Archive - Feb 14, 2011 - Story

The power elite that believe they can control the masses as puppet master commands a puppet should beware. The wrath of the masses can be fierce and sudden. Ask Hosni Mubarak. As Steinbeck realized many decades ago, selfishness run amok, supported and encouraged by the authorities lead to poverty, despair and sometimes revolution. The false mantra of an economy based on self-interest and free markets is a smokescreen blown by the few with wealth and power to obscure the truth that they have used their wealth and power to rig the game in their favor. The have-nots can dream about becoming a have, but the chances of achieving that dream today are miniscule. Steinbeck pointedly distinguishes between the selfishness of the moneyed class and the altruism of the working poor. In contrast to and in conflict with this policy of selfishness stands the migrants’ behavior toward one another. Aware that their livelihood and survival depend upon their devotion to the collective good, the migrants unite—sharing their dreams as well as their burdens—in order to survive. Those in control need to keep the masses divided. They need Americans to be distracted by phantom terrorist threats, inconsequential political differences, American Idol, Charlie Sheen, Lindsey Lohan and Lady Gaga. They need Americans to be focused on “I”. Their greatest fear is that the American people realize that “We” can change the direction of this country and bring the perpetrators of crimes against the people of this country to justice.

Did Larry Meyer (the one man Fed "expert network") lose Bill Gross as a client? Because looking at PIMCO's latest holdings shows a dramatic shift in strategy and leaves one wondering just what PIMCO is doing. After the firm had been buying MBS on margin like it was going out of style, peaking in June when the company's cash margin balances hit a local record of 15%, resulting in MBS holdings surging to 51% of the company's flagship Total Return Fund, ever since then it seems Gross' bet on MBS as benefiting from either massive putbacks to the banks, or QE3 being focused on mortgage backed securities has fizzled. Most notable in the January update is the huge change in Treasury holdings, which have plunged from 22% in December to 12% in January, a $24 billion drop. This is the lowest relative holding of government securities by PIMCO since January of 2009 when it was a 2% short exposure. The other result: cash has surged from a 7% short position to a 5% positive: the firm no longer is utilizing margin for the first time since August 2010. The other issue: the company's holdings of Muni securities continues to be a black eye, resulting in a continued decling in total TRF AUM: in January it hit the lowest since June 2010 of $238.5 billion (it peaked at $255.9 billion in October). Bill Gross can not be too happy about these various developments.

Markets are mixed this morning. Muni ETF rallied on Friday on news of the extension of the BABs program. The BABs program that expired in 2010, which originally permitted a 35% subsidy on state and local government-issued taxable munis, would now allow a 32% subsidy this year and 31% in 2012 under this new proposal. WSJ reported that due to Republican Party resistance, a more moderate 28% subsidy would create a political compromise. The Treasury department reported that interest expense is expected to rise to 3.1% of GDP in 2016, a threefold increase that is likely to raise borrowing costs.

• Budget Forecasts Bigger 2011 Deficit (WSJ)
• Geithner Tells Obama Debt Expense to Rise to Record (BusinessWeek)
• Hussman: Rich Valuations and Poor Market Returns (HussmanFunds)
• Amazon.com said it is closing Irving facility, will not hire 1,000 people in retaliation over sales tax issue (DallasNews)
• China in talks over Panama Canal rival (FT)
• Rising China Bests a Shrinking Japan (WSJ)
• In placing stock bets, listen to the shorts (Reuters)
• Rallies Draw Crowds against Berlusconi (FT)
• Roubini’s Next Crisis Is Scary Food for Thought (Bloomberg)
• Egypt Army Suspends Constitution, Meets Protester Demand (Bloomberg)

The gradual drain of COMEX silver inventories seen in recent months continues and COMEX silver inventories are at 4 year lows. Total dealer inventory is now 42.16 million ounces and total customer inventory is now at 60.68 million ounces, giving a combined total of 102.847 million ounces. The small size of the physical silver market is seen in the fact that at $30 per ounce, the COMEX silver inventories are only worth some $3 billion....Talk of a default on the COMEX is premature but the scale of current investment demand and industrial demand, especially from China, is such that it is important to monitor COMEX warehouse stocks. The possibility of an attempted cornering of the silver market through buying and taking delivery of physical bullion remains real and would likely lead to a massive short squeeze which could see silver surge as it did in the 1970s.

Earlier today the Euro dropped to a three week low in the mid 1.34s, following a Reuters report that troubled German lender WestLB may have hit a snag in its restructuring plan. Per Reuters: "Aid for WestLB hangs in the balance, a source told Reuters
on Monday, as the bank struggles to come up with a rescue deal
as it enters the final stretch to present a restructuring plan
to the European Commission. "The WestLB news doesn't provide a great deal of optimism to
the euro at the start of the week."." Not at all, although the 100 pip move lower is par for the course for the one currency that has now absorbed all the vol of the Fed-manipulated and irrelevant stock market. The only question on most investors' minds is whether WestLB will follow Danish bank Amagerbanken A/S as the second one to follow with a senior bondholder restructuring per the new European guidelines. While Amagerbanken was small and isolated, it is time to see just how willing Europe truly is to put its insolvency where its mouth is.

The administration’s FY 2012 budget and one Fed appearance of note…There is a micro $1-2 billion TIPS POMO to celebrate Valentine's day.

RANsquawk European Morning Briefing - Stocks, Bonds, FX etc. – 14/02/11

Ben Shalom Bernanke, we the entrepreneurs of the United States of America request that you divide one upcoming day's worth of asset purchases between Wall Street and us, to wit, may the tiny sum of $3 billion, minuscule juxtaposed with the hundreds and hundreds of billions of dollars you are feeding your Primary Dealers and their clients in your Quantitative Easing program, may the modest sum of $3 billion be used for a pilot program to purchase securities issued by American entrepreneurs in connection with the startup of 3,000 validly formatted new business enterprises, such $3 billion to be used to purchase $1 million of the Perpetual Subordinated Capital Securities of each. Your pilot program, Ben Shalom, will show results almost immediately, thereupon you should expand the program, first to $5 billion, a little more than half of one major day's worth of asset purchases, for the startup of 5,000 validly formatted new business enterprises, then to $7 billion, almost all of just one major day's worth of asset purchases, for the startup of 7,000 validly formatted new business enterprises. A validly formatted new business enterprise is one with a valid business purpose and whose management is mentored by the SBA's resource partner the Service Corps Of Retired Executives. The SBA will manage the Perpetual Subordinated Capital Securities positions purchased by the Federal Reserve System. Transactions will be executed on a first come, first served basis, venture capitalists aka vulture capitalists neither welcomed nor required.

With the economy strong, EM underperforming, US yields rising, and no signal of QE2 being extended, USD could be poised to rally here. The recent breakout in USDJPY could signal a shift of carry funding back to the JPY, as the summer 2010 double-dip fear-induced USDJPY plunge is unwound.