Archive - Sep 8, 2011 - Story

Once is fine, twice - passable, three times - eh... But when one has missed forecast after forecast after forecast as many times as Greece, one wonders what the hell is going on. Earlier today we got confirmation that what everyone with half a brain (obviously this excludes the apparatchik idiots in Brussels) had been expecting had come to pass, namely that the Greek economy has completely imploded. Per Reuters: "GDP contracted at an annual pace of 7.3 percent in the three months to June, from 8.1 percent in the previous quarter, according to seasonally unadjusted figures by statistics agency ELSTAT, while unemployment stayed near record highs. "Domestic demand is incredibly weak, exports do not benefit from global economic growth ... A 2011 deficit of 8.5 percent to 9 percent doesn't seem implausible," said Ben May, a London-based analyst at Capital Economics. Unemployment fell slightly to 16.0 percent in June, helped by seasonal tourism jobs. But it remained close to a record 16.6 percent it hit the previous month, well above its 11.6 percent level in June 2010. And as rumblings from everywhere confirm, most notably from Greek 1 Year bond yields which are pennies away from 100% (i.e. one doubles their money if Greece does not go broke n the next 365 days), and Greek CDS which now predict a virtual certainty of bankruptcy, Europe has had enough of being used as a liquidity source over and over. Because as speculated ever so often, Greece (and now Italy) realized that the balance of power in Europe is entirely with the broke nations: after all what will Brussels do: blow itself up by kicking Greece out? As a result, Greece continued to promise and promise while doing nothing. Well, it appears that Europe is now about to test just what happens when Greece is kicked out. According to sources Greece will either be kicked out of the Eurozone by the end of the year or will be insolvent in the next 4 months. Either way, things are about to get truly exciting. And unfortunately, what Greece is doing by leeching of the Eurozone is precisely what the US is doing by "leeching" of the (temporary) dollar reserve standard. As Greece is about to find out, all good things come to an end. Soon after, America will also discover that those 4 week Bill yields of 0.000% will be a much cherished memory.

In the month since Bernanke extended ZIRP til mid-2013 and explained that he really is not out of bullets, we thought it interesting to look at commodity (or perhaps real currency) movements since then. It is rather notable that Dr. Copper, oh so notably used by the cognoscenti to explain global growth remains miraculous, has underperformed the potentially more critical exchangeable stores of value such as Gold, Silver, and Oil. Even more surprising, and potentially signaling the disaster that is Europe, the USD (based on the Dollar Index) is stronger by 2.5%.

Think only you lost money in August? Wrong: even such titans of fair and perfectly legal stock picking as Stevie Cohen lost money. How much? Lots. At -2.96%, this was the first negative month for blue eyes since June 2010, and the single biggest monthly loss since November 2008.

Following today's New York Times invasion of CNBC, where two of its most irrelevant columnists are now part of CNBC's most irrelevant hourly block so at least it is symmetric, Rick Santelli and "The Earth is flat...but I sure am round" author Tom Friedman had a choice exchange of words which culminated with Rick Santelli finally telling the world's most overhyped patron saint of globalization the bitter truth. In the meantime, not even the very non-flat Friemdan had an answer to Santelli's very simple question: is Social Security a ponzi scheme... And while we are there, we wonder just what noun would be used to describe Friemdan if asked if the entire Keynesian model is an even bigger ponzi.

Think the ECB is unable to maintain the illusion that central planning works? Think again. Some unlucky sod dares to ask Trichet how the central bank plans to defend its failure as a monetary authority, to which the French president proceeds to have an unprecedented (for a central head banker) on air meltdown with literal foaming in the mouth. "You want the lies?... You can't handle the lies. It is all about ze price stabeeleetee." Hilarity ensues, especially after JCT proceeds to bash his one and only nemesis: Germany. Prepare to watch many more such episodes over the next 2 years as the world voodoo economist PhDs have so carefully constructed for themselves in their ivory towers comes crashing down.

While not considered in the same category as the UMichigan or the Conference Board confidence indices, the Bloomberg (formerly ABC) Consumer Comfort index, which is just as familiar with statistical sampling and using phones as the prior two (and does not share their penchant for calling Wall Street execs to break any market downward trend), just found that the week of September 4 saw consumer confidence drop from -49.1 to -49.3, the second lowest in 2011. Worse is that confidence in the state of the economy has now plunged to the lowest since 2009, or basically since the market generational lows, confirming that "confidence" is nothing but a way of saying popular perception of the S&P, pardon Russell 2000. Lastly, and worstly, while the the confidence of of $100K+ earners dropped to -18.2 from -15.1, the confidence, whatever that means, of those earning the least is now at a record low. Luckily, this is certainly not the social group most targeted by Obama in his reelection bid. Oh wait, nevermind.

Speaking at a Bloomberg inflation meeting this morning, former St. Louis Fed official William Poole was quite vociferous in his concerns over current Fed policy noting that Bernanke paid too much attention to equity prices. He also noted that there is a risk of an 'astonishing rise in inflation.

