Archive - Jan 2011 - Story

“As we peer into society’s future, we – you and I, and our government – must avoid the impulse to live only for today, plundering, for our own ease and convenience, the precious resources of tomorrow. [Emphasis added.] We cannot mortgage the material assets of our grandchildren without risking the loss also of their political and spiritual heritage.” Wow! How is it possible that we collectively seem to have forgotten this clear warning? I have not once seen it referred to...All in all it appears that Eisenhower’s worst fears have been realized and his remarkable and unique warnings given for naught. From now on, we should tread more carefully. Honoring President Eisenhower’s unique warnings, we should perhaps not take this 50-year slide lying down. Squawking loudly seems preferable. - Jeremy Grantham

Just because sometimes we need a reminder that there is a lighter side to life even when living under Hewlett-Packardian central planning...

No, not 2008. 2007. It is at the same level it traded last when the S&P hit its all time highs, when stocks moved 10% on a Cramer recommendation, when complacency was virtually infinite, and just before the first quant wipe out of August 2007. That said, the summer of 2007 did not have a politburo of 12 Fed presidents and one Chairman determining every single tick in the Russell 2000. In that regard, this time is truly is different. Expect the VIX of the policy instrument now known as the stock market, to hit 0 as vol in FX, rates and commodities approaches asymptote.

Last week's surge in net commercial EUR short positions to -45,182, nearly a double from the -24,201 the week before, explains why the last few days have seen one of the sharpest and most pronounced upward moves in the EUR(USD) in recent history. All a historic short squeeze needed was a little gratuitous systemic backstop like the Chinese rhetoric about bond purchases, and a proximal catalyst such as the Goldman "tactical" upgrade of the EURUSD and the avalanche of shorts, which was at the highest it has been in over half a year, rushed like headless chickens and completely chaotically in traditional groupthink unwind fashion out of the burning theater entrance. And what certainly "helped" the EURUSD trade unwind was the massive jump in bullish USD positions from -1,268 net to 10,057. That said, next week we expect the inverse, as EUR shorts plunge, and USD shorts surge, only to be taken advantage of at the first possible opportunity by far bigger and sophisticated institution, and not to mention, countries, which have $700 billion in FX reserves in a currency that needs to be sustained at about 1.35.

RANsquawk Market Wrap Up - Stocks, Bonds, FX etc. – 14/01/11

With the US Mint selling silver at an unprecedented pace, it was only a matter of time before the silver shortage would be spotted across the Atlantic, where distributors ran out of both gold and silver on a daily basis during the first time Europe became insolvent some time in early May 2010. Sure enough, BullionVault.com has announced that it has run out of silver in Germany "due to high demand." In the meantime, the CFTC's actions have succeeded in allowing the JPM's suppression of precious metals markets to continue indefinitely, yet all its actions have really done is to provide a short-lived lower cost basis for the precious metals as there is no indication demand is subsiding. At some point the margin calls will come. Then not even Gary Gensler will be able to bail out JPM (we wish we could say the same about Ben Bernanke to whom JPM's role as head of the tri-party repo clearing market is irreplaceable in maintaining an orderly shadow liquidity market).

Gold and silver are now down hard over the past two days and the reason may have something to do with the fact that the CFTC utterly caved to JPM in their long-awaited decision on position limits in a 4-1 vote. While position limits will eventually be set, maybe, someday, the course of action taken by the CFTC grandfathers in JPM's (and HSBC, et al) current outlandish positions. For anybody like JPM that has no intent of taking physical delivery, they are prevented from accumulating a position that is 125% of the total deliverable supply. What sort of a limit is that?? That's like trying to limit the damage from auto accidents by limiting freeway speeds to 'no more than' 175 mph. Also, anybody who might want to actually buy the physical is limited to 25%, so any potential Hunt Bros. need not apply. The outer limits of this game have been exclusively reserved for speculators and manipulators. That's not even remotely the outcome I was hoping for. This 'ruling' tantamount to saying "carry on!"

Iceland, which alone in the entire developed world allowed its banking sector to collapse, and which, also alone, has benefited from a recovery that is truly organic courtesy of a devaluation of its currency and a global restructuring of its corporate balance sheet (read wipe outs for its banker class), continues to show the world that it is possible to have at least some semblance of justice in a world captured by fraud and criminal financial interests. After the CEO of failed bank Kaputhing was arrested back in May, today AFP reports that Iceland police has also detained the former CEO and several other executives of the other major Iceland failed bank: Landsbanki.

Adding insult to injury for holders of muni bonds, whose assets have plunged in value in the past month, pretty much as expected in light of pervasive state insolvency which is no longer being masked by the government's generous "Build America Bonds" distraction, is Charlie Gasparino's breaking news that now the SEC has gotten into the fray, and is looking into muni bond prospectus disclosures. Per Gasparino: "What they are looking at whether municipalities, cities and states, are adequately disclosing their budget woes to investors who buy these bonds." Which only means that as the risk of further pervasive impropriety is unearthed, and the muni space ends up being as much of a fraud as the MBS one, that the risk of holding on to MUB-derivative equivalents will only get higher, leading to yet another round of sell offs now that the muni bond situation has entered a toxic spiral where, in the inverse of the stock market, any news creates merely greater selling pressure.

