Archive - Oct 2010 - Story

Today, the Fed withdrew a whopping $260 million in liquidity from the market via a Treasury-backed 5 day reverse repo at a 0.20% stop out rate, which is pretty much what banks earn on their excess reserves confirming that this operation was nothing but a travesty. Much more importantly, minutes ago the Fed announced the POMO schedule for the next month: there are 9 liquidity drowning events coming up in the next month. Expect another $32 billion in AMZN, NFLX and AAPL purchasing power to appear magically out of Brian Sack's left pocket. As is now common knowledge shorting on any day, but especially on these days, is suicide. Which is why all natural shorters will continue piling into gold which has become the only way to formally oppose the Fed. Instead of looking at POMO days as stock melt up days, consider them days in which gold will soar even more (due to the recently discussed higher gold melt up beta compared to risk). Trade accordingly.

Today's $21 billion 10 Year bond closed, as expected, without a glitch, which is normal as the Primary dealers and the Directs once again account for nearly 60% of the take down. The 2.475% high yield was the lowest in 2010, and approaching the lowest on record from early 2010. Yet what was most troubling is that like in yesterday's 3 Year auction, both the Bid to Cover and the Indirect participation have started to decline. At 2.99 the BTC was the lowest since the May 2010 auction, following which every BTC was over 3. Additionally, and more troubling, the Indirect takedown was just 41.5%, a major drop from last auction's 54.7%, which caused both the Primary Dealer back up bid, and the Direct take downs, to jump materially, to 47.8% and 10.7%, respectively. Since the 10 Year should be one of the most preferred spots on the curve for foreign investor interest, the sudden drop is certainly troubling, and may be an early shot of how China plans on retaliating for recent trade war escalations in the US.

The inception of the mortgage fraud crisis has been extensively documented by pretty much all media outlets now. The question that everyone is grappling with is what happens next. Janet Tavakoli writes in with some suggestions, more at the thought experiment level, as to what the next steps in fraudclosure/fauxclosure may be.

The NBER tried to pull a fast one on America a few weeks back when out of the blue it concluded that the recession ended in June 2009. Alas, Google Trends shows otherwise. The attached chart demonstrates the average use of the terms "food stamps", "I need a job", "unemployment claim" and "government assistance" via google trends. Either Americans are really clueless and are completely unable to get the memo that it is now all clear to spend, spend, spend, or the BLS, as John Lohman has suggested, aka the US version of the Ministry of Truth has infiltrated the corpulent and proud NBER Ph.D.s flagbearers.

JPMorgan Chase's CEO says the bank has stopped using the electronic mortgage tracking system used by major financial institutions. Lawyers have argued in court proceedings that the system is unable to accurately prove ownership of mortgages. And after the effective foreclosure moratorium is about to cripple the RMBS market, here comes the collapse in CMBS.

RANsquawk US Afternoon Briefing - Stocks, Bonds, FX etc. – 13/10/10

The Maricopa County Sheriff's Office bomb squad is at the Palo Verde Nuclear Generating Station investigating a suspicious package. The plant is on lockdown right now and access to and from the station has been halted while the package is examined. The lockdown is causing some traffic issues on Interstate 10 right outside the plant.

Officials in 49 states have launched a joint investigation into allegations that mortgage companies mishandled documents and broke laws in foreclosing on hundreds of thousands of homeowners. Alabama was the only state not to join the investigation. "This group has the backing of nearly every state in the nation to get to the bottom of this foreclosure mess," Iowa Attorney General Tom Miller, who is leading the probe.

We present today's thoughts by Art Cashin on the coming hyperinflation (and no, it does not mean very high inflation - it means a complete and total collapse in the monetary system - which is what Ben Bernanke is attempting to achieve), without commentary.

That David Rosenberg is very much against QE2 is no surprise (although for such a bond bull he should be exalted) - he knows all too well that the cost/benefit analysis of QE2 just does not make sense: to pick a few bps in GDP in exchange for trillions in new debt (while letting the bankers send the CRB to imminent all time record highs) is simply moronic, and positions US society one step closer to civil war if not worse. Of course it is this kind of truthy candor that cost him his job at BofA. What we are more surprised by is that the "other" Rosenberg - a/k/a Chief Credit Strategist Jeffrey, and the smartest person left at the bank, has just released one of the most scathing reviews from a TBTF bank on the topic of (at least) doubling bank reserve, and that it will do absolutely nothing beneficial, now that lack of liquidity is no longer the economic threat, and if nothing else, will lead to much more bubble creation. As he says: "the costs of further QE2 in the form of raising the risks of asset bubbles - now in emerging markets as opposed to housing - should provide greater ballast against the gusts blowing in the direction of further liquidity provision." Alas, it is too late, and Bernanke will stop at nothing in his attempt to destroy America, absent several million iPitchfork-friendly, very angry, and very hungry people showing up at the doorstep of the Marriner Eccles building.

