Archive - May 3, 2011 - Story

According to a just released Washington Post-Pew poll, Obama's rating from Monday night, following the digestion of the bin Laden news, hit 56% as respondents say they approve of the way Obama is handling his job as president, an increase of nine percentage points over April polls by Post-ABC News and Pew. On the other hand: "the new poll, conducted Monday evening by The Washington Post and the
Pew Research Center, also finds virtually no movement in Obama’s numbers
when it comes to handling the economy." That said, "that is the highest approval rating for the president in either poll since 2009." Alas, if history is any precedent, the small boost will rapidly wane unless the president does something about the number one concern on voters' minds: (no, not the Russell 2000) - gas. "Compared with the mid-April Post-ABC poll, Obama’s approval rating among independents is now 10 points higher, at 52 percent. Bush got an identical 10-point boost among independents in December 2003. For Bush, that lift proved short-lived, with the entire increase gone within six weeks." And then there is always the question of polling objectivity. Steve Brusk at CNN just tweeted: "New CNN/ORC poll: bin Laden raid brings only small bounce to President Obama's approval rating: now 52%, up 1% from before raid." It is to be fully expected that in a centrally planned economy, no number can be trusted, regardless of its source. Certainly not something as manipulated as the president's ratings.

... Supposedly this is a real one. Considering the administration's photoshop skills are rather rudimentary we hope readers will determine if this is a fake within minutes.

The dollar managed to stage another faux-rally to the just above abysmal level of 73.30... for about 3 hours. At last check, the dollar is plunging and everything else is once again surging, meaning all those hoping for some miraculous spike in the USD on expectations that there will be a time when the USD will once again be a flight to safety will have to put their dreams on hold yet again. Remember: state healthcare benefits are 5% funded, so the Weimar rally (in stocks, if not so much the dollar), has to go on or else pensioners will realize there is 5 cents on every benefits dollar owed to them.

Forty years ago, hundreds of thousands of people took to the streets of Washington, D.C. to shut the city down. Their goal was to end the war in Vietnam. The National Guard was called out, and a huge melee ensued between the citizens who opposed the government's policies and the government itself, which viewed the citizens as impediments to its plans and ambitions. Six weeks later, the 7,000-page secret history of the government's deceptions of its own citizenry, The Pentagon Papers, was published. The documents detailed how the Federal government and the nation's elected leaders had purposefully misled the public for decades about their goals, intentions and policies. It made no difference. The war dragged on as the U.S. combat role was replaced by "Vietnamization" and wholesale bombing of Indochina. President Nixon won re-election by a landslide in 1972. In 1971, the American people welcomed wage-and-price controls, surcharges and the inflation of the nation's currency. It was a short-sighted way to stabilize the Status Quo, as history would prove; inflation roared ahead, decimating stocks, bonds, savings and wages, until Federal Reserve Chairman Paul Volcker raised interest rates to 16% a decade later in 1981 to choke off runaway inflation. Today, the nation pursues two hot wars launched under the same cloak of deception as the Vietnam War, and a policy of similarly masked financial manipulations and interventions by the Central State and the Federal Reserve. The number of classified documents has soared since the Pentagon Papers as the Central State seeks to hide all of its misdeeds and dodgy policies. The Federal Reserve invoked the threat of financial calamity and national security it its failed bid to keep its 2008 machinations secret. Only recently has the public learned the nation's central bank devoted 70% of its interventions to "saving" foreign banks. Once again, nobody cares.

While it is unclear if the 7 Year bond auctioned off last week (our commentary on that partcularly weak auction rescued by Primary Dealers is here) Cusip: 912828QG8 has even settled yet (it certainly is not on the Daily Treasury Statement as of Friday), what is clear is that as part of today's POMO which closed 30 minutes earlier, that very issue accounted for a whopping 78.5%, or $6 billion, of the entire operation. As a reminder, Primary Dealers bought $15.4 billion of the auction on Thursday, and just as we predicted, couldn't wait to flip it back to the Fed. Indeed, 39% of the entire allocation has now been flipped right back to Brian Sack. And people wonder why Bill Gross is paranoid that in the absence of the Fed this thoroughly fake bid will no longer be there. And with PDs actually forced to hold the bonds they quote-unquote bid for, one wonders: what clearing price will be appropriate, once the flip game ends?

