Archive - Jan 2011 - Story

And meanwhile the charade in Europe continues, after the ECB purchases a whopping €2,313 million in the week ended January 17, bringing total purchases under the SMP program (a/k/a toxic crap monetization) to €76.5 billion. This is roughly 20 times higher than the pathetic €113 million monetized in the week before, when deluded holders of PIIGS debt were not selling hand over fist on the inane assumption that Europe will actually survive the imminent implosion. Last week's total purchases were the second highest weekly amount since July 2010, only topped by the €2,667 million purchased in the week ending December 13 when Ireland went tits up, and peacefully and very gracefully presented the key to its sovereignty to ubercrat Olli Rehn.

Below we present the top 200 holders of AAPL stock. The holdings of the smallest one in the group amount to $133 million. We are confident they will all exit the theater in a calm, collected fashion. And oh yes: paging groupthink king Dr David Kostin...You are urgently needed in the burning theater.

AAPL Bid/Ask: EUR 233/249.85
Last EUR 239.5 down -20.7 (-7.96%)

And it was just yesterday that we ridiculed the Goldman brain trust for pushing everyone into the world's biggst hedge fund hotel, Apple, which is held by over 190 hedge funds. Don't look now but Nasdaq futures are about to get reacquainted with gravity.

Jobs also says that he will continue as CEO and be involved in major strategic decisions for the company. As a reminder Apple accounts for about 20% of the Nasdaq. As a further reminder, the last time it was even rumored the COO was leaving, the stock tumbled $20 in the span of a few milliseconds. German listed Apple shares fall 1.8% following the news.

Philly Fed's Plosser once again releases a slam dunk speech which is the most vocal critique of Ben Bernanke's interpretation of the freedoms afforded to him by monetary policy to date. "How do you use monetary policy to burst a bubble in Las Vegas real estate, where house prices were appreciating at a 45 percent annual rate by the end of 2004, without damaging the Detroit market, where prices were increasing at less than a 3 percent annual rate? Because monetary policy is such a blunt instrument, asking monetary policy to do what it cannot do, such as seeking to deliberately influence the evolution of asset prices, risks creating more instability, not less. Moreover, the moral hazard created by the belief that the central bank would intervene if prices of a certain class of assets became “misaligned” might, in fact, cause more inefficient pricing and more instability, not less...monetary policy cannot reverse the sharp decline in house prices when the economy has significantly over-invested in housing" And more: "I have advocated the elimination of Section 13(3) of the
Federal Reserve Act, which allowed the Fed to lend directly to
“corporations, partnerships and individuals” under “unusual and exigent
circumstances.”" Plosser's conclusion is spot on, and means that Congress should immediately enact a limit on the Chairman's recently self-appointed 3rd mandate, which is to not only reflate the biggest asset bubble in history, but to get the Russell 2000 to 20,000: " I too am concerned that we are in the
process of assigning to monetary policy goals that it cannot hope to
achieve. Monetary policy is not going to be able to speed up the
adjustments in labor markets or prevent asset bubbles, and attempts to
do so may create more instability, not less. Nor should monetary policy
be asked to perform credit allocation in support of particular sectors
or firms. Expecting too much of monetary policy will undermine its
ability to achieve the one thing that it is well-designed to do:
ensuring long-term price stability."

The press conference with Julian Assange on Julius Baer whistleblower Rudolph Elmer who plans on releasing information on "over 2,000" high net worth tax evading individuals, which we discussed this weekend, has started. It can be watched below.

The reverse dutch auction model for Europe's insolvent countries is dead. Earlier today Spain announced it would cancel its planned bond auction for January 20, and instead plough ahead with syndicated issuance. For those unclear with what this means, Spain is essentially saying the market pricing mechanism on its debt is too transparent and adds "volatility" and therefore the country would rather have banks underwrite the whole issue i.e., take the issuance risk on their books, thus spare Spain the embarrassment of a failed bond auction. And Spain is just the start: Portugal and Belgium have followed suit, in an action that is sure to stretch the already frayed nerves of European sovereign bond investors as this kind of last ditch effort is always taken before something is about to go "snap." From the Irish Times: "Spain's Treasury, facing a volatile market as it looks for ways to keep its debt costs under control, cancelled a bond auction planned for Thursday and said it would issue a syndicated bond over 10 years. Belgium is also seeking an opportunity to place debt with a syndicate of banks and Portugal also plans one for the first quarter, as fiscally stretched sovereign issuers elsewhere in Europe also seek to cut spiraling financing costs." And lest readers get the impression that this is purely a European development, China just announced that it is suspending its sterilization bill sales for the balance of the week. Did the European bond market suddenly die?

RANsquawk European Morning Briefing - Stocks, Bonds, FX – 17/01/11

All bullish on the western front on Friday, as a worse-than-expected 0.6% (vs 0.8% expected & prior) December retail sales figure is overshadowed by a 40bps tick up to 1.5% CPI YoY in December (vs 1.3% expected), a 50bps tick up to 0.8% IP (vs 0.5% expected), and earnings beats from JP Morgan Chase and Intel.

