Archive - Dec 3, 2010 - Story

A few days ago we provided a brief overview of Italian insurance company Assicurazioni Generali (whose corporate ticker appropriately is ASSGEN) and shared our view of why its CDS will shortly continue pushing far wider. To be sure, once the brief respite provided by Trichet's drunken sailor-style purchasing of sovereign bonds anywhere and everywhere ends today, we will once again see drifting in Europe (two days of about a billion in notional purchases does exactly nothing about resolving the underlying issues). Although as we noted, betting on a failure of the next batch of distressed countries, among which Italy sticks out like a sore thumb may be short sighted: after all Trichet will merely change the rules once again, the failure of such sovereign risk derivatives as re/insurance companies is far more questionable. Over the weekend, we will provide more on shy we believe ASSGEN is due for a major beatdown, and in the meantime we wanted to provide this teaser courtesy of BNP.

From the exquisite stream of consciousness of Nomura's recent addition: Bob Janjuah, who luckily discovered he was far too smart to be held back by the D-grade bailed out banker-clowns at RBS (we can only hope Bob will next discover the carriage return button): "If you are wondering why the title "Bulls in a China shop", I hope that after reading the [below], it makes sense: financial markets are very fragile right now, and any bullish risk-on phase seems to be based on very hopeful assumptions (“don't fight the Fed”; “beware animal spirits in the US”; “don't position against the US consumer”; “Germany owes us”; and lastly, “China will always grow at 10%”). We prefer to rely less on hope and more on hard reality and sensible and credible policies – even if they may mean more pain in the short term."

Zero Hedge is delighted to have officially gotten on Brian Sack's nerves: after everyone's favorite Fed offer lifter bought another $6.81 billion in bonds due 2013-2014 (at a Submitted to Accepted ratio of 3.2x) the week's last POMO is now over. However, to our delight, after highlighting repeatedly that over the past two weeks the issue monetized most by the Fed was the most recently issued bond in any given bracket, today, for the second day in a row, CUSIP PU8, the November 3 year auction, was once again put on the exclusion list, making life for flipping Primary Dealers just that bit more difficult. But don't worry: with November excluded, the biggest issue monetized by far, with $4.3 billion in purchases was the 3 year issued in... October (PB0). The net result is that instead of pocketing a ~$100 million bonus this year, the RBS/JPM/DB/GS/Jef/etc bond monetization team leader, will instead collect just $99 million of taxpayer money. We will continue tracking the exclusion list and hope to have finally put an end to at least this small farce in the Fed's monetization arsenal. In the meantime: may the farce be with you Brian Sack: please be advised that unless you close the market green we will all lose faith in your market manipulative skills (granted, the Obama mandated UI extension pass at all costs may explain a slightly red close).

According to Reuters, the US deficit panel's recommendation to cut the budget fails to win 14 votes of support from the teleprompter's commission. This means no deficit vote will go to congress. And so the bullshit continues: America will never adopt austerity until the revolt or the Fed's overthrow arrives.

Even as the CFTC is doing its best to postpone indefinitely (and hopefully infinitely) a review of limit speculative positions held by commodity traders (read JPM), commissioner Bart Chilton, who really should shut up if he knows what is good for him, told the CFTC to instead act quickly and actually do something right for investor protection for once (not necessarily in those words). From Reuters: "The regulator, which has a mid-January deadline, has been pushing back
the date to propose new speculative limits in energy and metals markets,
and so far has not given a time for when it will be introduced. This proposal should be discussed on December 9th at the commission's
next meeting; a proposal should be put out for public comment as soon as
possible; and we should commit to meeting the statutory deadline," said
Bart Chilton, a CFTC commissioner. "We can always find excuses, justifications, or pretexts for inaction --
this rule is too important to let any of those get in the way of
fulfilling our statutory responsibilities, and keeping our promise." The problem is that none of "those" are standing in the way of fulfilling statutory responsibilities: there are only two things that are standing in the way, and they are called Jamie Dimon and Blythe Masters.

