Archive - Mar 2011 - Story

The BLS has announced a surprising drop in initial claims, which plunged from a downward revised 388K to 368K, on expectations of 395K. This was the lowest number since May of 2008. "In the week ending Feb. 26, the advance figure for seasonally adjusted initial claims was 368,000, a decrease of 20,000 from the previous week's revised figure of 388,000. The 4-week moving average was 388,500, a decrease of 12,750 from the previous week's revised average of 401,250. The advance seasonally adjusted insured unemployment rate was 3.0 percent for the week ending Feb. 19, a decrease of 0.1 percentage point from the prior week's revised rate of 3.1 percent." The non-seasonally adjusted number came at 351K, a number which if contained means that the so called slack in the economy is evaporating, and that the inflationary picture is far worse than the Chairman expects. These numbers further conform to rumors for a blowout NFP tomorrow, spread yesterday, which says that based on Birth-Death adjustments, the NFP could be well over 300,000. In other news, continuing claims hit 3,774K on expectations of 3,815K, compared to 3,833K previously, and those added to EUC and extended claims were roughly 55K.

Markets positive this morning as the rise in oil simmered and emerging markets posted gains. World food prices met a new high in the latest U.N. report as it seems that the U.S. continues to export inflation. The Fed’s Beige Book released yesterday was optimistic and similar to January’s, with nearly all of the reporting regional banks citing growth in retail and manufacturing despite evidence of rising pressure on prices. Initial jobless claims data today 395K Expected and given last week’s large drop and fairly consistent weather, the release should be on par with last week’s 391K. Fed Chairman Bernanke spoke to House of Representatives yesterday in day two of his Humphrey Hawkins speech, again expressing dissatisfaction with the labor market, confidence in the battle against inflation and concern for America’s fiscal policy. Bernanke’s two days of speeches to Congress showed a conviction to keep short term interest rates low until unemployment levels recovered. Although recent releases show a modest rebound in labor, it may not be enough to push interest rates up as current estimates for 2012 unemployment reach 7.5 to 8.0%.

• Why the Dollar's Reign Is Near an End (WSJ)
• Take a bow Hatzius: John Taylor takes apart Goldman's economic "achemists and quacks" (Bloomberg) - This is what happens when you sellout to the propaganda machine
• William Cohan joins the tinfoil hat brigade - A Conspiracy With a Silver Lining (NYT)
• Gaddafi strikes oil areas, Arabs weigh peace plan (Reuters)
• No criminal charges ever: Officials Disagree on Penalties for Mortgage Mess (NYT)
• Bernanke Sees 200,000 Hit to Jobs from Budget Cuts (Reuters)
• It's Taps For the Still Weakening Dollar (RCM)
• Asia Moves to Shore Up Strategic Oil Reserves (FT)
• Beijing home sales slump in February (China Daily)

When two months ago, in the first week of January, we observed that the U.N. Food and Agriculture Organisation's Food Price Index had hit a record we said: "The last time food prices hit ridiculous levels, the immediate outcome
was global food riots in places such as Haiti and Bangladesh. Which is
why distributors of riot equipment in the world's poorest countries may
be in for a bumper crop as the Food and Agriculture Organization has
just announced that world food prices have just surpassed the previous
record last seen in 2007-2008." Little did we know just how prophetic this statement would turn out to be. Well, the FAO has just released its latest food price update and as expected, it is a new all time high. The U.N. Food and Agriculture Organisation's Food Price Index hit its second straight record last month, further passing peaks seen in 2008 when prices sparked riots in several countries, driven by rising grain costs and tighter supply." And with oil now joining food, which means that the inflationary vicious spiral is now on, it is only a matter of time before ever more hungry countries join the wave of revolutions, now that Tunisia and Egypt have shown it can be done. On the other hand, our expectation is that the IMF will promptly seek to put out any fires before they become infernos, with the US taxpayer reeling from the double whammy of Bernanke's inflationary policy consequences: once at home, and once by subsidizing foreigners.

