Archive - Apr 2010 - Story

• America: time to rebalance (Economist) - somehow we don't see America becoming a massive producing/saving powerhouse ever... But that's just us
• Bernanke shuts down printint press - "America must walk without crutches on gangrenous legs" (Telegraph)
• Inflation fears cut two ways at the Fed (WSJ)
• Goldman openly defies Volcker Rule as it buys stake in Ganek's Level Global (Bloomberg)
• Greece and California - Debtor states (New Yorker)
• PIMCO's battling brains (LA Times)
• Joe Cassano to sneak by with no charges filed against him (WSJ)
• It's ponzimonium in the gold market (HuffPo)
• When stocks stop moving like a herd (NYT)

RANsquawk 5th April US Morning Briefing - Stocks, Bonds, FX etc.

• Asia stocks, commodities rise as US employment data lifts recovery view.
• California hotel foreclosures climb as unemployment curbs business travel
• Construction spending in U.S. declines to seven-year low amid foreclosures
• Crude oil climbs to 17-month high amid signs of global economic recovery.
• Manhattan apartment sales double as buyers seek bargains after price drop
• Mortgage rate on 30-Year fixed U.S. home loans rise to 5.08%
• Service industries in US probably grew at fastest rate since June 2007: Bloomberg survey.

The carry trade rout is accelerating, even as the euro keeps hitting new spec short records. After the prior week's (March 23) net short exposure hit a new record of -74,917, net euro shorts hit a new all time record of -85,326. This is occurring even as the cable saw last week's record shorts of -71,624 tighten marginally to just -67,073. Yet the biggest stunner was the whopping collapse in Yen net short positions, which moved from +10,161 to -30,866: the biggest net short in the Japanese currency since 2007. This is happening just in time for the Yen to hit fresh 7 month lows against the dollar, as the Yen is back to being the funding currency for all carry trades. The one currency which is openly being sold by its central bank, the CHF, saw shorts increase by 5.5k from -1,088 to -6.540.

With the US economy expected to drop to third place, behind China and India, with almost virtual certainty, by 2050, emerging markets, especially those that have a positive trade balance with the US, not just BRICs, will play an increasingly important role, especially now that the US trade deficit has become extremely politicized. Attached is a useful snapshot of the key emerging market trends, particularly in the context of waning economic powerhouses such as the US and Japan. As the authors observe: "The overriding common interest of China, India, Russia and the developed world is to find technological and political solutions to the challenges of energy security, climate change and the rebalancing of global demand. But free trade and free capital flows did not in fact survive the replacement of the UK by the USA as the world’s leading economic power, and this directly contributed to the Great Depression and huge undershoot in global equity returns of the 1930s. History warns that this could happen again, despite a strong common interest in “mutually assured prosperity.” However, this is just another way of saying that it is macro factors rather than micro ones that are most germane to the valuation debate. When people assert that the market is overvalued, they are really expressing their skepticism about the future of US productivity growth and/or the future of globalization. Logically enough, the reverse is also true: if you believe in the potential benefits of accelerating technological change and the dramatic rise of the emerging world, then the next decade for US equities is likely to be a bright one."

In this must watch Real News Network interview with William Black, the outspoken critic of all that is wrong and broken with the current system spares no words to once again denounce the (purposeful) ineffectiveness of the administration, and rightfully predicts that with Obama's current track record of inactivity in dealing with the corruption and criminality at the nexus of finance and politics, there will be a massive loss for Democrats at the upcoming mid-term elections. In Black's words: "We knew as soon as we saw Summers and Geithner that the finance side of the administration would be a disaster, but we hoped that political side would be preeminent and say a) this is substantively wrong to continue get in bed with finance and b) it's terrible politics. The democratic party will be crushed if it does this. The political side has failed to get involved. This is one of those rare things where doing the right thing is really good politics, so support candidates that will actually do the right thing. And if the Obama administration continues this way, it's going to have a record disaster at the mid-term elections. There's going to be a massive loss of democratic seats."

