Archive - Aug 11, 2010 - Story

Goldman dedicates 9 pages to a regime change in which it goes openly bullish on gold. The report is attached, which we present without commentary but as always, if there is one flashing red light saying the peak price for any asset has been hit, it is a Strong Buy signal by Goldman. The report will likely result in a brief pop in spot over the next 24 hours as the idiot money rushes into the latest Goldman trap. Alas, it also means that GS is now offloading. Be very wary of market dynamics over the next month.

Cash is once again king.

TrimTabs does a simple yet elegant analysis that seeks to explain why US final demand is not only sluggish but declining, and is ultimately the reason why the US government needs to consistently pump more and more capital in the economy to keep GDP at best flat. TrimTabs focuses on the "consumer spendables" indicator - It consists of the sum of three components: 1. After-tax income from wages and salaries; 2. After-tax income from non-wage sources, such as capital gains, dividends, and interest; 3. Cash harvested from home equity when mortgages are refinanced. As TrimTabs shows, and this should come as a surprise to nobody, "much of the economic growth in the middle of the previous decade was fueled by an explosion of consumer debt. Consumers treated their homes like automatic teller machines—cash-out refinancings topped out at $804 billion in the four quarters ended in Q2 2006—and they borrowed freely on low-rate auto loans and credit cards given to almost anyone who could fog a mirror. Now that the era of easy consumer credit is over, the economy is resetting to a lower level of activity. We believe the interventions of the Fed and the government to try to head off this adjustment will do more harm in the long run than the adjustment itself." In other words the ongoing debate on whether the US is undergoing inflation or deflation is moot - the primary driver continues to be deleveraging, as Rick Santelli likes to shout on occasion. And all the other monetary phenomena are merely a side-effect. Alas, as long as deleveraging is the primary driver in the economy, nothing else matters: it has long been our contention that deleveraging must run its course. However, the Fed will not let that happen, and in doing so, it will attempt the last thing in its arsenal - in essence, suicide the economy, by destroying all faith in the actual medium of monetary exchange. At that point inflation, deflation and/or stagflation will be the last thing on anyone's mind.

Our expected economic groupthink revision by the sellside "strategists" is accelerating, as now even permabullish CNBC permaguest Joe LaVorgna "takes the knife" to his Q2 GDP estiamte. Yet despite presumably seeing the light, he only cuts Q3 and Q4 estiamtes to 3.0% and 3.3%, still hundreds of bps higher than Goldman, and even worse when compared to reality. David Bianco and his stratospheric GDP will stick out like a speedoless nudist in the middle of the liquidity ocean when the economic tide finally goes out. Luckily, Bianco has no credibility to begin with so the concept of discrediting surely does not apply.

As we pointed out earlier today, today's latest deterioration in yet another overoptimistic assumption by the BEA, in the form of the balance of trade, means that the next GDP revision will likely be sub 1%, and may ostensibly drop to negative, confirming that the double dip, at least for NBER purposes, started sometime between April and June. Confirming our skepticism is JPM's Michael Feroli who now believes that real Q2 GDP is trending at a 1.1% rate, less than half the official 2.4%, which, as readers will recall was expected by a battery of Ph.D.-clad optimists to come out to 2.7%. Less than two weeks after the announcement, it becomes clear that the world's "smartest" economists were off by 60%. And we are confident this is not the end of the downward revisions.

RANsquawk Market Wrap Up - Stocks, Bonds, FX etc. – 11/08/10

Cisco misses and stock drops 5%. In the meantime, futures are now plumbing the day's lows after hours. And the most troubling development from CSCO, worse than the top line miss, is the catch courtesy of Bloomberg's Adam Johnson that Days Sales Outstanding surge from 27 to 41 days. Customers incrasingly refuse to pay on time. We wonder how that will be spun favorably.

Another day, another desperate attempt by GE's propaganda branch to keep its viewers disconnected with reality. Case in point: Bob Pisani, who has now said about 100 times that "volume was very low, no bids were hit, etc, etc." The truth: yes to the latter, and a blatant lie on the former. Exhibit A is below, where you can see that today's ES volume was the highest in 40 days! Maybe CNBC can hire an expert and analyze the chart below and advise us what it uses as the source for its lies, pardon, information.

Boom

Just in case the consensus was that nobody could have possibly predicted today's market action, here is Jim Cramer... proving the consensus was spot on. From CNBC yesterday: "The “Fed said good things,” Cramer said. “Buy.”"

Update: Goldman responds

We received an interesting letter from a reader...

Will someone who read the official Fed statement yesterday, please indicate where it said Liberty 33 would purchase 30 Year bonds? We will spare you the trouble - it was mentioned exactly nowhere. Which is why it comes as a major surprise (and a major loss of P&L to traders who have the misfortune of trading rates), that in the just released schedule by the New York Fed, the Fed has announced it would also purchase 2040 maturities on August 26 and 30 - yes, that would be the very long end. Gotta love the great coordinate and communication between the various branches of the Fed. And yes, this is what happens when you have central planning.

An interesting chart from Goldman Sachs looks at the move in the European "Economic Center of Gravity" (ECG) which currently just happens to be the German city of Oberlauterbach. As a reminder for those who may be confused by terminology, just like in physics, where the centre of gravity of a body is the mean location through which gravity acts, the ECG is the mean location of economic activity, specifically GDP, of a region. Goldman clarifies: "From 1989 to 2009 the European ECG seems to be permanently located in southern Germany. This hardly seems surprising; Germany is the ‘heavy base’ of European economic activity - being both centrally located and a major contributor to overall European GDP. Also, relative to the size of Europe the ECG has not moved much – the distance between its most westerly point (1989) and most easterly point (1999) is only 189 kilometres, a tiny fraction of the greater than 3500 km east-west distance of Europe." And as recent events have demonstrated, "Europe" is pretty much defined by Germany, at least when it comes to export prowess, and explains why today's relentless and massive drop in the EURUSD and all other pairs is cheered on wildly by the Chancellor.

In an apparent example of peak hypocrisy, a Eurozone official told Reuters today that "Forex intervention by Japanese authorities would not be welcome in Europe." Of course, when it was the Swiss National Bank and the BoE (confirmed) intervening, and the ECB (alleged) doing all they can to lower the value of their currencies it is all good, and Europe doesn't care that the JPY will appreciate. However, when others do the same, it's "not welcome." At least the Eurozone hypocrites qualified their statement by saying: "I doubt any sort of coordinated intervention will ever fly" - we will be sure to remind Hildebrand and Trichet of this, the next time they are trying to kill their respective currencies.

The FMS has released its July monthly budget: on receipts of $156 billion and outlays of ($321) billion, the total budget deficit was ($165) billion, on expectations of ($169) billion. This marks the 22nd straight month of budget deficits and is the longest string on record. The comparable numbers in 2009 were receipts of $152 billion, or roughly comparable to this year, while outlays were $11 billion higher at ($332), for a total deficit of ($180) billion Total YTD receipts now amount to $1.752 trillion. With just two months left the in the fiscal year, the budget estimate is for total revenue of $2.132 trillion. On the outlays side, the US has spent $2.922 trillion YTD, and budgets total outlays of $3.603 trillion. More importantly, with 22 months of deficits, it is now increasingly clear that America will never have a monthly surplus ever again. And the more debt is issued, the riskier the budget picture becomes, as the second rates begin increasing, now that the duration of US debt has increased by one year in the past 18 months, the interest payments are sure to explode, requiring even more borrowing, and so on, in true subprime borrower fashion, ad inf.