Archive - Feb 2011 - Story

RANsquawk Market Wrap Up - Stocks, Bonds, FX etc. – 01/02/11

After for most of the day, grains traders were pretending they have no interest in gobbling up every available pound of rice, the end of trading was like an Ebay auction where everybody submitted their bid in the last possible instant, sending rice from $15.60 to $15.99 in seconds. And since Rice previously closed at $15.51, we were literally two cents away from a second limit up day in the world's most popular food. Since we speculated that rice is the next commodity bubble on Monday morning, the grain has surged nearly 7%. Incidentally, this is the highest price for rice in the last twelve month period. Lastly, if Hoenig is indeed telegraphin QE3 as we suspect, look for rice to double six months from now. It is now only a matter of time before some momo chasing idiot on CNBC "discovers" what a great investment rice is, and the thing trades limit up for the indefinite future.

We thought Jon Hilsenrath would break the news of QE3. To our shock, it comes from the only sensible man at the Fed, Kansas Fed's Tom Hoenig. Per Reuters: "The Federal Reserve could
debate extending its bond-buying program beyond June if U.S.
economic data prove weaker than policymakers expect, Kansas
City Fed President Thomas Hoenig said. Another round of bond buying "may get discussed" if the
numbers look "disappointing," Hoenig told Market News
International in an interview published on Tuesday." May we suggest in that case that Joe LaVorgna stop blaming every herpes outbreak in the US on snow and instead indicate that shit is once again hitting the fan. Obviously, this is merely a scheme to keep the market well bid no matter how violent the revolutionary images on TV, brought upon precisely by this genocidal policy. Even more obviously, it means that oil is going to $200 on short notice.

Any minute, Egyptian president Hosni Mubarak is address the nation in a speech in which he may or may not announce he will step down, but one in which he most certainly will state that he is not running for presidential reelection. We are not sure what this slap of a gesture toward the Egyptian people is expected to achieve: that is the equivalent of hiring Ben Bernanke as your advisor on how to economize on toner ink.

Much has been said about Bernanke's wealth effect and how it impacts a whopping 1% of the US population (traditionally, those very same bail out recipients who would be insolvent had Gen Ben not rescued the entire financial system at the expense of the DXY, which at last check was below 77 again). Unfortunately, a little less time has been spent discussing the equal and opposite effect: that of the poverty effect. Luckily, every month we get an update on this just as useful metric. And as of November, the SNAP program had 43.6 million participants, an increase of 400k from October, and a 14% increase, or 5.3 million from a year prior. We are confident that this 15% of the US population will be delighted to know that their rapidly diminishing dollars will end up acquiring increasingly less and less stuff.

For all those who looked at today's Priced Paid component of the ISM, and had a very bad feeling about what this signifies for not only corporate margins (one word: shrinkage), but broader inflation, we good news for you: you are absolutely right. A simple regression analysis of Prices Paid to CPI data indicates that the median CPI 12 months following a PP greater than 80 (such as this morning's 81.2) is over 6%! Which of course means that the far more volatile non-core components of the CPI will likely be surging at double digit rates by then. In other words, in one year, based on a simple historical regression, the US will well be on its way to inflation that will even leave the Chinese cowering in shame. And if consumers still refuse to leverage by then, then Al Jazeera will be covering riots (following the FTC's shut down of all US media) from our own back yard. If they do, on the other hand, and with $2 trillion in excess reserves, say hello to the Shazam moment.

Recently, BOE head Mervyn King came out with a very surprising warning to his compatriots, accompanied with an apology that our own Ben Bernanke will never offer, namely: "I sympathise completely with savers and those who behaved prudently
now find themselves among the biggest losers from this crisis." Of course, the US central bank believes it has completed its third mandate job now that the US stock market, not to mention commodities, are starting to be reminiscent of the parabolic phase of the Harare stock market. But back in Europe, even as the EURUSD is surging (killing the dollar, and the primary driver behind US stocks) now that it is accepted that the continent will proceed with its latest full on ponzi scheme and have the EFSF acquire insolvent bonds, even as the ECB proceeds to raise rates, things are getting worse. This is precisely what King warned about in a speech that not surprisingly got absolutely no coverage in the US. Luckily, here is Simon Black's take on the very surprising speech by King which confirmed that the only beneficiaries of Bernanke's policies continue to be the top 1% that make up the financial oligarchy.... as always.

RANsquawk US Afternoon Briefing - Stocks, Bonds, FX etc. – 01/02/11

One of the benefits of America finally seeing what Zimbabwe went through as it entered hyperinflation, ignoring for a second that the Zimbabwe stock market was the best performing market, putting Bernanke's liquidity pump to shame, is that very soon everyone will be naked, once companies finally realize they have no choice but to pass through surging input costs. And while some may be ecstatic by the S&P's modest rise YTD, it is nothing compared to what virtually every single agricultural product has done in the first month of 2011. To wit: Corn spot up 7.76%, wheat up 5.63%, Rice up 10.08%, Hogs up 10.16%, Sugar up 5.64%, Orange Juice up 3.33%, and cotton.... up 17.08%. That's in one month!