Yesterday we documented that the by now widely bashed Operation Twist has been a failure before it was even launched as confirmed by recent trends in mortgage refinancing, or more specifically, lack thereof. Today, none other than market (and alleged bar) veteran Art Cashin confirms precisely what we said: that the one goal of the Twist - to get mortgage rates lower and refinancing higher - is and will be a failure. Again, it is very unfortunate that what is by now glaringly obvious to all will never become clear to the Fed until after the economy has finally been pushed over the precipice.

While politics will play a big part in today's market tone, with everyone hoping for the best from the president, expecting the worst, or about par for the course, and in the end getting more of the same (i.e. nothing), there are quite a few other things happening in DC today, among which are the first meeting of the “super committee” along with events on infrastructure and housing finance…

The BLS playbook in full force today: miss expectations of 405K - check, by printing at 414K; another weekly print over 400K - check (21 out of 22 weeks over 400K), revise prior week's higher - check (from 409K to 412K). Unfortunately, unlike two weeks ago when another blowout miss was reported, this time there is no striking phone carrier to blame it to. And as usual, those coming off their extended claims cliff keeps increasing, with 78K people dropping off EUCs and Extended claims: nearly 2 million people have been cut off from any extended government benefits in the past year. Overall, another weekly data set that confirms that next month's NFP number will most certainly not be positive... or zero.

Will JCT finally backtrack on the ECB's recent disastrous tightening policy? Find out in the live webcast below.

• Yuan Convertible By 2015: China to EU Chamber (Bloomberg)
• European Bailout Tensions Threaten German Coalition (WSJ)
• Greek backsliding sparks euro exit talk (Reuters)
• Perry, Romney Clash at Debate (WSJ)
• Fitch warns of downgrades for China (Reuters)
• Mists Clear on China's Policy Outlook (WSJ)
• Dutch PM calls for Europe budget tsar (FT)
• Libor inquiry looks at criminal angle (FT)
• Business Leaders Call for More Central Bank Stimulus to Aid Economy (WSJ)

A tale of two Europes:

• PORT 1030/1070 +25
• IRELAND 812/840 +6
• ITALY 420/428 +2
• GREECE (pts) 51/55 +2
• SPAIN 380/390 -2

• BELGIUM 262/272 flat
• FRANCE 164/168 -8
• AUSTRIA 126/131 -5
• ENG 74/76 -1
• DEUTSCHE 76.5/78.5 -1

EUR/USD traded lower during the European session as the market looked ahead to ECB Trichet’s press-conference following the rate-decision, where some analysts expect the central bank to portray a dovish tone. In other forex news, after trading lower for a vast majority of the session, GBP received a boost across the board after the BoE refrained from further monetary easing this month. The BoE kept its benchmark interest rate and asset purchase facility unchanged at 0.50% and GBP 200bln, respectively, as expected. Elsewhere, European equities traded higher during the session on anticipation of monetary easing by the ECB today. Financials traded higher, with outperformance seen in the Italian FTSE MIB and Spanish IBEX 35 indices, after the Italian Senate and the French lower house of Parliament approved measures to strengthen the EFSF. However, DAX came under pressure following a sharp decline in German exports. Moving into the North American open, apart from the ECB’s rate announcement followed by Trichet’s press-conference, markets look ahead to key economic data from the US in the form of jobless claims and trade balance. Canadian trade balance and housing data is also scheduled for release later. In fixed income, 3-, 10-, and 30-year Note refunding announcement from the US is due later, whereas markets will keep a close eye on comments from Fed’s Bernanke.

New research from Dr Constantin Gurdgiev, Head of Research with St Columbanus AG, member of the investment committee of GoldCore and the adjunct lecturer in finance in Trinity College, Dublin, questions the widely held belief that retail investors are “piling into” gold in a speculative frenzy. “The U.S. Mint data on sales of gold coins suggests that we are not in the last days of the ‘bubble’,” finds Gurdgiev. Buyers of gold bullion coins such as the US Mint’s gold eagles are store of value buyers and sometimes collectors, Gurdgiev points out. Most buyers of gold coins are motivated not by a return on capital but by a return of capital and by wealth preservation. Gurdgiev points out that “gold coins are traditionally held by retail investors as portable units to store wealth. Due to this, plus demand from collectors, gold coins are less liquid and represent more of a pure ‘store of value’ than a speculative instrument.” The data shows that there has not been a dramatic increase in demand for the US Mint’s Gold Eagles with annual demand in 2011 set to be some 1,275,000 oz which is below the levels since back in 1986-1987, in 1998-1999 and more recently in 2009 when demand was 1,435,000 oz. Gurdgiev excellent article concludes that the data and evidence from the US Mint regarding the “behaviourally anchored, longer-term demand for gold coins as wealth preservation tool for smaller retail investors” does not “appear to support the view of a dramatic over-buying of gold by the fabled speculatively crazed retail investors that some media commentators are seeing nowadays.”