Archive - Feb 16, 2011 - Story

Markets positive this morning. Treasuries experienced a bullish move yesterday as economic numbers managed to disappoint lofty expectations. Advance retail sales released yesterday showed a weaker than expected increase at 0.3% v 0.5%E. Today will see the release of housing starts, PPI, and industrial production. An increase in the latter would represent a third straight month of growth.

Over the past few weeks, Citi's Steven Englander has not exactly kept it a secret that in his view, the US Dollar is due for the kind of flash dash that only stocks trading on the NYSE and BATS are capable of doing after reporting horrible news (bizarro market, remember). In an overnight note, Englander presents several scenarios on how to capitalize on what he notes are EURUSD "fat tails that are getting fatter" - specifically i) Long 6-month EUR Put USD Call 1.2500 At-Expiry Digital with KO at 1.3875 and ii) Long 6-month 1.3000/1.2000 EUR Put spread with KO at 1.3875. The 4 reasons why Citi believes conditions are ripe for sharp move in the pair are i) European sovereign debt is far from resolved, ii) Uncertainty emerging from governmental changes in the Middle East, iii) Unwinding commodity price inflation, and iv) Homeland Investment Act-2.

This may be a highly distasteful proposition, but just for a moment, I want you to sit back, and imagine that you are a member of the corporate banking elite. You are a walking talking disease ridden power mad pustule who naively believes himself intellectually superior to the vast majority of humanity and above the inherent laws of conscience, honor, and general good taste. You are a villain in the purest sense, in that you not only do great harm to the world, you actually SEEK to do great harm to the world, if only to benefit yourself and your exclusive circle of “friends”; a clan of degenerate blood thirsty sociopaths with delusions of omnipotence that stalk the night like Armani wearing Chupacabra exsanguinating the joy from poor unsuspecting cultures. You are capable of anything, and sadly, you take “pride” in this fact…The issue is, how do you convince the general public that all is well until you are ready to unleash hyperinflation and fiscal Armageddon? How do you make them believe with all their hearts that they are not in the midst of a debt meltdown and the end of their financial sovereignty, but basking in a full-on economic recovery?! Here is a step by step guide to fabricating an economic recovery out of thin air….

Surging inflation? Check. Negative GDP growth? Check. Increasing unemployment? Check. Dropping wages? Check. Looks like we have a stagflation bingo. Per Bloomberg: "U.K. unemployment claims unexpectedly rose in January, underlining the fragility of the labor market a year after the economy emerged from recession and as public spending cuts start in earnest. The number of people receiving unemployment benefits rose 2,400 to 1.46 million, the Office for National Statistics in London said today. The median of 25 forecasts in a Bloomberg News survey was for a 3,000 drop. Unemployment based on International Labour Organization methods rose by 44,000 in the fourth quarter to 2.49 million." And this is just the start of what real austerity means: "Prime Minister David Cameron is counting on hiring at private companies as his government embarks on budget cuts that will cost 330,000 public-sector jobs over the next four years." And more economic humor: "There is a risk unemployment could rise” this year, Philip Shaw, an economist at Investec Securities in London, said before today’s report. “It’s possible that the public-sector job cuts happen straight away and you don’t see a pickup in private-sector job creation.”" Coming soon to every centrally planned regime near you.

Meet Axel Weber's replacement

Housing starts, PPI, industrial production, and the FOMC minutes….Small 05/15/2021 – 11/15/2027 POMO for $1.5-$2.5 billion.

The patently obvious deterioration in housing just took one big step for the worse, after the Mortgage Banker Association reported that the Market Composite Index, a measure of mortgage loan application volume, decreased 9.5 percent on a seasonally
adjusted basis from one week earlier. The Refinance Index decreased
11.4 percent from the previous week and is the lowest Refinance Index
recorded in the survey
since the week ending July 3, 2009. The seasonally adjusted
Purchase Index decreased 5.9 percent from one week earlier. And for the obligatory quote that confirms that Ben Bernanke's plan to fix the economy by raising rates or something, is about to blow up: "Mortgage rates remained
above 5 percent last week, up almost a full percentage point from their
October lows, and refinance
volume continued to drop," said Michael Fratantoni, MBA's
Vice President of Research and Economics. "Applications for home
purchases also declined on a seasonally adjusted basis.  Buyers
have not returned to the market as rising rates have reduced
affordability, to some extent." Bottom line: few people care to refinance (which is also making the QE Lite component of QE redundant), and even fewer people want to buy homes. So, again, what recovery?

RANsquawk European Morning Briefing - Stocks, Bonds, FX etc. – 16/02/11