Archive - Sep 2010 - Story

Yesterday we received a report submitted from a Spanish blogger who wishes to remain anonymous, in which the author, in 7 brief pages, describes why in his view Spain's GDP is massively overrepresented (and coming just before Moody's downgrade of Spain earlier today). The report (attached below) provides extensive validation for this hypothesis using employment data, information from the service sector, construction output, industry data and foreign sector data. The various data lead the author to observe that: "ΔNational Income= ΔDemand of goods + ΔDemand of services = -56,392 – 11,115 = -67,507 million €, which means a fall of GDP by 24.6% for the biennium 2008-2009." As for where this gets really interesting, is the fact that none other than Goldman has immediately issued a rebuttal of the report. Permabull Erik Nielsen has just released a statement in which he says the report is not to be believed at all, as it "makes little sense." Why is Goldman protesting so much, and focusing on an anonymous report if it has so little credibility?

• Asian stocks slump as banks decline on European concern.
• China will speed up introduction of a trial property tax in some cities.
• China Yuan weakens for first time in 13 days on threat of US trade sanctions.
• China tightens limits on lending, plans tax to cool housing prices.
• Eurozone inflation rate up at 1.8% in September.
• Fed Presidents far from unanimous on need for further easing.
• Gold extends rally to another record after Dollar slumps; Silver tops $22.

Moody's downgrades Spain from AAA to Aa1, a rating which pretty much everyone knew would not last, with the kneejerk reaction nonetheless being to spike bunds. However, as Goldman immediately reminded everyone who cares, this was (supposed to be) "completely priced in." As Erik Nielsen reminds us: "Moody's has just announced that they have downgraded the Spanish government to Aa1 with "stable outlook". This is not really a surprise since they had given themselves until the end of September to consider this rating, and – as I discussed in my Sunday email – there is a good degree of “catch-up” in these ratings. The good news, if that’s the way of putting it, is the “stable” outlook. It appears that Moody’s is getting somewhat impressed with the reform agenda in Spain (as they should be)."

RANsquawk European Morning Briefing - Stocks, Bonds, FX etc. – 30/09/10

Minutes ago RealtyTrac has released its Q2 summary snapshot. In summary, Q2 saw 248,534 properties in some stage of foreclosure (default, scheduled for auction or bank-owned) sold to third parties. This represented a 5% increased from Q1, and a 20% decline from Q2 of 2009. The average sales price of a foreclosure property was 26% below the average sales prices of regularly sold homes. “While foreclosure sales increased in the second quarter, non-foreclosure sales increased even more, spurred on by the homebuyer tax credit that expired during the quarter,” said James J. Saccacio, chief executive officer of RealtyTrac. “That had the net effect of lowering foreclosure sales as a percentage of total sales during the quarter, but that may be a temporary dip as the removal of the tax credit could drive more buyers back to discounted short sales and REOs.” Ah, but herein lies the rub: with pretty much everyone now halting evictions, and foreclosure themselves, all those who are looking for foreclosure bargains will be very, very disappointed. Because while the actual market is digesting the implications of what the recently announced JPMorgan moratorium on foreclosures means (very bad things), Fitch has already fired the first shot and announced it would downgrade mortgage companies engaging in foreclosure fraud. Well, that means preeeetttty much all of them. And the most troubling implication: all those who bought foreclosed properties may soon be facing a transaction unwind, once it becomes clear that there isn't a clear title owner.

The market's latest fascination: birds. Especially those of the Federalus Reservus order and family.

In today's "less than surprising data point" category, the clear winner is Gallup's analysis of people's ever increasing distrust in the mass media. From 46% in 1998, the percentage of people who indicate they have "not very much/none at all" trust in mass media has grown to a stunning 57% currently. This is an all time record, as the general public perception toward the MSM has flipped over the past decade. Is it becoming increasingly more difficult to lie to the average American? In this time of unprecedented economic upheaval, where the political regime depends on just how far any given administration's lies can penetrate amongst the broader population, this may well become the most critical factor in determining policy for the future. And with ever increasing alternatives of non-traditional media, could the legacy ad-supported media model, which by definition is one which espouses the status quo, be doomed precisely by the slow but steady education of the average American, who intuitively realizes that nearly every "fact" appearing in the media, especially that supported by any given political party, is a lie? Which brings us to CNBC. If the above study is indeed correct, one would correctly guess that the viewership of the station once known for fair and objective analysis and breaking news reporting, and has now devolved to nothing more than the butt of jokes on financial media propaganda, should have plunged, even as the market remains as volatile as ever, with the VIX currently trading at levels not seen since the March highs. As the chart below shows, using data compiled from Nielsen, focusing on the ad revenue-critical target demo, this is in fact the case.

test

Bernanke and his friends in the Treasury seem to be pulling a fast one on the world, inflating US assets and deflating US liabilities through a falling dollar, while giving the US companies a chance to fund themselves cheaply. The only ones who are harmed are not voters or, if they are, they don’t have many votes. However, those who own the most US assets and will be financing the US in the future can not be pleased by this. It might be that the Eurozone is short-sighted allowing the euro to rise (see A Race to Two Bottoms, September 23), but the US is not thinking about the long term either. This is a very short term game. If the economy does go into a recession next year, as we expect, equities will decline anyway, and the government’s escape will only be temporary. TARP II will need to be rolled out alongside QE II and many will be left with a sour taste in their mouths. - John Taylor

