Archive - Oct 2010 - Story

After dropping to a modest €134 million last week, ECB purchases of sovereign debt exploded tenfold in the last ended week to €1.384 billion, confirming that the ECB continues to bid up all Portuguese and Irish bonds available for sale, so the market does not crash. As Reuters notes, this is the highest weekly amount purchase since early July. Once again it is up to the European Fed-equivalent to be the buyer of only resort. And Europe's continued central bank facilitated life support comes on the heels of the latest joke in recession timing: per Dow Jones, the Center for Economic Policy Research Monday said its Euro Area Business Cycle Dating Committee had determined that the currency area's recession began in January 2008 and ended in April 2009, lasting a total of 15 months and reducing gross domestic product by 5.5%. Some recovery there, when half the PIIGS have no access to capital markets, have their Prime Ministers mocked during conference calls, and are fighting with an exchange rate last seen long before Greece, Portugal, Spain and Ireland had to be rescued. We wonder what the CEPR's timing on the end of the European depression will end up being?

Realtor.org has released the August pending home sales, which increased from a SAAR of 78.9 (of course, downwardly revised from the previous reading), to 82.3 in August, a 4.3% rise on expectations of 2.1%, mostly on a jump in South and West transactions, which increased by 6.7% and 6.4% respectively. And add this to the plethora of data series which consistently see prior numbers revised adversely: July data was revised from a 5.2% increase to 4.5%. NAR chief economist, Larry Yun, once again tried to put some lipstick on the bottom-bouncing pig: “Attractive affordability conditions from very low mortgage interest rates appear to be bringing buyers back to the market. However, the pace of a home sales recovery still depends more on job creation and an accompanying rise in consumer confidence.” And yes, throw one more party praying eagerly each night for QE2.

Ever heard of the oxides of Lanthanum, Cerium, Neodymium, Praseodymium and/or Samarium? With price surges between 250% and 600% in one quarter, you may wish you have. The recent pissing contest between Japan and China, which culminated with a temporary export ban in rare earth metals such as those named above, translated in ridiculous price jumps in some compounds most have never even heard of, let alone traded, yet which would have made not only the year, but the decade for hedge funds invested in them. And with China producing more than 90% of the world's supply of rare earth minerals, coupled with increasing probability of escalating global (and regional) trade wars, it is distinctly possible that the gains recorded recently in gold will be dwarfed by the imminent Samarium Oxide bubble, which 3 months ago was trading at $4/kg and is now over $30.

This month we want to address canaries, coal mines, and the whole issue of yet another round of Fed quantitative easing. As you may remember, when the Fed stopped its last official QE effort, our comment at the time was that there was absolutely no way this was the grand finale of money printing for the current cycle. Not a chance. Our thoughts were that QE would resume either later this year or early next at the very latest due specifically to continued lack of meaningful money growth. At the time, we did not have a whole lot of company with this line of thinking as very few other folks were calling for this, especially in the mainstream. As of now, it has become consensus thinking as we survey the landscape. In fact broker after broker have been putting out research pieces over the last few months handicapping just when and why QE will begin anew. A few comments and then maybe some curveball thinking, as we at least need to consider the next round of QE being sparked by a source the Street is not looking for and has not discussed at all up to this point as far as we can tell. Question being, would QE sparked by a left field source elicit the positive response most anticipate as per consensus thinking of the moment?

Paulson's largest Advantage fund, which managed $16.6 billion as of the end of Q2, and which was down 11% as of the end of August, has managed to ride the beta wave, which we expected in the beginning of September would miraculously come and rescue thousands of underwater hedge funds, and prevent tens of billions in redemption requests. As a result, Advantage pulled off a 12.5% return in September, outperforming the broader market 8.8% bounce over the same time period. Yet even with a gain of over $1 billion, the billionaire investor is just about breakeven for the year (in dollar-denominated terms), which taking high water marks and all that, likely means bonuses for all those analysts on the 50th floor of 1251 Ave of the Americas will be certainly subpar unless somehow the beta wave continues into the end of the year even as additional tens of billions in capital is pulled out by retail investors.

