Archive - Jan 2011 - Story

Chairman of the Federal Reserve, Ben Bernanke, in an attempt to soothe global markets in the midst of a breakdown of uncivil society in Egypt, where strongman Hosni Mubarak is struggling to extend decades of control through iron-fisted use of security forces, scheduled a hasty Washington D.C. press conference at eight thirty EST Friday morning.

The Egyptian president (?) is speaking liverecorded (unclear from where). Somewhere, the Bernank is rehearsing the very same speech. Long, meandering speech, whose conclusion is that government is at fault. The government will be sacked and be replaced with new government tomorrow. Long Riot futures.

Following my thoughts on the fireworks going off everywhere in emerging markets, if you are not short emerging yet (EEM is a great proxy. Look at Bovespa in Brazil or TUR the Turkish ETF, it is all looking horrible and about to get completely decimated), you can still buy silver and sell Spanish equities. A few weeks ago when silver had broken the 50-dma I had pointed that it should retrace towards 25.80/26.50. We came right around those levels and caught a huge bid today. Confirmation by breaking out of the bearish downtrend channel since the recent highs would point towards new highs. Meanwhile the IBEX has completed a consolidation wedge and held resistance at 11,000. As a long as we stay below the afore-mentioned resistance the next stop on the way down is 9,600.

We were doing some diligence on Egyptian (now historic) gold holdings but unfortunately the following link no longer seems to work:http://www.cbe.org.eg/ To those who guessed correctly that this is the web site of the Egyptian Central Bank, you win whatever is held in the vaults of said building. Which we are willing to bet against all that is held in our own tungsten warehouse in Kentucky, is absolutely nothing. To any potential readers in Egypt, may we recommend you go politely enter the building at 31 Kasr El-Nil Street, Cairo, go to the basement and check on the precious metal inventory. There should be 75.6 tonnes of gold. Which incidentally may also be a sufficient motive for someone to pull off a Die Hard 23.

Jim Grant, who will never be accused of being a fan of the Criminal Reserve, and whose views on what will happen to asset prices in a printer-happy world are gradually being validated, appeared on Bloomberg TV, telling Margaret Brennan upfront that Bernanke owes the world an apology. Alas, after various revolutions around the world have been catalyzed by Bernanke's policies, we have a feeling that ever more oppressed people will soon see the Printer in Chief as a patron saint of violent revolution, alas against crony regimes fully supported by the US (and hopefully the US will view it the same way when its time comes). That aside, Grant's criticism of the Fed should really start to grate on the Chaircreature: "I think what would be very good for the Fed if there would be a confession, the Fed should confess that it has sinned grievously, and is in violation of every single precept of its founders and every single convention of classical central banking. Quantitative Easing is a symptom of the difficulties that the Fed has created for itself. The Fed is running a balance sheet which if it were the balance sheet attached to a bank in the private sector would probably move the FDIC to shut it down. The New York Branch of the Fed is leveraged more than 80 to 1. Meaning, that a loss of asset value of less than 1.5% would send it into receivership if it were a different kind of institution...The Fed is now in the business of manipulating the stock market." Jim also has some very critical discussions on how the Fed never settles up on the $3.4 trillion in custodial debt on its books. As always, we can't get enough as more and more mainstream figures turn to bashing that biggest abortion of modern capital markets.

RANsquawk Market Wrap Up - Stocks, Bonds, FX etc. – 28/01/11

...in which we learn that the head fixed income trader, Brad Rosenberg, of the fund whose boss made $5 billion in 2010 has traded over $100 billion in bonds.

The outgoing press secretary of the White House is supposed to hold a press briefing at 3PM to share the White House's views on this week's events in Egypt. Earlier, Hillary Clinton already made a statement which pretty much asked Egypt's citizens to go back home and resume purchasing iPads. We are quite curious to see how the White House will spin the overthrow of one of its favorite regimes over the ages. Even more so, since this is a revolution inspired to no little part by none other than the Federal Reserve and more specifically its genocidal monetarist practices.

