Archive - Jun 2, 2010 - Story

The ECB has released what appears to be a manga-like brainwashing cartoon geared at kindergarteners which in 8 minutes seeks to explain "price stability" within a Keynesian framework (i.e. inflation in the 0-2% range). We assume this is a failsafe precaution, just in case the religious Keynesian teachings during Econ 101 over at Harvard and Cambridge happen to occur at the not so malleable age of 18+. After all, what better way to preempt Hayek's terrorist influence on young and tender minds than to enslave them real early. We wonder if this is not also a post-facto attack at German politicians who are now openly accusing the ECB of pursuing monetization policies which every now and then tend to lead to a Weimar-like conclusion.

Last night's decoupling (albeit subsequent recoupling) between the Euro and risky assets (in our case the ES) was the second time in as many weeks that the European currency has openly decoupled from the rest of the risky market. Granted, last night the decoupling lasted for just 12 hours, and the resultant spread collapse generated some 70 bps in P&L. We were not the only ones who noticed the original schism: here is Bank of America's Hans Mikkelsen discussing this increasingly more frequent decoupling event. To date, the decouplings have been temporary. Which is the case until it isn't: any time a trade looks too good to be true, it is not. Unless one is trading against a retarded army of Dark Avenger-infected 80286s.

Any 93 page David Kostin presentation that begins with those words, has to be devilishly good. The fact this it says that Buy rated Halliburton has 65% upside to Goldman's target price just makes it truly infernal. Goldman's disclosed ravenous "hatred" of AMD probably makes it the buy of the century. All this, egregiously gratuitous use of the word GARP, and many pretty charts await those brave enough to read through.

Today's rating agency hearing was a total farce: the only useful thing that could come out of it is if someone comes out with potentially perjurious information, as there were a few shaky answers provided by the Oracle of Omaha which could easily explain not only his reticence at testifying in Congress but doing so under oath. If that were to happen, the octogenarian would have to respond to both potential criminality and hypocrisy. As it stands, the only item to be covered is the latter, and Charlie Gasparino does a pretty good job at blowing apart Buffett's hypocrisy. "He believes [the rating agencies are] a sleazy business and he's gonna own it. Well that takes Warren Buffett down three notches in my book... If Moody's had a superior product, investors like Warren Buffett, who does not use the ratings, would be buying them one at a time. They do not have an effective product. They have a deformed product, a product that basically was at the forefront of the mess in 2008 and 2007. Warren Buffett who opines about politics all the time, constantly opines about right and wrong, defends wrong because it was a good investment. He is defending the indefensible. Rating agencies are not defensible at this. He is Mr. Do Good, yet he is defending the most corrupt business model in corporate America." At least one mainstream journalist out there is not afraid to call it like it is. Of course, we get the feeling that Becky Quick is no danger of losing her leathery wrinkled seat on the next NetJets trip to China.

Oil prices advanced on Wednesday as traders boosted cvommodities quotes on positive data reports on US homes and autos, generally considered the two “biggest-ticket” items purchased by consumers. The National Association of Realtors reported a 6% jump in its April index of pending home sales. This was more than the 5% generally expected by analysts and realtors. And, American auto sales recorded strong year-on-year sales figures, with Ford reporting a 22% increase in sales in May, while General Motors reported an increase of 32% in May sales. These specifically American numbers helped US oil prices, although traders were quick to remind themselves that oil is a global commodity and weakness in one place needs to be made up or compensated for by strength somewhere else. And Europe, or the “euro-zone” as it is being called these days, is seen as being an anchor on the economic recovery as well as on oil prices.

This Friday the NFP report from the BLS could easily surpass 700,000 people, driven primarily by temporary census hirings and by Birth/Death adjustments. The Census Bureau reported that between the weeks of May 9 and May 15, there were 573,779 employed census workers. In the prior month, for the week ended April 17, there were 156,335 census workers employed, or a differential of 417,444 newly hired census workers between April and May. Keep in mind that in the May NFP report, the benefit from census workers was at 66,000, or 90,335 less than the Census reported number. As a result, due to the BLS' voodoo math and double counting, its is distinctly possible that the Census alone will add up to 507,779 workers (organic hirings of 417k and the plug for the prior period of 90k). Also, recall that the Birth-Death adjustment in April "added" another 188,000 workers. Retaining the same level of statistical adjustment, and the May NFP number will be at 700,000 before even one real full-time person has been added to the economy in the month of May!

Some notable correspondences submitted by David Rosenberg's fans to the Gluskin-Sheff strategist. All are worth a read, although inbetween we get this glimpse of what Rosie really thinks: "We will come out of this cycle with tremendous inflation, but the primary trend for the next 3-5 years, the length of time it will minimally take before this global deleveraging cycle fades, is deflation." We knew Rosie was a long-term hyperinflationist.

Proper planning with your finances is incomplete until you consider the endgame consequences of your investment decisions today. So, what are the tax consequences of selling gold, gold ETFs, and gold stocks?

