Archive - Jul 17, 2013 - Story

It is somewhat ironic that a Federal Reserve which is now more committed to "forward guidance", transparency and communication than ever in history, just announced the resignation of Krishna Guha, the head of NY Fed's Communications Group, aka the head PR contact for all media. More importantly, the resignation took place without a handy substitute ready. Our advice to the Fed, if unable to find a worthy replacement: just hire Jon Hilsenrath - after all he already is effectively the Fed's mouthpiece.

Jan Hatzius' assessment of Bernanke's first congressional testimony was just released. We assume it was not written while he was having lunch with Bill Dudley at the Pound and Pence.

Stolper: "On July 5, rising EM external funding costs, following a strong Payrolls report in the US, prompted us to express our view of EM FX vulnerability by recommending a long USD against a basket of TRY, ZAR, INR, BRL, CLP. A combination of events has worked against our recommendation; relaxation of Fed tapering fears, unwinding of long dollar positioning and activism by EM authorities to stem depreciation pressures. As a result, at the close of London trading today, the recommended basket closed at 97.8, below the stop-loss of 98."

Projections based on high rates of endless growth are delusional. Those who embrace these projections are equally delusional. Attacking critics who have taken the time to study the data and trends is not going to magically make these programs sustainable or fix what's broken. Placing one's faith in government projections that always forecast high rates of endless growth (because "growth" fixes everything) is embracing delusion. Reality trumps accounting trickery and delusional projections every time. Let's see how accurate all the government agency projections (including the SSA Trustees) turn out in September 2015, at the end of fiscal year 2015.

The following brief exchange between a congressman and Ben Bernanke pretty much wins today's Humphrey Hawkins farce.

• Q: Are You Printing Money?
• Bernanke: Not Literally

And a FTW follow up from the Chairman:

• If the Fed were to tighten policy, the economy "would tank"

And there you have it. Everyone can go home now.

Page 5 of BAC's Financial Supplement lays it out for all to see: the "Net change In available-for-sale debt and marketable equity securities" in Q2 was $4.233 billion. How does this compare to the firm's reported Net Income of $4 billion? It compares as follows: absent Mark-To-Unicorn, Bank of America's "Net Income" of $4 billion would have been a loss of $200 million. Which, incidentally, is what BAC reveals is its Comprehensive Income at ($209)MM. Of course, since every other firm is in the same boat of hiding epic losses the second the market stop acting according to every whim of the central planners, nobody cares and certainly nobody wants to bring attention to this little fact.

While Chanos' last year's short on HP has not been a tremendous success (yet), it seems the market is more acquiescent to the famous China bear's short call on CAT (among other things due to its infamous major exposure to China). As we noted in detail most recently first two months ago and then one month ago, things at the industrial company are not going at all well, but Chanos notes some more important concerns:

• CHANOS: SHORT CATERPILLAR INC.
• CHANOS: SAYS CATERPILLAR HAS ‘ACCOUNTING ISSUES’
  
• CHANOS SAYS CATERPILLAR IS TIED TO WRONG PRODUCTS IN WRONG TIME
• CHANOS: WILL FACE A SERIES OF SUPERCOMMODITY HEADWINDS
• CHANOS: ACCOUNTING FOR BUCYRUS DEAL MAY HAVE BOOSTED CAT EPS
• CHANOS: EARNINGS DRIVER FOR CAT MAY HAVE BEEN ONCE IN LIFETIME

For now, CAT is down around 2.2% on the day and while he believes global growth (and CAT's geographic bets) will hurt, it is the accounting for Bucyrus which makes the Enron billionaire most nervous.

The clear message from the markets (for now) is that "we like to able to interpret prepared remarks in only one (bullish Taper-off) way but we don't like it when you speak ad hoc Ben."

For the 9th week of the last 10 mortgage applications fell (led by refis - down 55% from their peak). Now down an incredible 45% from its May highs - the largest 10-week plunge since December 2010 - overall mortgage activity is languishing around the lowest levels of the post-recession 'recovery'. Year-over-year, applications have dropped 44% which is close to the worst on record as applications and mortgage rates track one another in their 'whocouldanode' perfectly correlated manner. It seems - for all those blinkered pollyannas - given this morning starts and permits disaster, that home sales are the next shoe to drop and judging by the empirical relationship with apps and rates, the 'surprise' could be significant for many who remain hopeful.

Based on the following quotes just uttered by the Chairman...

• BERNANKE: WALL STREET HASN'T BENEFITED MORE THAN MAIN STREET
• BERNANKE SAYS FED `VERY FOCUSED' ON MAIN STREET

... Bernanke's next career as a sit-down comedian smash hit is guaranteed.

Back in September we, somewhat naively, penned "US Totalitarianism Loses Major Battle As Judge Permanently Blocks NDAA's Military Detention Provision" in which we said that "the war against the true totalitarian terror won a decisive battle." Sadly, the "victory" lasted for about 10 months. Today, US totalitarianism strikes back with a vengeance.

• U.S. APPEALS COURT THROWS OUT PERMANENT INJUNCTION THAT HAD LIMITED U.S. GOVERNMENT'S USE OF INDEFINITE MILITARY DETENTION -- COURT RULING

In other words, every legal decision will be binding... until Obama's cronies in the 13 circuit courts of the appellate system get a tap on the shoulder. And good luck with the SCOTUS.

One word sticks out most, and it is not "(f)unemployment."

Bernanke's prepared remarks, which said nothing the market did not already know, have already been disseminated, and now it is time for the House Financial Services Committee to open their mouths and confirm to everyone they have no idea they are now irrelevant (everyone already knew they have zero understanding of monetary policy and that in fact, Bernanke is begging Congress to raise spending so he has more QE purchasing power as all Ben does to the Hill is monetize their deficit) and the sole person who calls the shots is an unelected Princeton historian, with his finger on the print button. So, without further ado, here is Ben Bernanke at the "Delivering Beta" conference, live from room 2128 in the Rayburn House Office Building.

Today the financial world will focus on one singular person. He is not elected but appointed. He kind of, sort of, reports to Congress but there is a football field of slippage in that observation. With the wave of a hand or the choice of a word he can send markets to the moon or leave them bleeding in the streets. It is a fascinating position that Mr. Bernanke occupies as he can take money or create money as easily as he can order his morning coffee. The fun begins when the question and answer session begins. Then it is rather like a video game. Traders all across the world sitting with their fingers on the keyboard just waiting to press the button if the wisp of some word blows left or right, up or down. It is the adult version of "Call of Duty, Modern Warfare."

In all the noise surrounding Bernanke's rehash of statements made countless times before, today's only relevant data point - June housing starts and permits - was largely ignored. And one can see why: printing at 836K, the starts number was the lowest since August 2012, the second largest sequential drop (down from 928K in May) since 2011 and the biggest miss to expectations of 957K since January 2007! And worse, permits which printed down from 985K to only 911K on expectations of a 1 million headline number, just posted their largest miss... in history.