Archive - Jan 25, 2011 - Story

And so the latest shoe to drop in robosigning falls. Diana Olick reports that BofA has stopped its issuing notices of default in non-judicial states, such as the all critical California and Arizona, which explains the dramatic drop off in NODs in January. Previously explained by Koolaid guzzlers as an indication of economic improvement, it turns out this was merely yet more fraud being perpetrated by the big banks, which are now trying to cover up their slime trail. According to Bank of America's Dan Frahm, "We did conduct a review of the Notice of Default process. As a result we stopped the NOD process in non-judicial states." And so the double dip just got far worse.

Today, the Fed's openly fraudulent operations desk will buy back $6-8 billion of bonds maturing between 01/31/2015 – 06/30/2016 starting at 10:15 am Eastern. Below we present a table showing the 10 cheapest CUSIPs that the Fed SHOULD be buying, considering that it should be monetizing, as it is supposed to, the best bang for the buck bonds. Note that nowehere in the list is CUSIP 912828PM6 due 12/31/2015 or the last 5 Year auctioned off, which is in fact one of the bonds trading richest relative to the entire spline. In other words, if the Fed ends up accepted a bulk of PM6, someone in Congress should really pretend they give a rat's ass about the 300 million or so US citizens raped daily by the kleptocratic elite, before said (mostly armed) 300 million finally realize what a complete criminal fraud the PD-FED complex is.

In our relentless pursuit of the completely locked up Chinese interbank market (here and here), we stumble upon today. And boy was today a doozy. Both the 7 Day SHIBOR and repo rate, which effectively both show the same thing, i.e., the rates in the unsecured interbank lending market, have jumped to fresh multi-year highs after posting a slight improvement yesterday. And guess who is to blame (in addition to the Chinese new year) - why snow, of course.

Something funny happened on the way to the "wealth effect": we call it affectionately, the "poverty effect." At least for those who have homes. The November Case Shiller index confirmed that the double dip in housing is accelerating, with the composite index posting its 5 sequential decline. The 20 city composite came at -1.59% Y/Y on expectations of a rebound to 1.7%. Perhaps the Chaircreature should finally consider lowering those mortgage rates instead of focusing so much on the Russell 2000. What we are amazed by is that all that abundant California snow was not blamed on this one particular negative surprise.

We read last night's news that the massively underfunded Illinois pension fund is now the subject of an SEC inquiry with little surprise: "The Securities and Exchange Commission has launched an inquiry into public statements by Illinois officials about the state's underfunded pension fund, the state's governor's office confirmed Monday night. The Illinois inquiry is focused on public statements concerning an overhaul measure passed in 2010 meant to help shore up the retirement system, said the governor's spokeswoman, Kelly Kraft." The issue at hand is nothing short of complete accounting fraud: "An issue being examined is whether Illinois was taking future savings and treating them as current reductions in the cost of the pension fund, said Robert Kurtter, a managing director in the public finance division at Moody's Investors Service, who said his firm spoke with Illinois officials about the inquiry. One of the measures that Illinois took to save costs was to raise the retirement age for newly hired Illinois workers." To be sure if proven, which the porn freaks at the SEC will never be able to do, unless the pension fund has animate midget porn gifs on every excel spreadheet, this only means that absolutely nobody will go to jail for massively misrepresenting the truth. What we are far more interested in is whether the Illinois Teachers Retriement System, which as readers will recall took offense to us saying they are insolvent last summer, will be the next to follow in being charged with gross fiduciary breach and alleged accounting fraud. Now that development would most certainly not surprise us.

• Who knew: Robert Rubin is a Keynesian - "America must cut its deficit but not in haste" (FT)
• Uncertainty Over Economy Clouds Obama Speech (NYT)
• Stimulus Improves US Outlook, Says IMF (FT)
• Fed Likely to Press On With QE Even as Business Lending Rises (BusinessWeek)
• EFSF first bond issue - 43 Billion Euros of Orders From 500 Investors (Asymptotix, WSJ)
• Madrid Tells Banks to Boost Core Capital (FT), causing Spanish spread weakness
• Japan's central bank keeps lending rate, lifts growth forecast (Xinhua)
• India average inflation during 2010-11 to jump up to 9 per cent (Economic Times)
• KKR Gets Surprise Help in Fundraising From Bernanke, Trichet (BusinessWeek, h/t 5U)
• U.K. Economy Contracts in Fourth Quarter (WSJ)

When we reported three days ago that 59 outbound shipments of gold were intercepted at the Egypt airport, we predicted that the country's oligarchs were proactively preparing precisely for what they knew is coming imminently. It has arrived. From Al-Jazeera: "Hundreds of protesters have begun to take to the streets in Cairo,
the Egyptian capital, chanting slogans against the police, the interior
minister and the government, in scenes that the capital has not seen
since the 1970s, Al Jazeera's correspondent reported. Downtown Cairo has come to a standstill, and protesters are now
marching towards the headquarters of the ruling National Democracy
Party. "It is unprecedented for security forces to let people march like
this without trying to stop them," Al Jazeera's Rawya Rageh reported
from the site of the protest."

Markets sluggish this AM heading into the start of the data for the week which features Case/Shiller, Consumer Confidence, and Richmond Fed. Expectations for all seem muted except for Consumer Confidence (54E, 52.5 prior). FOMC the focus tomorrow here, while the myriad of global stories will likely take the stage today.

The UK department of economic "truth, statistics and everything else" sure has learned a thing or two from America. Such as blaming snow for appearing in December. As BLSy as it may sound, it is precisely this that the surprising collapse of the UK economy in Q4 has been blamed on. Per Bloomberg: "Britain’s economy unexpectedly
shrank the most in more than a year in the fourth quarter as
construction slumped and the coldest December in a century
hampered services and retailing." What? They don't have a seasonal adjustment for "cold" winters? How quaint. "Gross domestic product fell 0.5 percent after increasing 0.7 percent in the previous quarter, the Office for National Statistics said in London today. Growth would have been “flattish” without the impact of the weather, it said. The median forecast in a Bloomberg News survey of 33 economists was for an increase of 0.5 percent." And even more shockingly, the GBP fell after the market was shocked, shocked, that the insolvent European continent may just be a little ahead of itself with expectations of interest rate hikes: "The pound dropped after the report, which shows the U.K. recovery faded even before Prime Minister David Cameron’s government increased sales tax to 20 percent this month, which may damp consumer demand this year. The data may reinforce calls for the Bank of England to hold off increasing its key interest rate to curb inflation." But how will the UK halt what Posen last week called a "temporary surge" in inflation. Does this actually mean that, gasp, surging inflation, temporary or otherwise, is occurring even in very developed countries that suddenly appear to have massive economic slack. But... didn't the.... Chairman.... no, it can't be. He was 100% confident.

RANsquawk European Morning Briefing - Stocks, Bonds, FX – 25/01/11

As we explained in our previous article Seeking an interest rate solution, real interest rates are negative and nominal short term interest rates are near zero. That is not healthy. What is a healthy interest rate? My view is that short term rates should be above 1% to make them positive and closer to 2%. It has caused consumer credit to contract. Of course, banks would argue that a healthy spread is the key to a healthy banking sector. Raising the rate would likely flatten the yield curve. What gives?

Risk was back on to start the week today, with $25b in Fed liquidity helping the campaign. Though safe havens saw some inflows early in the day after reports of a terrorist bombing at Moscow’s Domodedovo Airport (killing 35 and reportedly linked to Caucasus separatists), the dip was bought with semiconductors and alternative energy stocks leading the way.