Archive - Aug 2010 - Story

For somebody of Richard Shelby's "phenomenal" skill set (at destroying capital markets) to say that someone else is unqualified to do something is the proverbial slap in the face, with a wrecking ball. Yet a textbook example of a pot calling a kettle black is precisely what happened today when the Alabama senator said Bernanke's former economics professor, and thus implicitly the man responsible for the destruction of America's middle class, was "unqualified" to make decisions on monetary policy. Um, what the hell does one need to be a skilled monetarist, aside, of course, from a willingness to accept orders from Goldman, when the firm with actual leverage of 100:1 blows up on yet another trade, or lowering the fed funds rate to -5% whenever the latest theatrical dictator of Congress calls and demands that the "politically independent" Fed do everything to boost jobs, AMZN to $1,000 be damned, without batting an eyelid? Anyway, it looks like the president will have to once again resubmit the application of Peter Diamond to the Fed's board. And since the Senate took no action on the other two applicants, Yellen and some other female uberdove, it seems that with Kohn's departure on September 1st, the Fed will have just 4 governors until September 13, at the earliest, which is the minimum quorum for a decision. In other words, if anyone wants to really destabilize the country, the two weeks in early September should prove to be quite a good opportunity to strike.

It's official: the double dip is here. Goldman's Jan Hatzius just lowered his GDP forecast for 2011 from 2.5% to 1.9% (kiss goodbye all those 93 EPS estimates on the S&P), increased his unemployment forecast from 9.8% to 10.0%, boosted his inflation expectation from 0.4% to 1.0%, and said that QE lite is now on the table, as he expects that "the FOMC to announce that they will reinvest the paydown of mortgage-backed securities in the bond market at next Tuesday’s meeting." Look for all other sell-side "strategists" (here's looking at you Neil Dutta) to lower their economic outlook in kind, and the 2011 S&P consensus to decline accordingly.

RANsquawk US Afternoon Briefing - Stocks, Bonds, FX etc. – 06/08/10

With all of the attention given to deflation recently, I thought it might be interesting to think about how this scenario could affect gold. After all, gold is thought to be the ultimate investment in a time of inflation. Does this mean deflation will destroy the value of gold?
More interesting than the question, in my view, is the road to the potential answer because there simply isn’t a clear one. However, based on everything I’ve read and researched, the outcome is closer to no: today’s deflation will not topple gold.

If listening to Mark Zandi makes you punch your monitor every time, this is, as always, required reading.

Well I did say we were awful close to the top the other day with AUDUSD running into a strong resistance at 0.9185 and forcing an ending triangle and the first of a cluster of resistances for S&P at 1,126. We saw that level and not much more... If the USD turns it will dry up liquidity in no time and make this seamingly cozy environment in credit turn sour faster than milk in Dallas these days. - Nic Lenoir

Banks have been lamenting the abysmal volume in stocks over the past two months, and threatening they will fire people and stuff. Well, all they need are a few more days like today. The chart below says it all.

On one hand you have Mark Zandi, whose ongoing attempts to brown-nose the entire administration and fill Romer's big shoes are getting outright pathetic. On the other, you have Goldman: "Report underscores weak tone of US labor market. Payrolls rise only 12k abstracting from discharge of temporary Census workers as job losses in state and local government offset most of a roughly in-line increase in private-sector payrolls; prior data revised down. Household survey confirms job losses, with jobless rate holding steady only because labor force continues to decline. Wage and workweek data recover slightly after weakness in June."

As expected last week, the ECRI Leading Indicator may have seen its lows. After hitting -10.7% last week, this week the annualized rate of change rose to -10.3% (on par with two weeks ago). Watch for the ECRI creators to suddenly change their tune and start espousing all the virtues of their index, now that it is in an upswing. Of course, the fact that it predicted a recession when it dipped below -10% is irrelevant - we have yet to leave the depression. Plus at this point it doesn't matter: today's NFP number has told us all we need to know about the future of money printing by the glorious Chairman.

The administration thinks it can pull a fast one by pretending the unemployment rate is better when millions of people are allegedly leaving the labor force in droves? That's fine - however, there is nothing Christina Romer's replacement can say to put lipstick on the below piggly chart. The ever critical ratio of civilian employment to population is now at 58.4%... It was last this low (to the upside) in October of 1983. At least in one way Obama has caught up to the Reagan administration.

Little by little, the macro economists at all the sellside shops have been turning bearish. Jan Hatzius, once again proves his worth, by seeing the writing on the wall sooner than most of his colleagues and turning negative about a month ago. Yet in a field in which the faux bullishness of a "strategist" directly correlates to the amount of capital at risk of complete wipeout should stocks begin approaching their true value, there are those who clutch to every straw of optimism harder than a drowning man on the verge of going over the Niagra Falls. One such specimen is Bank of America's Neil Dutta, who through thick and thin has kept "the 99% empty glass is 1% full" perspective for far too long. Which is why we would like to call Mr Dutta out: in a note to clients from two days ago, Neil said: "If our forecast for +125,000 in private payrolls comes to"fruition, we think the economy should be able to generate the kind of income growth necessary to offset the fiscal fade coming in the back half of this year." Well, Neil, your permabullish forecast has once again come well short of reality. It is time to admit you have been wrong, and no, saying next month's NFP will finally be better is just not going to cut it anymore: even Christina Romer got that memo. So please spare us the sugar coating and for once tell the truth as you see it, and not as your corporate overlords at 1 Bryant Park demand you spin it. For your own sake.

$1,205 at last check and going much higher. The one place where buying the dips actually does work.

July Non Farm Payrolls miss expectations, coming in at -131,000, way below the consensus of -65,000, yet the unemployment rate drops once again to 9.5% as even more people drop out of the labor force. Total Private Payrolls rise only 71k, on consensus estimates of +90k. The June Jobs report is revised majorly downward to -221K, from -125K, as the double dip gets yet another validation. The 2 Year Treasury just hit another fresh all time low of 0.5136%. And the stunner: those working actually declined by 159,000 to 138.960 million, even as another 381 thousand left the labor force between June and July, resulting in an actual drop in the unemployment rate from 9.6% to 9.5%. Another NFP debacle which will certainly cause stocks to sure by at least 5% as QE 2 is now absolutely inevitable.

• Asian shares mixed on Friday, weighed by caution ahead of key U.S. jobs data.
• China's stocks decline on inflation, policy outlook; Developers retreat.
• European stocks advance ahead of jobs data; financial-sector earnings provide a lift.
• US Same-store sales rose 2.9% in July vs. cons est. of 3.1%: Retail Metrics.
• AIG's operating profit rises 17%.
• Allianz's Q2 profit down 46% on lower income from own investments.
• Beazer's orders falls 33%; posts loss of $27.8M despite $55.2M in debt-retirement gain.

For all those curious to see just what an entire country on fire looks like, the University of Maryland Fire Information for Resource Management Services provides an interactive map of all currently raging fires in Russia. With Moscow temperatures projected to hit 40 Celsius today (and stay there for at least the next few days), and visibility in the Russian capital down to double digits, now that the surrounding smoke has been blown in via increasing winds, grain exports and surging food prices may soon be the least of the country's worries... at least for those unlucky enough to have been a part of the CIS privatization mafia better known nowadays as Russia's resource tycoon billionaires. All those with Google Earth can download the interactive KML map at the following link. (Google Earth can be downloaded here)