Archive - Nov 2010 - Story

From Reuters:

IRELAND SAID TO BE IN TALKS TO GET FUNDS FOR GOVERNMENT, BANKS

Also noted that negotiations are continuing and no decision has been reached yet, according to sources. European finance ministers are meeting in Brussels today at 5pm local time. EURUSD jumps 25 pips on the headline but nothing firm yet. After all, could merely be wishful thinking on behalf of the bankers-kleptocrat politician complex, but it appears Ireland may crack soon.

If at first you don't succeed at killing the higher beta stock short hedge, try again. The CME has just raised its margin requirement on silver again, bringing maintenance margins up from $6,500 to $7,250, after hiking it less than a week ago for the first time and preventing silver from surpassing $30. Of course, why the CME is raising it more after the spot price of silver is now far lower than where it was at the first raise is a good question, but is most certainly due to the exchange's "risk mitigation" concerns, and has nothing to do at all with the intent to continue killing PM prices. Far more importantly, the CME has finally relented and also raised gold margins, as we had expected. The new maintenance margin is up from $4,251 to $4,500, a minimal increase just to allow the CME to have the option (and making speculators well aware of this) of hiking rates again at any point it so chooses. All in all, all is now fair in fighting excess record liquidity. Look for a second round of imminent margin hikes in cotton, sugar, coffee and wheat, as the exchanges are suddenly very concerned about what retail margin collapses may mean for the non-existent wealth effect.

• Asian stocks drop on signs regional governments acting to combat inflation.
• China October FDI up 7.86% at $7.663B vs. September's $8.4B.
• China's stocks decline to one-month low on inflation, property concerns.
• Crude oil falls for a third day on signs fuel demand recovery may falter.
• South Korea raises interest rate by 25 bps - for second time in 2010.
• US retail sales rose 1.2% to $373.1B in October, compared with September.
• Aeropostale announces $300M increase to its existing share repurchase program.

When the president of the EU says that the fate of the second worst experiment of the last century (the worst being monetarist-Keynesian-central banking fundamentalism) is on the ropes, people listen. Perhaps people will also finally listen to those who are warning that no matter the words of encouragement, said experiment is doomed: the latest confirmation coming from Greece which has been now caught lying not once, not twice, but five times in a row just to preserve its EU backstops, and allow it insolvent banking system to exist for a few more days. In the meantime, the fate of Europe's bankers lies in the hands of a few good Irishmen, who can precipitate the mark to market (aka zero) catch 22 should the country finally force senior creditors to be impaired. Then not even the Fed will be able to backstop the continent's $50 or so trillion in interlinked assets, which also happen to be the continent's liabilities. In the meantime, here is Herman Van Rompuy doing what bureaucrats and bankers in power are so good at doing when they have no other choice: threatening with global assured destruction if they don't get their way.

Data on producer prices, international capital flows, industrial production, builder sentiment, and one Fed speech. Also, throughout the morning CNBC will be airing portions of an interview with New York Fed President William Dudley. $4-6 billion POMO will close at the usual time.

RANsquawk European Morning Briefing - Stocks, Bonds, FX – 16/11/10

The question of the night is whether Wal-Mart can absorb a 30% price increase in cotton products, because as Bloomberg reports, it will very soon have to. Gap Inc., J.C. Penney Co. and other U.S. retailers may have to pay Chinese suppliers as much as 30 percent more for clothes as surging cotton prices boost costs. Reports Bloomberg: "It’s a little terrifying to deal with cotton suppliers now," said Vicky Wu, a sales manager at Suzhou Unitedtex Enterprise Ltd., a closely held, Jiangsu province-based clothes maker that counts Gap and J.C. Penney among its clients. This is not an exaggeration - in last week's What I Learned This Week, 13D.com's Kiril Sokoloff, a China expert, noted: "We bought cotton back at around $0.99 because we thought the fundamentals were still very powerful. We liquidated the entire position on October 26 at around $1.29 because many Chinese clothing manufacturers were nearing bankruptcy and the Chinese government was cracking down on hoarders, speculators and investigating position sizes." Note the completely unwanton use of the word "bankruptcy" by the otherwise mellow Bulgarian - what has happened in cotton prices is setting off a seismic shift for low-margin retailers, and many traditionally safe and stable companies will soon be forced to attempt to pass on surging costs, or go out of business, especially as the ranks of low-cost vendors goes up in smoke. Bernanke's inflation exporting model is about to backfire with a vengeance. In this most direct consequences of excess liquidity-driven near-hyperinflation, the best possible outcome would merely a total collapse in margins. If you think a very irrelevant Dick Bove hates Bernanke now, wait until you listen to the Walton family's thanksgiving dinner...

Earlier, we pointed out that over the past five years (with an emphasis on the past two), government worker compensation has exploded. As the topic appears to have touched a nerve, and will shortly become the topic du jour across every radio and talk show, here are some additional observations on this parabolic blow off top of a different nature from ConfluentResearch.

