Archive - May 26, 2011 - Story

Today's chart of the week comes from Bloomberg's Senior Economist, Joseph Brusuelas, who correlates initial claims (inverted axis) and GDP (Y/Y% not annualized). Alas for Tim Geithner and anyone who read his "Welcome to the Recovery" Op-Ed from August 2010 clearly written under the influence of hallucinogenic Kool-Aid, it appears that the economy is about to grind to grind to a halt. The chart needs no explanation.

One of the most interesting things going on here in Hong Kong at the moment is the gradual displacement of the US dollar, and even the local Hong Kong dollar, by the Chinese Yuan. Walking around town, the signs are obvious: from shops that gladly accept Chinese Yuan cash for the goods they sell, to the money changers which now ALL display the Hong Kong dollar / Chinese Yuan cross-rate much more prominently than the US dollar / Hong Kong dollar cross rate. In many ways, this is a live economic experiment. Hong Kong has long had one of the world’s freest, most sophisticated economies; residents are free to choose what currency to accept (and save), whether HK dollars, US dollars, Chinese Yuan, gold, or anything else...US monetary inflation makes it inevitable that the Hong Kong Monetary Authority will come up with some sort of a scheme to either peg the Hong Kong dollar to the Yuan (rather than the US dollar), or perhaps even replace the Hong Kong dollar with the Yuan altogether. This would be a HUGELY popular move. Hong Kong is one of the few places on Earth with a net savings rate; the loan to deposit ratio its banking system, for example, stood at 81.7% at the end of March, meaning there are only 81.7 cents on the dollar lent out in Hong Kong for every $1 on deposit in the banks. Consequently, savers would love to see the Hong Kong dollar revalued higher by pegging it to the Chinese Yuan at the current Yuan/dollar rate of 6.50, rather than the current HK dollar/US dollar peg of 7.80. Bottom line, the clock is ticking on a Hong Kong dollar revaluation.

A snapshot of the US Afternoon Briefing covering Stocks, Bonds, FX, etc.

Market Recaps to help improve your Trading and Global knowledge

Yesterday we reported that Sarah Palin has just purchased a new property in North Scottsdale, AZ for $1.75 million. We further speculated that there may have been some fishyness with regard to the terms of the purchase of the JPM short sale which was an over 100% flip in about a year. So far so good. Where this story takes yet another detour into the macabre, is a cursory analysis of the release deed of the prior mortgage holder of the property, one Steven Soraya, who had a loan amounting to $980,500.00 with Wells Fargo, which was released on July 3, 2007 and which just so happens was signed by Robosigner extraordinaire, the one, the only, the infamous Linda Green. Ergo our question: did miss Palin just procure a property to which there is no legitimate title, and which, therefore, may not have been legitimately sold to her? Oh yes, MERS is of course involved too.

A little over a month ago, when silver was trading at just about $40, a silver put buyer made headlines (and even arguably moved the price of the metal) after buying $1 million worth of SLV July $25 puts. The same buyer made further headlines after he or she generated a 68,294,229,502,717.3% annualized return 4 weeks later. Well, today the trilogy comes to a close with the last headline saying something to the nature of "easy come, easy go..." - following a massive surge in the July $25 puts volume, we have learned that the same put buyer has offloaded his entire 10k put block.... at a complete wash. In other words, someone just got a very stark lesson in why a 500% paper profit can be converted into a 0% realized non-profit (and loss when factoring transaction costs) in just three weeks.

Yesterday, the latest set of downbeat musings by SocGen's Albert Edwards made the pages of Zero Hedge (incidentally, the market is starting to appreciate that he was once again correct: deflation, then whoosh). Today, we present Albert Edwards in a slightly different, and even more subdued, light.

Gleacher's co-head of rates Russ Certo asks: "Who needed to buy $112 billion 5 years near new range break out low yield prints? And who would pay 1.7 bps through in order to do so? I think it is obvious that there is "official" demand in the form of central banks and official institutions, pensions, excess reserve banking entities recirculating monies and the like. I feel goosed. Seems like we are on QE6, they just didn't tell you that it started. And we have seen this before." He sadly concludes that this forced Fed intervention to keep rates low means the bottom is about to fall out: "Maybe, the severity of the litany of unintended consequences of this low rate coordinated policy which is penalizing savers, reducing income based consumption, creating more leverage and robbing economic fundamentals from the future and the like, are more beneficial than the alternative of stakeholders perceptions how bad banking balance sheets are. Maybe, if you don't have sound financial institutions (or the perceptions of such) or sovereignties, both of which need a function of time, lower rates, higher net interest margin, to work their way out of insolvency, then all this is worth it. Maybe, solvency conditions of banks explain this seemingly confusing relentless easings of policy. No sound banking system, nothing sound."

And some more headlines:

• EU's Juncker says IMF may not release tranche for Greece next month
• EU's Juncker says IMF needs 12-month Greek refinancing guarantee
• EU's Juncker says governments unable to make up IMF portion

Elsewhere, Greece is already planning its upcoming series of 24 hour strikes which will make sure that Greek budget deficits continue to demonstrate that only the US is worse than the Mediterranean country when it comes to balancing its books.

