Archive - Feb 2011 - Story

The weekly initial claims number has become nothing short of a yoyo. The volatility in the data series, which is supposed to be erased through the seasonal adjustments has hit another year high, and to anyone trying to extrapolate any forecast based on a number that has moved between 380K and 457K in one month, our condolences. According to the BLS initial claims dropped by 42K from an upward revised 457K (454K previously) to 415K, on expectations of 420K. Non-seasonally adjusted claims came in as well, but by roughly half this amount, dropping from 486K to 460K. Continuing claims came at 3,925K on expectations of 3,950K (with the previous revised, naturally higher from 3,991K to 4,009K). EUCs dropped by 130K in the week ended January 15 as wave after wave of people now hits the 99 week cliff of all jobless extensions.

Earlier today, the ECB decided to keep rates at 1.00%, as expected. There were no major or even minor moves in the EUR pairs following the announcement indicating that rumors of a rate hike by the ECB are still very preliminary. Yet the one issue everyone wants to hear more information on is when the latest "rescue" ponzi scheme, the EFSF, will become active, which will allow Europe to wash its hands of all direct monetization allegations, and blame it all on a CDO. Of course, when the CDO itself implodes it will be Europe, and mostly Germany left to pick up the pieces, which is why Merkel is so far the only party which has refused to endorse the outright monetization power of the EFSF. For an update of the ECB's views on the EFSF watch the press conference starting any minute now.

• Violence Escalates After Gunfire Assault (WSJ)
• Yemenis Protest After Saleh Makes Concessions to Defuse Tension (Bloomberg)
• Here come subsidies: China allocates $228m for vegetable supply (China Economic Net)
• ECB Seeks to Shed ‘Uncomfortable’ Bond-Buying Duty (Bloomberg), because if it's a third party CDO monster, then it is nobody's fault really
• And minutes after our own headline... Oil Climbs on Egypt as Stocks Decline; Copper Hits $10,000 (Bloomberg)
• Senate Rejects Repeal of Health Care Law (NYT)
• Egypt Millionaires `Sacrificed' as Leadership Turns to Military (Bloomberg)
• S&P Says No Plans to Cut U.S. Rating in Medium Term (Reuters) and nobody has any plans to listen to S&P ever again
• White House Charts a New Plan (WSJ)

"ICE Futures U.S.®, Inc. (“Exchange”) is contemplating taking the following action effective with the March 2011 Cotton No. 2® futures contract. Cotton market participants who expect to carry positions in excess of the spot month position limit, 300 contracts, into the notice period would be required to file an exemption request form with the Market Surveillance Department. To be eligible for a notice period exemption under Exchange Rule 6.26 (Hedge Exemption), applicants would request a specific long or short position sufficient to cover the applicant’s bona fide hedging requirements for the contract month’s delivery month and the next succeeding calendar month."

As suggested last night, the escalation in Egypt, together with more riot news out of Yemen, and fear that tomorrow's Syrian "Days of Rage" will live up to their name, Brent Crude has pushed to the $103 psychological barrier (even as the Brent-WTI spread continue to be about $10, much as we speculated previously would be the case for a while). And speaking of psychological barriers, copper just passed a key one after it moved to a record north of $10,000/tonne for the first time "as investors bet that supply shortages and buoyant demand growth this year would keep fuelling a rally."

Markets dour in the early AM as oil rises on escalating geopolitical concerns. Yesterday’s ADP report was once again more bullish than expectations ahead of Friday’s Payroll data. The ADP “preview” of Friday’s job numbers reported a 187K gain v 140KE. The track record of the indicator was tarnished last month by divergent results as the indicator foresaw a 247K jump in payrolls while the BLS reported Private Payrolls rose only 113K. Today will see numbers for labor inputs, weekly claims data, factory orders, and ISM Non-Manufacturing data. Eyes remain on geopolitics and the European periphery ahead of tomorrow’s data. TBAC recommending Treasury issue 100Y bonds to lock in low rates.

Today's calendar has initial claims, productivity and costs, the January services ISM, factory orders for December, Bernanke's speech at the National Press Club and a weekly Fed Balance Sheet update. $7-9 billion 10 Year POMO - will it come at yesterday's massive S/A ratio? No 56-Day CMB auction today, means major excess liquidity influx.

After what was largely a quiet day, events in Cairo's Tahrir square have taken a turn for the worse, after at least four protesters were killed and thousands more injured after semi-automatic gunfire erupted, supposedly out of the pro-Mubarak supporters, some of whom were previously exposes as being Egyptian police. End result - Egypt CDS (ignoring that ludicrous $25.5 million AUM EGPT ETF, which for some ungodly reason is supposed to represent the entire Egyptian stock market) are about to bounce once again, two days ahead of the February 4-5 "Days of Rage" in Syria, and as concerns about a Suez stoppage and Saudi contagion spread yet again.

