Archive - Sep 3, 2010 - Story

Moderate inflation is good. This has been held as self-evident truth in modern monetary policy. But this will quickly become antisocial as the entire west goes through a structural change in demographics caused by babyboomer retirement. BoJ seems to have realized this early and well; they have managed their social transition with remarkably success, despite much sneering from western economists (I argued here that the Japanese lost decades is in fact a great achievement that US will only wish to match in 10 years). ECB seems to have realized this judging from their proclaimed resolve for austerity as opposed to unlimited simulus. The big question is: when will Fed and US government realize this?

This week's CFTC Commitment of Traders report, with some very interesting observations on speculative positions in the Treasury curve.

Your one stop shop for the week's summary of bullish and bearish events and news.

Since the beginning of the recession/depression there have been over 7.6 million total job losses (not just private jobs, which is all that the government is suddenly focusing on. What next: emphasizing the dramatic surge in janitors and trash collectors?). So which occupations are the biggest winners and losers over the past 33 months? Curiously, the split in job losses is spread about evenly between manufacturing and service jobs, with the top 2 biggest absolute losers are construction and manufacturing occupations. Things are not better in services either, as the bulk of professional segments have lost hundreds of thousands, with two exceptions: healthcare and education. Of course, the one sector that has never seen cumulative job losses in the recession is the government - for state and federal employees the recession has not only ended, but it never started.

Alan Greenspan, the Chairman of the Federal Reserve from 1987 to 2006, was more directly responsible for the current Global Depression than even his worst critics realize. Here is the explanation why. —Gonzalo Lira.

SocGen has a useful tracker of Consensus vs Actual economic data, or a +/- Surprise indicator, which is presented below as updated for everything through today's NFP, excluding the disappointing Service ISM. While it is unclear how the firm's assigns a surprise relevance rating to any given economic data point, if the firm finds the Mfg ISM worthy of a +2, then it should finds today's Service ISM at about -3, which unfortunately would not help out the firm's pretty squiggly regression line, and would certainly eliminate the upward slope.

Because sometimes the simplicity of truth hurts the most.

RANsquawk Market Wrap Up - Stocks, Bonds, FX etc. – 03/09/10

Going into today I considered that there were two possible scenarios for equities in terms of EW count. The first according to which we were in wave 2 consolidating after the initial impulse down to 1,106 before eventually going lower, and the second in which we would have been in wave 3 already, in which case we should have topped around 1,094/1,098 and reversed lower aggressively. I think the first scenario is the one we are currently experiencing. I have only one ounce of doubt left and that is that AUDJPY has rejected quite hard today's highs approaching the key resistance triangle. - Nic Lenoir

Citi's Robert Buckland is out with the must read report of the weekend, especially for all the optimists who believe that despite the ongoing depression (and as many have demonstrated, all the talk about a double dip is moot, as America has never left the depression, or as Rosie calls it a period of prolonged economic subpar activity: the latest NFP number merely reinforces the theme of economic deterioration), and despite the 17 weeks in retail equity outflows (which would be a contrarian signal if there was hope that retail would ever feel safe enough to return in stocks. After nearly 5 months of no change in trend, the debate can be put to rest, if at least for 2010) there is still hope. There very well may not be - Citi has just pronounced the "Equity Cult" dead: "It has taken 10 years, and two 50% bear markets, to reverse this cult. European and Japanese equities are already trading on dividend yields above government bond yields. US equities are almost there as well. An immediate reincarnation of the equity cult seems unlikely. Global corporates, especially the mega-caps,  rushed to exploit cheap financing as the equity cult inflated. They have been slow to redeem equity now that the cult has deflated. Equity oversupply remains a drag on share prices." And as more and more companies and investors shift to a de-equitization theme, the trendline in allocation for the US pension assets will soon revert to that seen when the "Equity Cult" began, or roughly 20% of all assets, with bonds taking on an ever greater precedence of asset allocation (incidentally the UK is already back to the equity/debt relative investment levels of the early 1960s). What does this mean for capital flows? "A reduction in equity holdings back to pre-1959 levels (around 20% of total assets) would indicate considerable selling pressure to come. For US private sector pension funds alone, that would imply a further $1900bn reduction in equity weightings. The evidence suggests that there could still be considerable institutional selling to come."

