Archive - Jun 8, 2011 - Story

For the n^th time, China let loose that "excessive" holdings of US dollars are risky because "Washington could pursue a policy to weaken the dollar, a senior currency regulator said in comments published on a website that briefly pushed the dollar lower." Oddly this time, the statement which came from Guan Tao of China's State Administration of Foreign Exchange (SAFE) which is the entity responsible for managing the country's $3+ trillion in USD FX holdings, was promptly retracted, following an announcement by Tao to Reuters "that the comments had been made in private academic discussions and represented his personal view only." In other words this is an identical episode to the one when the BOC's Mark Carney told "a private circle" that the US is going to hell in a handbasket. While the announcement briefly pushed the dollar lower, is the take home message that everyone is secretly hating America, while in public keeping a rosy appearance? The answer, of course, is a resounding yes.

Just when we thought we had seen it all, along comes another 19 year old math Ph.D. with the latest demonic-cum-fractal algo to show us just what cavemen we truly are...

Jim Rogers spoke to a very dramatic and even more hoarse Bartiromo, touching on old and well-known themes, namely that the administration is essentially using up its last stimulus bullet with the current recession: "When the problems arise next time what are they going to do? They can’t quadruple the debt again. They cannot print that much more money. It’s gonna be worse the next time around." Alas, as Obama appears to be preparing, "they" will simply do more of the same: the same payroll tax that was supposed to cure all evils in December. The fact that nobody anticipated something so stupid is probably indicative of the administration's genius. Or lunacy. Followed by more dollar printing of course. On what needs to be done to avoid the debt ceiling breach which will shut down the government, Faber believes that nothing short of Draconian measures will be relevant: "We’ve got troops in 150 countries around the world. They’re not doing us any good, they’re making enemies. They’re costing us a fortune." On the other hand he acknowledges: "we can never pay off these debts." As usual, Rogers saved the best for Bernanke: "Since the first day Mr Benanke went to Washington I knew he was going to be a disaster. He has never been right about anything in the 7 or 8 years he has been there. I hope he doesn't come back with QE3 but that's all he knows. The only thing he knows to do is to print money. He doesn't understand finance, he doesn't understand currencies, he doesn't understand economics. He understands printing money. It's the wrong thing to do but that's what he'll do... They're gonna bring QE back because he will be terrified and Washington will be terrified," he said. "There's an election coming in November 2012. Washington's gonna print more money." Lastly, in terms of investments, Rogers is long the dollar but only "for a rally", and also owns Chinese stocks and commodities, would be buying more gold and silver if the price were to go down, and is short tech stocks and JP Morgan. Like we said nothing new. With one addition: the republicans will now get tax cuts, so democrats get QE3. As we have been saying - 2011 is nothing other than 2010 all over again.

It just never changes:

• OBAMA AIDES SAID TO DISCUSS EMPLOYER PAYROLL TAX BREAK
• PAYROLL TAX BREAK FOR EMPLOYERS AMONG IDEAS TO BOOST HIRING
• ADMINISTRATION CONSIDERING MEASURES AS RECOVERY SLOWS

Bolded bullets aside, good luck passing another fiscal stimulus Dear President when you can't even issue debt without stealing money from government retirees.

The latest soundbite from Bill Gross comes from the Morningstar fund conference, where he again repeated his conviction that there will be no QE3. Reuters reports: "Pimco co-chief investment officer Bill Gross said the Federal Reserve would not be able to start a third round of quantitative easing after the second round expires at the end of this month. The members of the central bank's open market committee are "balanced but divided," Gross, manager of the world's largest bond fund, said on Wednesday in a speech at the Morningstar fund conference. "It will be difficult to initiate a QE3." Instead, the Fed will try to keep interest rates low with its official statements, Gross said. Gross's fund, the $243 billion Pimco Total Return Fund, has gained 3.24 percent so far this year, trailing 58 percent of similar funds, according to Morningstar data."

In a scheduled update to its business outlook for the second quarter of 2011, Texas Instruments Incorporated (TI) (NYSE: TXN) today narrowed and lowered its expected ranges for revenue and earnings per share (EPS).

The company currently expects its financial results to be within the following ranges:

• Revenue:  $3.36 – 3.50 billion, compared with the prior range of $3.41 – $3.69 billion
• EPS:  $0.51 – 0.55, compared with the prior range of $0.52 – 0.60

So you are saying the initial guidance reduction from April 18 was not... transitory?

RANsquawk Market Wrap Up - Stocks, Bonds, FX etc. – 08/06/11

The last time we had 6 consecutive down days was February 13-23, 2009. Which is before March 2009. Which is when the S&P hit 666. Which is when the Fed started Q1. As for the last time we had 5 down days in a row was in August of 2010, just when the Hindenburg Omen was spotted and threatened to undo the entire Centrally Planned house of cards... Which is when the Fed started QE2. Pattern emerging?

