Archive - Jul 2010 - Story

RANsquawk Market Wrap Up - Stocks, Bonds, FX etc. – 20/07/10

The jury is out: I have been in the deflation camp personally for the last 2 years, but I hear the arguments for Zimbabwean hyperinflation, or the case of the oscillation in no man's land as governments and central banks stop us on our way to the deflationary Kondratieff winter at each market collapse with a new round of monetization. Maybe this last cynic remake of the Japanese lost decades is the most obvious way to bet on the demagogy of our modern "capitalist" system where government are helpless against deflation and will therefore sacrifice our future and the planet if they have to in order to save whatever face they have left. - Nic Lenoir

And as the regulatory theater ends, both on Wall Street and on the bottom of the GoM, everyone gets paid handsomely for their participation, with the taxpayer getting the bill as usual. From the Apache press release:

Apache to Acquire BP Assets in Permian Basin, Canada and Egypt For $7 Billion

- Legacy assets complement existing operations in all three areas - Adds proved reserves of 385 million barrels of oil equivalent and approximately 83,000 boe per day of production - Substantial development opportunities and additional resource potential
...
Apache's financial advisors for these transactions were Goldman, Sachs & Co., BofA Merrill Lynch, Citi and J.P. Morgan.

King World News presents another great interview, this time with innovative hedge fund manager, and financial skeptic, Eric Sprott, best known recently for bringing an alternative to the GLD and SLV paper domination, with his innovative gold and silver physical ETFs. In the below interview, Sprott shares a wealth of insight into Keynesianism, on the staggering and rising debt load, on the collapse in every single economic metric and the imminent arrival of the double dip (sorry Apple fans, iPad sales are not a leading indicator; at best they serve as a delinquent mortgage tracker), on QE1 and the upcoming QE2. Sprott's view that "nobody has a solution here, nor should they have a solution here: I think we need to rid ourselves of the theory we need to keep adding debt all the time to keep growing." Sprott agrees with the Zero Hedge principle, that when dealing with broken Keynesian economics, you need to shock the system - "you need to hit bottom." As Sprott says: "You need to really shake the system in order for the system to change, and so far there has been absolutely no change in the system." And, of course, Sprott discusses gold, gold manipulation, and paper gold. 30 minutes of must hear observations.

There was a time when stocks, bonds, gold, dollar, oil, correlations, and pretty much anything that isn't nailed down, going up concurrently would make at least some market participants frown. Not so much any more - with the average "trader" an 18 year old pustular math whiz-kid with the personality of a paper clip and a Ph.D. from a prestigious institution to boot, with no idea of just the level of death and destruction their "sentient", "self-aware" and "learning" programs are about bring to the market, nobody cares about that little thing called logic. Yet going off that, and basing observations on the last rational market indicator, i.e. bonds, it appears stocks continue to be about 70 points rich and have a fair value around 1,020 as implied by 10 Year Yields. As the deranged schizophrenic computer algos were blowing threw vacuum tubes like Ukranian hookers go through crack on any given Hamptons weekend, they totally forgot to bring bond yields higher for validation. Which is why the stocks-bonds (10 Year) convergence is now more pronounced than ever. Sell stocks, Sell bonds (Long Yields) and wait for the big Mahwah collocation facility black out that will eliminate 80% of binary market participants that will allow the spread to close.

Last night we said: "So for any insomniac traders with a taste for virtually risk free arbitrage, here is your opportunity to take advantage of one of those ultra rare occasions where the ES is actually cheap to the AUDJPY - buy spoos, and sell carry, for a roughly 6 point indexed spread convergence." The spread is now closed, and recoupling 20 out of 20 is in the books. For those who took on the minimal risk (and hopefully leveraged 1,000,000 times, just like Merrill's prop desk in the days of yore), congratulations on this "guaranteed" profit.

In keeping with the tradition of digging America into a debt hole so ridiculously large any conversation over whether the US will be able to ever pay this debt off is immediately moot, the Senate has just ended debate over the latest micro fiscal stimulus, specifically the legislation extending unemployment insurance benefits. It appears the latest iteration of the "you never have to work again as long as you vote for Obama" bill is about to pass. Next up: free government jobs for everyone as the census becomes a monthly affair. And when that fails, free Bernanke Bux for all who still remember how to breathe after all the daily Desperate Housewives of Liberty 33 drama. As for the cost of this latest freebie: $25, $50 billion.. who cares - at the eventual hyperinflationary discount rate, the NPV is about a penny or three. As for current funding, two Fed Assured 2 Year glitchless auctions at record low rates will take care of it.

Either in anticipation of QE2 which will cut the value of the dollar by another 50% once another $2 trillion in toxic crap becomes the "assets" backing the viability of the dollar, or just because they are sick of Fed policies, mid-Michigan has taken monetary matters into their own hands, and in one simple act, completely bypassed the destabilizing influence of the domestic currency printers. As ConnectMidMichigan reports, "New types of money are popping up across Mid-Michigan and supporters say, it's not counterfeit, but rather a competing currency. Right now, you can buy a meal or visit a chiropractor without using actual U.S. legal tender." The plan is so simple, it just may work - after all if one can't get away from the Fed's probing and pickpocketing long fingers, all one has to do is learn to live without its parasitic pieces of paper. And not just paper: "I sell three or four every single day and then I get one or two back a week," said Dave Gillie, owner of Gillies Coney Island Restaurant in Genesee Township. Gillie also accepts silver, gold, copper and other precious metals to pay for food." So yes, you can eat gold.... and load up your gas tank with it.