• As predicted 2 months ago: S&P 500 profits cut for first time in year in analyst forecasts (Bloomberg)
• Irish Central Bank revises down recovery forecasts (Irish Independent)
• Wall Street Sees World Economy Decoupling From U.S. (Bloomberg)
• IMF admits to near-depression (Telegraph)
• Swiss to impose tougher standards on banks (FT)
• Fed Bond Buying's Unintended Consequences May Push Up Rates (Bloomberg)
• Was TARP Worth It? (Forbes)
• Morgensen: Count on Sequels to TARP (NYT)
• Decepticon Tradebots (Reformed Broker)
• Why some housing bubbles remain (FT)
• Jobs Report Could Spoil QE Party (WSJ)

Monday is not shaping up to be a pretty day for owners of the company that was once the modern-day equivalent of Apple, Amazon and Netflix. Oddly enough, that leveraged dividend appears not to be doing it for the "value" investors. Stock is red after Goldman, of all banks, decides to tell the truth: "We are downgrading Microsoft to Neutral and lowering our EPS estimates by 4%, 3% and 4% in FY2011, FY2012 and FY2013, and therefore our price target to $28 from $32, which suggests more upside in other Buy-rated names in our coverage. We believe the intrinsic value of shares cannot be unlocked if the status quo remains, and we have increased caution near term on a more elongated PC refresh cycle, combined with the newer threat of notebook cannibalization from tablets, where Windows does not yet have a presence." Here Goldman appears to have grown a little sense of humor: "Since added to the Americas Buy list on 8/12/08, MSFT shares have returned -13%, compared to -11% for the S&P 500."

• Asian stock mostly higher on Monday with investors inspired by US gains on Friday.
• China: Will continue to buy Greek govt debt when the country reintroduces open sale.
• Dubai's Cityscape realty exhibition to start Monday amid oversupply fears.
• Europe put on terror raid alert; US & UK issue warnings to public and travellers.
• Greece's 2011 budget seeks reduction in deficit, return to bond markets.
• Silver advances to $22.21, highest level since 1980, on investor demand.
• Wen says China to boost local demand, maintain holdings of European bonds.

Earlier today, Thomas Jordan of the Swiss National Bank stated that banks may need to triple their current common equity level, essentially undoing all the carefully prepared propaganda of Basel III, and validating just how undercapitalized banks throughout the world truly are. And while the regulators will likely completely ignore his message, the market appears to have noticed: the USDCHF fell to a fresh 2.5 year low of 0.9702, which is making Swiss exporters very, very unhappy. Additionally, the dollar weakness of recent days has reversed this morning especially on continuing Irish sovereign fears (especially after the whole Irish PM Citi conference circus), even as the Dollar-Yen continues to attack that critical 83 level which was the barrier for the BOJ's last intervention on September 15. It seems all the Chinese posturing of bailing out Europe is now completely priced in - oddly enough nobody seems to care that China is willing to provide vendor financing to broke European countries.All of this has driven the 2 Year UST to a fresh all time low yield of 0.3987%, as the Fed's finger salute to the saving middle class becomes ever more distinct.

We start with pending home sales and factory orders, then hear from the Fed, including twice from Chairman Bernanke, as well as Open Market Committee Portfolio Manager and Dark Pool master Brian Sack.

European Morning Briefing - Stocks, Bonds, FX – 04/10/10

As the recent Pentagon scandal makes all too clear, truth is treason in the empire of lies. Which is why attempting to shoot the messenger – by imprisoning the whistleblower and/or slandering the publisher – makes perfect sense for an arm – indeed, the very arms – of the United States government. So if we are to understand its logic (as all of its actions, however insane, are perfectly logical to it), we must understand the pathology that lies at its core. For unless and until we do, we cannot understand why government per se – i.e., the state, defined as “a monopoly on the use of force within its borders” – does what it does; why its functionaries lie so shamelessly on its behalf; and, most importantly, why its presumed masters – We the People – put up with it. We begin by amending Friedrich Nietzsche’s blunt statement – “Everything the State says is a lie, and everything it has it has stolen” – with a simple substitution of one word with another – i.e., “Everything the State says is a lie because everything it has it has stolen.” Being no less blunt, let us examine this statement to determine its verity.

