Archive - Jul 14, 2011 - Story

By now it is no secret that Q2 GDP is a complete scratch, likely coming at under 2%, meaning that the economy contracted in real terms (even though back in January every Wall Street economist expected a 4% growth rate at this point). Needless to say, those who have been reading Zero Hedge know that Q3 and Q4 will suffer the same fate. Everyone else who has been holding out in hope that some mythical and mysterious car buying force will appear out of somewhere and can now relax. It isn't. Here is the first official Q3 GDP downgrade, courtesy of JPM's Michael Feroli. We fully expect every other clueless Wall Street lemming to follow suit in minutes.

Stocks dumping, dollar at all time lows against a plethora of FX pairs, while gold (and silver) is sticky as superglue and remains just a few dollars away from its all time nominal highs, and just short of $1,600, which we expect will be taken out as soon as the world realizes that the Greek 2 Year spread to Bunds is now over 30% and that Europe is not fixed. Perhaps Bernanke would like to take another stab at that whole "is gold money" question...

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

Market Recaps to help improve your Trading and Global knowledge

In the most dramatic example of someone give the teleprompter the finger on the debt target (f/k/a debt ceiling, in the pre Federal Reserve days), after earlier it was announced that Obama, so willing to continue the charade, was pushing for a Camp David meeting where the debt ceiling issue would be resolved, bunch-of-fat-old-men-locked-up-in-a-room-nobody-leaving-until-solution-is-reached style, Reuters reports that Boehner has politely refused this latest farcical denouement, and told the White House "that he sees no need to move the negotiations on debt and deficits to Camp David." In other news, it is now 7 days and counting until July 22.

Just in case there is still any doubt why banks are now laying off entire trading desks, and why retail will never again come back to the stock market, here is today's flash crash: ASIA (not the continent, the Nasdaq stock), hot on the heel's of yesterday's and the one from the day before, and so on. The market is as broken as it ever was, and the porn addicts continue to do nothing about it. Oh, and for those claim this was an accidental fat finger, the total amount of shares that traded during the flashy crashy period: 219,488.

Somehow, with Amazon trading at all time highs, June retail sales, once again, came in "disappointing"... not our word. Goldman's. And that's even with nobody paying their i) mortgage, ii) property/school taxes, iii) lawn care, iv) federal income tax, v) food (thank you record food stamp usage), and, of course, vi) healthcare. Another battle lost by the permabulls (ot is that permacow in Joseph Cohen's case?). But no, the GDP hockeystick is coming. Just you wait! No really, you will have to wait...a long, long time.

When in doubt, baffle them with male cow manure: Bernanke Says Fed Not Prepared to Take Action at This Point, but, Bernanke Says Recovery 'Still Rather Fragile'. Is Bernanke finally channelling his inner Greenspan. Oh, and just in case the Moody's threat was missed, Bernanke adds that a US default would trigger a crisis and would lead to "chaos." Will someone just give the president a three-page termsheet already.

The man who yesterday got into a heated argument with the chairsatan on whether gold is or isn't money (a Bernanke response already mocked to death so we will leave it alone), shares his take on the most recent bout of scaremongering by Moody's (with S&P doing in private today what Moody's did in public yesterday) with Bloomberg TV's Erik Schatzker. When asked if the American AAA rating is worth saving, his reply: "probably not. I think if you had a market evaluation on this issue, it should have marked down a long time ago." The reason the downgrade will come regardless is that "ultimately that is going to happen anyway because we are insolvent." The big picture: "I think it is part of the game to make sure everyone is fearful so we
continue this process. Long term, I think raising the debt limit is a
negative because it delays the inevitable. It will give us much bigger
problems down the road. Today and tomorrow, if Moody's does not lower
the bond rating, it will be helpful in the short run. In the long run,
it will be more devastating because Congress will go back to their old
habits again." Said otherwise: Moody's is concerned about US debt now, but is not concerned if US were more tomorrow - sheer idiocy.

Bernanke's prepared remarks to Senate in the second day of the bi-annual presentation monetary policy presentation will be identical to those from yesterday. The only difference will come in teh Q&A, which is not so much Q&A as political grandstanding by a bunch of muppets. For those who wish to listen as QE3 is priced in for the third time in as many days, and express other masochistic tendencies, tune in to the C-SPAN webcast below.

