Archive - Aug 2010 - Story

• Buffett Shortens Bond-Holding Duration After Inflation Warning (Bloomberg)
• No Need for New Fed Stimulus (WSJ)
• UK RICS House Price Balance for July -8% - lower than expected: UK Economic Fears Rise As House Prices Dip (FT)
• Fed Efforts to Spur Growth May Move Markets More Than Economy (Bloomberg)
• Unemployment: What Would Reagan Do? (WSJ)
• China July Trade Surplus Surges as Imports Soften (BusinessWeek)
• China Tells Banks to Take Back Trust Firms Loans, People Say (Bloomberg)
• Incomes Fall in Most Metro Areas (WSJ)
• Shirakawa Signals Japan Recovery Withstanding Yen’s Advance (BusinessWeek)
• Housing Gauge Signals First Price Drop in a Year (BusinessWeek)

• Australia business confidence falls to lowest in 14 months on higher rates.
• British July same-store sales rise 0.5%: British Retail Consortium.
• China to close factories in energy drive; move affects 2,000 industrial companies.
• China’s July trade surplus surged to $28.73B, helped by 38.14% jump in exports.
• Mkts await outcome of Fed meeting; risky assets rise in anticipation of easing measures.
• Oil falls to below $81 as traders look to Fed for possible stimulus.
• Ambac's Q2 loss narrows to $57.6M from year-ago's loss of $2.37B.

The NFIB Small Business Report came in at 88.1, down from 89.0 but just beating the expectation of 88. Yet there was nothing optimistic in the index itself: "The Index of Small Business Optimism lost 0.9 points in July following a sharp decline in June. The persistence of Index readings below 90 is unprecedented in survey history. The performance of the economy is mediocre at best, given the extent of the decline over the past two years. Pent up demand should be immense but it is not triggering a rapid pickup in economic activity. Ninety (90) percent of the decline this month resulted from deterioration in the outlook for business conditions in the next six months. Owners have no confidence that economic policies will “fix” the economy... Bottom line, owners remain pessimistic and nothing is happening in Washington to provide encouragement. Confidence is lost. At least the “real variables” (hiring, capital spending and inventory investment) did not deteriorate substantially in July. The damage to the Optimism Index was done by expectations for business conditions for the second half – owners predict that the economy will not improve appreciably, at least on Main Street. Big banks and big manufacturers may be doing well, but the small firms are not. If this doesn’t change soon, the success of the large firms will be imperiled as well." And guess where the bulk of hiring in America comes from. The double dip recession in an ongoing depression continues to remind everyone it is not going away.

The Chinese Shanghai index was lower by almost 3% overnight after a series of disappointing economic releases out of the country. The first showed a further cooling in property prices, leaving many to speculate if the housing ponzi was not beginning to unravel/ As Xinhua reports: "Housing prices in major Chinese cities rose 10.3 percent year on year in July, down from the 11.4 percent growth in June, the National Bureau of Statistics (NBS) said Tuesday. It was the third consecutive month that China's property prices rose at a slower pace and the lowest growth rate in six months." Adding to the downward pressure was news released from the Customs Administration (which we will spread later), which indicated that "China's exports rose 38.1 percent year on year to 145.52 billion U.S. dollars in July, but the growth rate was down from the 43.9-percent surge in June, the General Administration of Customs (GAC) said Tuesday." Concluding the Asian trifecta of negative news, was the Bank of Japan's refusal to further ease its monetary policy. US futures are lower by about 0.5% although all the action in the US will be focused on the FOMC statement released early this afternoon.

RANsquawk European Morning Briefing - Stocks, Bonds, FX etc. – 10/08/10

Things are a-brewing. Chop will lead to trend within a month.

And so it continues: since we first posted Nanex' report on quote stuffing two months ago, and the follow-up analysis, the firm's images of visualizable HFT algorithmic "crop circles" have appeared everywhere, from the pages of Huffington Post to The Atlantic. Which is terrific, as it further raises public awareness of the fact that no matter what one does, the market is now merely a computerized playground in which human traders have no chance of even breaking even in the long run, as the adversary uses consistently illegal means (intentional bid stuffing) to extract every last penny from whoever is left trading. In order to keep the public's, and the SEC's ADD-addled attention on this matter of major significance, we present the latest patterns of illegal computerized quote stuffing as further glaring evidence that the regulators have given up trying to restore any sort of credibility in the market (and people wonder why ICI reports 13 consecutive weeks of mutual funds outflows). Our only hope is that someone will be clever enough to reverse engineer the pattern generators in these algos, and to punish the HFT operators who day after day leave their fingerprints all over the biggest crime in capital market history with complete impunity.

