Archive - Nov 2010 - Story

Take one look at Bank of Ireland stock this morning. Then read the following October 4 report on BOI from Goldman Sachs, and please join us in extended our congratulations to Goldman analyst Pawel Dziedzic who has joined the prestigious ranks of Cramer and Dick Bove of telling those who care to buy a bank days or weeks ahead of its bankruptcy.

A bunch of completely irrelevant numbers released by Ireland. At best these will achieve nothing but will kick the can down a few more months. At worst violent rioting will be a daily occurrence in Dublin within a week.

And so the downward Q4 GDP revisions begin. "New orders for manufactured durable goods in October decreased $6.8 billion or 3.3 percent to $196.0 billion, the U.S. Census Bureau announced today. This decrease, down two of the last three months, followed a 5.0 percent September increase. Excluding transportation, new orders decreased 2.7 percent. Excluding defense, new orders decreased 2.1 percent." Expectations were for print of 0.1%, with the main culprit for the unexpectedly bad miss being transportation: "Transportation equipment, also down two of the last three months, had the largest decrease, $2.9 billion or 5.2 percent to $52.3 billion. This was led by defense aircraft and parts, which decreased $1.6 billion." Most importantly, new orders declined in every single tracked category. Elsewhere the magic that is artificial growth by inventory restocking, now in its 10th consecutive month, continues: "Inventories of manufactured durable goods in October, up ten consecutive months, increased $1.3 billion or 0.4 percent to $316.7 billion. This followed a 0.7 percent September increase." When the liquidation begins watch out below. Of course, stockpilers will by then be able to sell it to the Fed's QE X.Y bid. While the data will be ultimately good for the final revision for Q3 GDP, it starts Q4 GDP with whimper, just as expected. And should the inventory contraction finally begin, watch out for the November and December data.

In what is now 38 times in 2010 (out of 46), the BLS has revised its prior weekly initial jobless claims number higher, from 439k to 441k. The most recent  number, which is far less relevant (as it will be revised worse next week) and much more volatile due to it being a pre-thanksgiving week, and layoffs plunge, came at 407k compared to 435k the expectations. Most importantly, non-seasonally adjusted claims increased by 45k. But of course, the government's adjustment is where it's at. Continuing claims were of course also revised higher as the BLS' charade of beating instant expectations has gotten boring: the prior number of 4,295k was pushed higher to 4,324k, once again confirming that anything the BLS reports has to be ignored until the next week revision. Lastly, the loss of extended claims started early this year, with those collecting extended claims and EUCs dropping by over 280k.

Somehow the China Daily story we pointed out yesterday morning that China and Russia are expanding their trading terms and will conduct all bilateral trade exclusively in local currencies, thus dropping the dollar as an intermediary, is only today starting to make the rounds. Alas, this story is nothing but more posturing for several reasons: Bloomberg notes: "China and Russia will drop the U.S. dollar for bilateral trade and use their own currencies for settlement, China Daily reported, citing Chinese Premier Wen Jiabao and Russian Prime Minister Vladimir Putin." Oddly enough this is an identical overture from June 2009: yet very little has happened in terms of actual dollar lock out since then. Note the following story from June 17, 2009: "The leaders of Russia and China agreed to expand use of the ruble and yuan in bilateral trade to lessen dependence on the U.S. dollar a day after they took part in the first summit of the so-called BRIC countries." And judging by the market's reaction, and the dollar resurgence overnight it appears that everyone has read through this as just posturing. Furthermore, keep in mind that Russia was not even a top 10 trading counterparty of China in 2010. If China does the same with any of its top 10 partners then there may be a reason to worry. For now, China is merely testing the waters, and has absolutely no intent on isolating the US, nor making its nearly $3 trillion US FX reserves lose a double digit percentage of their value overnight.

• Asia stocks continue retreat on Korea clash; shelling adds to uncertainty.
• China orders crackdown on commodity speculators in widening anti-inflation campaign.
• Euro drops to 2-month low against US dollar amid concerns.
• Fed considered long-term rate target in secret; Numerical inflation objective also discussed.
• Fed officials disagreed on benefits of $600B stimulus, FOMC minutes show.
• Fed trims 2011 outlook on growth, jobs : FOMC Minutes.
• Ireland credit rating cut two levels to A by S&P as bank bailout adds debt.