Dear human race,

First of all, you’re welcome. In the last few days I’ve been overwhelmed by your letters and calls expressing your gratitude to Apple, and mostly to me personally, for inventing yet another life-changing, mind-altering product. All I can tell you is that with iPad, as with all of our products, all we did was create something that we want to use. We’re just so glad that you want to use it too. It’s humbling, actually. When you devote your entire life to the endless, selfless quest to improve the lives of others; when you live a monk-like existence, and focus all of your power and genius on the singular goal of creating objects that nourish souls and transform people’s lives with magic and wonder; and when people tell you that this is, indeed, what you’ve done — well, it’s gratifying. Namaste, entire population of Spaceship Earth. I honor the place where your desire to consume becomes one with my desire to create.

- Fake Steve Jobs

The recently (in)famous Michael Burry, writes a blistering op-ed for the NYT, in which he implicitly asks one simple question: just how dumb are Alan Greenspan and Ben Bernanke? The man who foresaw it all, subprime crisis, banking system collapse, counterparty risk, CDS scapegoating and emerged from the second coming of Great Depression 2.0 a much wealthier man, has so far had exactly zero invitations to share his insight with Washington's Wall Street proxy legislators, and, in addition, has had his forecasting skills called a "statistical illusion" by the very same Greenspan who took the economy to the brink, and whose successor is now doing just that in the second doomed great reflation experiment. At this point one has to be an immaculate idiot (read Chairman of the Fed) not to see, that what the Fed is doing with the pursuit of the same catastrophic monetary policy which failed the first time around, and will fail now, is pushing us straight into the abyss, from where America just barely managed to crawl out in 2009 via $3 trillion in additional public debt issuance to date (a number which will likely hit $10 trillion within the next 5 years, to result in a debt-GDP ratio of approximately 200% when including the GSEs). It has gotten so bad that even Fed governors are begging Bernanke to stop the madness before it is too late: a first sign of internal mutiny. Alas, just like when everyone ignored Michael Burry, who laughed into the face of conventional groupthink in the mid-2000's (which by definition is always wrong, and will be this time around as well), so will Wall Street and its proxy, Washington D.C., ignore that which is all too obvious until it is once again too late. Hopefully by then intelligent and very rich life on Mars will be discovered, cause there will be no one left to bail out not just the US, but the world.

...and we bet that was a trip and a half.  Radio Zero returns, ready to act in your preemptive self-defense to fend off the horrors of in-laws and contrived egg hunts.  And really, we know wherefrom we speak.  To wit: ("Gee, great job Suzie.  Who would have thought the egg was hidden in the same flower pot as last year?  No, it is true.  You are a child prodigy.  Yes, of course I mean it.  It takes a special kind of child to stay obese all this time in the face of the massive Adderall doses your mother feeds you out of her own prescription.  Oh, no, don't cry!  It just means there's more of you to love!")

No, I haven't been invited back- so now we can spin for you.  I'll jump on the decks first.  But that means I'm just the opening act.  Our headliner tonight?  Jana von Alpha.  ("Brace for trance impact!")

http://radio.cl.zerohedge.com

Dreading the in-laws?  How about chatting up the DJ (and the other Sunrisers) via our new and improved IRC server: chat.zerohedge.com.  Instructions for the new security protocols here: http://chat.zerohedge.com.

Need personalized instruction?  Can do.  Just AIM ("instant messenger) us here: aim:radiozh or (for assistance at the speed of ObamaCare) leave a comment in this thread).

Standard connections on port 6667, SSL encrypted via port 6697

Join us.

1:30(ish) am ET.

Imagine a world without bankers. That thought either rattles you to the core of your being, or it brings on the kind of ecstasy heretofore only available in a Southeast Asian massage parlor. If you are a Congressman, addicted to the effluent from the wallets of your owners on Wall Street and their lobbyists in Washington, if you are a real estate developer who believes no amount of office space and no amount of luxury condominiums is too much, or if you summer in the Hamptons and Nantucket, then you are clearly in the first camp. If you are a typical ZH’er, spending your weekends at the range with your Beretta or sharpening the tines on your pitchfork, then welcome to SE Asia and the world of your wildest fantasy.

