Archive - Oct 2010 - Story

With all the excitement over yet another market melt up, some may have forgotten about the biggest story in process of decimating the US economy, and its entire mortgage-credit backbone. Here is a brief summary of all the comings and goings in the Mortgage Meltdown Mess, which may explain why the Fed is getting aggressive about inflating the living feces out of $10+ trillion in mortgage debt.

RANsquawk Market Wrap Up - Stocks, Bonds, FX etc. – 05/10/10

As readers will recall, at the end of July, which was the most recent TIC data update, China owned $847 billion in US Treasury bonds. Since then, the world's reserve currency, which is what said Treasuries are denominated in, has lost 4.7%, or $40 billion in real terms. Yet an even more jarring observation is that from its June highs, the USD has dropped 12.4%. Expressed in real terms from the perspective of China's State Administration of Foreign Exchange, this means that our biggest creditor has lost over $100 billion when adjusted for the purchasing power loss in the dollar.

Sorry kids, we just report the news... as ugly as they may be. After last week saw an insider selling to buying ratio of 1,411 to 1, this week the ratio has nearly doubled, hitting a ridiculous 2,341 to 1. And while Wall Street's liars and CNBC's clowns will have you throw all your money into "leading" techs like Oracle and Google, insiders in these names sold a combined $200 million in stock in the last week alone (following Oracle insider sales of $223 million in the prior week). Insiders can. not. wait. to. get. out. fast. enough. This Fed-induced rally is nothing short of a godsend for each and every corporate executive. But yes, there may be value: there was insider buying in 2 (two) companies last week: General Dynamics and Best Buy, for a whopping total of $177,064. At the same time sales were a total of $414 million: so is anyone wondering why JPMorgan is reopening its gold vault... Anyone left holding the bag on this market when the FRBNY props are taken away, will be left with the same return as all those investors who entrusted their money with Madoff. Guaranteed.

Chairman Gensler is acknowledging what we have said repeatedly: volume does not equal liquidity. Our marketplace has become addicted to “hot potato volume”; in fact, we have become hostage to it. Consultants, exchange-heads, and conflicted brokers repeatedly warn, every chance they get, that any wrist slapping, any regulation, any attempts to limit the profitability of HFT, will widen spreads and decrease volume! The focus should always have been, and should be today, on making our markets liquid. High volume is not the same thing.

If anyone needs any confirmation that investors are now fully aware repayments at maturity of sovereign debt issues will likely not occur, ever, is today's announcement that Mexico is in the market with a $500 million century issue (100 year maturity). Lead underwriters on this brilliant piece of paper are Deutsche Bank and Goldman. We are willing to wager that it will also be these two firms' restructuring groups which will handle the ensuing insolvency of the southern neighbor. Which, however, will not occur before the US brings back that other brilliant invention- the consol (which was so brilliant, one wonders if Goldman did not exist back in the 18th century).

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.