Earlier today, GM posted better than expected April car sales, with total US sales up 26.4% on expectations of 14%. How much of this is due to a Toyota impairment is unclear. What is clear is that channel stuffing at Government Motors, whose Chinese sales are far more important than US sales these days, just hit a new all time record of 577,000, higher than the previous record of 574,000 from March, and 149,000 higher compared to a year ago. The good thing is that GM will never be able to complain about lack of inventory: it now has two and a half months worth of sales equivalent parked on warehouse financed dealer storefronts, in the form of rapidly depreciating autos.

The Johnny Fived and persistently broken market continues to remind about itself, 3 days ahead of the May 6 flash crash anniversary. Today's first victim: anyone who had 20% or greater stop loss triggers in Ambow Education Holding. The stock plunged from over $6 to just over $1 in millisecond. Courtesy of Nanex, we bring you the chart of yet another algo gone apeshit which in 3 seconds traded a few thousands shares on both the Nasdaq and Pacific Exchange.

Step aside Goldman Sachs, welcome Deutsche Bank: "This is a civil mortgage fraud lawsuit brought by the United States against Deutsche Bank and MortgageIT. As set forth below, Deutsche Bank and MortgageIT repeatedly lied to be included in a Government program to select mortgages for insurance by the Government. Once in that program, they recklessly selected mortgages that violated program rules in blatant disregard of whether borrowers could make mortgage payments. While Deutsche Bank and MortgageIT profited from the resale of these Government-insured mortgages, thousands of America homeowners have faced default and eviction, and the Government has paid hundreds of millions of dollars in insurance claims, with hundreds of millions of dollars more expected to be paid in the future... Deutsche Bank and MortgageIT had powerful financial incentives to invest resources into generating as many FHA-insured mortgages as quickly as possible for resale to investors... DB and MortgageIT repeatedly lied to HUD to obtain and maintain MortgageIT's Direct Endorsement Lender status.... Their violations of HUD rules were egregious." And what investors are focused on: "In this suit, the United States seeks treble damages and penalties under the False Claims act and compensatory and punitive damages under the common law theories of breach of fiduciary duty, gross negligence, negligence, and indemnification for the insurance claims already paid by HUD for mortgages wrongfully endorsed by MortgageIT. In addition, the United States seeks compensatory and punitive damages." And what is also notable is that this fraud persisted well past the housing crunch, continuing well into 2009 according to the lawsuit.

For those wondering why the Fed's third mandate is so critical, and is arguably about more than padding the brokerage accounts of those top 400 US "taxpayers" who account for 10% of capital gains, the Pew center brings what could be the main reason. Which is that even while factoring an 8% discount rate (for most states, some are probably higher), in other words expecting 8% gains in their assets, "the gap between the promises states made for employees’ retirement benefits and the money they set aside to pay for them grew to at least $1.26 trillion in fiscal year 2009, resulting in a 26 percent increase in one year." The difference is broken down as follows: "State pension plans represented slightly more than half of this shortfall, with $2.28 trillion stowed away to cover $2.94 trillion in long-term liabilities—leaving about a $660 billion gap, according to an analysis by the Pew Center on the States. Retiree health care and other benefits accounted for the remaining $604 billion, with assets totaling $31 billion to pay for $635 billion in liabilities." In other words, states have roughly 5 cents for every dollars in health benefits obligations. Good luck with funding that absent America becoming Weimar. 

March Factory Orders came out at a stronger than expected 3.0%, on expectations of 2.0%, while the previous number was revised to 0.7% from -0.1%. More importantly Durable Goods were revised from 2.5% to 2.9%, with Durables ex-transportation revised from 1.3% to 1.8%. Yet one wonders how March data is all that critical considering April has already passed and according to diffusion indices the economy is already seeing a modest contraction. At best this number will result in a hike to Q1 GDP from already a painfully low 1.8% as reported last week. Needless to say, the Japanese weakness was not to be expected in March and will only affect the economy in April and onward. Look for car sales data for the first true indication of how the Japan effect is impacting US production.