One of the most unbelievable developments in the past few days has been the rank, unprecedented, totally amateur and outright pathetic backlash against writers of "short China" theses by the management teams of these same companies that have garnered the all too deserved definition of "Fraudcaps." We have shown before that the hit rate of pieces accusing Chinese companies is well north of 80% as exhibited by the fact that virtually all companies currently halted indefinitely on the Nasdaq are of Chinese origin. But of course, the fact that their stocks plunge only after an investor who has actually done their homework exposes Chinese frauds for what they are, does not prevent these companies to stoop to the lowest rung on the ladder and actually sue these contrarians who in the long run merely prevent further capital erosion from future lazy momos who may have invested in these crap companies. It is time for these smokescreening, grautious, shareholder fund-depleting lawsuits to stop, and for shareholders to instead sue their management teams.
After all, if these allegations are so wrong, than it is the fiduciary
duty of the management team to buy back as much stock as humanly
possible, using both corporate and personal funds: if there is no fraud, this represents a massive discount to fair value and the highest IRR investment these clueless fraudulent management teams can pursue. Commit
fraud once, with the help of the NYSE and Nasdaq, that's fine - the
idiot momos who buy your shares will lose everything, but continue this
charade and CEOs deserve to go to jail immediately, hopefully while ignoring the completely toothless SEC which has failed and continues to fail
miserably when it comes to protecting shareholder interests, especially in this most recent Chinese fraud contagion. Also, we leave the question of when any incompetent sellside banker will be sued for peddling a BUY rating on Chinese fraud completely open...

Nothing quite like hearing it from the printer's mouth every now and then...

According to the just released Beige Book, there was slower growth seen in New York, Philadelphia, Atlanta, Chicago districts. Only Dallas reported acceleration. And yet the denials continue: "wage growth generally remained modest", and there was "widespread improvement reported in credit quality." We wonder where they get these imaginary data feeds from. More from the report: "Manufacturing activity continued to expand in most parts of the country, though a number of Districts noted some slowing in the pace of growth. Activity in the non-financial service sectors expanded at a steady pace, led by industries related to information technology  and business and professional services." Shockingly, the Fed admits there is food price inflation: "Elevated food and energy prices, as  well as unfavorable weather in some parts of the country, were said to be weighing on consumers’ propensity to spend." Lastly, Japan is the new snow: "Widespread supply disruptions—primarily related to the disaster in Japan—were reported to have substantially reduced the flow of new automobiles into dealers’ inventories, which in turn held down sales in some Districts. Widespread shortages of used cars were also reported to be driving up prices....Many Districts indicated that supply disruptions, primarily from Japan, have contributed to lean inventories, which have impeded auto sales somewhat....Inventory levels are mixed, with one retailer explaining inventory has been temporarily increased due to global supply concerns, such as output disruptions in Japan." And so forth. Key word count of the word: Japan - 25 times; Inflation - 1 time; Deflation - zero.

According to a just released report by the BLS, the average unemployed American looked for a job for about 5 months, or 20 weeks, before giving up in 2010. This is a two and a half times extension in the period of disenchantment over the past 3 years, when it took just 8.5 week for the unemployed to give up as recently as 2007. Gradually the feeling of entitlement in America's labor pool seems to be deflating. Alas, it also means that the labor force participation, which continues to be at a 25 year low, will likely not return to recent highs as more and more people are now unemployed for longer, and thus lose marketable employment skills, meaning that the current jump in unemployment is, as many have feared, entirely structural and there is nothing cyclical about it. Additionally, the lucky unemployed succeeded in finding a job in about 10 weeks in 2010, a doubling from 2007's median 5 week period of successful job searching. The issue however is that in May 6.2 million had been out of work for more than six months and more than 4 million haven’t work in more than a year. These are people who are now effectively pushed out of the labor force. Bottom line: perhaps the Fed should just give up on its maximum employment mandate which it now appears to be a complete failure, and just focus on generating hyperinflation which alas will soon be the only way out of the complete disaster America will find itself in in under a year when total US debt is about 120% of GDP.

Today's 10 Year bond (CUSIP: QN3) priced at a solid 2.967%, just wide of the when issued 2.961%, the lowest high yield since November's 2.636% when QE2 was starting (in the form of POMOs, QE2 had long been priced in). The Bid To Cover confirmed the strength of the auction coming at 3.23, a jump from May's 3.00, and higher than the LTM average of 3.10. Indirect Bidders for the first time in 3 months surpassed 50%, taking down 50.6%, with Dealers allotted 41% and the remaining 8.3% going to Directs. Look for QN3 OTR to dominate POMOs over the next 2 weeks. Since there will likely be at most two more 10-year focused buybacks, Dealers will be able to promptly flip this bond to the Fed. As for next month, when the US is on the verge of a full blown default, it is unclear what happens.

Reuters has obtained an advance peek at the crucial Troica report whose findings will determine Greece's fate, and according to Andreas Rinke the conclusion is not very palatable: "The EU, ECB and IMF mission to Greece said in a report obtained by Reuters on Wednesday that the next disbursement of Greek aid could not take place until it corrected the under-financing in its adjustment program." More from Reuters: "The long-awaited report by the so-called "troika" said Greece risked missing its deficit targets without further consolidation measures and that its recession appeared to be longer and deeper than initially expected. "The financing strategy needs to be revised. Given the remoteness of Greece returning to funding markets in 2012, the adjustment program is now under financed," it said. "The next disbursement cannot take place before this under financing is resolved." The troika said a privatization agency with an independent board, to which the European Commission and euro zone member countries could nominate members, would be set up shortly." We fail to see how the Troica can be satisfied by Greek economic data in the next month or so when Greece is expected to run out of money. Hopefully there is more to this because otherwise this ia very unpleasant conclusion for the insolvent country.

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