Archive - Dec 10, 2010 - Story

Score one for the farce team. That scourge to market efficiency, fairness and integrity, Sergey Aleynikov, about whom we have written tomes, has been found guilty. The HFT code in question, that can "manipulate markets" is safe and sound, back with its true master, Goldman Sachs, which firm promises its malicious attempt to squeeze CDS traders in 2007 is completely irrelevant, and the sheeple once again don't understand that the firm's intentions were nothing but pristine.

Now that it appears that the Build America Bond program may end up being pulled in just two short weeks, those who are most reliant on the program for their continued existence are starting to not only crawl out of the woodwork, and make their voices heard, but pull the usual trick of threatening with cataclysms unless they get what they want. Sure enough, enter California Treasurer Bill Lockyer. Per Bloomberg" “Allowing the BABs program to die would undermine the economic recovery and harm taxpayers and working families across the country,” Tom Dresslar, spokesman for California Treasurer Bill Lockyer, said yesterday by telephone. And the justification: taxpayer cocaine is the best damn cocaine money can buy: “I know that stimulus has become a dirty word but you’d be hard-pressed to find an economic recovery program that has worked better.” And that is all that is needed to convince the masses of corrupt politicians: after all as Neel Kashkari made it all too clear both 2 years ago, the world will end unless bankers or their administratively placed cronies get anything they need to maintain the ponzi on their behalf. And lastly let's not forget that the biggest beneficiary of the BAB program is none other than PIMCO...which is incidentally where Kashkari gets his paycheck currently.

RANsquawk US Afternoon Briefing - Stocks, Bonds, FX etc. – 10/12/10

And for another confirmation that the Nasdaq is now at the same extreme "irrational exuberance" levels last seen during the dot com crash, we read courtesy of sentimenttrader.com that the Rydex Nasdaq 100 bull/bear ratio is now the highest it has been since just before the dot com crash. "Traders in the Rydex mutual fund family have poured into the Nasdaq 100 long fund at the expense of the inverse fund on the same index. These traders now have 34 times more money invested in the long fund vs. the inverse fund, which is the highest ratio since the bubble days of 2000 and early 2001." And what is scarier, is that unlike during the dot com, investors are using leveraged methods to express their exuberance: "The Bull / Bear Ratio for the leveraged funds isn't quite as extreme...but it's close (on a relative basis)."

From ABC News: "Wikileaks founder Julian Assange, the man behind the publication of more than a 250,000 classified U.S. diplomatic cables, could soon be facing spying charges in the U.S. related to the Espionage Act, Assange's lawyer said today. Justice Department officials declined to comment on the possible coming charges, but earlier this week, U.S. Attorney General Eric Holder said the release of the documents had put the United States at risk and said he authorized a criminal investigation into Assange."

The Apple borg collective has its foot soldiers too. And it turns out if they were to be mobilized, they would represent the world's fifth largest army... at just over 1 million. Bloomberg reports that the number of employees who diligently bring you your iPad, now exceeds a whopping 1 million. This however, does not make the company the biggest employer in the world: Walmart is reported to have 1.8 million "associates" worldwide, but at Foxconn's rate of growth it would not surprise us if even the staple American company were to be surpassed very soon.

With the first schedule of QE2 POMOs over yesterday, everyone's attention shifts to 2pm Eastern today when the New York Fed will announce the second line up of bonds to be purchased through the middle of January. As we have noted previously, we believe that this time around the Fed will buy materially more bonds than the roughly $105 billion acquired in round 1 due to the increasing amount of MBS prepays in November (although if mortgage rates persist higher this level of activity will likely tumble). Coupled with lack of bond issuance over the next several weeks, and we believe the pressure on yields will be moderated, as increasing demand is met with zero new supply, in essence allowing the Fed to accrue bond purchases in this USTreasury sabbatical. That said, here is a complete POMO post-mortem for those who keep track of what and when Brian Sack's team is busy monetizing.

Stunning that anyone in this environment can file for Chapter 11. But that is precisely what is happening: supermarket chain A&P, with law firm Kirkland and Ellis and financial advisor Moelis in tow, is about to file for bankruptcy, Bloomberg reports. It is ironic that instead of passing through costs supermarkets are instead opting out to default. Nonetheless, this is likely telling on the status of food margins at major supermarkets.

