Archive - Jul 2010 - Story

For today's dose of "he really said it" hypocrisy, we turn to recent PIMCO addition, former bearded outdoorsman, Hank Paulson whipping boy, and creator of the TARP abortion, Neel Kashkari, who apparently felt it was his duty to join his colleagues in validating the New Normal (buy our BAB bonds pleeeez) and conforming to the firm's policy of bashing deficit and entitlement spending. In a brief oped likely written by his 2nd year analyst or executive assistant, titled "The Cultural Challenges of Entitlement Reform" the bald one says "bailing out the financial system went directly against our shared beliefs in free markets and fair play." Yes, you read that right. This is the same person who singlehandedly devised the biggest taxpayer blank check bailout to banks in history (until of course Europe had to bail out its own banking system two months ago, where incidentally, everything is peachykeen once again) as captured by the following email: "We have $11 trillion residential mortgages, $3 trillion commercial mortgages. Total $14 trillion. Five percent of that is $700 billion. A nice round number." In fact, let's continue: "Seven hundred billion was a number out of the air,” Kashkari recalls….”It was a political calculus. I said, ‘We don’t know how much is enough. We need as much as we can get [from Congress]. What about a trillion?’ ‘No way,’ Hank shook his head. I said, ‘Okay, what about 700 billion?’ We didn’t know if it would work. We had to project confidence, hold up the world. We couldn’t admit how scared we were, or how uncertain." Ah yes, an uncertain and scared then-35 year old bailing out the world... And now, a grizzled and veteran Kashkari, who certainly recalls his wood chopping days with joy at the PIMCO campfires, in which Build America Bond receipts are used for kindling, is encouraging the administration to cut the benefits of the same taxpayers whose money was used to prevent the insolvency of, among others, his current employer? Yes, ladies and gentlemen, we bring you today's unbridled hypocrisy courtesy of the latest and most worthless addition to the Pimco team.

Quite possibly having something to do with the fact that Arnie just had a very vivid Total Recall from the future in which California had filed Chapter 66 (a brand new invention in honor of the famous route), mere months after he had decided to institute the latest round of furloughs and once again paying using IOUs.

RANsquawk Market Wrap Up - Stocks, Bonds, FX etc. – 28/07/10

Yesterday we reported that it was recently disclosed that the bleeding Chinese sovereign wealth fund CIC had sold 5.1 million shares in the prior week - speculation was rife that this was merely a rebalancing trade to keep the firm's total holding under 10%. Dow Jones now reports that CIC sold another 4.625 million shares of the bank holdings the fund responsible for the single biggest loss in Wall Street history. After this most recent transaction, CIC now owns 9.5% of the common in Morgan Stanley. It now appears that the selling will continue due to the overhang of several convertible issues which will continue to add to CIC's share ownership, thus placing further downward pressure on the stock over the next several weeks as the size of the sales will be material: "CIC may need to continue selling shares to keep its share of Morgan Stanley less than 10% of the investment bank's shares. That's because the Mitsubishi UFJ preferred shares won't have converted before CIC's units convert, so CIC would technically own a larger percentage of Morgan Stanley's outstanding stock." Of course, this could simply be good old fashioned unwinding. Keep an eye out on the total MS holdings by CIC, and also keep an eye out for when (hopefully sometime over the next decade) the Chinese US Treasury recycling outfit will finally issue its next 13F.

We may have missed the official 8-K, but we are fairly confident that sell orders were made illegal over the past three weeks. That is the only way to explain that out of 30 economic data points in the past month, roughly 3 beat expectations, everything else was a miserable miss, and still the market is 10% higher. Either way, someone is clearly about to be charged with a felony stock selling offense in the first degree, and Eric Holder will personally make sure that vile individual rots in Guantanamo Bay with a daily portion of algorithmic waterboarding for the rest of their miserable lives, for having the temerity to show to others that, yes, even illegal, selling can and will be the right trade in this market which is roughly 70%-100% overvalued. And in other news the 10 Year is back below 3%. Too bad there is no 8 Year point on the curve, or else stocks would be about to reprise the role of Jesus Quintana.

The Senate (Bought By) Banking Committee has spoken (the bribes finally cleared): say hello to your three brand new permadovish Keynesian kritters: Yellen, Raskin and Diamond. All three now have direct access to the Goldman Sachs emergency red telephone, the suitcase carrying the printer launch codes, and a lifetime supply of How to Lie With Impunity and to Fuck With The American People for Dummies. All three will also be shortly sworn to defraud, steal and rob the US middle class blind until the failed economic experiment is over and done with.

Just in case you needed that one final proof that Moody's is finished, here is a report by Moody's head of economic propaganda (at least that is our loose interpretation of the official title "Chief Economist" who also happens to be a permanent fixture on that other permaganda TV channel) Mark Zandi, in collaboration with Princeton's (yes, that Princeton) very own Alan Blinder, have come up with something akin to a research paper (we say akin because it surely lies in some abominable gray area inbetween coherent thought and logical discourse and a Las Vegas Ether-binge straight out of Dr. Gonzo) in which the intellectual titans confirm that not only the Great Recession is over, but here are the precise steps (a, b, c) in which it was defeated and forced to return slouching and grovelling to the vile communist, fascist, what have you, from whence it's sprung, unwept, unhonored and unsung, after president Obama came to the rescue (not to mention, literally, the $20 trillion of new debt in process of being incurred in the next 10 years). And just in case the administration needs an Assistant Head Of Money Printing, once Moody's is liquidated, Mark Zandi would be more than happy to proffer his Keynesian credentials to the administration, even as it itself goes down in flames courtesy of a general public of which 70%+ have said no more stimulus. Feel free to read this or to use it as a TP substitute. We are not sure what any self-respecting administration can do with Messrs. Zandi and Blinder but are open to suggestions.