Ever get the feeling that the Bureau of Truth is not being completely truthful? Feel like the ADP is to the NFP like the ISM to the regional Fed Surveys, and as the surging Mfg ISM employment diffusion index is to the plunging Service ISM employment diffusion index (i.e., both can not possibly be correct)? You are not alone. David Rosenberg summarizes which recent data releases are so blatantly incomprehensible, one wonder when the government will announce an AXA Rosenberg-like computer glitch and say all its data for the past 12 months has been compromised. Either that, or we await the introduction of the Birth/Death adjustment to every single data series released in America imminently.

BN  10:03 *GOLDMAN SACHS SAID TO PLAN TO CLOSE PROPRIETARY TRADING UNIT
BN  10:03 *GOLDMAN PRINCIPAL STRATEGIES TRADERS IN NY MAY JOIN OTHER FIRM
BN  10:03 *GOLDMAN PRINCIPAL STRATEGIES HEAD SZE MAY START A HEDGE FUND

So as long as you do one flow trade a year, you are considered a flow trader? Brilliant.

In providing commentary to the FASB's attempt to solicit public response on its recent foray into bringing some transparency into "loans held to maturity" by Wall Street banks, Goldman Sachs does a terrific job of exposing the very prevalent, and very conflicted phenomenon better known as "lending to play" in Wall Street firms' attempt to get an allocation on the IPO underwriter syndicate of public company candidates, in exchange for providing debt to the same firm on very disadvantageous terms to both the underwriters' shareholders, and to secondary purchasers of such debt. In addition to providing broad mispricing incentive to an entire capital structure product, this practice also completely destroys the credibility of the ratings of the newly public company by the Underwriter syndicate due to tremendous conflicts of interest.

It is par for the course that with oil hovering between $70 and $80 per barrel Americans have continued to buy SUVs and Trucks at a rapid pace. Politicians don’t have constituents screaming at them because gas is $4.00 per gallon, so it is no longer an issue for them. They need to focus on the November elections. It is no time to discuss a difficult issue that requires foresight and honesty. It is no time to tell the American public that oil will be over $200 a barrel within the next 5 years. Anyone who would go on CNBC today and declare that oil will be over $200 a barrel would be eviscerated by bubble head Bartiromo or clueless Kudlow. Bartiromo filled up her Escalade this morning for $2.60 a gallon, so there is no looming crisis on the horizon. The myopic view of the world by politicians, the mainstream media and the American public in general is breathtaking to behold. Despite the facts slapping them across the face, Americans believe cheap oil is here to stay. It is their right to have an endless supply of cheap oil. The American way of life has been granted by God. We are the chosen people. A funny thing happened on our way to permanent prosperity and unlimited cheap oil. The right to prosperity was yanked out from underneath us by the current Greater Depression. The worldwide economic downturn has masked the onset of peak cheap oil. Therefore, when it hits America with its full fury, it will be a complete surprise to the ignorant masses and the ignorant politicians who run this country. A Gallup Poll in August asked Americans about our most important problems. Where is the concern about future energy supplies? It isn’t on the radar screens of Americans. They are probably more worried about whether The Situation will hook up with Snookie on the Jersey Shore reality show.

There are permabulls, and then there is Jim O'Neill. The Man U fan explains why, after it has been consistently discredited, people do not believe in decoupling: "because they are not prepared to get it." And just because people are really stupid and just don't get it, O'Neill pitches Indonesia, Turkey, Nigeria and Bangladesh, and, oh yes, Iran, as the "Next 11" once again. Because, gasp, 9 of them are up year to date. We wonder if Jim recalls what happened to the Russian market in 2008. Somehow we think his selective memory may have shut that one out. Also, it turns out Jim O'Neill does not appreciate fan mail bourne out of "weird blog site" commentary: "I received quite a few incoming hostile emails in response, and references to some weird blog sites who apparently opine on my views." Oops.