A dramatic video that shows precisely what happens in the fragmented market place each time an order to buy or sell stock is placed.

For all those asking, there is just one little footnote that explains all you need to know why "JP Morgan is not Bank of America"

The bond vigilantes did their job with respect to Italy. While Greece, Portugal and Ireland are, in my opinion, insolvent nations that need debt relief or restructuring, it seems clear to me that the market does not want to attack Italy out of any speculative spite. As long as the sensible fiscal policies of the last decade are further built upon, I am confident Italy can exit the eurozone debt crisis in acceptable health...Although I think the current risk-off phase could last a little longer in the very short term, for the latter half of July and heading into August I am bullish and favour another risk-on phase. In this coming risk-on phase I expect to see over late July and August my S&P targets are 1350/1370, with a possibility of a bigger move to 1440. And 1250/1220 S&P remain my bear alert levels. Over a Multi-Week/Multi-Quarter horizon, I remain bearish and risk-off, as outlined in my previous note. I have high conviction on this call.

First New Jersey, now California. The cash-strapped state, which begged for, and got, a "bridge" loan from JP Morgan as recently as October 2010 (the same bank that recently bailed out Chris Christie), is asking for another bridge to the old bridge loan, ergo a "bridge bridge" loan. The excuse: the potential upcoming government shutdown, which would lock California out of the muni market. Surely the fact that it already has little to no cash left was not a part of the equation. BusinessWeek reports: "California is considering seeking a bridge loan from Wall Street ahead of an Aug. 2 deadline for raising the federal debt ceiling, in case talks fail and send the bond market into turmoil, Treasurer Bill Lockyer said. Proceeds from the loan would be used to help pay the state’s bills until Lockyer can sell an estimated $5 billion of so-called revenue-anticipation notes, or RANs, scheduled for late August. Without those notes, the state could run out of cash as it did in 2009, when it issued $2.6 billion of IOUs." Of course if the US is downgraded, Meredith Whitney's prediction will come true with a bang: as part of its warning yesterday, Moody's also threatened to downgrade 7000 municipal ratings which would halt RAN, and any other, issuance for an indefinite period of time. And while this is merely more M.A.D. posturing to help the debt ceiling dispute come to a speedy resolution, the fact that California is now forced to issue new bridge loans to "bridge" old ones is oddly troubling.

Today's economic data barrage:

• Initial claims at 405K, better than consensus 415K. This number is probably totally bogus due to next week's imminent revision much higher: last week's number was revised from 418K to a whopping 427K; 4 week moving average 423.8K; Driver likely lack of auto plant shutdowns, says Bloomberg economist Joseph Brusuelas
• Non seasonally adjusted claims up 45K to 470K
• Continuing Claims 3,727K vs. Exp. 3,680K. And another massive reivision higher: previous at 3681K, revised to 3712K.
• The Unemployed on EUCs and Extended Benefits continue declining, down 16K in the week ended June 25
• PPI in June fell 0.4% M/m vs est. 0.2% decline (range 0.6% drop to 0.3% rise) - biggest drop since February 2010; PPI ex. food, energy up 0.3% vs est. 0.2% gain (range 0.1%-0.3%); Less threatening inflation situation’’ helps Fed if they have any thoughts of QE3, says Bloomberg economist Rich Yamarone
• June Advance Retail Sales up 0.1% vs est. 0.1% drop (range 0.7% decline to 0.5% gain); Ex. autos unchanged, matching est. (range 0.8% drop to 0.5% gain); Ex. autos and gas up 0.2% vs est. 0.4% gain (range 0.1%-0.8% rise); Unexpected rise in motor vehicles, parts likely behind increase in headline; may be “somewhat suspicious,” says Brusuelas

Well over a month after predicting the second Greek "bailout" plan was just hot air, we are not only back to square minus one but heading backward. And while the market's attention is now focused on Italy, and soon Spain and Belgium, the weakest link still is Greece, whose bankruptcy, despite all the posturing may be coming sooner than most expect. It appears that Germany is once again in the renegade drivers' seat and has reverted to its core plan of taking its chances with a Greek default, breaking away from the ECB's position, and ultimately saying let the chips fall where they may. To wit, from Market News: "Lars Feld, a member of the German government's Council of Independent Economic Advisers, on Thursday criticized the European Central Bank for blocking a restructuring of Greek debt."