So we have a lawless system. What does this mean for citizens and investors? In the near term it means that the fundamentals will not apply. Anything that maintains or augments elite wealth and increases elite options will be supported, and anything that consumes or converts common people’s wealth and labor and restricts their choices will be pursued. Anything that reinforces accountability, rational response, or cause and effect will be actively suppressed. Forget reversion to the mean. One only has to observe where the respective value/wealth of each party resides and where it gets channeled to know what the market will do and where policy will go. When the stock market should crash, it won’t… until some time frame far longer than even the most generous fundamentals would dictate.

For anyone following the recent collapse in mortgage applications, the recent "strength" in new and existing home sales is nothing but the latest joke to spin the nth bounce from the bottom as the "this is it" moment which Cramer has been trying to do with disastrous results ever since the summer of 2009. Oddly, reading a recent surprisingly bearish Goldman economic outlook (or not so surprising: it lays out the framework for Goldman to start advocating MBS purchases as part of QE3) piece from Sven Jari Stehn confirms our concerns that any attempt at shining light behind the headlines exposes ever more cockroaches. In "Mortgage Applications Point to Near-Term Home Sales Weakness" Stehn highlights the same issues we have been pounding on the table for months: namely that near contemporaneous plunge in mortgage applications is far more troubling and should be given far more impact than new, pending and existing home sales in any one prior period. Goldman summarizes: "The number of mortgage applications, however, has declined sharply in recent weeks. Specifically, the volume of mortgage applications for purchase—reported in a timely fashion every week by the Mortgage Bankers Association—declined by a cumulative 14% during the last three weeks. Does the decline in mortgage applications suggest that home sales are set to decline again in coming months?" In short the answer is yes, and the full note below explains it. Additionally, we have provided some technical perspectives from Peak Theories which predict a 7% drop based on recent chart patterns. Needless to say, we believe the drop will be far greater when all is said and done, now that the Bernank has given up on attempting to keep mortgage rates low and only cares about boosting stock prices.

For those who have long been hoping to see AIG's Joe Cassano, the man who more than anyone let AIG become the risk behemoth it was when it blew up, end in jail, whether it was for massive fraud, or any other violation of justice, may be one step closer to the vindicaation. A discovery by David Fiderer today discloses that the former head of AIG's Financial Products group may have just purjured himself when previously, under oath, he said that AIG never took less than super senior tranches of CDOs it insured. It turns out that the firm was quite often double dipping lower in the risk stack and gobbling subordinate tranches alongside all the now insolvent European and Japanese banks, better known as "investors" in the Goldman rolodex of biggest morons in the world.

And as Africa is burning, Europe is getting ever more insolvent. But don't let the charts posted earlier showing both Portugal and Spain spreads back at all time highs fool you: Europe is on top of it again. The latest development is the formerly taboo topic of extending bailout loans to Greece and Ireland to 30 years from the current 3. Obviously, this merely confirms just how ugly the demand picture for European sovereign debt must be if the block is considering essentially extended bail out guarantees in perpetuity. From Reuters: "The idea surfaced in intensive talks among euro zone ministers, central bankers and officials on the sidelines of the World Economic Forum in Davos this week, the sources said." Well, that half a million in (taxpayer funded) participation fees for the G-Paps sure is paying off.

Shockingly, the "pundits" have suddenly realized that courtesy of the upheaval in Suez, the canal with the same name may be closed, which would wreak havoc on shipping costs. Once again, Zero Hedge was just ahead of the curve: "Egyptian Stock Market Plunges Over 11% To Fresh Multi-Year Lows; Is A Suez Canal Transit Halt Imminent?" The just announced countrywide curfew will not make Suez Canal operability any easier. For those who are concerned about what a Suez closure means, we recreate what we wrote previously on the topic. And just in from Reuters, Energy Secretary Steven Chu has declined to say if he is worried Egypt protests may disrupt Mid-East oil, but believes that serious disruptions will have oil prices. By harm he means make them surge higher.

On Monday we posted an article, highlighting Morgan Stanley's observations that we may be on the verge of an August 2007-like quant wipeout. Considering what is happening today, it may have proven eerily prescient. Below, we repost the full thing as some may not have taken it seriously the first time around.

RANsquawk US Afternoon Briefing - Stocks, Bonds, FX etc. – 28/01/11