Archive - Dec 2010 - Story

Stocks are up which means another fundamental data indicator must have missed expectations (following the earlier GDP miss). Sure enough, the NAR just reported November existing home sales, which came at 4.68 million units, a slight improvement to the almost all time lowest number posted in October (4.43 million), a miss to expectations of 4.75 million, and 27.9% off the cyclical peak of 6.49 million from November 2009, when the first-time buyer tax credit expired, and was shockingly not extended. The data follows this morning atrocious MBA numbers which showed a plunge of 18.6% in mortgage applications, and 24.6% drop in refinancings. But if you listen to Goldman, the recent surge in mortgage rates is actually beneficial for everyone involved and just buy the f#&$ing dips! Sure enough, the ever cheerful Larry Yun had this to say: "Continuing gains in home sales are encouraging, and the positive impact of steady job creation will more than trump some negative impact from a modest rise in mortgage interest rates, which remain historically favorable." Um, continuing gains from all time record low levels? Also, the part-time job creation which is the only thing that is being created on steady basis is sure to be the ground for a fertile surge in home prices. And with that the sarcasm is off.

Last week, we pointed out when the BDIY dipped below 2000 for the first time since August. In the next three days, the index slide has accelerated and after dropping 3% just overnight, is back to 1830, just 130 points away from the 2010 lows printed in July. And while the index topped in early September following a brief and uninspired climb, it has since been a one way downward pointing slope. Whether the BDIY is a leading indicator to anything is debatable: some believe it is a completely irrelevant indicator. Others disagree. A rather strong case for the former camp was made last week by Nordea which demonstrated, in its chart of the week, the average speed of its vessel fleet. One thing is certain: for whatever reason, demand for trans-Pacific cargo shipments is once again plunging.

We find few things quite as entertaining these days as watching Jan Hatzius, and the entire Goldman economic team, squirm, as he is forced to admit (repeatedly) that economic data does not support his suddenly ridiculous outlook on the economy. And following numerous mea culpas after the November NFP report, here is his latest admission that not all is quite as rosy as he hopes it should be. 'The Great God Offset strikes again as weaker growth in consumption of
services offsets most of the expected increase in inventory
accumulation. So we end up with a GDP picture for Q3 that undoes most of
last month's upward revision to domestic final sales.. Because the inventory accumulation rate now looks even more rapid
than before, this will likely be a bigger drag in this quarter or the
next."

As West Texas Intermediate is now holding steady over the psychological barrier of $90, more speculators will shift their attention to this latest commodities market, which rumor has it has not been cornered by JP Morgan just yet. As Bernanke's liquidity gushes with no sign of stoppage, expect to see a prompt move into triple digit territory here. For those seeking a good overview of what is happening in he crude space, we provide the following summary note from FMX connect...

Disappointing Goldman which had expected a far higher number, the third Q3 GDP revision came at 2.6%, 0.1% higher than the second, but lower than the 2.8% consensus. In other words, the PCE surge which drove stocks higher on the second GDP revision has now been eliminated post re-revision, yet its impact of spiking stocks back then naturally lingers: surely our ministry of truth has learned from the best. And, as we expected the inventory artificial growth push continues to accelerate, after there was a substantial drop in the far more important Personal Consumption component which misses not only consensus of 2.9%, but the second revision of 2.8%, coming at 2.4%. From the BEA:  "The "third" estimate of the third-quarter increase in real GDP is 0.1 percentage point, or $1.1 billion, higher than the "second" estimate issued last month, primarily reflecting an upward revision to private inventory investment that was largely offset by a downward revision to personal consumption expenditures." And even uglier: corporate profits were up a meager 0.2%, compared to expectations of 1.3%, compared to a previous revision estimate of 1.0%. We are confident Jan Hatzius will spin this favorably shortly, and will bring you his "analysis" asap.