RANsquawk US Afternoon Briefing - Stocks, Bonds, FX etc. – 28/07/10

Some unpleasant possibilities to consider in the aftermath of what appears to have been an attack on a Japanese VLCC. And, of course, if this is another Cheonan in the making, why pick a Japanese false flag scenario? With two US aircraft carriers in the vicinity, one would imagine we should have a pretty good picture of what really happened. Something tells us the official explanation of an "earthquake" as responsible for the boat damage just won't fly.

The Washington Post recently did some excellent journalism about the expanding new industry Top Secret America. This new industry is unprecedented in American history and raises some critical questions about who reigns over our nation’s security and deepest secrets.

Which services are too important to outsource? Which services are “inherently government functions“?

At the moment, there’s a bull market in the private contracting of national intelligence. Here are some of the basic stats:

From David Rosenberg's Wednesday letter: "The primary purpose of this comment is to suggest what things may look like when the Great Bull Market in Bonds, which began in 1981 with 30-year Treasury Bonds yielding 15.25%, finally comes to its glorious end. For starters, I think it is safe to say that the bull market in bonds will end reasonably close to the point in time that inflation (or deflation) bottoms. This is because we have determined that by far the major economic factor that correlates consistently with the direction of market-determined interest rates, at least for long term Treasury Bonds, is CPI Inflation (headline and core)...So what will be the cause of the next secular uptrend in inflation or hyperinflationary shock? It pays to look back at history. Prior to the inflation of the 1970s-early 1980s, periods of very high inflation were primarily associated with war. Increased credit demands to fund the war effort combined with the drop in productivity that goes along with blowing everything up is an inflationary stew." Alas, never before in the history of US society have we been at the point when noted economists, financiers, and socialites so frequently and openly compare the fate of our society to that of the Roman empire in its last days, when the Roman emperors, oblivious of personal harm, would debase the currency on a daily basis, and hike taxes, with the end result being the collapse of the empire itself. As we will demonstrate shortly, we ourselves may be getting quite close. And in those uncharted waters of the global economy and, in fact, civilization as a whole, where the central bankers fight for the very survival of the status quo on a daily basis, we are confident that prudence on long bond and inflation rates will be first to be jettisoned as the kleptocratic oligarchy fights to avoid the pitchforks and guillotines for at least one more day.

What most people believe today is that they can extrapolate trends and have great success at placing odds with certainty. Why is it then that most people fail to see that the long-term interest-rate trend is down and going lower? - Yves Lamoureux

After entertaining some potty humor for a page or two in his latest brief, Bill Gross conducts an interesting thought experiment in which he presents an anti-Malthusian economic hypothesis, which states that predicated by declining global population growth, the global economy will be unable to grow into its full potential, regardless of size (or usage) of any new trillions of stimulus. "This is not the Malthusian thesis, which maintained that at some point the world would run out of food to satisfy a growing population; it is an assertion that capitalism depends upon final demand and that if there ever comes a time when population growth slows, then the world’s most efficient economic system will be tested. If anything, my thesis is anti-Malthusian in its assertion that there will always be enough production to satisfy a growing population, but perhaps not enough new people to sustain growing production." Looks like all the Ph.D.'s from reputable universities just got a new challenge: look for many papers in peer reviewed publications (and we were wondering for a second why Gross used so much toilet humor initially) trying to refute this major kink supporting the new normal, and refuting a "special case" of Keynesianism, which of course was not relevant when the economist was alive, but is becoming the reality all too quickly. Could something as simple as a condom be the cog in the wheel that dethrones the religion of John Maynard Keynes?

EUR Libor at 0.83063%, Euribor at almost 0.9%, and top tier European Commercial Paper are now at their worst levels since about a year ago. The stress test came and went, and the market couldn't care less. And this is despite the ECB's latest monetary operation, in which E23.2 billion was allotted in a 3-month long term refinancing operation (LTRO): the intervention failed to prevent the ongoing EUR Libor surge. It is starting to get very troubling for Europe, where banks, knowing all too well that only the ECB is the INDISCRIMINATE lender of first an last resort, refuse to lend to anyone else as without the primacy example of some other private party taking the first loss risk tranches, there is no incentive to go out and lend. In other words, the longer the ECB remains entrenched in the money market, the worse it will get. All of Europe is now caught in a pan-continental liquidity Catch 22, in which more intervention will just make the central banks even more critical to the continued functioning of the financial sector.

Bloomberg headline: "Capital Goods Orders in U.S. Climb, Signaling Investment Pickup"

Goldman Sachs: "Durable Goods Orders - Weaker than Expected"

Someone should explain to these people that propaganda is far more effective when everyone on the wrong team knows they have to lie.