For a vivid example of how pointless QE1 was (and QE2 will be), look no further than the 30 Year FRM fixed: the mortgage rate is now at the lowest it has ever been, at 4.57%, for the second week in a row, and housing is unanimously double dipping. The problem is that the Fed has no more incremental mortgages to buy, so QE 2 will likely be all about other assets. Yet with USTs also at or near all time tights, there is little point for the Fed to bid up Treasuries. Which is why QE2 will be all about risky assets: the Fed will find a way to go all out and bid up stocks. Although, as today indicates, and as we first posted earlier, all the idiotic market needs is some totally groundless rumor of a reserve interest cut to go from down 1.5% to up in the span of an hour. All the Fed needs to do is pull a Radioshack, and keep leaking day after day that it will bid up $5 trillion in AAPL stock and watch the Dow hit 36,000 tomorrow as all the HFT go nuts with frontrunning each other, all the while Goldman keeps on betting against all of its major clients (and praying it will be correct this time).

The Homeless Recovery?...No, we're not referring to some type of improvement in the homeless problem domestically. Unfortunately with what is happening both in residential real estate and labor markets, that problem probably gets worse before it gets better. It has been some time since we have looked at the National Association of Home Builders housing index numbers, but believe it's important to do so now. Especially given the ECRI message of the moment showing us the potential for a proverbial double dip in the macro economy itself. You already know the recent NAHB monthly reading in the now absence of the homebuyer tax credit was not good at all. Same deal with month over month new and existing home sales. But as we have done in the past, looking at the NAHB numbers in isolation is not the key issue. As we have shown you in prior discussions and is important now, the NAHB data has shown us its own leading tendencies historically that have proven to be important watch points. Will it be so again? If housing "double dips", what impact will that have on the macro economy and by extension financial asset prices? And of course we use the characterization housing double dip very loosely as it assumes a prior period recovery, which itself is very much debatable. The charts do a lot of the talking here, so we'll try to keep the commentary brief.

Fox Biz reports that Ken Feinberg, as one of his last ineffectual actions during his tenure, will announce on Friday the clawback of various bonuses paid during the 2008 year of ubiquitous bail outs. Since every single bank received some form of assistance in 2008, and many still benefit from the ridiculously low rates on the FDIC-backed TLGP debt (which only has 1.5 years before it matures), it is unclear which banks will be the target of this last attempt to recover some taxpayer money out of the TBTF. Also, since these same banks run the country via their Federal Reserve lobby, it is unclear if and to what extent the Goldmans of the world will agree to this action. As Gasparino reports: "In an interview, Feinberg refused to say how much money he’s going to ask for or which banks will be targeted. “I’m aiming for Friday to make an announcement,” he said in an interview. “The banks will be notified shortly.” Feinberg declined to say whether the five remaining banks -- Citigroup, JPMorgan, Goldman Sachs, Morgan Stanley and Bank of America -- would be repaying any of the claw-back money; his mandate covers 418 banks, but people on Wall Street suspect the main focus of his mandate will be the large financial institutions."

RanSquawk reports market talk that ahead of the Bernanke semi-annual testimony tomorrow before the Senate Banking Committee, the Federal Reserve may be tempted to stop paying the 25 bps interest on excess reserves (which nonetheless have been declining recently as pointed out previously on Zero Hedge) in order to stimulate lending. Certainly, the topic of lending to what little is left of America's middle class, will be the primary theme during tomorrow's faux interrogation at which idiot politicians act confused and disgruntled that their corrupt policies have destroyed the country.

RANsquawk US Afternoon Briefing - Stocks, Bonds, FX etc. – 20/07/10

The WSJ's Greg Zuckerman has published a Q&A with one of the world's biggest deflationists (who nonetheless admits that once QE 2 begins all bets are off): David Rosenberg. Here is how Rosie sees the world of finance over next 2 years, and provdes more color on his currently favorite investment strategy (aside from bonds): SIRP (Safety and Income at a Reasonable Price... and in keeping with acronyms RIP GARP).

In June, 20 states posted a (seasonally adjusted) unemployment rate greater than the US average. At 14.2% Nevada was once again the state with most idle hands (excluding Puerto Rico, which since the earthquake nobody cares about anyway). Michigan is second at 13.2% as those unemployed for 20 years or longer (the vast majority of the population) are now presumed to be dead, thus causing a downward inflection point and a major improvement in the state's economic perspectives. California, Rhode Island and Florida rounded out the top 5 states. Yet the gimmickry at the Federal level is making the state picture better as well: in reality the main reason for the improvement on a state by state level is the decline in the labor force, so even as the unemployed in California declined by 30k, the labor force contracted as well, by 23k, and, carry the four, the net result was a loss of 27.6k workers. In other words, more data that is gradually becoming completely irrelevant.