Archive - Feb 9, 2011 - Story

With yesterday’s PBoC hike almost completely insignificant in itself, considering deposit rates are still deeply in negative real territory, inflation worries are the likely theme behind today’s risk-off and Chinese hiking has a long way to go.

Today, almost 1,000 years after paper money first appeared and 350 years after China banned its use, China’s is again issuing excessive amounts of paper money; and, once again, paper money’s initial prosperity is about to give way to inflation and economic chaos in the celestial kingdom. Southern Weekly, a Chinese language publication, recently noted: China has not only been the country that prints money at the fastest rate but also been the country with the largest money supply in the world in the past decade. China’s M2, a broad measure of money supply, was up 19.46% at the end of November from a year earlier...This compares with 3.3% and 2.5% of annual M2 growth in the US and Japan respectively over the same period…China's money supply, M2-to-GDP ratio over the past decade is the highest in the world. The nation with the longest history of excessive money printing and consequent inflation has clearly forgotten its past. The past, however, has not forgotten China.

The brilliant minds as the SEC have finally realized that when it comes to insider trading, they are and will forever continue to be, about 10 years behind the curve. To wit: today, for the first time we learn that the transvestite midget porn fanatics have realized that one can use ETFs, and, gasp, swaps to mask insider trades. So while the SEC brainiacs diligently scour for those who buy massive blocks of stock (or calls) 2 minutes ahead of an acquisition announcement, virtually everyone else has been sneaking by unscathed simply because they have, rightfully, assumed that the SEC are a bunch of retards. Such investigative brilliance deserves to be rewarded with at least one taxpayer funded screening of Long Dong Silver (oh wait, they may realize there could be manipulation in the silver market, and by none other than JP Morgan, if they were to watch that.)

Now that Alan Grayson is no longer in Congress, Fed hearings have certainly lost that certain dose of panache which only a man, wearing a dollar sign tie, and cross examining the Fed's General Counsel which grinning like a diabolical Tasmanian Devil, would bring to the table. We managed to catch up with Grayson during today's session of Radio Free Dylan, in which the traditionally opinionated Fed critic had some very choice words about the President. In essence, the former Florida Democrat said that it is none other than the President, who is the reason there have been no prosecutions on banks: " I am not only blaming the Obama administration, if the Bush
administration had its head on straight they would have prevented a lot
of these things from happening to start with. But the President Obama administration said at the beginning, we are
going to look forward and not back and therefore in the process of
making that decision basically let these crooks off the hook." But that's ok - see the SEC, which incidentally has to give a person by person org chart and job description of its 3,500 porn addicts before it receive one additional penny of funding, is about to catch one or two criminal masterminds who bought some NYX calls after the information of today's merger, which was so badly leaked that virtually everyone knew about the deal ahead of the announcement, are about to spend some time in prison. In the meantime, all those who knowingly and willfully committed crimes in the great housing pump and dump (up to and including misrepresenting underwriting documents), are about to get away scott-free. Thank you Mr. President. That's some might fine change you got there.

One day, a fruit and vegetable seller was arrested in Tunisia, sparking social unrest, and a few weeks later the government of Egypt was set to topple. Such is the nature of complex, chaotic, and unpredictable systems. The stresses build for years and years, and nothing really seems to be happening, but then everything suddenly changes. Egypt is therefore emblematic of what we might expect in any complex system in which pressures are building, such as the US Treasury market. Can events in complex systems ever be predicted? No...and yes. No, because the precise timing and details can never be predicted. Yes, because we can be certain that anything that is unsustainable will someday cease to continue and things that are horribly imbalanced will someday topple. We can also be certain that the change, when it comes, will be rather sudden and abrupt, rather than gentle and linear. That is, we can easily predict that a complex system will shift, and that it will probably do so rapidly, but not exactly when or by how much.

Knight Capital has released a sovereign roadmap Catalyst Calendar which is a must read for anyone who trades with more than a 15 millisecond eye on the markets. And while everyone is now focused on what is going on with the Chinese tightening regime (with expectations of two-three more liquidity tightening steps over the next several months) with much speculating over just how priced in all this is (not much if one looks as the Bombay Sensex or even the SHCOMP for that matter), the real focal point should once again be on Europe. The reason: March is coming fast, and March will likely be the cruellest month for Europe, and possibly for the stock markets, and serve as the catalyst to introduce QE3 in all its glory.

It was Otto von Bismarck who explained that “politics is the art of the possible.” We can thank him for that much, but he didn’t tell the whole story. I’ll give you the rest of it. Politics is the art of the possible fictions you can get away with. Politics is mostly dissembling, and the dissembling is mostly about dodging personal responsibility for the messes governments make. It works out that way because making messes is most of what governments do. So when we ponder how the U.S. government will go about defaulting on its debts, a good way to approach the question is to consider how a default might be presented. At this point there is no room for doubting that the government will renege on the commitments it has made to give people money. The $9.2 trillion in Treasury securities held by the public is just the tip of the iceberg. Estimates differ, but if you add in the unfunded obligations for Social Security and Medicare, it’s hard to avoid getting a total that exceeds $80 trillion. That works out to $260,000 for every man, woman, and child in the country, including the two-year olds. It can’t be paid, so it won’t be paid.