Today we present yet another analysis of the complete failure of the QE framework, this time from Van Hoisington: "From the standpoint of most households, the home is the main component of wealth, not stock market investments. The continuing drop in housing prices serves to underscore the ill advised and likely temporary drop in the personal saving rate that was so critical to economic performance late last year." The problem is that with even the Fed itself confirming that it no longer cares to even attempt to reflate housing, and merely is seeking the make the wealthiest even wealthier, why bother? Why even speculate what the theoretical framework behind the Fed's actions and what proper policy should be, when Bernanke has now made it clear that the Fed cares not one bit about its two key mandates, both of which have been made irrelevant to its only real prerogative: inflating stock prices to as high levels as possible, asset bubbles be damned. Next month we will bring you the latest all time record high number of Americans on food stamps. And the same for the month after, and after, until eventually we get a replay of the Tunisian (French citizenship) candidate situation in our own country.

Looking at the now standard daily levitation in equities on bad, good, and no news, one may be left with the impression that every asset class is on a tear. Wrong. The chart below shows the 3 year performance in MUB. One word: bidless.

While Zero Hedge already noted that fund flows into bond funds and out of equity funds have once again resumed (a fact that was barely mentioned if at all on CNBC, contrary to the day-long segment on fund flows dedicated to the first equity inflow after 33 weeks of outflows), digging through the actual composition of debt receiving inflows reveals some curious details. EPFR reports a very disturbing development, namely that in the last week, Floating Rate debt saw $859 million inflows which was the largest inflow by dollar amount in history. Implicitly what this means is that bankers are currently pitching another massive round of refi deal to companies (particularly those that are past the non-call window, which in 2011 would mean quite a few of them), one which seeks to replace fixed debt with floating, or debt based on a Libor floor and a fixed margin. And for thousands of corporate treasurers, at a time when the Fed is guaranteeing ZIRP for the next 3 years at least, this is a slam dunk decision: after all why pay even a modest fixed interest when one can part with a modest refi fee, and still pay a fraction of the current interest expense. To some this may seem familiar: after all this is precisely the last push in refis in the housing bubble when everyone was jumping into an adjustable rate mortgage, which had a floating rate in its first 5 or so years. Are we starting to see the Option ARM wave in corporate refinancings? And if so, is this the same top tick indicator in the credit market currently that it was in the housing bubble of 4 years ago? The answer: it all depends on how much longer Ben Bernanke can succeed in defying gravity and the rules of the free market, courtesy of his ponzified central-planning artificial economy. And just like with Paolo Pellegrini, the one who can time the flip properly will be able to retire shortly thereafter.

The bottom 80% own a 7% share of the nation's financial wealth. That is 7% of $45 trillion, or $3 trillion, including all stocks, bonds and securities in IRAs, 401K retirement funds, savings and other accounts. That's $3 trillion held by 108 million households, compared to $32.4 trillion held by the top 5% of households (72% of $45 trillion), roughly 7 million households. In other words, the vast majority of assets held by the Baby Boom generation are in the top 5% of households, and most of the remaining assets are owned by the 15% tranch just beneath the top 5%. The bottom 80% don't have much home equity or directly owned bonds or stocks. So the Fed propping up housing and the stock market only benefits the top 20%, and most of the benefit flows to the top 5%--not exactly what most Americans think of as "middle class."

It was just 10 days ago (before anyone had even heard of food inflation) that Zero Hedge first predicted food riots were just around the corner (before anyone had even heard of Tunisia). Little did we know how quickly things would escalate out of control. Here is one man who is 100% confident he can leave the country before protests over runaway inflation succeed in getting him to face his (very hungry) population (presumably in close proximity to a decapitation device). This is probably the first confirmed case of a corrupt government overthrown as a result of the daily POMO secret CIA weapon. Certainly not the last. Stocks up on the news that some rating agency has downgraded the country to BBB+ (much higher than Greece) due to revolution. POMO: liberating countries from oppressive governments through excess inflationary liquidity since 2011

From the McCrudden complaint, which cites a letter sent by the Alnbri CEO to a CFTC lawyer T.M.: "You can tell that fucking corrupt piece of Goldman Sachs shit [G.G.] I am coming after him as well. Oh, and your "ban"... shove them up your fucking ass you corrupt mother fucker....Make sure you all show up with [T.M.] and that fucking corrupt fucking midget [G.G.] when you serve me papers. I have something ready for you all." It appears that Vincent sure was passionate about his beliefs... And certainly not a fan of Gary Gensler.