Archive - Jul 30, 2010 - Story

Just because "extended" and "exceptional" is so H1, 2010. With three brand new doves on the board of the Fed, it was only a matter of time before the printers realized that there is no reason why ZIRP should hold the central bank back, now that even hotdog vendors know all about the deleveraging double dip the US finds itself in. Up on deck we Nomura, which issued the first official change in a call for QE-Light. The firm's economists David Ressler and Zach Pandl, no doubt after consulting with Richard Koo, say, "we now expect the FOMC to 'ease' at the 10 August meeting. Exactly what form this easing might take is debatable. Our assumption is that they will change the language of the statement to signal that the balance sheet will remain expanded, and change policy around the MBS program to start reinvesting paydowns." It won't be the last. Should the Fed telegraph further easing, expect stocks to surge at least another 10% as the 10Y approaches 2.5% as nothing makes sense any more.

This week's CFTC's Commitment of Traders update for key commodity classes

A concise and objective summary of the week's bullish and bearish events

RANsquawk Market Wrap Up - Stocks, Bonds, FX etc. – 30/07/10

The capital markets, which are celebrating accelerating deflation and inflation at the same time, are now officially insane, as the Dow has diverged from its credit implied fair value by about 170 points! This will all end in lots and lots of tears. We hope the computers enjoy trading with each other as much as all carbon based lifeforms relinquish the en masse abandonment of the stock market.

Geoffrey Raymond's art, just like fine wine, only gets better with time. This is particularly true if the art is subjected to accelerated aging via repeated days of annotations. Raymond's latest piece: the Naked Cramer, is now on its day four of soliciting random and assorted commentary, and the prevailing sentiment on CNBC's permabullish stockpicker is certainly starting to shine through. The results are below.

The latest and most damning confirmation that it is none other than the president and his errant policies that are the primary cause for the credit crunch spreading among individuals and small and medium businesses like a paperborne version of the plague, comes direct from the Minneapolis Fed, where in a paper titled "Come and get it--please: Banks and credit unions say they have money to lend, but credit markets are still struggling for a variety of reasons" the Ninth Fed district puts the blame for the credit freeze flatly where it belongs: the president himself, and more specifically his destructive economic advisors. "The most-cited reasons—though only by a small margin—were
organizational uncertainty about future financial system reforms and
regulatory restrictions on bank lending. A Minnesota institution stated
flatly, “The regulatory environment has impacted our willingness to
make loans.” And stunningly enough, the desire by an ever-greater portion of Americans to forgo future credit and to splurge on idiotic purchases like iPods even as they no longer pay their mortgage and destroy their credit rating is having repercussions. "Said a South Dakota institution, 'We have money to lend, but cannot
always fund applicants due to inability to borrow. Their poor credit
histories keep them from obtaining credit.'" Who would have thunk that while Wall Street is immune from the causal relationship between action and reaction, and in fact blowing itself (and being rescued by taxpayers) up leads to infinite creditability by the US government, the opposite is absolutely not true, as Americans are now less able than ever to procure loans from these very same bailed out banks

