Archive - Jul 8, 2011 - Story

Today we got another confirmation that the only "growth" in the economy comes courtesy of inventory stocking for that eventual day when the economy picks up and inventory can be sold at an actual profit, after wholesale inventories printed at 1.8% on expectations of 0.6%, up from 1.1% previously. We get it: economic growth now comes at the assumption that there will be economic growth in the future, thank you I in the GDP calculation. But the only chart that matters, and in keeping with our observations of pervasive channel stuffing at GM, is the following: the inventory to sales ratio for the car industry, which just surged to 1.62, or a level not seen since the summer of 2009. This is a 16.55% rise in the ratio or the biggest ever relative jump in the auto inventory/sales ratio in history. Translated: nobody is buying already built cars. But yes, keep blaming the collapse in auto "production" on Japan.

Joe LaVorgna, who yesterday raised his NFP estimate from 100,000 to 175,000 was off only by a factor of 972% (and who can forget his 300,000 NFP forecast from last month two days before the final number ended up being a revised 25,000). Here is his, uh, "explanation."

Ladies and gents: presenting Jan Hatzius.

Well that didn't take long. Just over two months after Einhorn's Greenlight bought a stake in Yahoo, he has now dumped the full amount. From his just issued letter to clients: "The Partnership bought Yahoo! (YHOO) earlier this year based on a sum of the parts analysis, which included putting substantial value on its Chinese assets. Shortly after the purchase, the value of the Chinese assets came into doubt as the CEO of the Chinese unit hived-off a valuable subsidiary into a corporation that he personally controls. From there, the finger pointing started in every direction. This wasn't what we signed up for. We exited with a modest loss." Well, the whole was less than the sum of the parts in this case. Oops. For this another modest gains and losses, but mostly losses explaining why the fund is down 5% YTD, read the full letter below.

Now you have it, now you don't. The gift that keeps on giving, courtesy of momo monkeys, just put a smile on the faces of all those who put the compression trade on last night.

Two more self-explanatory charts: the number of people not in the labor force who want a job now surged to a fresh all time high 7,124 or up by a whopping 303K, while the average duration of unemployment also is at a new record of 39.9 weeks.

This chart needs no commentary. At 64.1%, the Labor Force Paritipcation rate just dropped to a fresh 25 year low: the civilian labor force declined by 272K from 153,693 to 153,421.

Absolute disaster. Total jobs per the establishment survey: +18K on expectations of 105K, Private Jobs + 57K on expectations of 132K. Last month total was revised from 54K to 25K. Combined April and May revision down 44K. The household survey was down by 445K from 139,779 to 139,334. Birth death adjustment + 131K. Complete humiliation for Wall Street's economists, the lowest prediction of whom came Bob Brusca at +60K. From the NFP: "Nonfarm payroll employment was essentially unchanged in June (+18,000), and the unemployment rate was little changed at 9.2 percent, the U.S. Bureau of Labor  Statistics reported today. Employment in most major private-sector industries changed little over the month. Government employment continued to trend down." It is time for Joe LaVorgna to retire, with his 175K forecast, or off by a factor of 972%.

With just minutes away from the all important NFP number, which is now being whispered at coming 145K and higher (this number is changing, higher, by the minute), compared to consensus of 105K, risk just snapped up, with WTI leading the parade, and now trading under a dollar away from the $100 psychological barrier. If NFP comes at the ludicrous 200K+, look for WTI to close around $101 and the whole energy price inflation charade, and speculator scapegoating to start all over again.

Watch for those FRBNY liquidity swaps to spring in action momentarily as Dexia was, is and will be the bank that sets off the dominoes in Europe's core. "Moody's Investors Service has downgraded to A3 from A1 the long-term senior debt and deposit ratings of Dexia Group's three main operating entities: Dexia Bank Belgium (DBB), Dexia Credit Local (DCL) and Dexia Banque Internationale a Luxembourg (DBIL). This was driven by the lowering of these entities' Bank Financial Strength Ratings (BFSRs) to D, which corresponds to Ba2 on Moody's long-term scale, from C-/ Baa2 previously. The outlook on the BFSRs is negative.Dexia continues to suffer from the consequences of the financial imbalances mentioned above, inherited from the pre-crisis period. The rating agency recognises the group has made material improvements since the peak of the crisis

• IMF Greek Loan Decision May Counter Its Policy Guidelines (WSJ) good thing the IMF's policies are made to be broken
• Murdoch Closing Tabloid Linked to British Hacking (NYT)
• News Corp.’s BSkyB Bid Facing Delay on Review (BBerg)
• High-frequency trading adding risk, Haldane says (FT)
• Countrywide Wages Victorious Tranche Warfare Against Investors (Bloomberg)
• Obama expects "bottom lines" on debt limit on Sunday (RTRS)
• European regulators under fire over stress tests (FT)
• No plans to drop Strauss-Kahn charges, no plea deal (RTRS)
• Eurozone governments warned on bail-outs (FT)

Three days ago, and 30 basis point tighter, we said Assecurazioni Generali "one of Italy's largest insurers, is a highly levered windsock for Italian and other PIIGS stress, and better yet, can be played in either equity or CDS" concluding that "anyone who wishes to play the developing contagion and awakening bond vigilantism via either equity or CDS, this is without doubt the best proxy." When we wrote that the CDS was at 177 bps. Thre days later it is at 205 bps, virtually at its all time wide, which is about to trigger the buy to cover stops, and surge to a 3-handle any second, a move which will only be catalyzed if and when Tremonti bails.

Only one thing matters in today's economic docket: an overly priced-in NFP beat. Whisper number now is at 140k even as the median forecast has pushed up just modestly to 105K. The reason is that the key Wall Street banks are well above the median, and for some reason they are the ones that matter. Citi's Steve Englander summarizes the data as follows: "
About 20% of the forecasters polled by Bloomberg changed their forecasts today and the median forecast for those with a July 7 timestamp is 125K vs. 100K for those with a July 6 or earlier timestamp. So the true consensus is probably somewhat above the median of 105K that includes both revised and unrevised forecasts. Citi expects 100k, private sector jobs forecasted to rise 130K. The range for the July 7 forecasts is 85K to 175k and is well distributed in this range. It is probably the case that an above 150K outcome will be regarded as a positive surprise and below 115K as a negative. The rates moves of a couple of bps higher in – and 10-year yields is consistent with a modest upside shift in expectations but no wholesale change."

There is a perfectly trimodal head and shoulders formation in today's histogram of sellside NFP forecasts. What that means for the actual number is that nobody has any clue what it will be. One thing we do know: that far right outlier, that's Joe LaVorgna... The same JoLavorgna who predicted 300K on the May NFP, only to see the final number come at 54K. For those asking, yes, he is still employed.

Another day, another implosion in Italy, this time focusing on core bank UniCredit, which earlier dropped by 6.5% resulting in a stock halt, only to reopen just modestly higher. There was no immediate catalyst, just more of the same: rumors that FinMin Tremonti is resigning, especially following the arrest of Marco Milanese which indicates the fallout is imminent (see below), rumors that Italian banks are failing stress tests, rumors that Italy has the most exposure to Greece, and other generalized fears which today coalesced around the bank that was the most active today on the European version of Sigma X.In other news, 2 Year government spreads are once again surging as GDP-weighted EU sovereign risk is at fresh all time highs (probably to make company to the Dow Jones Transportation index).