Once again option speculators confirm they are nothing but macro momentum chasing lemmings who never anticipate an inflection point until it is well in the rear-view mirror. Last week's CFTC data, which was released with a delay today, due to Veterans' Day, shows that after the reflation trade appeared to be peaking in the past two weeks, so has non-commercial spec demand for commodities, all of which were virtually unchanged from the prior week. In currencies, we saw a resumption of the same old, with the brief renaissance in the USD tapering, and net positions once again declining toward a short bias. CHF sentiment was flat, JPY was down, while the GBP was up: in essence mimicking the actions in the underlying. And the most important chart which we believe is the UST spec distribution by 2/5/10Y, showed that bets for a decline in the 2 year accelerated, the 5 Year was flat, and speculation that the 10 Y would strengthen increased: precisely the opposite of what has since happened, even as expectations that the UST curve would continue surging near 2010 highs.

For all those wondering how to cut down on government expenditures, here's a thought: cut the skyrocketing salaries! A study by USA Today, using US Office of Personnel Management data, confirms what has been widely known: that the biggest beneficiaries of government largesse over the past 5 years as a worker cohort, are none other than Federal workers themselves. The numbers are stunning: those earning over $150,000 in the past five years have grown from 7,420 to 82,034, a 1,006% increase. More shockingly, those earning over $180,000 has surged from just 805 in 2005, to 16,912 in 2010: a 2,001% increase. And it is on the background of this that Congress is planning on giving 2.1 million federal workers another 1.4% across the board pay raise! Additionally, it appears that the bulk of the gains have taken place since Obama took office. Can someone please stop the lunacy: this country is beyond bankrupt and it turns out that in addition to Wall Street (which everyone knows does nothing but transfer wealth from the middle class to a few choice CEOs and groupthinking Bloomberg terminal operators), the biggest thief is the very government itself, which has perfected the art of giving with one hand, and taking with 10, almost as well as those enclosed in glass corner offices on Park, Lexington and Broad (and now West).

Tomorrow's Guardian front page - pretty much self-explanatory. Domino 2 is done.

John Paulson's September 30 13F has been released. Total long stock holdings reported amounted to $22.9 billion, unchanged from June 30. As expected, and following hot in the footsteps of David Tepper, Paulson dumped nearly 20% of his Bank of America and Citi stakes (30 million shares and 82.7 million shares respectively), sold about 11% of Wells Fargo and Capital One, and dumped his entire 1.1 million Goldman position. Keep in mind all this was before BofA stock got crushed in October: the next 13F will be even more interesting.Other divestitures included two thirds of his stake in Family Dollar Stores, a third of his position in Starwood Hotels, and over half of his Mead Johnson Nutrition position. While Paulson did not touch much of his gold exposure (he did sell 6% of Anglogold Ashanti), he kept GLD is biggest position (for the gold denominated holdings) at $4 billion, and added about 17 new positions, the biggest of which were Anadarko (13.4 MM shares), Hewitt Associates (7.6MM shares), NBTY (6.1 MM shares), McAfee (5 MM shares), and then some notable Merger arbs: Genzyme, Burger King and Potash, in which he added 500,000 shares. Either Paulson will now have to like Potash on its fundamentals, or he will have to sell this position. Oddly enough, today's market showed remarkable unwillingness on behalf of the arbs to dump their POT holdings. One wonders how long this will continue. Additionally, Paulson sold his entire half a billion dollar stake in Exxon, a position that he held for just one quarter. In other news, obviously, the love affair with financials is at least partially over, and at this point the future of the Recovery Fund may well be in doubt if even Paulson does not see the upside case for names such as BofA which a year ago he had a PT of $30 as of 2012.

Any chance America has to curb the uncheckable 'central planning' mandate recently adopted by the Fed, which in the absence of any fiscal policy for the next 2 years, has been delegated to a control over the entire US economy, would have to come from Congress which sooner or later will have to adjust the Federal Reserve Act of 1913, and especially the 1977 provision for the Fed's dual mandate of maximum employment and stable inflation. With everyone increasingly concerned the Fed's policies may spark hyperinflation, it only makes sense that going forward the Fed should be limited to just that: focusing on inflation, and leaving employment to America's legislative bodies. This overture is precisely what Congressman Mike Pense noted on CNBC earlier, when he said (staring at 6:45 into the interview): "I appreciate the independence of the Fed, but I think it might be time to reconsider the dual mandate of the Fed, that was established in 1977...I think the Fed ought to be about the mission of focusing on protecting the fundamental strength and integrity of the dollar and protecting the assets of the American people." Is this the first shot across the bow of how the republicans plan on busting Blackhawk Ben's rotor?

RANsquawk Market Wrap Up - Stocks, Bonds, FX etc. – 15/11/10

Today's sudden spike in yields across the curve is being widely attributed to a conversation between Moody's Steven Hess, Senior Credit Officer covering sovereigns, and Market News, in which Moody's has given the point blank warning that a permanent extension in the Bush tax cuts may lead to a downgrade of the US, putting yet more pressure on the president, who despite having shown a conciliatory stance recently vis-a-vis permanent tax extensions, may suddenly find himself boxed once again, and without much choice but to prevent an all out compromise. As the market has recently been running higher on expectations that a tax cut extension is pretty much guaranteed, today's announcement by Moody's pours cold water over yet another "priced in" concept, which suddenly may not materialize. The net result: a smackdown in the 10 Year which is slowly migrating to all risk assets.