Update: $19.90 now

One of these years Cisco will actually trade up after earnings. We promise. Just not yet... not yet. In the meantime, enjoy the latest carnage. But never forget: the gross margin collapse, the plunge in the consumer business, and that whole "transition" language - that's all very much company-specific. There is no way, repeat no way, that Cisco weakness can ever be systemic. And forget that Cisco was the first company to go pop during most previous bubbles. That also does not fit the script.

Now that it is increasingly becoming apparent that WikiLeaks may have jumped the shark on their Bank of America suspense build up, defense against what data the whistleblowing organization may or may not actually have is rapidly becoming a moot point. One word of advice: instead of Assange deciding just how disastrous any/all documents in his possession may be, perhaps he can finally release them to the general public so those who actually know what they are looking at can decide for themselves and process any data rapidly. Of course, that would destroy the circus freak aspect of the whole fiasco... Reuters earlier noted that the BofA document is actually likely quite innocuous, per Julian's own admission: "Assange has said privately he does not know if his cache of internal Bank of America (BAC.N) data, whose public release he has suggested might be imminent, contains any big news or scandal, according to three people familiar with the WikiLeaks leader's private discussions about the material." Yet that has not prevented private firm Plantir Technologies from putting together a presentation describing the distributed architecture of Wikileaks (and how really there is little one can do to take Wiki down).

RANsquawk Market Wrap Up - Stocks, Bonds, FX etc. – 09/02/11

Below are the closing prints in ES. The E-mini closed right above VWAP in one block. In a word: Unbelievable, or rather - "who gives a shit." Does anyone even pretend this closen market is anything less than utterly and criminally manipulated? Does anyone care? We didn't think so. The only mantra remaining: Must. Close. Green. With ever fewer exchanges, expect to see much more clowning around to a centrally planned stock market near you soon.

The most important characteristic of current capital markets, aside of course from now completely irrelevant stocks, which there is no point in even discussing any more as the Russell 2000 has become nothing more than a policy tool for Bernanke in pitching idiot Congressmen how "successful" his failed monetary policy has been when all it indicates is how good he is at manipulating stock prices, is the record steepness of the yield curve, as we have been pointing out month after month (oddly the topic never gets boring as it hits a new record wide with each passing month). And while to Ben the steepness is simply more good news to regale his questioners, who have no idea what the difference between a bond price and yield is, with, it is just as easily the most bearish indicator available. Nick Colas explains why "the bears also have more fodder from the steep yield curve than an Alaskan salmon run: the long end of the curve could be blowing out over inflation fears, persistent government debt issuance, or even a future downgrade of U.S. sovereign debt." But don't worry- the Chaircreature will never acknowledge that there is a yang to every ying. Especially not when the ying has to be so well priced, that Bernanke's midichlorian count has to be off the charts to get his liquidity extraction timing perfectly and avoid either a hyperdeflationary or hyperinflationary collapse.

For all those who were wondering which countries are next to follow in the footsteps (no pun intended) of revolutionary Tunisia and Egypt... there is an app for that. Or should be... But there certainly is now an index. But what it makes up for in lack of iPad downloadability it makes up for in sheer name coolness. Step aside Big Mac index and meet the Shoe Thrower index. And while we are still very partial to Jim O'Neill's N-11 (next BRICs) as being the best indicator of countries next to revolt, the Economist presents a slightly less GSAM-chagrined collection of countries to go under next.

The days of the inverse triple (then double, then single) leveraged ETFs are coming to an end. And in a market where the only direction is only up, with zero volatility, zero distributions, and now, zero volume, we wish them a quick and painless death. Barclays Bank has just announced it is suspending creations of its inverse leveraged ETN to the S&P500, in an act that is supposedly "a reflection of what rising stock prices can do to the price of a security designed to produce profits in a falling market" but is really a capitulation by one of the last leveraged ways to play the failure of central markets. Of course, Iosif Vissarionovich Bernanke will fail eventually, as central planning always does, but by then there will be no readily accessible ways to play the downside.

With all the discussion over how "stable" Europe is in the past month, one might actually take the European bankercrats' word at face value. And nothing could be more hazardous to one's health than believing a corpulent gentleman from Brussels. Because while Herman Van Rompuy is literally sending out haikus via twitter, his continent continues to burn. Today, the Portuguese 10 year hit a fresh lifetime high yield (and low price for those who failed bond math 101). One would think that with virtually everything backstopped by the ECB, Europe would show at least some resiliency. No such luck. In fact, things are getting progressively worse as Germany continues to procrastinate on the one decision that has any hope of being at least a stop-gap interim solution, namely a united bond issuance authority. Instead, Europe continues to go all in on its failed EFSF contraption which will work for a few months, and then will have to be bailed out with an even bigger CDO: an EFSF³? The only question around this time is who is indicating (wink) that they are long the equity tranche? As for Portugal's completely non-viable interest rate: just close your eyes and stick your hand in the sand. Trust Bernanke- it works for him (and he is a Ph.D.).