Archive - Jan 26, 2011 - Story

After this morning's sobering news on mortgage applications, we have new home sales, CBO budget update, and the FOMC statement….There is no POMO today.

Thomas Stolper's Goldman FX team, who a little over a week ago put on a tactical target of 1.37 on the EURUSD, refuses to take profits on the EURUSD, and instead has extended the target from 1.37 to 1.40 (with a 1.33 stop). Since this is the first time we have seen the firm continue selling into the close, we wonder just how big the pain for the prop side of GS is if it must be hoping to cut its losses on a reversal. With the pair trading well north of 1.37 Goldman may be forced to keep pushing the target ever higher on Asia's ongoing rescue of Europe.

RANsquawk European Morning Briefing - Stocks, Bonds, FX etc. – 26/01/11

Another implication (particularly in the Dow’s outperformance vs the S&P) is the ratios’ correlations to Treasury yields, which suggests yields may selloff soon, while risk looks heavy with overhead resistance, which implies a return to the in-tandem movement of UST’s and USD, aka safe haven risk aversion. This is what characterized the top back in April 2010, and indeed the JPY surged ahead of and leading the May 6 Flash Crash in risk assets across the board.

Richard Koo's just released note has the usual set of insightful observations into the fringe Keynesianism which we all suffer on a daily basis, where one false move will lead to a systemic collapse, and as usual deals exclusively with the aftermath (and concurrent-math) of the Fed's QE. First, he brings forward the "ketchup declaration" which is a sad harbinger of what may soon happen to the US. "The “ketchup declaration” was made about a decade ago in the context of an argument between the Bank of Japan and a group of overseas economists that included Paul Krugman and Ben Bernanke. The BOJ’s position was that quantitative easing could have no impact as long as there was no demand for loans among businesses and households." What has happened, is that the BOJ adopted precisely what Bernanke espoused in the beginning of the last decade... to an abysmal failure. But that won't stop the Chair from repeating Japan's faults here. The scarier thought is that it is precisely Bernanke who will next proceed to monetize all equity-related assets: ETFs, REITs, and everything else. Yet the most notable argument, and the one which even Bernanke does not get in his push for reflation whose only hope is to get consumers to purchase on credit instead of just cash, is what happens if the US consumer is consuming, but is content to do so without leveraging again. That is by far the weakest link in Bernanke's argument. A link which will be broken soon enough by his relentless exporting of inflation, until such a point is reached that the entire world takes America aside, and tells them to get rid of the Chaircreature, or else.