The third update in Damien Cleusix' Q4 update series has been released, this one focusing on commodities. The attached presentation is one of the most comprehensive observations on what may happen to global commodities, with an emphasis on the "China factor." Damien's observation: "Most commodities are now greatly overvalued. As with other assets it does not really matter in the short-term (as long as the trend is positive) but it is paramount for longer-term projections." What does the future hold should the China wave ebb? "This increased elasticity of demand will work both ways... The China buying spree will abate as the strategic reserves are completed, the fiscal stimulus projects are being built (and we will have new waves later but this is another story but as you know we are not as bullish as the consensus on 2030 and beyond China, and all other countries by the way, commodities demand... we are too maybe confident on human ingenuity...) and the housing markets cools." All this and much more inside.

Oil prices were dramatically higher on Wednesday, as traders reacted to a DOE report that showed draws in all three major
inventory categories, as well as a drop in refinery utilization rates. In that respect, it was a clean sweep for the bulls, and some
observers saw in this week’s statistics signs that the huge surplus in oil inventories may have reached a peak. The US dollar also lost ground against the recently resurgent euro again, although equities ended the day slightly lower, losing 22.86 points to finish at 10,835.28. So, one of the two major outside influences helped the market’s rally, while the other was not pronounced enough to really hurt.

This must be one of the weirdest lawsuits we have seen in long time: Starting this week, the two Norwegian day traders who are charged with fraud and violation against an automatic trading robot will appear in Oslo District Court to defend their actions. However, the poor robot, being called a stupid, cheating liar, have the best representatives any offended robot can have; a hard hitting police attorney, backed by an army of experts from the Oslo Stock Exchange. The robot's owner, Timber Hill, has not been seen, nor heard from since the news story broke in August this year.

“Either the robot is very, very stupid, or is the person who programmed the robot is very, very stupid.”

Just because somehow it is the Yuan's fault that America has exported its entire manufacturing industry over the past 30 years to lower cost countries, our idiot leaders have decided to take the next big step toward an all out trade war. The House of Idiot Representatives has approved legislation designed
to combat the manipulation of currency by China that results in
unfavorable trade conditions for the United States. As CNN reports, the
legislation, which authorizes the Commerce Department to impose duties
on imports from countries with undervalued currencies, passed by a vote
of 348 to 79. Somehow, because it was framed as a "jobs issue", everyone in Congress went full retard and confirmed they have not the first clue about how Economics actually works. But yes, please revalue the Yuan: the next thing will be exploding prices at Wal Mart, which have so far successfully masked the fact that the US has been exporting staple product inflation. We wonder how those same "workers" on whose behalf this law was allegedly passed will feel when their bill anywhere is double what it used to be... Not to mention that their currently unemployed status will certainly not have changed.

After observing the price action a bit more and reflecting on the patterns, I have come to the conclusion that the market will top between 1,155 and 1,164. In that zone we have in order the top of the channel (120-minute chart) guiding the consolidation since July, the 61.8% retracement of the sell-off since April's highs, the resistance joining the 2007 tops and the 2010 tops, and the C=A of the correction start in July (daily chart). I add to that relatively convincing divergence and the incapacity of daily 21-RSI to bypass 60 which is an excellent confirmation of a correction in bear market and not a new bullish impulse. Gathering all that and adding to it the VIX signal we had early in September, the economic mix which is turning very sour, the start of trade wars, the ever present sovereign default crisis in Europe, the common knowledge that bank balance sheets are marked to solvency and the housing double dip, and I think it's fair to say the pricing for the major equity indices is rather generous. I did say yesterday that it all starts and ends with the USD. Well, the attached chart says that based on M2 EURUSD is headed back to 1.10 or even parity, and USD bullish sentiment according to CFTC is pretty much 0%. We also had Fed speakers on the air today saying that more Treasury purchases may not be the answer. - Nic Lenoir

Mark Pittman's last valiant effort to bring some transparency to the most destructive organization in the history of mankind has succeeded. According to testimony to be delivered to the House tomorrow, "under a framework established by
the act, the Federal Reserve will, by December 1, provide detailed
information regarding individual transactions conducted across a range
of credit and liquidity programs over the period from December 1, 2007,
to July 20, 2010. This information will include the names of
counterparties, the date and dollar value of individual transactions,
the terms of repayment, and other relevant information. On an ongoing
basis, subject to lags specified by the Congress to protect the efficacy
of the programs, the Federal Reserve also will routinely provide
information regarding the identities of counterparties, amounts financed
or purchased and collateral pledged for transactions under the discount
window, open market operations, and emergency lending facilities." Luckily this action by Bernanke will prevent the rioting that would have followed an appeal to the Supreme court, which would have certainly sided with the secretive group of Keynesian priests. If nothing else, the plethora of data will keep the blogosphere preoccupied for days upon days, rummaging through millions of pages of explicit corruption.