Archive - Mar 30, 2011 - Story

Reports Bloomberg: "JPMorgan Chase & Co. (JPM) Chief Executive Officer Jamie Dimon said some municipalities will need to renegotiate their debt and that hundreds of them may “not make it.” “I wouldn’t panic about what I’m about to say,” he said today at a U.S. Chamber of Commerce event in Washington. “You’re going to see some municipalities not make it. I don’t think it’s going to shatter America, I just think it’s a part of the credit cycle." Precisely: and it is precisely the part that JP Morgan comes in and offers sale leaseback offers to said munis, and other ingenious financial solutions that see munis selling their assets to the bank which after the Fed, has the biggest balance sheet, and can thus offer to engage in some even more creative asset-liability mismatch. Also explains why unlike Meredith, Jamie will not only not be asked to come in and testify to congress over his abrasive observations of an insolvent American reality, but will be lauded as a hero as he will provide funding to buy insolvent municipalities a year or two of time, which upon expiration will see Jamie end up with even more assets formerly belong to taxpayers, but by then everyone in the current District of Corruption cadre will be long gone with their part of the spoils. And so the "credit cycle" turns.

Russ Certo, head of rates at Gleacher, shares his perspective on the rate complex, over a short, and longer-term perspective: "As I arrive back and survey markets and prospective opportunities, I see the U.S. Treasury market down nearly 10 consecutive days in a row. Although, I believe SUBSTANTIALLY HIGHER rates are here come in the intermediate future, I feel asymmetry exits in the next 72 trading session hours and into next week. Let me explain..."

Hoenig is back, and a few months before his retirement, has released what appears a valedictory exercise in venomous truthiness: "Today, my view has not changed. The FOMC should gradually allow its $3 trillion balance sheet to shrink toward its pre-crisis level of $1 trillion. It should move the U.S. federal funds rate off of zero and toward 1 percent within a fairly short period of time. Then, after evaluating the effects of those actions, it should be prepared to move the funds rate further toward a level that could be reasonably judged as closer to normal and sustainable." At long last, someone admits the obvious: "While some of the increase may reflect global supply and demand conditions, at least some of the increase is driven by highly accommodative monetary policies in the United States and other economies." For those terrified by the ravages of deflation: "I tracked the average growth of money and the price levels in the United States from the 19th century to the present (Chart 3). It should surprise no one that there is a striking parallel between the long-run growth of money and the growth in the price-level index. From the end of World War II alone, the price index has increased by a factor of ten. With such a track record, it is hard to accept that deflation should be the world’s dominant concern." And lastly, for those who refuse to see Bernanke's policies as genocidal (metaphorically speaking but quite literally in MENA) to the lower (and increasingly) middle classes: "Central bankers must look to the long run. If current policy remains in place, we almost certainly will stimulate the growth of asset values and inflation. This may temporarily increase GDP and employment, but in the long run, we risk instability, damaging inflation and lost jobs, which is a dear price for middle and lower income citizens to pay."

First, the irrelevant news: Today's $29 billion 7 Year auction just closed at a yield of 2.895%, the highest since April 2010, just the time when QE1 was ending and everyone was certain there would be no follow through monetization. The Bid To Cover was 2.79, weaker compared to recent auctions, and 2 bps wider of the When Issued, implying the auction was not all that hot. Directs took down 8.76%, in line with the last year average, Indirects accounts for 49.41%, or the lowest foreign take down since November 2010, while PDs bought 41.83% of the auction. Altogether a weak auction. And now the relevant news: the most recently disclosed total debt was 14,211,567,662,931.23 as of March 28. This excludes the settlement of all of this week's auctions which amount to $35 + $35 + $29 billion (including today) or $99 billion. Adding the two amounts to $14,310,567,662,931.23. As a reminder the debt ceiling is $14,294,000,000,000.00. In other words, the total US debt just passed the debt limit - break out the Champagne!

Now bear with us for a second: the most recently disclosued total debt was 14,211,567,662,931.23 as of March 28. This excludes the settlement of all of this week's auctions which amount to $35 + $35 + $29 billion (including today) or $99 billion. Adding the two amounts to $14,310,567,662,931.23. As a reminder the debt ceiling is $14,294,000,000,000.00. In other words, the total US debt just passed the debt limit - break out the Champagne!

Earlier today Japan Geiger counters had a brief scare following news that a second radioactive powerplant - Fukushima Daini briefly emitted smoke. Reuters reported: "smoke was reported to be coming from a second
damaged nuclear plant nearby on Wednesday, with the authorities saying
an electric distribution board powering a water pump was the problem. The Daini plant several miles from the stricken Daiichi facility has been put into cold shutdown." And while the incident was subsequently said to be under control, a bigger issue for Japan's export market is the attempt to overturn the food export embargo which many countries have imposed on the island nation out of radiation concerns. That this is a major issue for Japan becomes apparent following disclosure that the country is already pushing hard to overturn this ban: "Japan called on the world not to impose "unjustifiable" import curbs on its goods as French President Nicolas Sarkozy was due to arrive on Thursday, the first leader to visit since an earthquake and tsunami damaged a nuclear plant, sparking the worst nuclear crisis since Chernobyl in 1986. In a briefing to the World Trade Organisation (WTO), Japan said it was monitoring radioactive contamination to prevent potential food safety risks and would provide the WTO with quick and precise information." Alas, with Japanese credibility non-existent following the abysmal treatment of the catastrophe over the past three weeks, one can see why the world may be a little skeptical. Add to this earlier news that according to the IAEA there "might" be recriticality in the reactor, and we can't wait to see Japan's March trade balance when it is released in just over a month.