And so gold takes off, as the CRB index passes 300, with America blissfully unaware $100 oil and 20% U-6 unemployment is next, leading to a total collapse in the economy. The catalyst: Bloomberg reports China to put more reserves in gold. This time gold is flying even as the dollar is not getting crushed, implying that capital flows are not simply "gold on, dollar on." The surge in gold once is again making relative stock gains for the day priced in gold negative. With nobody daring to actually short stocks on fear of random buy-ins (such as the one in IWM today) Gold continues to be the way to express a negative bias on stocks, and one which on a pair trade basis has been profitable on any historical horizon basis as gold's "beta" is better than that of stocks.

No one needs to look at stocks to know how JPM, and the other TBTFs are doing. After all they are now firmly in the clutches of the HFT/Citadel/FRBNY pump machine. Yet a glance elsewhere confirms that all correlations between stocks and credit are terminally broken. To wit, note the following CDS spreads as of moments ago:

• JPM 85/88 (+4)
• MER 184/189 (+6)
• MS 170/175 (+5)
• WFC 105/110 (+6)

Be careful trading financial stocks: JPM's earnings were actually very bad, and so far only credit has figured it out. Equities, being traded now exclusively by Fed-frontrunning retards and virus-infested robots, are a little slow.

China released its September trade balance data, which at $16.9 billion, missed expectations of $17.8 billion, and was a sizable drop from the $20 billion in recorded in August, however was a 30.5% increase from a year ago. The reason for the sequential drop in the number was due to imports which at $128.1 billion surged to an all time high. This being China, of course, it was offset by a surge in exports to its two main export markets: the US and EU. US exports, much to the protectionists' chagrin, came at the second highest on record, or $27 billion, even as imports also grow marginally to $9 billion (see charts below). The the export saving grace was Europe, which imported $28.8 billion worth of Chinese goods, for a trade surplus (from the Chinese perspective) of $14.9 billion: the highest since the Lehman collapse. And confirming that September was a very much trade driven month, the gross notional trade balance with the Rest of the World (ex US and EU), surged to a record $99.7 billion ($44.1 billion in exports and $55.6 billion in imports, both at near or fresh record levels). The ongoing trade surplus will surely lead to more calls for Yuan revaluation, which of course simply means CNY-USD unpegging, as the CNY continues to benefit mostly to the Fed's ongoing devaluation of the dollar. How this is lost on our Congress critters and Senators is beyond us. Want CNY revaluation? Stop killing the dollar. And due to to traditional pick up in the trade surplus in the month of October, we expect screams for trade war to get ever louder next month once a fresh record Chinese export number is posted.

• For Orderly Dissolution Of The Fed, Before It Does Us Even More Harm (IBD)
• Securitization Flaws May Lead Investors to Fight Mortgage Deals (Bloomberg)
• China Foreign-Exchange Reserves Jump to $2.65 Trillion (Bloomberg)
• Japan warns China on currency policy (FT)
• More on the Fed's new mandate (which we are sure was cleared by Congress) targetting GDP and/or prices: Fed Mulls Raising Inflation Expectations to Boost Economy (Bloomberg)
• Frank Aquila discusses what Zero Hedge noted weeks ago: corporate cash repatriation concerns - "since repatriating these profits
  means incurring a tax of as much as 35 percent, most overseas
  profits remain offshore" (Bloomberg)
• Across the U.S., Long Recovery Looks Like Recession (NYT)
• The economic crisis was an 'inside job' (WaPo)

Some accounting voodoo to start off the day. In a nutshell - the bank which missed total revenue expectations of $24.28 billion by almost half a billion at $23.824 (which you may find unadjusted on one place somewhere in the attached presentation but most likely not), and which is entering Q4 with the foreclosure fraud crisis chip on its shoulder, and halted mortgages, somehow is lowering its net charge-off provisions estimate by over a billion. Which is why, hey presto, earnings of $1.01 "beat" expectations of $0.88, and the robotic headline scanners go nuts over the stock. More importantly, in discussing fraudclosure, JPM admits that by the time there is a foreclosure sale, borrowers are on average 14 months delinquent. In other words, all those who end up being "thrown out" on the street, live mortgage-free for over a year! And one wonders where all the excess marginal money to buy worthless trinkets comes from...