The main story overnight, which has cut gains in precious metals and oil, and set futures surging is a bizarre rumor that Venezuelan dictator Hugo Chavez has proposed a Libyan peace plan which is being considered by the Arab League. "Oil prices were lower on Thursday as speculation a peace deal may be brokered for Libya prompted some investors to cash in gains, but the market remained elevated on concerns over ongoing unrest in the region. A report the Arab League was considering a peace plan for Libya proposed by Venezuelan President Hugo Chavez led some players who had bet on rising prices to close their positions overnight." In terms of credibility and actual practicality, this story has about the same weight as the false rumor spread last week that Gaddafi was shot. But the desperate market will take any myth that sends it surging and run with it. "As for the proposed peace plan, Arab League Secretary-General Amr Moussa told Reuters, "We have been informed of President Chavez's plan, but it is still under consideration." Analysts were sceptical the plan would lead to peace. "It is doubtful that the protesters in Libya will agree to enter negotiations with Gaddafi as the plan of Venezuelan President Chavez suggests," Commerzbank said in a note." So while a US aircraft carrier is happily swimming toward Libya (fact), stocks once again bury their head in the sand on the smallest amount of misinformation with the hope that central planning has once again regained control.

RANsquawk European Morning Briefing - Stocks, Bonds, FX etc. – 03/03/11

As we speculated last week, the LHD 3 Kearsarge deftly left the treacherous waters of the Red Sea a few days ago, and after crossing the Suez is now well on its way to the shores of Tripoli (where it is set to meet Canadian, Korean and Dutch warships). Yet to those who argue that the US military is a well-oiled machine, look no further than the schizophrenic moves the Enterprise has had to endure in the past two weeks: after it was just off the coast of Libya as recently as February 9, and rushing into the Red Sea in direction Straits of Hormuz two weeks ago, the storied aircraft carrier was halted dead in its tracks en route, and ordered to do a 180. It is now hot on the heels of the Kearsarge and we believe will also cross the Suez within 48 hours as it moves in to provide air support to Libya by the weekend. And with air coverage, the no fly zone will likely be instituted by Monday of next week, which, as Robert Gates telegraphed earlier, is the codeword for a "NATO" invasion. Which means this weekend will likely be do or die in terms of game theory defection choices for the Gaddafi family: will he defect peacefully and spend the rest of his days with his friend Robert Mugabe, the world's second best performing stock market after the NYSE Borse, and a few hundred pounds of gold, or will he set fire to the Libyan oil infrastructure as he leaves the scene kicking and screaming.

In a surprising turn of events, today's biggest piece of news received a mere two paragraph blurb on Reuters, and was thoroughly ignored by the broader media. An announcement appeared shortly after midnight on the website of the People's Bank of China. Reuters provides a simple translation and summary of the announcement: "China hopes to allow all exporters and importers to settle their cross-border trades in the yuan by this year, the central bank said on Wednesday, as part of plans to grow the currency's international role. In a statement on its website www.pbc.gov.cn, the central bank said it would respond to overseas demand for the yuan to be used as a reserve currency. It added it would also allow the yuan to flow back into China more easily." To all those who claim that China is perfectly happy with the status quo, in which it is willing to peg the Renmibni to the Dollar in perpetuity, this may come as a rather unpleasant surprise, as it indicates that suddenly China is far more vocal about its intention to convert its currency to reserve status, and in the process make the dollar even more insignificant.

The "subprime" vehicle maker is back to its old bag of tricks - of the variety that ultimately resulting in its bankruptcy. After Zero Hedge had been pointing out for months that GM's sales number are in small part a function of its "inventory stuffing" gimmick, which has seen the number of cars held by dealers explode over the past 12 months as seen in the linked chart, leading us to speculate that GM is essentially recreating the AOL "channel stuffing" strategy that worked out oh so well, we now get confirmation that things are in fact far worse than even we had expected. Bloomberg reports that "General Motors Co. is offering buyers interest-free financing on some 2011 models after the company increased discounts and incentives to lead all major automakers’ U.S. sales gains last month." As of yesterday desperate car buyers who can't rub two dimes together, can drive to the local unemployment office in the luxury of their brand new Chevy Imapala, or alternatively pick a just as worthless Chevy Malibu, HHR WAgon, Traverse SUV, as well as a Silverado, Colorado and Avalanche pickups, which are now offered at either 72 or 60 months of interest-free loans. "The 60-month deal also applies to the Buick
Enclave and GMC Acadia SUVs and Sierra pickups." That pretty much covers the entire line up. And that's not all: "GM raised discounts 12 percent from a year earlier to an
estimated $3,732 per vehicle last month, the most among major
automakers and 45 percent more than the average, according to
researcher Autodata Corp." As Jeremy Anwyl, chief executive officer of Santa Monica, California-based Edmunds.com summarized it all too well: "GM’s rhetoric has been saying one thing -- discipline,
discipline, discipline -- and then their actions have been going
completely in another direction." And as the stock, which is now firmly below the IPO prices indicates, the direction is a given: down. It is time for another poll (now that the one about the IPO price floor has been resolved): how long before GM files Chapter 22?