"If there's one institution in the US that consistently and repeatedly messes up everything, the Federal Reserve is that institution." So says famed investor Marc Faber in an interview he gave to ChrisMartenson.com this week. In it, Chris and he dive deep into the Fed activity (encouraged by Washington and Wall Street) responsible for the current severe health of our economic system. Both feel that once you understand the nature of the critical role the Fed now plays, you have much better clarity into what the most probable outcomes for our economy and financial markets will be.

Lately there has been a lot of chatter among the supposedly smarter-than-mainstream media that even should the debt ceiling not be raised, it would not mean the bankruptcy of America as interest payments would still be satisfied. While that technicality is absolutely true, it is even more absolutely irrelevant. What propagators of such theories forget is that lately there are just two exponential curve trendlines that are worth noting: that of the cumulative debt issuance, and of the US cumulative deficit (see chart below). Each month, the US issues around $50 billion more debt than is needed to just fund the deficit. This is debt that is on top of the debt that is needed to plug the different between revenues and expenditures. As Zero Hedge has pointed out repeatedly before, that ratio is already roughly 1 to 2, meaning for every dollar in revenue the US government issues more than one dollar of debt just to fund the deficit. And then some. As the chart below shows, in December alone the government issued $84.4 billion on top of the budget funding shortfall ($80 billion deficit and $164.4 billion in debt issuance)! So yes, while the Treasury can fund interest expense at record low interest levels, that is completely irrelevant. Unable to fund incremental expenses to the tune of hundreds of billions per month, the US government will shut down (a point when nobody will accept US government IOUs, not Social Security which passed the point of being self sustaining last year, and certainly not Medicare and Medicaid, and most certainly not private sector Defense Vendors) just like it did in 1995. Below, we present the key charts and the full report from a must read SocGen report on the sovereign debt crisis, titled Can It Happen Here? We urge all those who pretend to have an educated opinion on the US funding crisis to read this report before they open their mouths in public and once again validate their critics.

The more the market becomes close to the tipping point the more we can expect the cartel of bullion banks to make bear raids as we have seen this last week because they desperately need to cover their short positions. However, in the case of silver and soon to be the case with gold a negatively correlated open interest to price relationship means that lower prices lead to higher open interest; in other words there is no way to cover at lower prices; the only way to cover is at higher prices. As this becomes increasingly obvious to the cartel the severity of the bear raids will decrease, particularly when the premiums in the physical market are showing that the bear raids are stimulating massive physical offtake making the predicament of the cartel ever more precarious. This makes the brouhaha about the CFTC imposing position limits on the Comex a complete joke because, as always, the regulators are going to be too late. Just like all the other nefarious financial engineering schemes that are falling like houses of cards, the scam of selling precious metals that do not exist is fast approaching a rendezvous with its day of reckoning.

Over the past week, one of the less noticed and more notable developments, was that the 2s10s quietly climbed back to just short of all time record wides: at 273 bps, the curve is just 13 basis point away from the all time record 286 bps achieved on February 2, 2010. For those who still don't understand how this most recent gift to the banks by the Fed and the government works, the math is that for every 100 bps in spread widening, banks make profits by borrowing free at the 2 Year and lending out at the 10 Year spread (on a Price x Volume basis, although as we will discuss momentarily while the price (i.e. spread) may be there the volume is missing), even as home prices decline by about 12% for each percentage point. In other words, in the past year the entire double dip in home prices can be attributed to the spike in long-term rates, which have in turn caused mortgage rates to jump to year highs. All of this has been predicated by increasing concerns that the Fed will allow runaway inflation, as a result pushing 10 and 30 Year spreads (and gold) ever higher. And while traditionally, a steep curve implies substantial bank profits, this time it is really is different, as demand for mortgages, by far the biggest bank product beneficiary from rising LT interest rates, is non-existent - recent new and refinancing mortgage applications are plumbing 15 year lows, meaning that even if banks make exorbitant profits on a spread basis, there is just not enough of them to go around, which in turn means that banks once again have to rely on accounting gimmicks such as declining reserve provisions to pad their books. And unfortunately for the banks, every incremental basis point increase from here on out only means accelerating home price deflation (regardless of how many days in a row cotton, wheat and whiskey closes limit up), which will wreak havoc on myth of any "recovery." This is in fact the most salient point of Scott Minerd's of Guggenheim latest letter: while the bulk of his latest thoughts is focused on Europe, we believe that the critical part if really that dealing with US interest rates. As he concludes: "The story in housing remains a compelling reason yields on the 10-year note above 4 percent are simply not sustainable at this juncture." We complete agree, which also means that the strawman of higher bank earnings due to the yield curve is now dead and buried. Alas for all the bank bulls, from this point on the only direction the curve can go is down... Unless of course the Fed really loses control of the long end in which case all bets are off and QE3 is sure include purchases of MBS.

Not shares of AAPL, not freeze dried MREs, not shotguns shells, not even €45 million European pieces of linen in a suitcase... Gold. And one wonders why all the physical silver and gold is slowly but surely disappearing from the distributors: someone should really check the cargo hold of Lloyd's, Jamie's and Vikram's G-6 planes...and of course the extra cargo holds in the private helicopter squadron of that "other" Ben, elsewhere now known lovingly with the adjective of Blackhawk (f/k/a Helicopter).