Archive - 2011 - Story

While Zero Hedge already noted that fund flows into bond funds and out of equity funds have once again resumed (a fact that was barely mentioned if at all on CNBC, contrary to the day-long segment on fund flows dedicated to the first equity inflow after 33 weeks of outflows), digging through the actual composition of debt receiving inflows reveals some curious details. EPFR reports a very disturbing development, namely that in the last week, Floating Rate debt saw $859 million inflows which was the largest inflow by dollar amount in history. Implicitly what this means is that bankers are currently pitching another massive round of refi deal to companies (particularly those that are past the non-call window, which in 2011 would mean quite a few of them), one which seeks to replace fixed debt with floating, or debt based on a Libor floor and a fixed margin. And for thousands of corporate treasurers, at a time when the Fed is guaranteeing ZIRP for the next 3 years at least, this is a slam dunk decision: after all why pay even a modest fixed interest when one can part with a modest refi fee, and still pay a fraction of the current interest expense. To some this may seem familiar: after all this is precisely the last push in refis in the housing bubble when everyone was jumping into an adjustable rate mortgage, which had a floating rate in its first 5 or so years. Are we starting to see the Option ARM wave in corporate refinancings? And if so, is this the same top tick indicator in the credit market currently that it was in the housing bubble of 4 years ago? The answer: it all depends on how much longer Ben Bernanke can succeed in defying gravity and the rules of the free market, courtesy of his ponzified central-planning artificial economy. And just like with Paolo Pellegrini, the one who can time the flip properly will be able to retire shortly thereafter.

The bottom 80% own a 7% share of the nation's financial wealth. That is 7% of $45 trillion, or $3 trillion, including all stocks, bonds and securities in IRAs, 401K retirement funds, savings and other accounts. That's $3 trillion held by 108 million households, compared to $32.4 trillion held by the top 5% of households (72% of $45 trillion), roughly 7 million households. In other words, the vast majority of assets held by the Baby Boom generation are in the top 5% of households, and most of the remaining assets are owned by the 15% tranch just beneath the top 5%. The bottom 80% don't have much home equity or directly owned bonds or stocks. So the Fed propping up housing and the stock market only benefits the top 20%, and most of the benefit flows to the top 5%--not exactly what most Americans think of as "middle class."

It was just 10 days ago (before anyone had even heard of food inflation) that Zero Hedge first predicted food riots were just around the corner (before anyone had even heard of Tunisia). Little did we know how quickly things would escalate out of control. Here is one man who is 100% confident he can leave the country before protests over runaway inflation succeed in getting him to face his (very hungry) population (presumably in close proximity to a decapitation device). This is probably the first confirmed case of a corrupt government overthrown as a result of the daily POMO secret CIA weapon. Certainly not the last. Stocks up on the news that some rating agency has downgraded the country to BBB+ (much higher than Greece) due to revolution. POMO: liberating countries from oppressive governments through excess inflationary liquidity since 2011

From the McCrudden complaint, which cites a letter sent by the Alnbri CEO to a CFTC lawyer T.M.: "You can tell that fucking corrupt piece of Goldman Sachs shit [G.G.] I am coming after him as well. Oh, and your "ban"... shove them up your fucking ass you corrupt mother fucker....Make sure you all show up with [T.M.] and that fucking corrupt fucking midget [G.G.] when you serve me papers. I have something ready for you all." It appears that Vincent sure was passionate about his beliefs... And certainly not a fan of Gary Gensler.

PIMCO, that tried and true client of Fed "expert network" Larry Meyer who just loves 'hinting' at what the Fed will be doing in the next 3-6 months in exchange for a modest retainer, has just released the December composition of its flagship Total Return Fund. Despite declining for a second month in a row, from $250 billion to $240.7 billion, the world's largest bond fund has once again increased its MBS holdings, this time from 43% to 45%. Keep in mind this was at 18% in July, and in the meantime Bill Gross has gone from $5 billion in net cash to $17 billion in margin. It is obvious that Bill Gross, who already has a major position in municipal debt, and will thus benefit from the imminent state and muni bail outs, also believes that once the Fed is content with having sacrificed 100 bps in the rates to generate 10% in the S&P, will soon be forced back into the mortgage market, and will be buying MBS once again. Based on Gross' ongoing accumulation of MBS, we are now fairly confident that the "expansion" to QE2 (really, QE3 but who keeps count) to be announced sometime in May, will contain Treasurys, Municipal bonds and Mortgage Backed Securities among the asset permitted for purchasing. Unlike the BOJ, we don't think the Fed will announce ETF purchases yet. That will be reserved for QE4, to be announced some time in early 2012.

RANsquawk US Afternoon Briefing - Stocks, Bonds, FX etc. – 13/01/11

Yet another person appears to have flipped out, and attracted the government's attention, this time luckily without any actual casualties. Curiously the target of the latest FBI arrest is not some insane gun toting troglodyte, but a 20 year Wall Street veteran: Vincent McCrudden of Alnbri Management. Presumably the reason for the arrest is that the commodities trader had threatened to kill 47 members of the SEC, CFTC and Finra in a post on his website. The following information has been pulled from his website. While McCrudden's fund appears to have been modest if at all notable, it would be curious to discover just what recent perceived action on behalf of the government may have forced the manager to take the step. The kicker: an email from McCruden to CFTC attorney T.M. sent on December 16, 2010: "You corrupt mother fucker! You're not getting away with this....Merry Christmas!"... Much more in the charge against McCruden presented inside.

