Archive - Dec 2010 - Story

A barrage of economic data this morning. Initial jobless claims came at 420K, a slight decline from the prior number of 423K, and as always woefully insufficient to actually start helping the unemployment rate. The prior was naturally revised higher, as we expected last week. On the other hand, continuing claims jumped from 4.086MM to 4.135MM on expectations of 4.115MM. NSA claims continued to be a notably higher than seasonal, and was at 486,284 this week. Most notably, people claiming benefits across all Unemployment Insurance Programs rose by a huge 893,959 in the week ended November 27 (of which 142K was in EUC and 182K was in extended claims) Elsewhere, housing starts came at 555K on expectations of 550K, up slightly from a previous 519K. And while this number was a slight improvement, it was offset by the building permits, which dropped from 552K to 530K, on expectations of 560K. Lastly, the current account deficit came in worse than expected at ($127.2 billion) on expectations of ($126) billion, and down from (123.3) billion previously. All in all another day of if not broad economic weakness, then complete lack of improvement.

The key events shaping today's markets in the US, Europe and Asia.

Following yesterday's threat to the country's Aa1 rating by Moody's, Spain was put in the unpleasant position of having to raise €3 billion in 10 and 15 year bonds. Not surprisingly, the auction was as close to a disaster as it could be, considering it had the ECB's backing. In its final bond auction the country managed to raise just €2.4 billion (€1.782 billion in 10 years and €619 million in 15 years), with the 10 Year yielding 5.446% and the 15 Year 5.932. These rates compare to 4.615% and 4.541% previously: obviously many are concerned by this massive jumpin rates. The Bid To Covers came at 1.67 and 2.5, compared to 1.84 and 1.44 previously. Obviously, at these rates, ongoing funding for the country is unsustainable considering the internal cost of capital. Luckily, this is the last bond auction for the year for Spain.

After reporting Q2 results that missed substantially on both the top and the bottom line, FedEx is now down over 3%, and is pushing the broader futures lower. The company which was expected to make $9.77 billion in revenue and $1.32 in EPS, made only $9.63 billion and $1.16 in adjusted EPS. And just like every other institution in the US, the firm hopes to make up for its current loss in the future: FedEx actually boosted its adjusted year end EPS projections from $4.80 to $5.25 to $5.00 to $5.30, on consensus of $5.20. Yet while everyone is happy for the company's optimism, having such a substantially subpar quarter at a time when the firm should have been benefiting materially from a restocking and/or liquidating economy and an expected "surge" in logistical expenditures, will make quite a few people scratch their heads. The only question is whether, just like Cisco and Best Buy previously, this surprising miss will be attributed to company specific factors, or the sell-side analysts finally realize there are systemic factors which are actually impacting companies broadly in a downward fashion.

• Asian stocks, Copper decline before European debt talks; Treasuries gain.
• EU faces `gridlock' on debt crisis; agrees on a crisis- management mechanism in 2013.
• India’s central bank kept benchmark interest rates unchanged after 6 increases this year.
• Oil falls to near $88 in Asia despite plunge in US crude inventory.
• Qatar makes $65B bet it can remake economy in World Cup preparation.
• US foreclosure filings plunge to two-year low as lenders probe practices.
• AAR Corp beats by $0.07, posts Q2 EPS of $0.42. Revs rose 36.0% to $447M.

Today we have claims, housing starts, current account, Philly Fed index, and the Fed’s balance sheet. There is also a $6-8 billion POMO of 6/30/2013 – 11/30/2014 maturities.

RANsquawk European Morning Briefing - Stocks, Bonds, FX etc. – 16/12/10

The latest report from RealtyTrac indicates that, as expected, November foreclosure activity has fallen off a cliff. In November "default notices, scheduled auctions and bank repossessions were reported on 262,339 U.S. properties, a 21 percent decrease from the previous month and a 14 percent decrease from November 2009. One in every 492 U.S. housing units received a foreclosure filing during the month." This is the largest Y/Y and M/M drop in RealtyTrac's records. “Foreclosure activity decreased dramatically in November, with fewer than 300,000 properties receiving a foreclosure notice for the first time since February 2009,” said James J. Saccacio, chief executive officer at RealtyTrac. “While part of the decrease can be attributed to a seasonal drop of 7 to 10 percent that typically occurs in November, fallout from the foreclosure robo-signing controversy forced lenders and servicers to hit the pause button on many foreclosures while they scrambled to revamp their internal procedures and revise or resubmit questionable paperwork.” It's a good thing then that our very own, and very corrupt, attorneys general are about to announce a major settlement that will wipe the slate clean and allow the conveyor to crank out 1000 foreclosures a day once again... And all manner of thing shall be well.

Over the past year, there have been many references to panicked sellers behaving like people in a burning theater. May 6 was the closest we got so far in 2010. Today we get our second confirmed spotting. Advice to parents: do not let your kids read this if your last name if Gross and their first is William: "Bondholders sought buyers for $1.4 billion in debt yesterday, the most since June 15, 2006, according to a Bloomberg bids-wanted index.    “Nobody’s bidding,” Tony Shields, a principal in the public-finance department at Williams Capital Group LP in New York, said in an e-mail. There’s “an avalanche of bid-wanteds, and there is just not enough liquidity to accommodate this much sell-side pressure.” There is another words for this condition. Bidless.