Neel Kashkari, previously of Goldman Sachs, subsequently of TARP creation fame, and currently of PIMCO payroll generosity and Macroeconomic Advisors "expert network" insight, has penned a charmingly faux-heartfelt, and supremely hypocritical Washington Post op-ed in which he asks rhetorically whether "Washington can tackle the big economic issues?" Ironically these are precisely the same "issues" that have arisen as a result of none other than his very own decision to make moral hazard a global policy courtesy of his own TARP creation. It was also none other than the Washington Post's own profile of Kashkari that explained the deep thought that went into the creation of the biggest Bernanke Put in history: "Seven hundred billion was a number out of the air,” Kashkari recalls….”It was a political calculus. I said, ‘We don’t know how much is enough. We need as much as we can get [from Congress]. What about a trillion?’ ‘No way,’ Hank shook his head. I said, ‘Okay, what about 700 billion?’ We didn’t know if it would work. We had to project confidence, hold up the world. We couldn’t admit how scared we were, or how uncertain.” So the next time Kashkari's own boss at Pimco waxes philosophically on how it is that "the Fed is now the most brazen of all ponzi schemes" perhaps he can first get the advice of his own puppet whose own morally hazardous actions "held up the world." And, by the way Neel, had the US government done the right thing, and not "held up the world" letting those who deserve to fail, actually fail, then there would be no need for Washington to tackle big economic issues - ironically the market would have long been able to fix said problems on its own. But thanks to your actions we will indeed watch in terror as the government continues its exercises in supreme central planning.

The IMF, which had been scheduled to consider the Irish loan release on Friday, has decided to delay its own internal board vote until after the Irish parliament has agreed on being bailed out. The IMF could recommend an approval of the GBP 22.5bln loan for Ireland as early as Dec. 16 assuming the Parliament supports package. The Irish EU/IMF acceptance vote is scheduled for December 15.

In China, where according to whisper numbers, inflation is expected to spike by over 5% in the last month, inflation is already surging. However, courtesy of its autocratic regime, China can simply quash any protests over inflation... for now. "Sovereign Man" Simon Black explains the tenuous dynamic between social instability and economic growth in the world's most populous and fastest growing country. As he notes: "The price of a Big Mac is going up in China by 7%. In fact, Chinese state media outlets are reporting that prices for all items at McDonalds fast food restaurants across China are going up by 1/2 to 1 renminbi (RMB), roughly 7.5 to 15 US cents." Let's hope that China does not stop importing the US' biggest export: inflation. Otherwise, our own regime may soon be forced to see just what it means when runaway inflation (ahem, oil) ends up creating just a little popular unrest. And, in the most ironic of boomerang effects, should China start reexporting our own inflation back to us, via increased prices for beads and trinkets, then all bets may just be off.

Following the stronger than expected net exports by China, we now get a better than expected trade deficit from the US, which comes at $38.7 billion, compared to expectations of $43.8 billion, from a prior upward revised -$44.6 billion. As the number is GDP positive, it has pushed the USD higher, which by courtesy of its newfound status as funding currency of risk assets, ends up offsetting any move in stocks higher, further elaborating the paradox that good economic news in the US is stock market neutral at best and negative at worst. Lastly, the question of where all these extra exports are going (more net exports out of the US, EU, China, Australia, and Japan) refuses to be answered by anyone... Perhaps Mars really is bailing out the earth.

November gross trade in China hit a record $283.8 billion, with exports greater than imports by $22.9 billion. This was once again greater than the consensus of $21.2 billion, as the country continues to boost its net exports to the detriment of US politicians who are demanding a pick up in imports from the world, but the US particularly. Oddly enough, Chinese imports from the US hit $9.7 billion in the prior month, a new record, although export to America were $26.5 billion for a net $16.7 billion trade balance as US industries continue to rely exclusively on China and Germany for stockpiling their products, and boosting the inventory component of GDP. As a result of the record trade data, China hiked its RRR for the third time in five weeks: an event largely priced in, and which did not move the markets. The only question out of China is whether the country will hike its official interest rate over the weekend following tonight's inflation data release. And with the Chinese trade surplus out of the way, we are now looking for US trade deficit 8:30 am release which is expected to come at $43.8 billion, following $44 billion in September.

• Asian stock markets were mostly lower Friday, on rate hike fears from China.
• China regulators warn of risk linked to real-estate trusts.
• China's trade surplus sharply narrowed in November to $22.9B from $27.1B in Oct.
• India’s factory output grows 10.8%, fastest pace in three months.
• Italy's Draghi warns of risks in ECB bond buying.
• Oil rises to near $89 in Asia as traders eye OPEC crude output policy at meeting.
• US cos held $1.93 trillion in cash and short-term assets at the end of Q3.

Summary of key events moving the markets today.