• IMF announces it has concluded its gold sales (IMF)
• Euro helped by report China will buy Portugal's debt (Reuters)
• Huge South Korea Drill Likely to Infuriate North (Reuters)
• And wristslaps for all: Deutsche Bank to Pay $554 Million in Tax Shelter Case (Bloomberg)
• Another proposal to use a firehose to kill those pesky CDS speculators: Derivative Blitz Needed to Tame Anarchic Bonds (Bloomberg)
• China Inflation Risk Leads to Asia's Worst Bond Returns (Bloomberg)
• Does a Low VIX Signal Danger? (Barrons)

The key events overnight shaping this morning's futures picture revolve around the re-revised Q3 US GDP number (consensus of 2.8%), rumors of China buying Portuguese bonds (again), European spreads which are once again widening (here we go again again), and a surge in Japanese imports resulting in a cut to Japan's GDP forecasts.

After this morning’s report of a sharp setback in mortgage loan applications (mortgage applications tumbled 18.6% last week as refinancing applications plummeted 24.6%. ) we have the third round on third-quarter GDP and sales and prices of existing homes… There is a modest $1.5-$2.5 billion POMO later.

RANsquawk European Morning Briefing - Stocks, Bonds, FX etc. – 22/12/10

When a week ago we reported that JP Morgan has denied it owned more than 90% of the copper positions on the LME, we suggested that this could very well mean that Blythe Master's firm could just as easily control 89.999% of the copper and still not misrepresent the truth per that non-commital press release. Turns out our unbridled cynicism was spot on as usual. The Wall Street Journal has just reported that in the copper market "a single trader has reported it owns 80% to 90% of the copper
sitting in London Metal Exchange warehouses, equal to about half of the
world's exchange-registered copper stockpile and worth about $3 billion." Oh and yes, while JP Morgan technically is not singled out, we will be delighted to issue a retraction the second JP Morgan approaches us with a refutation that it is not the trader in question. And while we are at it, we also will repeat our claim that it was indeed JP Morgan that reduced its massive silver position, as per the recent FT article: as above we will immediately issue a retraction and apologize should JPM's legal department contact us that we are wrong on this. Somehow we don't think that will be an issue. And so it is once again made clear that the biggest market manipulating cartel in the world is not only JPM's commodity trading operation, but the "regulators" at the CFTC, who are doing all they can do to delay implementing rules on position limit- a stalling tactic whose sole purpose is to make the life of Jamie Dimon as comfortable as possible while he corners the copper market (and offloads his PM shorts to some "foreign bank"), even if that means the complete collapse in faith in the commodity market. Presumably, this means that Mr. Gensler has received an outsized Christmas gift to assuage his conscience. As for the commodity market, well, just look at what has happened to the stock market now that everyone knows it is nothing but a house of cards scam where a few robots front run each other. We are confident to quite confident tomorrow's ICI report will confirm that 33rd consecutive outflow from domestic equity funds. It is a pity that the same fate will now happen to the commodities market, as everyone tells Gensler to shove his corrupt market, and moves to physical. Frankly, it couldn't happen to a nicer group of so-called regulators.

First president Obama becomes Bush in all but name with respect to his predecessor's economic policies, and now he follows by espousing Bush's interpretation of "civil rights" as well. According to Pro Publica, the White House is preparing an Executive Order for indefinite detention. And while the premise behind a comparable draft has been circulating around for 18 months, the uptake was seen as problematic. The "humanitarian" premise behind the order is that it will "provide for the periodic reviews of evidence against dozens of prisoners held at Guantanamo Bay... and allow for the possibility that detainees from countries like Yemen might be released if circumstances change." That's the theory. The "practice" is that the Order will, as the name implies, afford the administration the option of "indefinite detention as a long-term Obama administration policy and
makes clear that the White House alone will manage a review process for
those it chooses to hold without charge or trial." In other words all those, and we assume that the Order is not merely targeting those involved in September 11, and is wider in its scope, who are perceived by the administration as "high value detainees" will be denied due process, and will be held in captivity essentially indefinitely with no legal recourse, for as long as the "review process" so deems fit. As for the "theory" aspect, Politico summarizes just how much of a bold lie Obama's promise two years ago to close Guantanamo has become: "Nearly two years after Obama's pledge to close the prison at Guantanamo,
more inmates there are formally facing the prospect of lifelong
detention and fewer are facing charges than the day Obama was elected." In other words, Obama has one upped Dubya not only when it comes to Republican economic policy, but has in fact surpassed his abrogation of basic human rights. And seeing how in the aftermath of the Assange arrest (speaking of which, Julian better run following this announcement), it is only a matter of time before that whole 'Internet free speech' premise is perceived to be a form of treason, by the likes of Biden, Palin and Lieberman, potentially punishable if not by death, then certainly indefinite, lifelong detention.

