Archive - Sep 23, 2010 - Story

Seeing headlines that the United Auto workers says union will announce intention to withdraw funds from JP Morgan chase. Next up, Jamie Dimon blamed for 30 years of shitty-ass car production. Next next up, UAW to fire half its member in protest over receiving tens of billions of direct and indirect bailout funding from the JPM-Obama complex.

For now it is merely a reduction in the IPO size. Next it will be postponement due to "market conditions." And as a reminder Government Motors owes taxpayers $49.5 billion. "GM shares must be sold at about $133.78, before splits, if the U.S. is to recoup its investment, Neil Barofsky, the special inspector general for the Troubled Asset Relief Program, said in a letter, the Wall Street Journal reported today." Good luck with that, especially once the SEC announces HFT operations need to be curbed, if not pronounced outright illegal, in under 10 days.

RANsquawk US Afternoon Briefing - Stocks, Bonds, FX etc. – 23/09/10

This is rather adverse development, as it means some form of non-resolution stalemate on the tax issue will now most certainly be the final outcome: there is very little time in the chaos after elections to actually implement wholesale tax reform. As Goldman highlighted yesterday, the likely adverse impact of the wholesale expiration of tax cuts will impact US GDP adversely by an additional 2% in 2011. Yet Corporate EPS are now completely disjointed from the host economy, as earnings are now completely predicated on wholesale deleveraging. What companies seem to forget is that eliminating the tax shield of debt interest will mean hundreds of billions more in taxes paid to the government. Or perhaps, that has been the government's ploy all along.

One of the most interesting stories in the last few days, has little to do with finance and economics (at least right now), but arguably very much to do with geopolitics. A fascinating report which cites computer security experts claims that the recent uber-cryptic malware worm Stuxnet is nothing less than a weapon designed to infiltrate industrial systems, and based on attack patterns, the ultimate object of Stuxnet may be none other than Iran's Busher nuclear reactor, which could be targetted for destruction without absolutely any military intervention. Has modern warfare just become obsolete courtesy of a computer virus?

"Borrowing a quote and an idea from Winston Churchill, we would argue that the current and future EUR/USD rate is “a riddle wrapped in an enigma inside of a mystery.” Why an ‘idea’ as well as a quote? Well, Churchill used this phrase to describe the Soviet Union, a conglomeration of states managed by an opaque bureaucracy that was challenging the global capitalist system. The Eurozone is surely more benign and not quite as opaque, but their ambition is challenging the global dollar standard, a critical component of the current global capitalist system. Churchill concluded that the Soviet Union would do what was in its national interest. That made Kremlin watching easier than understanding the interplay among the many power centers of Europe. As it is clear that the Eurozone does not actually have a national interest because there are so many nations involved and that the answer to this is a conundrum, the value – and the future – of the euro is extremely hard to predict." - John Taylor, FX Concepts

Nothing good in the home sales front: per the NAR: "Existing-home sales, which are completed transactions that include single-family, townhomes, condominiums and co-ops, increased 7.6 percent to a seasonally adjusted annual rate of 4.13 million in August from an upwardly revised 3.84 million in July, but remain 19.0 percent below the 5.10 million-unit pace in August 2009." Expectations were for a SAAR of 4.1 million so basically the number came very much inline, yet the computers go apeshit. And here is good ole' Larry Yun's spin on things: "The housing market is trying to recover on its own power without the
home buyer tax credit. Despite very attractive affordability conditions,
a housing market recovery will likely be slow and gradual because of
lingering economic uncertainty." Some other observations: "The national median existing-home price for all housing types was $178,600 in August, up 0.8 percent from a year ago. Distressed homes rose to 34 percent of sales in August from 32 percent in July; they were 31 percent in August 2009." And yet the most important metric is the months supply: "Total housing inventory at the end of August slipped 0.6 percent to 3.98
million existing homes available for sale, which represents an
11.6-month supply at the current sales pace, down from a 12.5-month supply in July." So yes, there is a year's supply of existing homes. And this does not account for the shadow inventory.

The traditional response by all septics who see spot inches away from $1,300 (in addition to you can't eat it of course) is that it is in a bubble. Where do they get the basis for this conclusion? Irrelevant. It is up. It must be in a bubble. So for all who actually do care about factual justifications, here is a case by case comparison of all other assets that have previously been in a bubble compared with the levels achieved by gold and silver in the recent move (which courtesy of the race to the bottom, or two bottoms as we will shortly highlight courtesy of John Taylor, will go much higher, as devaluation on an absolute basis relative to something tangible means gold has only one way to go). So courtesy of Sharelynx, here is gold/silver vs 50 historical bubbles.

