Archive - May 11, 2010 - Story

Yesterday we discussed the statistically impossible trading desk results of Goldman Sachs, which reported in its 10Q that it lost money on exactly 0 days last quarter, and was profitable on 63 out of 63 days. Today we find that the rape and pillage of the middle class was not isolated to Goldman, and that JP Morgan also had a flawless quarter. And if the odds of Goldman making 63 out of 63 are virtually impossible in any universe in which risk goes hand in hand with return (but in those in which monopolies are encouraged and bailed out), the coincidence of the two main firms that control the world having a perfect track record is impossible². And since things in reality tend to be zero sum, when everyone makes money, someone may be tempted to ask the question, just who is losing money? And the answer, dear taxpayers, and [Goldman|JPMorgan] clients, is you.

And so liquidity overflows once more, with investors stampeding to get first into stocks and now into bonds, with the 3 year $38 billion auction closing at 1.414% and an all time high BTC of 3.27[actually November 2009 was the only time that BTC was slightly higher at 3.33, so for all you purists out there, now you know]. But no, there is no bubble. It is just that investors are diversifying by buying bonds, stocks, commodities and gold all at the same time.

• $38 Billion 3 year closes at 1.414% (1.307% Low, 1.370% Mid), 1.776% previously
• Bid To Cover 3.27x, previous 3.10, average 3.00. This is an all time high BTC
• Indirects at 50.7% vs average 50.91%
• Direct take down 16.5%
• Primary Dealer hit ratio 14.99%
• Allotted at high 22.27%

RANsquawk US Afternoon Briefing - Stocks, Bonds, FX etc. – 11/05/10

Even as the toothless Sanders amendment passes unanimously and with the full endorsement of Chris Dodd (all you need to know) the Vitter amendment is voted down 62-37. In the meantime, America still pretends it is not a bankster-controlled despotic regime, in which the wealth of the middle class is funneled every day into the Wall Street/Propaganda ponzi. We will provide the rollcall and names of all financially secure for life, pardon, nay voters shortly.

MOODY'S: EURO PACKAGE `MARGINALLY INCREASES' RISK AMONG GOVS.
MOODY'S: SAYS MORE RISK BETTER THAN EURO AREA DE-INTEGRATING
MOODY'S SAYS EURO PACKAGE `ALLEVIATES LIQUIDITY CONCERNS'
MOODY'S: SAYS EURO-AREA `FISCAL RETRENCHMENT' MUST COME FASTER

This market is a joke: 3 days after the powers that be ended up causing the biggest market crash in history, they have now pushed the autopilot button, which basically means nobody among the 5 entities that still trade, is allowed to sell. And the algos chase every offer into the stratosphere. This will continue until the next time the banks needs to pass a Trillion dollar bailout or push a few hundred billions in treasury supply and get all the idiots chasing after the "riskfree" assets.

A London newspaper on Tuesday reported that Britain's Prime Minister Gordon Brown will resign on Tuesday and hand over power to Conservatives leader David Cameron, who won last week's elections but failed to secure a majority.

The report from the London Evening Standard comes among rising speculation that talks between the Labour Party and the Liberal Democrats have collapsed.

This should add to the already massive vol in cable and all other FX pairs.

5 minutes before the European close, market volume becomes dismal, algos take over and take the market goes green, even as the EURUSD takes out 1.27 to the downside, and as stocks have completely decoupled from EURJPY. Once again, with computers firmly in charge, the old trading patterns are back, and will likely draw the market higher, higher, higher until the next time the market goes bidless and drops 30% in 1 minute.

Bernie Sanders is talking right now on C-Span 2, where Vitter will discuss his amendment as well. Both of these are critical to exposing the covert activities of the Fed. If the Sanders bill passes as is, it will disclose prior information. If the Vitter amendment also passes, then the original form of S.604 will likely be implemented. Furthermore, Sanders just announced that according to his revised amendment the GAO is required to investigate conflicts of interest when banks were being bailed out.

Watch the debate live here.

