Archive - Oct 2010 - Story

In an interesting piece released last night, Goldman's Joshua Crumb, part of the same team which so far top-ticked gold to the millisecond, with its October 11 recommendation to buy gold at 1,364.2/oz, a call we suggested should be faded, looks at the role of suddenly popular physical metal-backed ETFs on actual price formation.

The inaugural Chris Martenson "Straight Talk" contributor is Mike Shedlock, author of Mish's Global Economic Trend Analysis, one of the most visited and respected economic blogs on the Web. Mish is an outspoken deflationist and outlines his rationale for being so in his answers to our questions. He is also a registered investment advisor representative for SitkaPacific Capital Management.

Greek 10-year government bond yields, after having graced 8.73% merely a good week ago, are back with a vengeance (9.67%). Where is the insatiable demand for Greek bonds from China? The Germans are suspiciously quiet. Could it be that Germany officially condemns the worst offender of the “stability treaty” of Maastricht, while at the same time still booking fat defense orders from the Greek army and navy? According to “Die Welt” Greece has spent some EUR 50bn over the last decade on defense. Per capita, it features Europe’s largest army. During the last five years, Greece has been among the top five purchasers of conventional weapons world-wide. No prize for guessing who builds those frigates and submarines.

Durable Goods prints at 3.3%, higher than expected 2.0% (even as the previous is traditionally revised from -1.3% to -1.0%), which however was pushed exclusively by transportation, as durable goods ex. transportation dropped by 0.8% on expectations of 0.5%, (and down from a revised 1.9%), which was the second drop in the past three months. In fact the transportation segment surged by 16%, mostly due to Boeing which announced receipt of orders for 117 aircraft, compared to 10 the month before. Remove the $6.6 billion contribution from the doubling in non-defense goods and you have a major headline miss, as the M/M change would in fact have come in negative. But just as iPads now determine the tech component of the economy, why not have one-time 787 sales define the broader GDP? Depending on adjustments, today's report may actually bias the October 29 GDP report higher. Lastly, and confirming the weakness of the September report was the Non-defense cap ex aircraft, which came at -0.6% on expectations of 0.8%.

• Foreclosure Lawyers Go to Gardner's Farm for Edge on Lenders (Bloomberg)
• Employers in U.S. Start Bracing for Higher Tax Withholding (Bloomberg)
• Fed leaks more data via WSJ: Fed Gears Up for Stimulus, and will buy
  trillions, $100 billion at a time as long as Depression continues and
  bonds available for purchase don't run out (WSJ)
• Fed looks set for new round of monetary easing (Reuters)
• Florida Foreclosure Auction Cancellations `Frustrating' to Judge (Bloomberg)
• Asian Leaders Head to Hanoi Amid Concern at China Yuan (Bloomberg)
  
• Fed Won't Join Banks in Discount-Window Appeal (WSJ)
• CNBC now just 9 months behind the curve, discovers insider selling: Insider Selling Volume at Highest Level Ever Tracked (CNBC)

It is settled: the only country that may have more pathological liars than the US, is Greece. Eurostat, whose revision of Greek GDP numbers in April was the catalyst that led to the country's insolvency and riots in early May, and subsequent bail out, is on the scene again, and has once again confirmed that Greek authorities can be relied on 100%... to lie. Reuters reports that Greece's much-revised 2009 budget deficit will be set "once and for all" by Eurostat at above 15 percent of GDP, the country's finance minister said on Wednesday. And the revision is certainly a little more than just "modest": "Remember the 2009 budget was projecting a deficit under 3 percent, then a few days before the (Oct. 4) election the reported deficit to the EU Commission was 6 percent," Finance Minister George Papaconstantinou told a conference in Cyprus. "We realised it was over 12 percent. And actually, even after the final revision by Eurostat ... which will validate Greek numbers for 2009 once and for all, it will be above 15 percent. We are talking about a five-fold difference." This is data fudging that will make not only China but the BLS blush with envy.

• API: Oil inventories rise 6.4 million barrels.
• Australian Consumer Prices rise 0.7%, less than estimates; Currency drops.
• Average rates on 30-year fixed-rate mortgage expected to jump above 5%: MBA.
• Fed won't join banks' appeal to High Court over emergency-loan disclosures.
• Most Asian stocks rise on earnings; Japan's exporters gain on weaker Yen.
• US mortgage lending to drop below $1 trillion, lowest since 1996, bankers say.
• US Treasuries snap five-day decline as Dudley says economic momentum slowed.

Finally we enter the informal “blackout” period for policy-related FOMC commentary one week ahead of the scheduled announcement from next week’s meeting, which means the Fed chatterboxes finally shut up. Just one speech today with little likelihood of breaking new ground, following the morning's data on mortgage applications, durable goods, and new home sales…Most importantly, no POMO. Futures already reflect it.