With bond spreads in Europe refusing to slow down for the Thanksgiving holiday (unlike the US, Europe will be open through the end of the week), and both Portuguese and Spanish spreads jumping to fresh records, with Spain nearly approaching the bailout threshold of 5%, it appears that the market has now pretty much skipped Portugal whose insolvency is a given, and has commenced the "pack of wolves" thing on Madrid. Expect to hear many accusations that CDS traders, and their naked shorting, is the spawn of satan any minute now, and for CDS trading limits to be imposed imminently (not to mention LCH hiking Portuguese and Spanish margins as early as today), even though as we have demonstrated repeatedly in the past, it is all cash bond sellers who are driving the price down. Nonetheless, it is a fact that "price action is now self-reinforcing" - what this means for Spain and for Europe is explained by Goldman's Francesco Garzarelli. Note that this is only a small part of the story. As Zero Hedge discussed first in early July, a far biggest systemic threat is what is happening (or rather, not happening) in the mortgage space, where just like in the US, Spanish Cajas continue to misrepresent the "phantom" bad debt on a national level, however unlike the US and the nationalized GSEs, there is no sovereign backstop to a nation full of delinquent mortgages. Back then the Stress Test farce brushed this biggest risk under the rug. Now that reality is back, this topic will soon come back with a vengeance.

The Mortgage Bankers Association’s index of mortgage applications is reported to have risen 2.1% in the week ended November 19. At this writing, we have no further details. Market wise, there will be no POMO today.

RANsquawk European Morning Briefing - Stocks, Bonds, FX etc. – 24/11/10

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Following last night's escalation in hostilities between the two Koreas in what was the worst peacetime incident in over 5 years, the AP has compiled a visual summary of not only the events that transpired, and the generations of conflict built up between the two countries that have led us to the current predicament, but most importantly, a comparison of the military strengths of the two countries. A most useful resource for all those who would like to know if the over/under on either country winning the next shelling incident is on the money.

Once a year, the International Energy Agency (IEA) releases its World Energy Outlook (WEO), and it's our tradition here at ChrisMartenson.com to review it. A lot of articles have already been written on the WEO 2010 report, and I don't wish to tread an already well-worn path, but the subject is just too important to leave relegate to a single week of attention. Because some people will only read the first two paragraphs, let me get a couple of conclusions out right up front. You need to pay close attention to Peak Oil, and you need to begin adjusting, because it has already happened. The first conclusion is mine; the second belongs to the IEA. Okay, it's not quite as simple as that; there are a few complexities involved that require us to dig a bit deeper and to be sure our terms and definitions are clear so that we are talking about the same things.

A summary of the day's key events in equities, vol, FX, rates, commodities, credit, insider trading, corruption, monetary manipulation, racketeering, prostitution, and a forecast of tomorrow's market travesty.

Putting a cheery on top of one of the best days in capital markets history, FOX Business Network’s Charlie Gasparino is reporting that Citadel Investment Group, the giant hedge fund run by Ken Griffin, has received a subpoena from the Department of Justice. It is unclear if the Chicago's fund long-rumored 'dark pool' dealings with Brian Sack's Open Market Group will be exposed as a result. From Charlie: “They got a subpoena. It’s the same subpoena that sources tell FOX Business Network that Steve Cohen over at SAC Capital got. It’s a wide ranging subpoena and it dates back to 2008 asking for information on certain stocks. From what I understand, it’s not just healthcare stocks, which has been a primary focus. FOX Business Network has learned two other hedge funds have received subpoenas. We have put calls into Millennium Capital Management and Maverick Capital Management and we are waiting to hear back to them.”

It was just yesterday that Goldman thought all of its dealings with the SEC would be over and done with: after all it is not that often that the firm gets slapped with a fine to the tune of 3 trading days' profit to neither admit nor deny it was raping its dumb as bricks European and Asian clients (the same ones who are responsible for the end of the shadow banking system) who could not realize just how massive a scam synthetic CDOs were. We hope the firm enjoyed its time away from the public's attention, because as Gasparino reports, it is about to reenter it with a thud. Quote Chaz: "Goldman Sachs, we can definitively say, is involved in this investigation through its healthcare group and through some sort of associate and potential leak to Diamondback, the hedge fund of five billion dollars that was raided yesterday. Sources are telling the FOX Business Network as the Feds are looking at Diamondback’s healthcare group, that’s were at least one Goldman Sachs banker has been roped in." When all is said and done, our money is on Goldman Sachs being "Investment Bank 2" (see here).