Archive - May 2, 2011 - Story

Iranian PressTV reports that Israeli jet fighters have reportedly conducted drills at a military base in Iraq in order to strike targets inside Iran. While the Pentagon has so far denied this development which could easily send oil to $200, we are more curious what Israel has to say, or do in response to such allegations.

The helicopter carrying Navy SEALs malfunctioned as it approached Osama bin Laden’s compound at about 3:30 p.m. ET Sunday, stalling as it hovered. The pilot set it down gently inside the walls, then couldn’t get it going again. It was a heart-stopping moment for President Barack Obama, who had been monitoring the raid in the White House Situation Room since 1 p.m., surrounded by members of his war cabinet. “Obviously, everyone was thinking about Black Hawk Down and Desert One,” a senior administration official recalled. The SEALs disembarked. “The assault team went ahead and raided the compound, even though they didn’t know if they would have a ride home,” an official said. The special forces put bombs on the crippled chopper and blew it up, then lifted off in a reinforcement craft just before 4:15 p.m., capping an astounding 40 minutes that gave the United States a tectonic victory in the 10-year war on terror touched off by 9/11. The sick chopper turned out to be a tiny wrinkle in an astounding military and intelligence triumph. Bin Laden was shot in the face by the SEALs during a firefight after resisting capture. He was buried at sea less than 12 hours later. He was 54.

After some patriotic sentiment modestly pushed the dollar to just above humiliation levels, the DXY is right back to lowest level since July 2008. We still have about 150 pips to go until the all time low of 71.3521 from April 22, 2008 is taken out. After that, the CNY better be ready to take over as reserve currency cause it will get ugly.

The April ISM is out, and while it confirms last week's declining Chicago PMI data and the fact that the Japanese contraction has not even remotely impacted US businesses yet (and it will), the recent weakness predicted by various Fed diffusion indices is being confirmed. The ISM came at 60.4, a decline from 61.2 in March, primarily a a result of a fall in Production (-5.2), New Orders (-1.6) Supplier Deliveries (2.9) and Imports (-1.0). All of these metrics will drop far more once the Japanese contraction is truly appreciated. On the other hand, inventory restocking is still working its artificial growth miracles, rising by 6.2 to 53.6. Yet the most important metric as always remains the Price Paid, which after rising once again from 85.0 to 85.5, above expectations, is at the highest since July 2008. Then again, by now our thesis of (more than) transitory inflation can be appreciate by everyone.

And so once again rumors of silver's demise appear largely exaggerated: after plunging 15% last night, getting all the top callers to once again proclaim victory after having been wrong for the good part of about one decade, silver has since retraced a key Fib level and has now recovered over two thirds of the drop. At this rate, at least a few more margin hikes will be desperately needed today to throw all available speed bumps in the path of the unstoppable metal. In the meantime as expected last night's forced plunge was a gift for anyone who bought at $42 and has made over 10% already. Elsewhere, crude is approaching $115, after hitting $110 overnight. So much for the bin Laden inverse rally in commodities.

Who says there is nothing of value on Twitter. Anyone who was following Sohaib Athar's tweet yesterday would have a front row seat into a historic move that caused futures to surge, and various commodities to plunge (even if only temporarily). From the WaPo: "According to his Twitter stream @reallyvirtual, Sohaib Athar moved from Lahore, Pakistan to the resort town of Abbottabad to take a break from the rat race. It seems he didn’t move far enough. On Sunday, Athar found himself smack in the center of one of the year’s biggest news events. A 33-year-old IT consultant, Athar was on Twitter when the sound of a helicopter flying overhead drove him to write a series of frustrated notes. Over the next few hours, he compiled rumors and observations about an event that would soon have the world riveted: Athar tweeted the secret operation that killed Osama bin Laden. “I am just a Tweeter, a guy awake at the time of the crash,” he wrote after the world noticed he had a front seat to history and inundated him with questions and messages. Here’s the story from Athar’s point of view:

From MSNBC.com: "Jonathan Woods writes: Many images from the compound reported to be the hideout of Osama bin Laden have surfaced. In addition to images of the compound, photos of portions of a helicopter have also been made available to us."

And now, it is time for "happy nation" to be reintroduced to "police nation." From ABC.net: "Taliban leaders are warning of revenge attacks against the Pakistani government and foreign targets. "Now Pakistani rulers, president Zardari and the army will be our first targets. America will be our second target," Ehsanullah Ehsan, a spokesman for Tehrik-e-Taliban Pakistan (TTP), or Taliban Movement of Pakistan, said from an undisclosed location. Across the border in Afghanistan, president Hamid Karzai said bin Laden had paid the price for his actions. Mr Karzai said the killing showed that the Afghan insurgency was being led from training bases outside the country. He urged the Taliban to lay down their weapons and stop fighting. News of the killing of the Al Qaeda leader is still filtering across Afghanistan, where millions of people are illiterate or don't have access to radio and television. But many civilians are not expecting a reprieve from the violence across the country. The Taliban began its spring offensive yesterday, with a series of attacks, including a deadly blast by a 12 year old suicide bomber."