These days, it’s hard to draw any conclusion other than that the train is gaining speed on wobbly tracks perched over a rickety bridge. Most notably, unemployment has again risen – to 9.8% from 9.6% – very much not the direction things should be headed given the amount of money the government has pumped into the economy. The latest data shows that this nation of 310 million souls managed to add just 39,000 jobs in November. That, unfortunately, falls short of even keeping up with a population growth of about 1% – doing just that requires generating a net of about 250,000 jobs a month. As for eating away at the millions of unemployed and the many millions more who are underemployed… oh, well. Of course, the mainstream financial media wastes no time in pointing to this latest dismalia as proof positive that the Fed’s recent decision to energetically restoke the money machine with upwards of $100 billion a month was the right decision. This despite the clear evidence that adding debt to debt is having no real effect, except begetting more debt. This is a lesson that, so far, appears to be making no headway in the cognitions of Washington’s policy makers, even with the latest election results delivering a sharp rap across the knuckles to the power elite.

Yesterday we got to hear Doug Kass recite Howard Marks' most recent views on gold by memory (badly) and come up with the conclusion that gold may drop 25%, something not even Marks was foolish enough to suggest. Today, we present a contrary view, that of the extremely original and always provocative Simon Black, aka Sovereign Man. Writing from Auckland, New Zealand, the activist who has previously openly defended expatriation as a means of "revolting" against the collapse of US economics and society, turns his attention to gold and shares his thoughts on what to look for "when the market tops." As always Black, who has encountered more cultures in the past few months than most do in their entire lifetime, gives an unorthodox view on the metal's prospects, which if nothing else, are based on a much broader sampling of data, than merely the (biased) read of the opinion of just one other person. His conclusion is not that surprising for someone who has a worldview that is wider than just the FDR through the West Side Highway: "People are only starting to wake up to the reality that unbacked paper currency is fundamentally flawed, and it will be a long time before this belief becomes widespread once again, just as it was in ancient times."

RANsquawk Market Wrap Up - Stocks, Bonds, FX etc. – 21/12/10

Today's breach of the critical $1 trillion barrier by the Federal Reserve On/Offshore Genocide Opportunities Fund, LLC in its Treasury holdings is not the only important "trillion" milestone in the past few days. As was reported by the WSJ previously, total assets under management in the ETF space also passed $1 trillion for the first time ever, primarily courtesy of SPY, which added $11.6 billion (even as it continues to be the most shorted NYSE security in the world with 294.1 million shares short on 700 million total shares), and the IWM which saw $976 million in new assets. Granted, these numbers are just a little suspect, since according to the monthly Invesco PowerShares report, total ETF assets were still "just" $934.4 billion, but we will take Blackrock's word for it. And, considering that mutual funds, already at record low free cash levels, continue to bleed dry powder (32, and soon to be 33, consecutive weeks of outflows), and are saved from liquidations only due to levitating asset prices on this joke of a market which has absolutely no volume to it, many are trying to make the case that ETFs are rapidly becoming the next target of retail flows. Perhaps. Looking at the numbers this is certainly not as clear cut as those who specifically wish to see this, pronounce it as a fait accompli. Below we demonstrate that of the $96 billion in net flows YTD into various ETF styles, it is certainly not the case that equities are the pure beneficiaries of retail flows. That said, we present the thoughts of BNY's Nicholas Colas, who provides a useful reference guide on the history of the ETF business, and now that it has (allegedly) passed the trillion mark, looks at where the next trillion will come from (incidentally, it took the Fed four months to accumulate an incremental $250 billion in holdings; ETFs, on the other hand, as noted above, have seen inflows of $95.8 billion in all of 2010 - just wait until the Fed pulls a BOJ and starts buying the SPY openly instead of through Citadel).