Last week's advance durable goods report, which everyone promptly forgot about because it showed, gasp, bad data, just got even worse. Today, the final revision of the durable goods number was released, showing an even greater drop in durable goods orders. To wit: instead of a -3.3% decline, the final number in durable goods ended up being -3.4%: "New orders for manufactured durable goods in October, down two of the last three months, decreased $6.9 billion or 3.4 percent to $195.7 billion, revised from the previously published 3.3 percent decrease. This followed a 4.9 percent September increase." And as expected the artificial inventory led "bounce" refuses to relent: "Inventories of manufactured durable goods in October, up ten consecutive months, increased $1.5 billion or 0.5 percent to $316.9 billion, revised from the previously published 0.4 percent increase. This followed a 0.7 percent September increase." In other words: fake recovery, based on increasingly more fake numbers, relying on hoarding of unsellable products (just as GM has been doing lately).

ISM Servies prings at 55.0 compared to expectations of 54.8, now that all difusion indices trade like S&P earnings esmates. Key indices come in as follows as farce of a market goes green.

Have you ever heard of Section 747? No, it’s not where the government is hiding the aliens. And it’s not the secret area where The Bernank prints all the money. Section 747 is a small paragraph buried deep in the 3000 page monstrosity known as the Dodd-Frank Act. And Section 747 is causing a lot of folks in the HFT world to be very concerned.

It was only two days ago that Goldman upgraded its own bonus pool by saying the economy is now going nowhere but up, up, up. That lasted for 72 hours. Below is Hatzius' (first of many) mea culpa for finaly selling out: "A clearly disappointing report all around, with payrolls up much less than expected and the unemployment rate up. Although hours worked rose only 0.1% in November, this rough proxy for real GDP less productivity changes is tracking at roughly a 2½% annual rate. Flat wages coupled with the small increase in payrolls suggests very little wage and salary growth in November." We give the Goldman "strategist" 3 months before he starts beating the QE 3-666 drums again.

When we last ran this number, the economy needed to create 232,400 jobs per month to get to the same unemployment rate as last seen in December 2007, just before the depression started, courtesy of today's massive disappointment we can now increase the creation requirement to 235,120. As a reminder this is the number of jobs per month that need to be created between December 2010 and November 2016, or the end of Obama's now improbable second term, for jobs to recover their losses when taking into account the natural growth of the labor force of 90,000 people per month. Also, when ignoring the demographic shift, or just accounting for the absolute number in jobs without accounting for the labor force growth which is so wrong only the BLS looks at that number, the breakeven has been pushed back from June 2013 to July 2013. Economic collapse you can finally believe in. And now, with the BLS' good graces, the government can promptly pass the jobless benefits extension, which is what this whole doctored data charade is all about.

...Gold. The backtested model of shorting gold ahead of NFP has just broken. Margins calls coming in. JPM/Blythe Masters scrambles to prevent an all out rout as the $1,400+ stops are triggered.

Private payrolls +50K on expectations of +160K! Manufacturing payrolls plunge 13K on expectations of +5K. Previous revised down to -7K. As Zero Hedge expected the ADP was totally and completely off. And so the myth of the recovery can suck it.

The Guardian, which earlier was conducting a live chat with Julian Assange from an undisclosed location, has generated such massive traffic that the entire Guardian website was down at last check. We expect the Guardian will find some (Swedish) replacement servers, at which point we suggest readers join in the chat which can be accessed at the following link. This is likely the last live interview with Assange before he is arrested any minute now.

Jean Claude Trichet has finally learned the Bernank's lesson #1 on Central Bankering: when all else fails, buy it all. The FT reports that according to traders the ECB was on Thursday buying Portuguese and Irish bonds in €100m tranches – four times bigger than previously, which in turn sharply brought down the cost of borrowing for Lisbon and Dublin and sparked a euro rally. Just like in the US, this means that virtually no assets reflect their true value, as the ECB is now monetizing debt, without even having formally announced it is doing so, either in a sterilized or unsterilized fashion. This means that next week's update of the ECB SNP programme will demonstrate a surge in bond buying. This is especially the case when factoring in that Trichet is currently out in the market waving every Portuguese Bond in. It is a sad day that the only way the ECB, just like the Fed, can create an upward move in an asset class only by forcing a short squeeze.

Payroll day…and also nonmanfucturing ISM and factory orders. Today's 6th of the week POMO will buy $6-8 billion of bonds due 2013-2014. Lastly, and unrelated, Julian Assange is likely to be arrested any minute.