Today, the FT provided some additional information on the BIS' "goldgate" as relates to its 346 tonnes of gold disclosed as swapped recently by the ubercentral bank. As the FT says, "Investors have bought physical gold in record amounts during the past two years and deposited it in commercial banks. European financial institutions are awash with bullion and some are trying to pledge gold as a guarantee." There was nothing necessarily new in the article, and as expected the swap was merely put in place to collateralize a dollar funding crunch ahead of the European insolvency, allegedly resolved by the guaranteeing of $1 trillion in the world biggest bail out fund by the IMF and the ECB. Nonetheless, at least now we can end speculating as to who benefited: it was not entire countries that had pledged their gold reserves to the ECB (contrary to the rumor that Portugal had given Bernanke a lien on its gold), but merely ten banks, of which HSBC, Société Générale and BNP Paribas were the biggest. While HSBC's presence is somewhat surprising, the latter two banks having found themselves in a massive currency crunch makes sense: as Zero Hedge had previously noted, this is confirmation that it was precisely the French banks that had found themselves on the wrong side of some major euro trades (one need only to recall BNP's call for subparity in the EURUSD from a month ago). Yet what is without doubt is that physical gold will play an increasingly prominent role as a hard collateral asset. In light of this, we present to you the thoughts of Sprott's John Embry on the precious metal, titled "Gold's on the cusp of parabolic move up" whose conclusion fits with the implications of the BIS action: "Central banks can no longer supply the amount needed to balance supply and demand while mine production continues to stagnate at best. It is imperative that investors ignore the volatility created by the anti-gold cartel and use every opportunity that is created by them to purchase more physical gold." Yes John is conflicted, and yes, he has said comparable things in the past... maybe, as more and more piece of the puzzle come into place, this time he will finally be right?

One of the world's most realistic people (which for some reason the permabulls take as an indication of extreme bearishness: which is fine - after all they themselves live in an imaginary world populated with market marking unicorns and benign computer programs), David Rosenberg has shared ten things that would make him bullish. Alas reading through these gives one the impression that Hades would first turn endothermic before any of these actually were to come true. And for some more practical views from Rosie, we also include his spot on interpretation of today's GDP data.

RANsquawk US Afternoon Briefing - 30/07/10

Yesterday may go down in the history books for being the only day in months in which the daily decoupling, either between risk and FX, or risk and Bonds did not occur. Alas, today the binary market hijacking mutants are back to their signal chasing momentum ploys, as a result despite the 10 year about to plunge below 2.90, stocks are flat. As either stocks are rich (no question there) or bonds are (yields are low), the intraday recoupling surefire trade is back, and promises to pay a few nickels to those willing to short stocks and short the 10 year (and pray there is no steamroller in the vicinity).

Mike Krieger, who has been a staple poster at Zero Hedge courtesy of his willingness to speak the truth no matter how gory or controversial, was on the Max Keiser show, discussing everything from trivial items such as Goldman Sachs movie casting, to far more serious issues such as Obama's failed presidency, corporatism, information oligopolies, the overturn of various core fundamental democratic principles, consumer culture, the Federal Reserve, and gold as the one true money standard. As always an objective and highly informative discussion between Mike and Max.

The ECRI Leading Indicator has just moved further into certain recession territory, hitting -10.7 for the most recent week (the previous revised number is -10.5). The market goes green on the news, as the Liberty 33 traders have done their job for the day and are off to the Hamptons. And what is so odd about the market reaction one may ask - bad news are as always priced in, as the apocalypse is nothing that a little money printing can't fix, while minimal upside surprises (soon to be revised far lower) are sufficient to move the market higher by over 100 points intraday. Hopefully the HFT operators unionize and go on strike soon in demanding greater pay, and get the Greek trucker treatment as a result, because this market is not even a joke anymore.

After surging to a several week high, the 2s10s has plummeted to a one week low in the matter of hours, dropping back down to 236 bps. This follows a day of fireworks in the curve, in which as Market News discusses below, we saw some pretty aggressive hysteria in flattener unwinds. Oddly enough, the collapse in the curve has occurred as the 2s have hit another record low yield, indicating that no matter how much of a spin opportunity any givendiffusion index headline provides, the bond market is increasingly pricing in deflation (and in fact the yield on various classes of TIPS was negative earlier today).

Expectations at 62.3 vs consensus of 61.3 (previous 60.6), and Conditions at 76.5 vs 76 (previous 75.5). And with this latest self fulfilling prophecy report out of the propaganda bureau, expect stocks to promptly go green as the ugly GDP number is all but forgotten. This report brings today's official economic release docket to a close. The upcoming ECRI Leading Indicator report (10:30 Eastern) will also come in higher than -10 and with that we will close solidly green as the administration high fives itself over yet another horrible economic print cover up.