• Bin Laden is Dead, Obama Says (NYT)
• Bin Laden Killing Brings Anger, Relief in Arab World (Reuters)
• Senate ‘Gang’ Hashes Out Deficit Plan (WSJ)
• Canada Vote Sees Interesting Turn (WSJ)
• ECB Changes May Spell Faster Tightening as Draghi Eyes Top Job (Bloomberg)
• Japan Passes Emergency Budget (WSJ)
• Tripoli Embassies Attacked After Air Strike (FT)
• Europe Manufacturing Growth Accelerates More Than Estimated (Bloomberg)
• Syria Arrests Hundreds, Shells Deraa Into Submission (Reuters)
• South Korean Inflation Slows (WSJ)

Major strains in the U.S.-Pakistani relationship have rested on the fact that the United States is extraordinarily dependent on Pakistan for intelligence on al Qaeda and Taliban targets and that Pakistan in turn relies on that dependency to manage its relationship with the United States. Following the Raymond Davis affair, U.S.-Pakistani relations have been at a particularly low point as the United States has faced increasing urgency in trying to shape an exit strategy from the war in Afghanistan and has encountered significant hurdles in eliciting Pakistani cooperation against high-value targets. Now that the United States has a critical political victory with which to move forward with an exit from the war in Afghanistan, Pakistan now faces the strategic dilemma of how to maintain the long-term support of its major external power patron in Washington.

When the current stock market bubble pops, the last shreds of the Fed's legitimacy will be blown away. Strip away all the distractions, and the Fed's entire campaign to "restore confidence" and "animal spirits" so that the "recovery" magically becomes "self-sustaining" is based on one thing, and only one thing: the current stock market rally. The equities rally is the only metric of "success" the Fed can point to that isn't risible. Once the rally implodes, so too does whatever remains of the legitimacy of the Fed and the Federal agencies which have aided and abetted the Fed's unprecedented propaganda campaign to replace economic reality with happy-happy "managed perceptions." The "news" is always good, because who knows what the people might do if the flimsy official facades sway in the breeze of truth and then collapse in a heap? They might demand new leadership and systemic changes that would disrupt the cozy Status Quo partnership of cartel-crony Capitalism, Wall Street and the Central State fiefdoms.

Over the past few months many have wondered how it is possible that with the great amount of tightening current undertaken by the PBoC has China not seen any decline in its inflationary pressures over the past 6 months. Finally, courtesy of Sean Corrigan who first identified the so called reverse Cash-n-carry trade in China over two years ago, we have our answer on the "next Chinese investment craze" - money lending. In a nutshell, as the Economic Observer points out, the Chinese central bank has now outsourced nearly a fifth of all its capital lending to private sources. And as Corrigan explains: "…so, I guess what is happening here specifically is that Chinese cos buy metal abroad on USD credit (cheap, depreciating) - - possibly for extended term, then sell/buy the metal domestically for Yuan on the spot/futures market (reverse cash-n-carry), then lend out the Yuan on the curb market at double digit rates to bank loan-deprived customers in an appreciating currency into the bargain - - - - - ‘implied demand’, my foot!" Just as importantly, with everyone lending, the proceeds continue to funnel into precious metals now that the local stock and real estate market bubbles have popped. The only question is how long will this recycled source of capital last?

Weakness in many regional manufacturing surveys points to a decline in the national ISM.

While the world is caught up in a wave of largely irrelevant for the capital markets euphoria, things in Europe are once again going from bad to worse, as the weakest link in the European rescue has once again said no. Reuters reports: "Finland's eurosceptic True Finns party said on Monday it was sticking to its pre-election stance that it cannot support Portugal's bailout package.  We cannot with good conscience support Portugal's package nor the creation of permanent bailout mechanism. Neither do we approve the hike of Finland's guarantees in the temporary stability mechanism," the party said on Monday as its formal answer to Jyrki Katainen, the leader of National Coalition party, who is leading the talks to form the country's new coalition government." As has been reported previously, absent Finnish approval, the European rescue is virtually halted in its tracks, and means that there is no consensual green light for the EFSF rescue package. Additionally, as Europe has been kind enough to indicate in the past, "there is no Plan B." And to make things very clear, Finnish MP Soini that Greece is likely to restructure its debt and other will follow, but not under the ESM: "it is a structure that doesn't work." Needless to say the implications of a failed compromise on the bailout of not only Greece, but not Ireland and Portugal as well, means that should Finland retain its intransigence, the eurozone is pretty much over.