble ETFs all over again? Looks like China just refuses to let things go, and Japan is not going to get access to those rare earths any time soon.

• Japan "damaged atmosphere" with China at summit by raising disputed islands - Chinese official
  
• Japan "released untrue information" that Japanese, Chinese Premiers would meet - Chinese official
  
• Japan "responsible for everything" in diplomatic row with China - Chinese official

Unlike Morgan Stanley whose calls on the shape of the yield curve have been pretty much wrong all year, and which have changed consistently, Goldman has been rather quiet on what it expects the curve to do. Today Francesco Garzarelli has come up with expectations that, unlike MS, the bulk of the buying will be concentrated at the 5Y locus, even shorter than the MS-preferred 7-10 Y. While this does make sense as there are far more bonds of shorter duration available for purchase, it also means the average holdings of the Fed will soon be cut in duration even more, which will eventually become a sufficiently large political factor that we expect Congress to soon get involved in discussions over the viability of the Fed's balance sheet (think massive asset-liability duration mismatch). Goldman also notes that it expects the 30 Year to be purchased and that the 10-30s will flatten, even as the 5s10s steepens. In other words a 5s10s30s butterfly may be the right way to play the Goldman trade... or to, inversely, fade it as so often is the right way to trade Goldman recos.

• Asian stocks decline as Sharp, Samsung Electronics stoke earnings concern.
• Japan Factory Output slide, deeper deflation are 'negative surprise' for economy.
• Tokyo Stock Exchange said there has been suspicious trading activity in shares of companies that have recently announced capital raising plans.
• AIA shares climb 11.5% in debut trade in Hong Kong, after raising $17.8B in IPO.
• AutoNation's Q3 net dips 12.4% to $56.9M on higher advt exps. Revs up 13%.
• Bunge Ltd.'s Q3 profit slid 8.6% to $212M on debt repayment, other one-time charges.
• Cliffs Natural Q3 profit $2.18 a share vs 45c; revs at $1.3B vs $666.4M last year.
• Enel Green Power IPO price cut to €1.60 apiece vs. prevs price range of €1.80-2.10.

Preliminary GDP for Q3 - the datapoint which Fed members said would be critical in determining QE2, also employment costs, the Chicago purchasing managers’ index, and the final Reuters/Michigan confidence read for October. Most importantly, no POMO today.

RANsquawk European Morning Briefing - Stocks, Bonds, FX – 29/10/10

As of October 27, the Fed's balance sheet was $2.3 trillion, of which the $837 billion in Treasury debt is of course a fresh all time record, soon to be eclipsed by the tens of billions added weekly as per QE2. There is roughly $13 billion left under the current POMO program ending in the second week of November, which by then will be supplemented by a new and improved almost daily POMO. In the past week, bank excess reserves increased by $16 billion after declining by $34 billion the week prior: total reserves stood at $1,008 billion, up from $993 billion the week before. And once again foreign holdings of agency/MBS debt dropped to a new 3 year low, dumping over $100 billion agencies in the Fed's custodial account over the past two months. Last, we take a look at the one topic that will soon be the most talked about subject by every pundit in the econosphere: the duration distribution of Fed holdings.

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.