There’s lots of conflicting and inaccurate tax information on the Internet about this. We know of one site that claims the sale of silver Eagles is exempt from capital gains tax due to some obscure law (not true). So, let’s nail down the current tax rules for selling gold in the U.S.

RANsquawk Market Wrap Up - Stocks, Bonds, FX etc. – 02/06/10

This is how the market responds to a day fully replete with good news, and even more volume participation: three days worth of trading undone in one hour. The 20-day daily average cumulative volume in ES is 3.15 million. We closed 2.17 million, or 31% lower. Lesson for the day: when the machines are in "distribution" mode, you get out of the way. Especially with Obama about to announce 1 million newly employed people despite 450k+ consistent initial weekly claims. After all what good is the upcoming 0.5 million Birth-Death adjustment for if you can't use it to top off the 0.5 million new census hiring. And another indication of market efficiency: APC stock up 5%, even as its CDS closed +116 wider. Add imminent threat of bankruptcy to the list of upside stock drivers.

Much has been said about Libor, Libor-OIS, TED spreads and other Libor-based metrics, both here and elsewhere. It is no secret that liquidity conditions in Europe are at Lehman levels when looked at from a capital preservation and counterparty risk perspective, in terms of how much money the banks there have parked with the ECB. And yet the Libor as an absolute metric is far away from its all time wide levels seen in September 2008. Bloomberg's chart of the day provides a good reason for why Libor is not only no longer relevant, but why any reading for Libor (and potentially Euribor) no longer represents the true liquidity tightness experienced by member banks. As Bloomberg notes: "Banks have all but stopped lending to each other, driving transactions in the interbank market to the lowest level since August 1994 and undermining the validity of the suite of interest rates known as Libor. “The interbank market died with Lehman Brothers,” said David Keeble, head of fixed-income strategy at Credit Agricole Corporate and Investment Bank in London. “Libor is a strange beast, because the market that it’s based upon barely exists."

The ES just closed the gap with the EURJPY. Whoever got in on the compression trade highlighted yesterday, congratulations. Just goes to show that overestimating the intelligence of market players is the biggest cardinal sin one can commit in this market.

On May 3 we noted that the HSKAX has posted a massive drop and that this was indicative of substantial deleveraging within the market neutral population, noting that "Market Neutral players are getting carted out feet first as liquidity is now totally gone and 100k SPY blocks move the market. M/Ns are deleveraging massively as the index hits lows not seen since mid-2008." Some took this observation very personally and said this is indicative of nothing. Three days later the Dow dropped 1,000 points. It is time to point out the HSKAX chart once again, which has just dropped to a fresh two year low. The traditional liquidity provider deleveraging continues, and only the 2 man crews with 2 i920 CPUs are left to add limit orders. Until, of course, they decide to not do that anymore, just like they did a month ago.

Moody's has released a new report, titled "U.S. Rated Bank Asset Quality Over the Peak, Lookout for a Bumpy Downhill Ride." As one can imagine, in its Moody's notes that Financials' asset quality is now over the peak, and it is looking for a bumpy downhill ride. (Like anyone can take them seriously). In it the rating agency says: " We believe rated U.S. banks have recognized approximately 60% of the aggregate loan charge-offs that they will realize from 2008 to 2011. Although remaining losses are sizable, they are beginning to look manageable in relation to bank's loan loss allowances and tangible common equity. However, a worsening of the global economy in 2010, the probability of which Moody's places at 10% to 20%, would significantly strain U.S. bank fundamental credit quality -- and it is this issue that drives our continuing negative outlook for the U.S. banking sector." Since Moody's saw 0% chance of the crash of 2008 happening, the reality adjusted probability of a quintuple dip according to the last statement is about 2,000%. Plan your illiterate SPARC "cash cow" HFT workstations accordingly.

Earlier we reported that Jim O'Neill has finally capitulated on his China uberalles prediction. Not a few hours pass, and Goldman is already back to spinning the great illusory strawman of the next growth "dynamo" - enter the N-11, or the "the ‘next 11’ emerging economies that—after the BRICs—have the potential to rival the G7 as a source of global demand and sustained growth." Because Goldman knows all too well that two wrongs make a much bigger right. As to which bottom dwellers are supposed to pull America and the insolvent developed world, prepare to be regaled with the following brilliant selection of N-11 participants: Bangladesh, Vietnam, Egypt, Iran, Pakistan, Indonesia, Nigeria,Philippines , Mexico, Turkey, Korea. Good luck with that Jim: we cant wait for the Non-Ch 11 200 next, or all the countries in the world that don't have a debt/GDP ratio of over 100%. We are sure that the entire world, ex the developed and BRIC countries, will pretty soon serve as the economic dynamo to push the world forward, and beyond the bankruptcy of your heretofore favorites. We promise that the bears you so enjoy taunting are rolling in fear at the N-11 onslaught.