During a presentation in Chicago yesterday, Jim Rogers may have well laid the foundation for the next bubble predicted by Zero Hedge in October, namely rice. His comments may have also spooked some of the weaker hands in gold, which has tumbled by $20 today, primarily on concerns what Chinese tightening may do to demand for the precious metal. Of course, how tightening is bad for commodities and good for stocks is one of those questions that can only be explained by the Fed's third mandate. From Bloomberg: "While gold “may go down for awhile,” the metal is “going to go over $2,000 in this decade,” Rogers, who owns gold, silver and rice, said today during a presentation to business executives in Chicago. Gold touched a record $1,432.50 an ounce in New York on Dec. 7. The price closed today at $1,387. “I’d rather own rice,” Rogers said. “I’d rather own something that’s more depressed than gold.”"

It is refreshing to see that an economist of David Rosenberg's statute agrees with Zero Hedge that the third mandate (we personally believe it is the one and only) of the Fed is "Higher Equity Valuations." While a faux-indignant Corker pretends to attempt to cull the Fed's powers and remove the inflation mandate, maybe someone can finally eliminate the one mandate that the Fed does not even have in its charter, yet which is the only one that it is beholden to: namely to get the Dow to 36,000. Which brings us to another point: instead of giving us his forecast on the GDP, maybe Bernanke can simply give everyone his price target for the Russell 2000. It will save everyone a lot of second-guessing effort: after all the Fed now has complete control over the stock market, and the whole frontrunning the Fed shtick is getting old.

The Fed chairman is 100% confident inflation can be contained. Rapidly spreading rioting (5 countries so far) would take the under on that.

The steady climb in Fed assets continues, with the left side of Bernanke's balance sheet swelling to just under $2.5 trillion, as US Treasury holdings hit $1.07 trillion, implying that the Fed's DV01 continues to increase on a daily basis with every single POMO. The differential between the US and China is now $163 billion and rising. We expect our now second-largest creditor to realize the game theory balance of leverage (no pun intended) is shifting away from its favor (and to the Fed), and to respond accordingly.

Gold and silver have fallen in most currencies today but are higher in the “commodity currencies” of Canadian, Australian and New Zealand dollars, and flat in Swiss francs. Gold and silver are both slightly higher for the week in US dollar terms but weaker in terms of other currencies.

One of the least discussed stories in the past week has been the unprecedented move in the EURCHF, which after approaching fresh all time lows as recently as Monday has moved by a massive 500 pips in under 5 days! This is a gargantuan move in the highly leveraged FX world, and demonstrates just how seriously the strong CHF is hurting Switzerland. To that effect we are now hearing of yet more attempts by the Swiss government and SNB to talk down the franc, after an earlier headline noted that the authorities see persistent CHF strength as posing risks. In fact things in Switzerland have gone so far that there have been emergency talks between the SNB and the country export lobby regarding the CHF, which however has not brought about any results. And while (now not so) recent failed attempts by the SNB to intervene had no impact on the currency at all, we are now witnessing the last bullet left in the FX warfare arsenal: talking down the growth prospects of one's own country, which is what Philipp Hildebrand has been reduced to doing to kill his currency. We expect this week's unprecedented move to create great short entry points for the pair, as the European contagion reappears as soon as next week, when even a global central bank backstop effort has been priced in.

And after all the hype we finally know that December inflation was greater than expected, even as retail sales confirmed that the consumer is much weaker than had been propagandized: step aside word of the year "contagion" and meet your replacement "stagflation." CPI comes in surging at 0.5%, beating estimates of 0.4%, and far higher than November's 0.1%: the highest jump since June 2009. And those readers who have cars will likely be aware that Gasoline jumped by a massive 8.5% in December, the highest in a long time. Broadly, energy jumped by 4.6%. On an unadjusted 12 month basis, gasoline and fuel oil surged by 13.9% and 16.5% respectively. And there will be much more pain in store: somehow December food prices are supposed to have increased by just 0.1% in December: the lowest amount in the past 5 months. This number will very rapidly jump much higher as costs start being pass through. (full report)

• You mean selective financial disclosure is an issue? Goldman reveals $5 billion in previously unknown crisis losses (FT)... but besides this latest revelation the bank definitely did not need a bailout. Promise.
• Paying 2 and 20 to a lemming sure sounds like a great business plan: Pack Mentality Grips Hedge Funds (WSJ): "The whole hedge-fund industry is a series of crowded trades,"
• Reverse decoupling^TM is here: U.S. Stocks in Sweet Spot as Emerging Markets Tighten (Bloomberg): bottom line - payroll tax cut is supposed to drag the world out of an emeging market-led slump... good luck
• The next Chinese housing bubble - projects: Banks Ready to Lend More for Low-Cost Housing Projects (Caing)
• China's GDP growth forecast to slow down (China Daily)
• Europe fears motives of Chinese super-creditor (Telegraph)
• ECB's Weber Says Inflation Risks `Could Well Move to Upside' (Bloomberg)
• Has The Fed Lit Inflation Fuse? (IBD)
• India's Inflation Quickens, Increasing Rate Pressure (Bloomberg)
• Christie Criticized Over Bankruptcy Remark After New Jersey Cuts Bond Sale (Bloomberg)