The key actor in the LBMA precious metal price-suppression scheme, JPMorgan, is now getting directly involved in physical gold sequestering: the FT reports that JPM has reopened its underground gold vault in New York that was mothballed in the 1990s. The timing is just a little peculiar: not ten days earlier, Jamie Dimon's bank, which has long been alleged to be the biggest shorter of the precious metal in the world via synthetic positions to the tune of 100x leverage, JPM opened a precious metals vaulting facility in Asia: "The facility, located in the Freeport area of Singapore, will provide
gold and precious metal storage capabilities for corporate,
institutional and retail clients in Asia-Pacific." Is JPM just seeing a terrific business opportunity in warehousing gold... or is the firm, which also happens to be gold custodian for Blackrock's IAU ETF with its 4+ tons of the metal, merely looking to find a way to transfer metal from the US to Asia, or vice versa. Or is JPM suddenly in dire need of actual physical now that gold is at all time highs, and clients are demanding delivery. What better way to unwind the ponzi than to transfer from one physical storage client who is depositing gold to one who is demanding it? Alternatively, the firm could be merely preparing the biggest mouse trap ever for when Executive Order number 6102.5 comes into play. Of course, all conspiracy theory conjecture aside, the most likely reason is simply that there is all that physical out there, which people have bought up and now are more than happy to give it to the one LBMA bank which is notorious for having a solitary purpose in life which is merely to decimate the price of gold... After all, Gordian's Knot and all that.

With demographics playing an ever more important role in economic outlooks and debate, one of the topics that (luckily) has not had need of much mention, is the role of crime in society, and especially in a society gripped by the worst recession in 70 years. The logical expectation would be that crime would have surged in a replica of what happened to New York (and the broader country) in the mid-70s. Oddly enough, and perhaps a main reason why this is not discussed as much, is because this particular recession has not seen the traditional pick up in the crime rate (doubly curious, considering that unlike Wall Street, police departments, and their staffing levels, are usually among the first to get the funding axe). As BNY's Nicholas Colas points out: "Given the severity of the recession, you might be rightfully inclined to think there’s been a least a slight uptick in crime, but surprisingly enough, you’d be wrong. With national crime statistics from the FBI now available through 2009 – which includes the worst of the recession so far – we point out that not only has crime not gotten worse, but it’s actually continued improve quite nicely (in most states, at least). Moreover, those surprisingly positive trends are part of an overall structural decrease in crime that began in the early 1990s.The structural decline in crime that began in the early 1990s explains why the crime spike during the aftermath of the dot-com bubble and 9/11 was less pronounced than previous  recessions, but it’s quite surprising that even given the severity of the financial crisis, crime rates expanded on previous declines. Yes,  there are many theories (outlined below) that partially explain this, but the results are as puzzling as they are welcome. Not even theft and burglary, which have historically increased during recessions (see Charts 2 and 3) showed the slightest uptick." Yet with those behind bars not counted in the unemployment rate equation, is a violent (pardon the pun) surge in crime precisely what the administration is hoping for?...

Investors around the globe are concerned with the economic outlook, not only with the United States but with virtually every country. This has caused not only investors but banks and countries to start buying gold & silver in order to be protected incase of a currency melt down in the coming years. While the majority is concerned about the eroding economy, we have seen the opposite in the financial market. Gold and equities have risen… That being said the volume in the market remains light simply because the average investor is no longer putting money into the market for long term growth. Instead individuals are now focusing on saving and paying down debt. That being said we all know light volume market conditions allow Wall Street powerhouses to bid the market up. Not to mention with quantitative easing taking place I’m sure that has also helped the market of late. While we don’t know for sure that QE is taking place as we speak, the sharp drop in the dollar and strong move up in gold are pricing this into the market.