Oil prices were higher on Monday, after advancing in trading overnight. Traders were handicapping the [possibility of the Fed, which meets on Tuesday, finding new forms of “quantitative easing,” a catchall term that generally means finding ways of getting more liquidity into the system or promoting lending or borrowing. In other words, the argument was that things are so bad that the Fed will find a way to make the world better. Once again, oil prices were living vicariously through equities and the euro. Both were higher on Monday, and there was a rise of 45.19 points to 10,698.75 in the DJIA. As far as the fundamentals go, though, the oil complex continues to ignore factors that only seem to be getting more bearish. At some point, the fundamentals may be important again. - Cameron Hanover

Chris Martenson, whose opinions have appeared on Zero Hedge many times previously, was on Tech Ticker recently, presenting the case for why we are currently experiencing both inflation and deflation in various sectors of the economy concurrently. On the deflationary front, Martenson claims that with the 2 Year yielding 0.5% "the Fed can't continue to go forward and expand its balance sheet and so far they've been able to get away with it." As a result Martenson is convinced that once having embarked on counter-deflationary course, the Fed will have no choice but to commit itself to the fullest. Yet the reality is that courtesy of already rising commodity prices various segments of the economy already experiencing an inflationary push. Martenson acknowledges that too: "I am absolutely in the camp that we are seeing inflation in some areas and deflation in others. The continuous commodity index is absolutely screaming inflation at this point in time, but at the same time we are seeing houses decline in price, we are seeing a number of other thing decline which I think is what the Fed is most concerned about at this point in time. I think we are going to see both." So stagflation? "England is already in stagflation and we are dangerously close to it ourselves. We are experiencing both inflation and deflation, and that is squeezing workers even harder than any other condition you can experience because wages are stagnant while the price of goods and services rises" and the biggest asset of the working American, his home keeps declining. It will be up to the Fed to push the needle definitively into either side of the inflation/deflation debate tomorrow, or the whispers over the imminent arrival of stagflation will just keep getting louder.

Gallup presents some troubling statistics for the democrats as we approach mid-term elections (a mere three months away). In a nutshell, the party of a president who has a sub-50% rating into midterms, has lost, on average, 36 seats since 1946. Alternatively, presidents with a popularity rating over 50%, lose just 14. As Gallup says: "The clear implication is that the Democrats are vulnerable to losing a significant number of House seats this fall with Barack Obama's approval rating averaging 45% during the last two full weeks of Gallup Daily tracking. The Republicans would need to gain 40 House seats to retake majority control."

It's official - KKR has pulled its US Offering (S-1). It appears distribution is actually a relevant metric when it comes to pricing overbloated, DOA PE corpses (especially when the memory of BX and FIG is still fresh). HFTs get an F for pushing the market up 10% on next to negative volume. And since when is a parabolic move up of almost 10% considered "Unfavorable Market Conditions." Just how much bullshit is going on behind the scenes of this market?

In the face of increasing liquidity in the system and a quasi consensus that the Fed and the government will do just about anything not to let financial markets relapse, at least not until November, I remain bearish. The sell zone in S&P futures remains identified as 1,126/1,147. As long as that cluster of resistance holds I stick to my latest bearish recommendation (1,126 last week) - Nic Lenoir

One of the saving graces of the burgeoning US Federal debt was, for the majority of the post-crisis days, its composition, split between short-term (Bills), and long-term (Coupons) debt. As Bills have on average yielded well below 0.5% (and recently even less, now that the 2 Year is yielding 0.5%), a sizable portion of the US debt, was for structural reasons, paying essentially no interest. Since in early 2009, over a third of total US debt consisted of Bills, due to massive foreign (especially China) and domestic demand for ultra short-term US paper, nearly a third of US debt was "free" to the US. However, as Morgan Stanley points out recently the Bill portion of total marketable debt (which today closed at a record $8.777 trillion) has plunged to just 22%. The balance, as the debt portfolio has rolled in time, has logically been filled by much higher interest paying coupon debt: from a low of just 55% in early 2009, this has risen to 72% currently, or roughly $6.3 trillion. This is troubling for the Treasury as it means that due to ongoing rolling of Bill debt, there is no longer an easy way to issue "interest-free" debt. In summary, the average maturity of US Treasury debt is now 58 months from just 48 months at the end of 2008, and as Morgan Stanley points out, is directly in line with the average since 1980. The conclusion is simple: very soon what the Fed does on the front end will have increasingly less of an impact on the interest rate the US pays on its borrowings.

Ric Burns documentary about Goldman Sachs is imminent. Because as the WSJ revealed previously, the fact that Ric Burns is paid by Goldman Sachs to make a film about the discount window backed hegde fund, in which Goldman Sachs maintains complete editorial control, sure seems like yet another PR fiasco waiting to happen, on par with Goldman making money every single trading day in Q1 (at least they learned their lesson there, and theatrically let a few losses slip in). Just like you, we can't wait for the final product to finally boost our opinion of the fixed income OTC market monopolist. In the meantime, we present this appetizer as to what the final video will most likely be, courtesy of Minyanville.

RANsquawk Market Wrap Up - Stocks, Bonds, FX etc. – 09/08/10