Only this time not with its handling of luxury hotel staff, but with its assessment of "reality":

IMF's Blanchard says inflation is a non issue for US economy

And these are the people who continue to pretend they have any relevance? Just get done with your theatrical conclave already and phase out into irrelevance already. Luckily, the "real" IMF, China, is always in the background, willing to purchase, er, bailout any (read all) European states that need a bailout.

"Goldman Sachs and HSBC together held $335 million of the Libyan oil fund's assets, while Societe Generale held $1 billion in structured products for the fund, Global Witness said on Thursday." Thank you Reuters for confirming that a crazy conspiracy blog (although with 3MM/mo uniques that may need redefinition) occasionally ends up being proven right. Of course, there is nothing wrong with that. Oh wait, there is. Perhaps it is time to inquire not only into Goldman's alleged perjury (Your honor, St.OMO is not the Discount Window, we swear), but also into the firm's (don't laugh) anti-money laundering "rules" (a topic also discussed here).

Before we move on from today's atrocious GDP number, we are presenting the one firm whose macroeconomic opinion we truly respect: Stone McCarthy, and yes we will make an exception for Goldman's comments because we are delighted to recall how Jan Hatzius predicted a new golden age for the US economy as recently as December 1 (read at: "Goldman Jumps Shark, "Fundamentally" Shifts Its "Bearish" Outlook On Economy: Goes Bullish, Hikes Outlook"). Because every documented incident of failed "shark jumping" deserves the proper amount of gloating.

Because we all need a laugh after the latest confirmation that the Fed has completely failed at restoring economic growth. Incidentally this anecdote also explains why the S&P doubled in the last two years.

Contrary to expectations by the endlessly wrong Wall Street crew, the second revision of Q1 GDP came not as expected at 2.2% (up from 1.8% in the first estimate), but far, far lower at 1.8%. And while the number is largely irrelevant for the future and even current economy, it shows that the contraction is far more pronounced. More troubling is the shift in various GDP components contributing to the number: the biggest delta was Personal Consumption Expenditures which missed by a whopping 21%, plunging from 2.7% to 2.2%, on expectations of a rise to 2.8%. As a result as the chart below shows, the "growth" in Q1 was based on even shakier grounds: the contribution from PCE plunged from 1.91% to 1.16%, with Fixed Investment plunging from 0.93% to 0.26%. The plug: why old faithful of course - Inventories, which "added" 1.19% to growth, up from 0.09% in the first revision. Ex the now traditional inventory build, Q1 GDP growth was sub 1%. Which means that once the inevitable liquidations commence, the US will go into all out contraction. And confirming the keyword of 2011 "stagflation" is now firmly entrenched, was the BLS advising us that initial claims surged from 404K to 424K. So much for no QE3. Next up, as we have said ever since January, Jan Hatzius and Bill Dudley start having tete-a-tetes. Everyone knows what follows...

• Merkel-Sarkozy Bond Frays Heading Into Deauville G-8 (Bloomberg)
• China's Cabinet May Impose Temporary Price Controls to Counter Inflation (Bloomberg)
• No Retreat on Medicare (WSJ)
• Goldman Sachs Needs a New Audit Committee (Bloomberg)
• Republicans to roll out new tax-cut proposal (MarketWatch)
• GATA urges Paul to probe Fed's gold swaps; he tells CNBC he will (GATA)
• Civil war looms as dozens killed in Yemen capital (Reuters)
• Foreclosure Drop in Florida and California Do Not Show Recovery (ForeclosureWarehouse)

The Fed does it again. Following consistent allegations that the Federal Reserve operates in an opaque world, whose each and every action has only had a purpose of serving its Wall Street masters, led to repeated lawsuits which went so far as to get the Chairsatan to promise he would be more transparent, Bloomberg's Bob Ivry breaks news that between March and December 2008 the Fed operated a previously undisclosed lending program, whose terms were nothing short of a subsidy to banks. Says Ivry: "The $80 billion initiative, called single-tranche open- market
operations, or ST OMO, made 28-day loans from March through December
2008, a period in which confidence in global credit markets collapsed
after the Sept. 15 bankruptcy of Lehman Brothers Holdings Inc. Units of 20 banks were required to bid at auctions for the cash. They
paid interest rates as low as 0.01 percent that December, when the Fed’s
main lending facility charged 0.5 percent." 0.01% interest is also known by one other name: "outright subsidy." It doesn't get any freer than that: 0.01% interest on one month cash. Just how close to a complete implosion was the financial system if 0.5% interest seemed too high? Not surprisingly, this program was widely used: "Credit Suisse Group AG, Goldman Sachs Group Inc. and Royal Bank of Scotland Group Plc each borrowed at least $30 billion in 2008 from a Federal Reserve emergency lending program whose details weren’t revealed to shareholders, members of Congress or the public...Goldman Sachs, led by Chief Executive Officer Lloyd C. Blankfein,
tapped the program most in December 2008, when data on the New York Fed
website show the loans were least expensive. The lowest winning
bid at an ST OMO auction declined to 0.01 percent on Dec. 30, 2008, New
York Fed data show. At the time, the rate charged at the discount
window was 0.5 percent."  Yes, that Goldman Sachs. The same one that perjured itself when it said before the FCIC that it only used de minimis emergency borrowings. Just how many more top secret taxpayer subsidies will emerge were being used by the Fed to keep the kleptocratic status quo in charge?