The biggest melting ice cube (since Movie Gallery) has just melted: Blockbuster finally accepted the inevitable and filed for Chapter 11 in New York Southern (Case 10-14997, legal: Weil Gotshal, CRO: Alvarez & Marsal). As part of the "pre-arranged" (but not "pre-negotiated") bankruptcy process, "the recapitalization plan would substantially reduce the Company's indebtedness -- from nearly $1 billion currently to an estimated $100 million or less when implemented." The Company has secured a commitment of $125 million in new "debtor-in-possession" (DIP) financing from the Senior Noteholders, chief among who is Carl Icahn, who has built up a major stake in the company's $675 million Sr. Secured notes, which will be converted into post-reorg equity. As the attached affidavit demonstrates, the company had 3,306 total video stores in the US (including franchises), and 2,333 international ones. We are confident that the company's renegotiation of lease payments much lower will only force REITs to surge to all time astronomical highs, because after all, who needs cash flow?

Fiat Currencies are circling the drain boys and girls. How else can you explain Stocks, Bonds, and Gold going up while the dollar craps the bed? You cannot fight the fed. Just position yourself for the pop in the liquidity bubble. Perhaps a minor bout of Hyper-Inflation would cure this. Anyway, we are rolling some Gold profits into Grains now.

• Wen Says 20% Gain in Yuan Would Cause Social Upheaval (Bloomberg)
• Amid Tension, China Blocks Vital Exports to Japan (NYT)
• Is the PBoC Deregulating Chinese Bank Deposit Rates? (Seeking Alpha)
• The "Deleveraging" Deception (Michael Pento)
• German Union Mobilizes Over Pay to Avert "One-Leg" Recovery (Bloomberg)
• Waaaaah Street: Executives, Emotion, and Outbursts of Obama Rage (NY Observer)
• Retirees Duped by Derivatives With Structured Notes Sale Surge (Bloomberg)
• Did the Fed Really Say Inflation Isn't High Enough? (Minyanville)

I was pushing longs at 1040. Now I think 1150 will mark the top. For a while.

Initial claims not only missed consensus by 15K, jumping by 13K to 465K, but the previous number was of course revised higher from 450K to 453K. And a far bigger revision was in the continuin claims number, where the previous print was pushed higher from 4,485K to 4,537K. The current weekly number of 4,489K missed expectations of 4,473K nonetheless. Once again the BLS' endless "downward" revisions to prior economic data continue to misrepresent the economic at T-0 with impunity. But who cares about truth when patently wrong headlines is all that matters to the binary pirates. The only "good" news: EUC and Extended claims recipients jumped by over 200K in the past week, somewhat countering the prior week's plunge by over half a million as ever more claimants exhaust their full 99 weeks of various Tier benefits.

Another reason why Angela Merkel is furiously contemplated just how to kill the EUR next, was this morning's German manufacturing PMI which came at a far wear weaker than expected 55.3 (on expectations of 57.6). Same thing with the services PMI which missed a consensus reading of 57.0 to land at 54.6. Even Goldman's Dirk Schumacher who has long been screeching about the imminent second coming of the Sun King who will make all things well, is starting to realize that in the central bank FX game, economic outlooks now change intervention to intervention.

Irish bond spreads are back in the spotlight, with Bund spreads jumping by over 20 bps  to over 415 bps, although not on the heels of a failed auction (the country did auction off €400 million in February and April 2011 bills earlier, which was less than sought), but rather on news that Ireland is the first country in Europe to officially double dip back into negative growth. Ireland was also the first European country to dip into recession what may seem like an eternity ago. The stunner is just how vast the difference between the expected and the actual economic reality was. As BBC reports: "The Irish economy shrank in the second quarter
from the previous three months, surprising analysts who had been
expecting growth. Gross domestic product (GDP) fell 1.2%, the Central
Statistics Office said. It also revised down its measure of growth in
the first quarter to 2.2% from 2.7%." So poor Ireland not only has to deal with a drunk PM, insolvent bank system, and, what is not surprising a new economic crunch, but what is far more concerning, a Department of Truth and Unicorns, which is unable to lie its teeth off and paint a rosy picture when the feces are already in process of being fanned.