Archive - Mar 2011 - Story

The key highlights, in which we read that yes, the margin squeeze is here.

• Non-wage input costs increased for manufacturers and retailers in most Districts.
• Retailers in some Districts mentioned they had implemented price increases or were anticipating such action in the next few months
  
• Manufacturers, in a number of Districts reported having greater ability to pass through higher input costs to customers. (oh really, good luck)
• Most reporting Districts noted continued strong agricultural commodity prices.
• Wage pressures remained minimal across all Districts; although Philadelphia, Dallas, and San Francisco noted that most wage increases were for workers with specialized skills.
  

Now that silver continues hitting nominal high after high (except of course for the record price hit during the Hunt Bros period), and there is a very distinct possibility we may see an unprecedented melt up in the price of silver to over triple digits for a variety of previously discussed factors, here is a post we produced a year earlier, courtesy of a "deep insider" which dissects with exquisite detail the nuances of silver market manipulation, which in retrospect may have been just a little early. Considering that every single trope mentioned is now in play (even the unmasking of Buffett's unbelievable PM bashing hypocrisy when he himself was one of the people who utilized blatant silver market manipulation for his own purposes when it suited him back in 1997 to send silver soaring), we believe readers should re-read this post in its entirety as it presents a walk-thru for the mechanics, and strategy, of the ongoing unprecedented move higher in the shiny metal.

The U.S. is now on a similiar trajectory to decline, as its financial Elites have abandoned investing in productive enterprises and trade for the more profitable trade in financial duplicity and fraud, a.k.a. "financial innovative instruments" which arbitrage risk to the immense gain by the financial houses originating the arbritrage. The game is simple: create instruments which supposedly lower risk, but which really only mask risk behind complexity. Then, when the trade blows up, the traders transfer the stupendous private losses to the taxpaying public via sovereign debt. Once their debts and losses have been cleared, then they start the game over again. Why bother with risky productive assets when this financial gaming is so profitable and risk-free? Indeed. And there you have the dynamics of decline: the immutable math of a slow-growing economy and fast-rising costs of promises, anda financial Elite which has abandoned productive enterprise in favor of financial manipulation and illusory "products." You can't consumer more than you produce for long, and that's the "promise" that will be broken: that we can heedlessly consume more than we produce forever, with no consequences.

One of the most critical questions that has to be asked in light of yesterday's revelation that among the banks providing banking and asset amangement services for Libya were Goldman Sachs, JP Morgan and Citigroup, is just how did Libya get an exemption for anti-money laundering provisions both in Europe and the US. Oddly enough, this future mainstream debate arises not in the US, where any form of critical thinking appears to be immediately curbed by SEC Rule 201 (for all those calling for a hike in the SEC's budget, we suggest the following contrarian thought experiment: let's cut its budget to zero and see how long before anyone notices) , but out of the UK, where a reader writes in to the FT (oddly enough, partially owned by the Libyan Investment Authority) with the following very simple question: "It seems to me entirely implausible that Col Gaddafi could have earned
billions of dollars through legal means. And yet if the AML procedures,
to which we are all subjected, have not been applied rigorously to the
likes of Col Gaddafi and his family, one is forced to ask what purpose
they really serve." Or what purpose any regulation serves in general when fraud results in surging stock prices, and companies that adhere to the rules are promptly wiped out in this bizarro capitalist world.

And for today's most radical and ingenious resolution of how a country deals with an energy crunch we go to Chile, where courtesy of Reuters, we read that the government has just decided to extend summer by three more week to avoid a spike in energy usage. "Chile will delay the end of its summer time for three weeks as the country faces an energy squeeze because of drought and high demand, the government said Wednesday. Chile relies heavily on hydroelectric power to meet energy needs in the world's top copper producer, and rain shortages force generators to rely on costly fuel-driven plants, compounding inflation risks in the country's fast-growing economy." In other words, in addition to starting revolutions around the world, the Chairman is now forcing governments to rise up defiantly against the rotation of the earth around the sun.

Earlier we said: "In advance of the completion of today's POMO we have just one question: will the Fed do its taxpayer fiduciary duty and
monetize the cheapest bond (PM6 or the 2.125% of 12/31/2015), which
trades 0.7 bps cheap to the sector, or, instead, bend over to Jamie
Dimon et al again and instead buy the bond most profitable to flip by the Primary Dealers the just issued QJ2 (2.125% of 2/29/2016), which is actually 0.2 bps rich. Tune in at 11 am to find out." The results are in. As expected, the two bonds monetized the most by the Fed in today's $6.7 billion POMO are QJ2 to the mount of $4,891,000,000 and PM6 for $1,196,000,000. In other words, the Fed's "fiduciary" allegience is to the Primary Dealers over taxpayers in a ratio of 4 to 1. Thank you Sack-Frost for making it all too clear who you really work for.