Following the fall of the Portuguese and Canadian governments (and don't get us started on Belgium), here comes the latest entrant to the anarchy club. Kuwait's cabinet is expected to resign on Thursday after lawmakers asked to question three ministers, parliamentary sources said on Wednesday. More from Reuters: "The sources said that the cabinet was set to submit its resignation after lawmakers asked to question three ministers who are ruling family members, including the oil exporter's energy minister, who is also the information minister." After all what better way to avoid answering questions in a bona fide "democracy" than to take down the entire government. But this too is bullish: "Ministerial resignations are frequent in Kuwait, which has the most outspoken parliament in the Gulf Arab region." In other words it was priced on. And furthermore, with a globalized corporatocracy long in charge of the world, receiving its lifeblood of endless money and cheap credit, who needs governments anyway.

In news that should move the precious metals market, we learn that the world's third largest producer of silver (as well as zinc and lead) has announced its production is now totally paralyzed. From Reuters: "A week-old strike at Bolivia's San Cristobal mine has totally paralyzed production and exports of silver, zinc and lead, a union leader said on Wednesday. San Cristobal is the world's third-largest producer of silver and the sixth-largest producer of zinc, according to Japan's Sumitomo Corp, which owns the mine." For those who recall basic central planning economics this means that silver should plunge immediately, and should react even more adversely on news that crude supplies in the US are surging. After all, oil supply demand is far more critical to silver price discovery than the actual supply of a metal that unlike gold, is used in various industrial and peacebringing applications (see Operation Odyssey Dawn).

Remember Fukushima?

• IAEA SAYS `THERE MIGHT BE RE-CRITICALITY' AT FUKUSHIMA
• IAEA COMMENTS AT PRESS CONFERENCE IN VIENNA
• IAEA DIRECTOR GENERAL YUKIYA AMANO SPEAKS AT BRIEFING IN VIENNA
• IAEA HAS NO INFORMATION FROM TEPCO ON NEUTRON DETECTORS

If indeed the reactor has gone critical again, the whole concrete dome idea may have to be promptly scrapped.

The president is due to address America's energy "security" any minute now. We wonder if he will address the fact that OPEC is set for a bumper export year, generating profits of over $1 trillion for the first time ever. Of course, that is money that will have to be recycled back into US bonds so it is bullish.

Longtime readers will recall that we've had several conversations here regarding the impact that the Fed's quantitative easing policy is having on the costs of everyday food items. Soaring prices of agricultural commodities are going to continue to have a devastating effect on the purchasing power of average Americans and consumers around the globe. Since prices have now recovered some from the selloffs after the Japanese earthquake and tsunami and since there is no end in sight to QE, I thought it was time to once again take a look at out favorite commodities and assess where their prices may be headed over the spring and summer.

Exhibit A in Efficient Market Theory. A few minutes ago the DOE released its crude oil inventory data for the Week of March 25. With Crude inventories expected to decline from 2,131K to 1,500K (you know the whole economic improvement thing and what not), instead we got a build to 2,945K, with Cushing surging from 177K to 1,689K. What would one expect should get killed on this data? Oil right? Yet below we get a glimpse of what mega leveraged and ultra trigger finger happy correlation desks trade like these days.

While many commodities are experiencing a long-overdue correction as the inflation trade takes a breather, lean hogs continues to surge higher, and at last check were just off record highs. Which is why many are following the presentation the company is currently conducting at the JP Morgan global protein conference to get a sense of whether consumers are finally balking at protein purchases. Apparently the answer is no. As Reuters reports, "U.S. consumers have not yet slowed purchases of pork at grocery stores and casual dining restaurants despite this year's much higher prices, U.S. pork producer Smithfield Foods Inc said Wednesday." And why should they: with millions living mortgage free, since the average mortgage delinquency length is now 537 days, that many more people can afford it, and everything else, at virtually any price. Ironically the Fed, by indirectly cutting out on this key expense (not to mention the FASB's ongoing MTM freeze which permits banks to mark mortgages, even delinquent ones, at whatever price they want) is allowing the population to experience an effect comparable to wage growth. Which is one of the key aspect ignored by the media and those who perceive deflation as imminent: while wage growth is surely a key component to stimulating pernicious inflation, eliminating key consumer overhead ends up having the same net effect. And since banks are in no rush to kick squatters out, expect to see increasing price pressure not only on pork but on all other commodities too.

Reuters reports that just as Zero Hedge has been expecting as along, global economic growth is starting to slow. According to a leaked copy of the World Economic Outlook report coming out shortly:

• US GDP growth has been cut to 2.8% from 3.0% in 2011; while 2012 (which will be cut at a later date) was raised to 2.9% from 2.7%.
• Japan 2011 GDP cut to 1.4% from 1.6%, 2012 to 2.1% from 1.8% (same as above)
• Euro zone 2011 GDP raised to 1.6% from 1.5% in 2011; 2012 raised to 1.8% from 1.7% - good luck with this one.
• China 2011 GDP remains at 9.6%, slowing to 9.5% in 2012

Something remarkable happened to property taxes in the U.S. while housing lost 31% of its value from 2006 to 2009: they went up by $100 billion (27%). Equally remarkably, as we can see from this U.S. Census Bureau data on state and local tax revenues, property taxes went up even when housing slumped in the early 1990s. So though U.S. housing continues losing value--U.S. home prices declined in January, continuing a downward trend that began in August, with average U.S. home prices retreating to summer 2003 levels, according to the S&P Case-Shiller home-price indexes--property tax revenues continue their inexorable rise. So even as the net worth of property has fallen by a third, the property taxes collected from the owners have risen 27%. Exhibit A in this ceaseless rise of property tax revenues is the structural shortfalls in state and local government budgets between what was promised to various fiefdoms and constituencies at the apex of various bubbles, and what is sustainable in non-bubble times.