Our friends at The Forensic Factor have been busy. After exposing one after another alleged Chinese fraud reverse merger, and forcing management teams to address investors about numerous allegations of impropriety, the small research boutique has come out with a report exposing what it dubs "the most preposterous Chinese reverse merger yet." As usual, in a world of shady transatlantic backdoor dealings, and cash strapped US exchanges willing to list anyone and everyone, regardless of whether their financials are even remotely valid, we believe it is our duty (without intent to profit) to expose companies that may or may not be fraudulent, particularly now that it is obvious that the SEC is fully endorsing the ponzi scheme of US capital markets. Quote TFF: "after a deep dive into AutoChina (Nasdaq: AUTC), The Forensic Factor ("TFF") has concluded that AutoChina is potentially the most dangerous Chinese reverse merger that we have examined. As the AutoChina story gets exposed, we would expect a significant share decline of at least 50% and a material increase in the short interest (incredibly, less than 1% of the shares are short - a true rarity among the Chinese reverse mergers). TFF believes investors would be prudent to avoid AutoChina at all costs. At the same time, we implore regulators to protect the investing public and launch an investigation into AutoChina."

One more month, one more chance for GM to stuff its dealers with cars. Sure enough, in the just release January sales PR, the company announced that "General Motors dealers in the United States reported 178,896 total sales in January, a 23-percent increase from a year ago for the company’s four brands. The gain was driven by solid retail sales which were 36 percent higher than a strong January a year ago." And behind the scenes, GM has continued to shove a whopping 510,000 cars with dealers: In January 2011, the firm had 510k cars at its dealers, compared to just 390,000 in January 2010, a 30% increase. Furthermore, as the only component of consumer credit that is surging, non-revolving loans, indicates that virtually all car purchases are made based on the old formula of "no money down." And with the government backstopping both the car maker and the lender banks, we would be very interested in discovering just how bad the delinquency rate in non-revolving car debt is over the past year, especially as it relates to GM.

The Kool Aid gushing from Goldman economic desk has become torrential. While the "super strong" ISM number was perfectly organic (in advance of Hatzius starting to demand QE3 in about 3 months, when everything will be spun as having been really stimulus-driven), the firm noted that the plunge in construction outlays were due to the weather. Luckily, Goldman did mention that surge in price paid with the following brilliant conclusion: "the prices paid index rose by 9 points to 81.5-most likely due to higher prices for energy and other commodities." Well, that's why they pay the German economist the big bux.

The January ISM Manufacturing M/M 60.8 vs. Exp. 58.0 compared to the previous print of 58.5. Yet the key metric that everyone is focusing on is the surging Price Paid number, which hit a 2 year high 81.5 (73.5 expectations): the highest since July 31, 2008! The corporate margin collapse is about to cripple Q1 numbers, and at this point it is only a matter of time before even sell-side analysts are forced to aggressively lower their S&P EPS estimates.

Last week's GDP miss is now long-forgotten, as not only that but the Egyptian revolution has been priced into daily POMO and $195 billion worth of incremental liquidity from the SFP program unwind.Today, David Rosenberg ignores all the noise comprising the number which lately is almost as credible as the goal-seeked data coming out of China (not to mention seasonally and weather adjusted) and instead looks at the big picture, namely how much debt is required to purchase not only the actual incremental growth, but a trendline 7.3% quarterly annualized GDP growth in a normal recovery. The math works out as follows: the US Economy should be adding $42 billion a month. It is at roughly half of this. But in the meantime, it is also adding $125 billion of debt per month (and soon much more). In other words, the US economy now takes $6 of debt to generate $1 of GDP growth (and would require $3 if it was growin in a normal fashion).

One of the long-term themes on Zero Hedge over the past two years has been that beginning in 2009, following the Fed's total incursion in all capital markets, mostly in equities due to the highest delta on consumer net wealth as a function of stock price upside, any type of traditional stock picking (long-short but also virtually everything) has ceased to matter. Various hedge fund manager retirements in 2010 merely confirmed the acceleration of this trend. The complete elimination of volatility in what has become a policy weapon merely means that day traders are also leaving stocks in droves and heading for places where the Fed's complete domination has yet to manifest itself, such as commodities, bonds and FX, where vol has surged over the past two years. Today, we present Iridian Asset Management's most recent market thoughts, which confirms the observations in the Morgan Stanley report posted a few days ago on Zero Hedge discussing the firm's fears that a 2007-like quant collapse is coming as there is no longer any normalcy in the market, on why stock picking as a business is now dead. Obviously, we couldn't agree more.