RANsquawk US Afternoon Briefing - Stocks, Bonds, FX etc. – 02/03/11

US Defense Secretary Gates says establishing no-fly zone for Libya would require an attack on Libya

As a result, the entire crude complex levitated higher as if HFTed by the Fed's POMO desk.

Update:Fresh Libyan air strike in Brega, bomb explodes next to oil engineering university about 2KM from oil terminal - witness

WTI spikes by $0.70 following reports that a Libya plane has fired two missiles on the town of Brega, which contains a critical oil facility. The fact that Libya is now apparently willing to gamble with its oil infrastructure is precisely the worst case scenario that many have predicted. Stocks, of course, jump on the news too.

One of the most popular feuds against an allegedly fraudulent Chinese company continues as Muddy Waters just raises the bar by several notches: "Muddy Waters, LLC has amassed irrefutable evidence that China MediaExpress Holdings, Inc. (“CCME”) is a substantial fraud, and that management is engaging in a cover-up replete with further dissemination of fraudulent information. In light of the nature of the evidence, we believe that a de-listing from NASDAQ is not improbable; further, we believe that management stands to lose additional credibility. We therefore reduce our estimated value by one-third to $3.54."

Call it central planning's Pavlovian reaction: the Chairsatan is speaking, which leads to an immediate plunge in the dollar. And as the flight to safety trade now means dump the dollar, nominal assets benefit from the Bernank's third mandate: Russell 2,000 to 20,000, at about the same time as there are 20,000 representatives left of the US middle class.

In advance of the completion of today's POMO we have just one question: will the Fed do its taxpayer fiduciary duty and monetize the cheapest bond (PM6 or the 2.125% of 12/31/2015), which trades 0.7 bps cheap to the sector, or, instead, bend over to Jamie Dimon et al again and instead buy the bond most profitable to flip by the Primary Dealers the just issued QJ2 (2.125% of 2/29/2016), which is actually 0.2 bps rich. Tune in at 11 am to find out.

Barney Frank quizzing Ben Bernanke has got to be the funniest thing one can see today. So here is your chance to laugh. While not expected to say much if anything of note, using the same testimony as yesterday, Bernanke may engage in a few Freudian slips before the Frank, who has already asked the key question - should the Fed engage in more bond buying in light of the oil price spike. Don't expect a response. From C-Span: "Today, the House
Financial Services Committee can expect to hear more of the same from
 Bernanke as he appears before lawmakers for the second time this week.
They will likely question the Fed Chief on what the Central Bank is
doing to jolt the economy into increased recovery. Committee members
will also want to continue yesterday's line of questioning on how the
Fed is reacting to oil prices that have been going up up up in the wake
of unrest in the Mideast and North Africa."

During his presentation to the Senate yesterday (to be followed promptly by another presentation before Congress shortly), Bernanke discussed the impact of the $61 billion spending cut on GDP. In doing so he referenced a report published by Goldman strategists Jan Hatzius and Alec Phillips. He did so incorrectly. And the first thing Hatzius did this morning is to correct the Chairman: "Some have wondered—e.g. in the Q&A portion of Fed Chairman Bernanke’s monetary policy testimony on Tuesday—how such seemingly small cuts could have such a noticeable impact.  But it is important to remember that we are talking about a hit to the quarter-on-quarter annualized growth rate of spending here, not about a hit to the level of GDP.  For illustration, it is useful to go through a simplified version of the calculation underlying our estimates for the House-passed spending cut." Hatzius clarifies further: "We estimate that the $25bn cut in our budget projections reduces growth in Q2 by around 1 percentage point (annualized); this effect is already incorporated in our forecast that real GDP will grow 4% (annualized).  In addition, we estimated that the $61bn cut passed by the House would reduce growth in Q2 and Q3 by 1½-2 percentage point (annualized) in Q2 and Q3.  (In other words, relative to the assumptions currently embedded in our forecast, the House-passed package would imply an additional ½-1 percentage point drag on growth in Q2 and an additional 1½-2 percentage point drag in Q3.)  Spending would then be maintained at that lower level thereafter, and the effect on GDP growth would dissipate quickly in Q4 and would be essentially neutral by 2012 Q1." So perhaps the Chairman will keep this in mind as this report is surely reference once again today.

The scramble for non-dilutable currencies hits a frenzy as silver just touches on a fresh 31 year high of $34.90. To commemorate this historic event, the US Mint has halted American Eagle silver coing production, in addition to its ongoing halt of American Buffalo coins: "because of the continued demand for American Eagle Silver Bullion
Coins, 2010-dated American Eagle Silver Uncirculated Coins will not be
produced. The United States Mint will resume production of American Eagle Silver
Uncirculated Coins once sufficient inventories of silver bullion blanks
can be acquired to meet market demand for all three American Eagle
Silver Coin products."