Sorry about the insulting headline, but every last shred of evidence I can find suggests that the most people remain utterly clueless about silver, despite the efforts of the silver vigilantes, led by Max Keiser and Mike Kreiger. Their brilliantly simple plan (go get some physical silver) promises to topple the criminally insane fraud that has become US economy. It doesn’t require politicians or regulators to lift a finger either, you simply take advantage of what is undoubtedly an artificially low price. I can completely understand anyone who is skeptical of that last statement; I’m sure you’ve been burned before, but that doesn’t mean you should stop seeking truth.

One of the specious and false memes circulating among the faux-punditry, which is undoubtedly based on a few months worth of amateur observations, is that gold is supposed to correlate inversely with interest rates. Presumably the logic goes something like this: instead of buying gold, it makes more sense to take one's money and buy $4.99 grande lattes, as it will be $6.99 tomorrow. So sell now. Fair enough, and on the surface this almost makes sense. Too bad it is completely wrong. If those same people who base their observations on one quarter of a business cycle maybe had the tools to extend their analysis a little further back, they would find that gold correlates with 10 year rates... in absolutely no way (with one very notable exception).

One of the more pervasive recent disinformation campaigns, one which has seen the very active media participation of GE-subsidiary CNBC, has been that bonuses on Wall Street are expected to decline on aggregate by 10-20%. After all, Morgan Stanley has gone so far as leaking information to the broader public that employees they may see a 10-30% cut in bonuses: why they would do this makes no sense, as it does nothing but put the bank in a competitive disadvantage vis-a-vis the only commodity on Wall Street: banker "talent." On the other hand, the information makes perfect sense considering that as we recently disclosed, in a Bloomberg poll, over 70% of respondents stated their firm belief that no bankers (of bailed out institutions, which means all of them), should get bonuses this year. Public anger at the banker class is palpable, and nothing is sure to generate spontaneously combustible public non-DA like overhearing  a discussion over who will foot (or, better yet, expense) the $50k Cristal bill. So while the media is distributing stories about the imminent poverty of Wall Street, quietly, and behind the scenes, the banking class could ostensibly pocket one of the biggest bonuses paydays in history. And while the plan may have been working effectively until now, a brand new report just released by the New York City Comptroller (who has absolutely no incentive to overestimate revenue numbers, and is in fact motivated to show as a bleak a financial picture a possible to also get on the taxpayer gravy train) throws some cold water in the face of this clever scheme. To wit, from page 16 of the report: "total compensation in the industry is expected to be up modestly once year-end bonuses are paid." So, bonuses are going to be... up?

Dylan Ratigan, having recently reincarnated himself as an activitst against the meddling of the banking oligarchy in American everyday lives, and a proponent for job creation, has hit the road, literally, with his inaugural event for his Steel on Wheel movement. The event starts at 7pm, and will be held in Seneca Falls. The idea behind this event is to bring different sectors of the political spectrum, from activists to investors to corporate leadership, towards building a Jobs Movement where Americans advocate for jobs in America that make things for Americans. The focus will be on removing the four bottlenecks of jobs: megabanks, the health care cartel, corrupt trade practices, and the aristocratic tax code. The tour is done in partnership with Nucor Steel, whose CEO Dan DiMicco will be one of the participants in tonight's town hall.

By now America has grown to expect that every failed negotiation by the politico-financial oligarchy always ends up with some version of the "Mutual Assured Destruction" card. And while the bankers of the world at least threaten others with total annihilation if their "much more erudite" suggestions are not adopted up by the great unwashed plebs, the president has come up with a unique spin on this worn out tactic. The Hill reports that the president has been telling members of Congress that failure to pass the tax-cut legislation could result in the end of his presidency. This begs the question: with the domestic (and global) economy in shambles, and not foundering only due to $4+ trillion in fiscal and monetary stimuli, and near-double digit unemployment, (there is, however, a silver lining - Reuters reports 2010 may be the second highest bonus payout season on Wall Street ever), whether Obama's departure would even be considered 'bad thing'...

Today 6 countries in Europe were the theater of riots. I highlighted in the past that voting turn-out has been on the rise in the past 8 years after a steady decline the 3 previous decades. During the credit boom fat and happy citizens had no time to vote, too busy producing or even more so consuming. Now with unemployment through the ceiling and poor economic perspectives people have started voting again. The next step is that they realize that no one in the political spectrum currently has any guts or brain and therefore no one offers a real credible fair solution, at least for now. When they do they burn things up. Because things are a little worse in Europe economically, and because the people there actually do realize the people in power are monkeys, they have now reached that stage of realization where burning things up is the logical response. Don't think the US will remain immune to this symptom of the new normal (unlike El Erian I have not revised up my forecast, and my concern is not slow growth but civil war).