Those poor idiotic rating agencies can never catch a break. Despite doing their fair share of hiring as many prosimians with a single digit IQ (not to mention a penchant for spreading inside information to preferred clients, see Deep Shah) as they can, thereby keeping the labor pool sufficiently susceptible to BLS manipulation, it was they that, according to Koo, destroyed the global economy the first time around, after keeping every toxic CDO at a AAA rating. Now, the Nomura economist, whose obstinacy in his views at times makes even such distinguished voodoonomic shamans as Paul Krugman seem like docile little lambs, is convinced that "these same agencies are once again attempting to interfere with governments that are trying to do the right thing in response to the economic crisis (ie, the balance sheet recession) triggered in part by these agencies’ actions. In spite of the fact that fiscal stimulus is the only effective measure during such a recession, the rating agencies are making it more difficult for governments to spend money by implicitly threatening downgrades." Yeah ok, the right thing is to fight debt with more debt. And more debt with morer debt. And so on. We wonder if that is the case, why doesn't Dictator Bernank just tell his Jeethner lackey to print $100 trillion tomorrow? After all that is the NEF's target for debt in 2020. That way we should grow world GDP by about 100% overnight, and save ourselves ten years of deleveraging misery. But stop there? Why not print $1 quadrillion, $1 quintillion, $1 decillion... After all debt is wealth remember? Because try as hard as we can, we just can't spot any faults with this argument which derives straight from Mister Koo's supposedly irrefutable logic.

One wonders who is right...

Total US debt as of yesterday: $14,109,842,878,903.50. Keep in mind that this number will likely not increase very much over the next several weeks, as organic issuance of about $150 billion per month is offset by $100 billion in monthly SFP draw downs. Incidentally, keep a close eye on stocks tomorrow: since today we had the December 8, 2010 56-day CMB maturity, which will not be met with a rolling re-issuance tomorrow, the Primary Dealers, whose ranks have now swelled by such "traditional" bond trading firms as pure-play derivative expert MF Global (led by ex-Goldman CEO Jon Corzine) and pure-plau futures trading expert SocGen, will have an extra $25 billion in pocket change to invest in 5x beta stocks as they see fit.

The latest inflation fighting strategy in a world that has now completely forgotten the threat of "disinflation", and instead is relishing 30 year highs in sugar and 150 year highs in cotton, comes from Belgium where supermarket chain Delhaize has been exposed as coercing 120 franchisers to sell products at a loss. As a result, said franchisers, formerly on very good terms with the supermarket operator, have organized themselves into an interest group with its own steering committee to make their grievances heard. And while the outcome of this escalation will certainly not be pleasant for any of the parties involved, one thing is certain: prices at both Delhaize supermarkets, and Belgian competitors who follow suit, are about to surge as retailers have no choice but to seek avoiding bankruptcy through reindexing prices. Which makes us wonder just how many supermarket stores and grocery retailer in the US use comparable tactics? But have no fear: according to the CPI, food inflation in December at 0.1% was the lowest it has been in five months. And with nobody having the guts to tell Bernanke that the food emperor is completely naked, we are 100% confident that everyone in America will be able to afford the 0.1% increase in food prices.

Zero Hedge has long claimed that the best stories of Wall Street fraud and corruption come from disenchanted former insiders of the very firms that in 2010 were paid a record $135 billion in compensation. And while we spend day after day chronicling what to other more normal banana republics would seem to be unprecedented criminal activity south of Canal street (and let's not forget the Park Ave corridor), we are always delighted when an ex-insider discovers their conscience and discloses all the massive fraud they and their coworkers engaged in "once upon a time" especially on Over the Counter desks - the same place where firms such as Goldman Sachs dominate all trading. Today's story from Omar Rosen on Citigroup's corporate derivatives team is just such a blatant example. If America had anything even remotely resembling a fair and honest enforcement arm in its regulatory body, this disclosure would be enough to shut down the entire Citigroup derivatives team. As it stands, the firm will probably not even have to pay a fine, without either having to admit or denying guilt.

The day started with December volatility being offered in risk reversal form. Volatility continued to soften through the front months until late morning when the December 1800 C buyer resurfaced. Iron butterflies are synthetically offered as dealers offer straddles and funds buy wings. The fat-tailed aspect of gold options is approaching Nassim Taleb proportions, especially in December. Calls between the 1800 and 2000 strike area are constantly bought. Puts from June on back with a value under $5 are also consistently bought. Meanwhile you can buy all the 1400 calls in any month you want at any time. Taken together this can be translated as “We’re not moving anytime soon but if we do we aren’t stopping.” We reiterate our statement that volatility will firm up if we settle below 1325 or above 1346.