Archive - May 26, 2011 - Story

Today we get the second estimate of Q1 GDP and jobless claims for last week. Somehow a claims number over 400,000 is once again considered a good thing. Elsewhere the Fed buys $5-7 billion in 05/31/2015-11/15/2016 bonds, even as the Treasury gets even deeper into net debt ceiling breach courtesy of the last bond in the scheduled series this week which saw total US marketable debt increase by $110 billion gross and $49 billion net.

A month ago, when Goldman, just as we predicted, cut its GDP outlook for Q1 (to be followed by downgrades to both H2 and Q2) we said: "Some other things nobody will be able to predict: Hatzius dropping full
year GDP from 4% to 2.25%; Goldman's downgrade of precious metals,
Kostin's 2011 S&P 500 price target reduction by 20%, and Goldman
getting its New York Fed branch to commence monetizing $1.5 trillion in
debt some time in October." One by one all of the predictions are starting to come true: this morning Goldman head market strategist just cut his S&P 500 outlook from 1,500 to 1,450 (granted it is not 20%...yet. There is, however, over 7 more months left in the year). In the meantime, look for the thunderous Wall Street lemmings herd to do the same. Just as we have been predicting on both. Time for CNBC to trot out Laszlo Ultrasound and to advise him to angle the predictive instrument known as a ruler a littler lower: the S&P 2,854 call in 2 years suddenly appears in jeopardy (absent QE7 of course).

Gold and silver are lower today with profit taking, Chinese bond buying and increased risk appetite being cited for the price falls. Reports of China buying Eurozone government debt may have led to a rise in the euro and equities. However, the scale of sovereign debt risk internationally is such that even significant and ongoing Chinese buying would be unlikely to contain the crisis. While most of the focus has been on Greece and Eurozone sovereign debt issues, the not insignificant risk posed by a U.S. sovereign debt crisis increases by the day. The risk of a US default continues to rise which can be seen in the sharply increased cost to insure U.S. sovereign debt. The squabbling between Democrats and Republicans last week as the U.S. debt ceiling of $14.3 trillion was being reached did not help sentiment towards U.S. debt. Nor did former Soros’ partner Stanley Druckenmiller, the billionaire former-hedge fund manager and legendary investor, comment in the Wall Street Journal that the Federal Reserve’s bond purchases are a fraud and a “Ponzi scheme”. He advocated a U.S. default or a technical default, saying “"technical default would be horrible, but I don't think it's going to be the end of the world. It's not going to be catastrophic."

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