RANsquawk Market Wrap Up - Stocks, Bonds, FX etc. – 02/03/11

The conclusions of our "2011 Thesis - Beggar-thy-Neighbor" was that the world is on a glide path towards a global Fiat Currency Failure and the emergence of a New World Order. We are unclear whether it is planned or happenstance, but what the regularly conducted abstraction mapping process clearly indicates is that it is presently a high probability outcome. The paper uses the Process of Abstraction to avoid the media noise, abstract the facts, synthesis key macro drivers and then arrive at the highest probability outcomes. In the recent article "2011 Tipping Points" we laid out the 37 major Tipping Points we are presently tracking. These Tipping Points are show on the left hand side of the two charts below, which are the basis upon which our ongoing analysis process is conducted. These highly simplified representations of the process gives the reader a graphical perspective on what leads us to our conclusions.

The must watch 5 minutes from today's second day of Bernanke hearings before congress is the following interaction between the Chairman and his archnemesis: Ron Paul. The first brilliant rebuttal by Ron Paul has to do with the ongoing "Federal Reserve lecturing" on why Congress should not allow out of control deficits to escalate. As Paul so correctly put its, "the Congress and the Fed are symbiotic because the Congress spends and they know there is a moral hazard involved because they know that if interest rates go up, the Fed accommodates them. So the Fed really facilitates this spending, and until we realize this I think the Fed is involved with our deficit and encourages it as well as the Congress." This is an absolutely smack on point which goes to the whole heart of the real premise behind QE2: keeping rates low so there is no prohibitive lever against runaway deficits. That, and of course, ending up the primary holder of US debt so that the Treasury can convert "interest expense" into "revenue." And if the 10% of the public that benefits from a Dow 36,000 believes the false "wealth effect" myth in the process (nominal, not real) so much the better. It did, after all, work for a while in Weimar Germany. And while Paul touches on other key topics such as purported price stability (there recently was a scientific paper proving there has been no real change in price stability before and after 1913, which we will track down shortly), real plunging employment and the definition of the dollar (to which Bernanke's repartee that "Consumer don't want to buy gold" should probably be reevaluated in light of today's all time record high price). Yet one exchange that was missing, which was not between Paul and Bernanke had to do with Bernanke's reasoning why in his view it was not possible to get back to the gold standard: "there is not enough gold." That, unfortunately, is the most patently absurd claim ever and coming from a Fed Chairman we are pretty confused by its implications. Surely Ben realizes that all that matters is the price equivalent ratio of conversion. There will be more than enough gold if gold is converted instead at $2,000/oz at $20,000, or failing that, $200,000 and so forth. There will be more than enough gold if one ounce is equivalent to a million piece of linen or more, or more realistically, at $6,300 as Dylan Grice quantified previously. We guarantee it. And after all, that is the whole point of a gold standard: not to dilute the currency infinitely.

This is where the teaser goes. It's all teaser like.

Wonder why nobody really cared about the Libyan regime until two weeks ago, when it suddenly became cool to hate on Muammar, especially by his former head of state "best friends"? Simple: weapon sales. While Libya was happily exporting oil, and using the proceeds to reinvest the money in the form of €62 billion or so of deposits in European (and apparently US) banks, bypassing Money-Laundering Provisions freely, it also used a fair portion of the proceeds to procure weapons. The amount, at just under €1 billion between 2005 and 2009 is not nominal, and certainly led to some very appreciated top and bottom line beats for a variety of arms makers. And while the data was not previously available, the Guardian now makes it public for the entire world to realize that while Italy relied on Libya for a great portion of its oil imports, it was also the biggest maker of Libyan weapons (which makes sense: the country needed to protect its investment) in 2009 and 2007, and was just behind France in 2008.

Must read observations from Merrill's Harley Bassman, formerly head of the RateLab: "Maybe I am showing my age, but I can assure you that as World Political events go, what is happening in the Middle East is actually the BIG ONE...The reason there is no "Flight to Quality" bid for USTreasuries is that USTs are no longer the "Quality" asset. Since the FED has turned on the printing presses, the "value" of the dollar has steadily declined. This is why the "Flight to Quality" is happening in Gold, Oil, Copper, Cotton, etc...Attention all you non-inflationists (and you know who you are), what more evidence do you need that the Govt's Plan "A" (inflation) is well underway?"