Wall Street's worst kept secret is now out. From Reuters: "The United States sued Deutsche Bank AG, accusing the German bank and its MortgageIT Inc unit of repeatedly lying to be included in a federal program to select mortgages to be insured by the government." And so, 2011 continues being a carbon copy of 2010, with only Deutsche Bank taking the place of Goldman this time around. Oh yes, Greg Lipmmann we hardly knew ye (and we didn't even short your house).

In his latest just released monthly letter, Bill Gross continues to explain why those expecting a cover of PIMCO's short treasury exposure will be disappointed for at least one more month: "Although we have warned for
several years of the deteriorating creditworthiness of America’s AAA
rating, our de minimis Treasury positions had less to do with much more
immediate issues than America’s balance sheet prospects. We are highly
sensitive to the pocket-picking policies that governments in general
deploy to right the ship." This time the symbol for the US (and global) economy, and specifically artificially low interest rates is a "tanker" analogy: " While the global
financial tanker was on automatic pilot, we had changed course well in
advance and it has been relatively smooth sailing since." Needless to say, Gross is convinced said ship is on a collision course. Ergo the title of this month's piece: "The Caine Mutiny." As usual, it is the 'Treserve' that is at fault for doing everything in its power (selling treasury puts?) to keep rates artificially low, a move which Pimco not surprisingly not in favor of: "holding Treasuries at
these yield levels for an extended period of time represents an
abdication of responsibility." Yet Gross does not advocate an outright mutiny, but renewed vigilance: "PIMCO advocates not so much a mutiny but a renewed vigilance on this new ship, stressing bond market “safe spread” alternatives available globally, including developing/emerging market debt at higher yields denominated in non-dollar currencies." Bottom line: "The
Treasury market is on a collision course with financial repression and
it is time to adjust your rudder to starboard to get home safely." Undoubtedly the usual response will be that Gross is just being unjustly alarmist. That is, until he is proven 100% correct.

Remember all those stories about bin Laden posing an armed threat and hiding behind a woman leaving the SEALs no other choice but to shoot him? Turns out they were not quite correct. Politico reports: "The White House backed away Monday evening from key details in its narrative about the raid that killed Osama bin Laden, including claims by senior U.S. officials that the Al Qaeda leader had a weapon and may have fired it during a gun battle with U.S. forces.
Officials also retreated from claims that one of bin Laden’s wives was killed in the raid and that bin Laden was using her as a human shield before she was shot by U.S. forces...During a background, off-camera briefing for television reporters later Monday, a senior White House official said bin Laden was not armed when he was killed, apparently by the U.S. raid team." At this point one wonders, as noted yesterday, just how much of the official story spun by the administration will continue to unravel.

The Bin Laden death will likely prove to be a brief, but welcome, distraction for the Obama administration and other governments who are confronting an extremely difficult economic situation with deepening inflation, the euro zone debt crisis and the deteriorating economic situation and nuclear catastrophe in Japan. Gold is a barometer and is sensing that the Bin Laden death and burial at sea is a mere sideshow when compared to the real macroeconomic, monetary and geopolitical risk facing the world today. Even at these price levels, demand for gold remains robust, particularly in India (see News), China and Asia.Silver remains vulnerable to further short term weakness and the concentrated shorts may attempt to press their advantage after the CME raised margins once again. However, the very sound supply demand fundamentals mean that long term physical buy and hold buyers will continue to be rewarded. Leveraged speculation should as ever be avoided with gold and particularly silver as intervention and manipulation can result in short term sharp price drops which can wipe out those trading with margin or leverage. Bullion buyers buying with cash and not debt are not subject to these losses and are thus “strong hands” who can ride out price pullbacks and be rewarded for their long term prudence.