RANsquawk European Morning Briefing - Stocks, Bonds, FX – 27/10/10

Perhaps the biggest, and most overtouted, silver lining of the US depression is the massive (presumably) amount of cash held by corporate America, built up over the past two years thanks to massive headcount reductions, overall cost-cutting, and record drops in CapEx investment. And while American non-financial companies currently do indeed have a record $943 billion of cash (of which however $233 billion is in short-term investments), they also have a record amount of debt to go with the cash: 3,394 billion at mid 2010. In addition, as we have long cautioned, nearly a quarter of this cash is held abroad and can not be repatriated. Furthermore, putting the $1 trillion in perspective, it is slightly higher than the total combined annual corporate capital spending and dividend payments by non-financial companies. As such, the cash buffer is certainly not as big as is touted by assorted permabulls. In fact, as even Moody's, which has just released the most comprehensive analysis on US corporate cash discloses, "companies are unlikely to spend their cash on expansion and hiring until there is greater certainty about the direction of the U.S. economy." The primary culprit: companies are all too aware of the record excess capacity slack, and that there is no need to invest for the future until others do so first. But we already knew that. And since we have already been digging underneath the surface of the US cash hoard, and uncovered a variety of unpleasant facts, it has been remarkable how quickly this topic is no longer a talking point among CNBC's anchors and is only brought up by its most clueless guests who don't realize only the dunces now use this argument (kinda like the whole "green shoots" thing that did miracles for Dennis Kneale's career). So here are all the details about the corporate cash stash, and a whole lot more.

The US population is starting to get restless: investors are beginning to sue, there are protests over HAMP, and foreclosure probes are happening.

Gonzalo Lira picks up on a topic much discussed on Zero Hedge, if not so much elsewhere: the religulousity (thank you Bill Maher) of the "science" of economics: "It’s no great insight to say that economics—the so-called “dismal science”—has had a dismal track-record in terms of predicting macro-economic events over the last forty-odd years. And as for the last couple of years? Sheesh—a monkey throwing darts would have done a better job of predicting how the macro-economic picture would play out. But I argue that economics is not and has never been a science—what's more, it's become a religion. And just like any religion, it has adepts, denominations, and orthodoxies. Which is why it will fail in its efforts to get out of this Global Depression." —Gonzalo Lira.

The Casey Report provides a useful glance at the real inflation currently ravaging items that are actually purchased by Americans, not those captured by the Fed's BLS statistics: "On average, our basic food costs have increased by an incredible 48% over the last year (measured by wheat, corn, oats, and canola prices). From the price at the pump to heating your stove, energy costs are up 23% on average (heating oil, gasoline, natural gas). A little protein at dinner is now 39% higher (beef and pork), and your morning cup of coffee with a little sugar has risen by 36% since last October." Of course, the ongoing deflation in items purchases requiring leverage will continue to skew the CPI so far south to make all those who bought 5 Year TIPS yesterday at negative yields end up losing money on the transaction.

EUR posted broad based losses on Tuesday amid a stronger USD and following news that Citigroup has advised its clients to take profits on long EUR/USD positions. As a result, the pair fell below the 10DMA (1.3935), the 21DMA (1.3862) and looks set to make a test on 1.3800 in the coming days. Elsewhere, despite a stronger USD, the GBPUSD rallied and posted gains of over 100pips on Tuesday after the UK's Q3 advanced GDP data beat expectations by a impressive margin and S&P revised the UK's sovereign rating outlook to stable from negative, affirming the country's 'AAA' rating, having been satisfied with the coalition governments performance and budget plans outlined thus far. Finally, the USDJPY pair rose towards the mid-81.00 levels on Tuesday amid a stronger greenback, which gained following renewed concerns over the Eurozone and on the back of much better than expected UK GDP data which lifted GBP across the board.

Jeremy Grantham launches into his most aggressive and succinct anti-Fed diatribe yet. He is a man who gets it. 'If I were a benevolent dictator, I would strip the Fed of its obligation to worry about the economy and ask it to limit its meddling to attempting to manage inflation. Better yet, I would limit its activities to making sure that the economy had a suitable amount of liquidity to function normally. Further, I would force it to swear off manipulating asset prices through artificially low rates and asymmetric promises of help in tough times – the Greenspan/Bernanke put. It would be a better, simpler, and less dangerous world, although one much less exciting for us students of bubbles. Only by hammering away at its giant past mistakes as well as its dangerous current policy can we hope to generate enough awareness by 2014: Bernanke’s next scheduled reappointment hearing." Pretty much all familiar topics to Zero Hedge readers.