As we suggested in yesterday’s Comments, Friday’s non-farm payroll numbers got swallowed up by the on-going worries about Greece. But, the “jump” of 290,000 new jobs was a big topic on the weekend talk shows. There was a lot of “we’ve turned the corner” portrayals. Longtime readers know I’ve thought some of the improvement in the data was “suspect” (to be kind). For the last eight weeks, Initial Unemployment Claims have averaged 450,000 per week. So, over the last four weeks, 1.8 million people were laid off. How does that fit in with the claim that 290,000 new jobs were created? The obvious answer is that it doesn’t. So, let’s drill down into the payroll numbers to see what’s going on. The CES Birth/Death adjustment added 188,000 of those jobs. Birth/Death does not refer to people but to businesses. The BLS guesses how many new companies opened versus how many closed their doors. The BLS then uses that guess to guess again how many jobs those business created or lost. Another 66,000 of the new jobs came from census hiring. Those are temporary jobs and those folks will be laid off later in the year. Speaking of temporary, another 26,000 of the new jobs were non-census temporary. Let’s recap. A guess produced 188,000 of the jobs, 66,000 were census and 26,000 were temporary. Thus, it seems 280,000 of the 290,000 “new jobs” were either temporary or the result of guesswork. Some turn. Some corner.

In today's most hated move by the Federal Reserve, gold is surging and not looking back. The LBMA must be panic-dailing Gordon Brown to bail them out yet again as gold is preparing to surpass all time record high, not only in Euro terms, which is a daily occurrence, but in dollar as well. Alas, JPM's hands are tied now that the firm is solidly under the DOJ's microscope for decades of PM market manipulation. Too bad gold in terms of gold does not exist...yet. We are sure Barclays, pardon, BlackRock will come up with an ETF for that too.

David Rosenberg is out with some very fitting analogies of the current sovereign crisis. If he is proven prescient, which we have no doubt he will, the Greek near-default will have massiverepercussions to the entire developed world when all is said and done."In my opinion, Greece is the same canary in the coal mine that Thailand was for emerging Asia in 1997, which ultimately led to the Russian debt default and demise of LTCM; the same canary in the coal mine that New Century Financial in early 2007 proved to be in terms of being a leading indicator for the likes of Bear Stearns and Lehman. So, the most dangerous thing to do now is to view Greece as a one-off crisis that will be contained." Furthermore, as he makes all too clear, if a $1 trillion bailout can only buy 400 points in teh Dow, Europe, aside from all the other fundamentals which confirm the same, is doomed, and even the ever-optimistic market now realizes it. Lastly, should Europe pursue the required austerity measures, the hit to European GDP will be massive, and is certainly not being priced in European stocks, but certainly not in US stocks, whose primary export market is about to disappear.

Without much surprise the market seems to be a bit jittery this morning as it is digesting the details and implications of the European bailout plan. It seems people realized quickly that this was just a little debt switcharoo from one balance sheet to the next. I have discussed with clients individually the possibility of Eurozone bonds being created to face the problem for some time now, and while I had considered this is a possibility I had originally dismissed it simply because we would need to see some quantitative easing from the ECB first. For now interestingly it is the individual Treasuries of the Eurozone that have been carrying the load buying distressed sovereign bonds. Obviously the turn-around time necessary to launch new Eurozone securities would not have allowed to respond in timely fashion to the state of panic of the markets last week given the late start by responsible (?) authorities to adress the problems. Now that the cleaner balance sheets of the region are being diluted with toxic liabilities however, it seems the door would be wide open for the creation of such bonds. I still doubt Europe will go that route unless it is the ultimate last resort and even then, this may be a pill Germans won't swallow to ensure the well bailing of their Mediterranean friends and preserve the political legacy of the post world war II era. - Nic Lenoir

By now you have undoubtedly heard both that China's economy is now officially overheating and about to blow the NO2 canister, courtesy of another dramatic pick up in credit-driven "growth" and a unmitigated liquidity explosion, and that as a result its stock market has officially entered a bear market. Here are some additional thoughts on China's economy from Citigroup.

As part of the reactivation of its FX swaps with the Federal Reserve, the Bank of England also reactivated its dollar repo operation. As announced, "these operations will be at fixed interest rates with counterparties able to borrow any amount against eligible collateral. The first tender will be held on Tuesday 11 May. The Bank will keep the frequency and maturity of its US dollar operations under review, in light of market conditions." And in light of the assumed scarcity of dollars in Euroland it was somewhat surprising that today's dollar repo reopening after a 5 month hiatus (the last such transaction occurred on January 27) saw exactly zero bids. We speculate that since the dollar repo was attempted at 10 am GMT, that the swap line is now active, although we have not yet seen anything in the form a term sheet or a press release from the Federal Reserve. But who are we to presume that the Fed would be accountable to anyone, let alone us, and disclose something as irrelevant as information to the general public. Yet the take home is that England, at least so far, is not in need to dollar denominated funding. Which means, as we have long speculated, that "lack of USD liquidity" ground zero is most likely France, and Germany is probably in second place.