In its attempt to reignite the credit and risk bubble, the administration will stop at nothing from getting mom and pop to throw their zero interest earning Money Market funds away and to invest it all into shares of Apple and Amazon stock. Yet while holdings in money market funds are literally evaporating (down 8.5% as a % of total assets in the past 3 months alone), the proceeds are going not into stocks, but into IG and HY bonds (to a marginally greater extent), but mostly into Government Bonds. The greater population is betting an increasing amount of its life savings that David Rosenberg is right, and that Jim Grant, and all the other Bond bears, are wrong. In the week ended March 31, 2010, $32 billion in Money Market funds was pulled, according to Lipper/AMG, the third biggest outflow since the collapse of Lehman brothers. Year To Date, a massive $274 billion in money markets has been withdrawn, yet under $200 billion has been reinvested, of which $100 billion has gone into All Taxable Bonds (i.e., non IG, HY, Bank, EM, and Global debt) implying Treasuries are the primary investment class for the broader population by a massive margin. What about the $80 billion delta? Have investors pulled $80 billion from money markets without reinvesting, simply to purchase any and all deferred products and services? Has the government converted money markets into piggy banks for simple purchases, instead of a source for pushing stocks higher? Of course, with cash in MMs earning nothing, Americans would rather extract at least some intangible joy from owning a one-day fad like the latest iToeclipper from Steve Jobs, then see their cash do nothing (and hope that the deflationists will be proven correct at some point in the (not so) distant future). Too bad the levered and unlevered cash flow from that Kindle or the iPad is zero at best and worst.

In one of the most erudite, intelligent, and insightful conversations on the Bond bull/bear debate, David Rosenberg and Jim Grant go all out at each other, trading blows in this "Great Debate" which is a must see by all. As we pointed out yesterday, Grant is very bearish on bonds, and in a self-made prospectus has decided to downgrade the US, since the rating agencies, which have long been thoroughly incompetent, corrupt and afraid to disturb the status quo, will not do so until it is too late. Jim's point is simple: you can't resolve massive debt with more debt, and says Treasuries, which he calls "certificates of confiscation" are a surefire way to lose one's money. He points to the record supply of US Treasuries, makes fun of the SEC (who doesn't), and in a stunning move, cautions the Fed Chairman, whose ongoing dollar debasement, was once considered treason by the US. His conclusion: "watch your back, Ben Bernanke. Cycles turn" could not have come at a more opportune time. As a contrarian, Rosenberg discusses the McKinsey report looking at sovereign debt, and the Reinhart and Rogoff studies on debt default and highlights that there is a major disconnect between theoretical applications of sovereign default models and practice: in essence the US is still deleveraging as private debt is decreasing and public debt is surging but to a slower degree. In essence, David claims, the second largest monthly debt issuance in March of $333 billion is merely a side effect of ongoing deleveraging, which is a leading and/or coincident indicator of deflation: an environment in which the long bond thrives (Japan is a good reference point).

Abstract: Back in October, 2009 I penned an article titled, A Blight on Humanity, where I reported that, in an Asian depository there had been found 60 metric tonnes of “Good Delivery” gold bricks that had been gutted and filled with tungsten. That article was followed up with, On Doing God’s Work, where additional information on the fake gold bricks was presented. This lengthy report has been written to provide the background and genesis of who was involved, why the fake gold was produced and how it was fed into the international gold market. - Ron Kirby

The chart says bond curve got more worried, and the CDS curve was … what it was in January. It seems that the CDS market reacted to the bailout news, while bonds continued to sell off. Differences in the curves at other times are reflections of inflation expectations and non-credit idiosyncratic risk. Neither curve is pricing in magical lightning from Zeus’ butthole that miracles billions of euros...Seems that all Greece has to show for their trouble is higher interest costs on a mountain of issuance coming up. On a global scale, aggregate debt repudiation either through inflation or default will be the endgame.

If there is one acronym that is more indicative of the madness of herds than BRIC, it is the recurring stupidity that is GARP, which tends to show its head at or just after the market has peaked. With hedge funds still in possession of 3.0x + leveraged liquidity and easy money no longer an option, bottom of the barrel PMs need a self validation in the form of some branding concept, even if it means buying 60x forward P/E stocks that trade on valuations made not out of fumes but of sublimated insanity. Sure enough, here comes Goldman's latest GARP reminder, telling all its best clients that after a 100% run up, IT is the sector to invest in... Just like it told them to buy, no sell, no stay away from Euros in just the last month. So without further ado, here, for those who need to throw money down the trash chute, is David Kostin on the magic that is GARP.