January 14th, 2011
I'd like to be down on Wall Street--In an octoponzi' hideout in the shade
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.
Unprecedented 500 Pip Move In EURCHF As Emergency Talks Between SNB And Exporters Lead To No ResultsSubmitted by Tyler Durden on 01/14/2011 09:03 -0500
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 decouplingTM 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)
The same people at Goldman who thought the Chinese December interest rate hike was the greatest thing since sliced bread, would obviously be positively creaming themselves over today's RRR hike (even as the SHCOMP continues to get hammered). Sure enough...
Markets trading with a sour tone this morning, driven once again by macro headlines. Yesterday’s claims data resumed its dire tone as PPI reflected commodity inflation (the bad kind). Today will see a slew of data including CPI, retail sales, inventories, industrial production and capacity utilization – the sum of which should signal whether the 4Q10 upswing was inflation/inventory driven or the result of real demand.
Today, JPM announced results, which presumably beat on the top line, while the bottom line is largely irrelevant as banks continue to operate under the auspices of FASB mark-to-myth, and as such no numbers can be trusted. As for the improvement in the credit card business, cited largely as a reason for the $1.12 EPS beat compared to $1.00 consensus, when consumers don't have to pay mortgages, they at least can afford to pay for trinkets. Which is why we believe the bulk of the numbers in the company's 23 page Q4 earnings presentation are largely worthless. The two slides that however bear mentioning are 9 and 10, which deal with the elephant in the room, mortgage repurchasing risk, and the foreclosure process update. Below are the highlights, among which we find that as of Q4, the average delinquency at foreclosure for JPM is now 14 months.
A heavy day with retail sales, the CPI, industrial production, Michigan confidence, and business inventories….
Goldman out right lies to investors and the SEC, exactly as I said they were (in explicit and illustrious detail) throughout all of the financial crisis. Who wants to bet against the presumption that the SEC will let them get away with it?
Today brings another confirmation that the only trading vol remaining in risk asset is not in stocks, but mostly in FX. After the EURUSD was trading in the mid 1.33s, a sudden surge of buying by European desks overnight took it to well over 1.3450....Only to see the entire move undone in a matter of hours. According to Market News, the reason for the nearly two big figure move has to do with yield plays (obviously), although we are confident that those wishing to establish better short positions in the pair, alongside Goldman's prop desk for example, are certainly welcoming any justification for the surge, as fabricated as it may be.
After the PBoC raised the RRR for the fourth time in two months (and 6 times in 2010), and following the Christmas Day interest rate hike, Chinese stocks once again find themselves reacquainted with gravity as the SHCOMP was trading down 1.3% at last check. The hike will be effective January 20 and will bring the RRR to a record 19%. And this most ineffective of monetary interventions will certainly not be the last: according to Bloomberg, "China may boost reserve ratios by more than 200 basis points in 2011, according to HSBC Holdings Plc economist Qu Hongbin. Industrial Bank Co. economist Lu Zhengwei estimates the ratio may reach 23 percent." Unfortunately, this latest move is too little too late, as Chinese food prices are already starting to make the politburo uneasy about what the world central bank cartel's actions mean for rice prices (remember the 3Rs as predicted by ZH - as we predicted in October, the next bubbles are Rare Earths, Rice, and Rubber).
RANsquawk European Morning Briefing - Stocks, Bonds, FX etc. – 14/01/11
Retail traders are notoriously wrong at picking market direction/tops and bottoms. Most retail traders very naturally seem to adopt a counter-trend stance and this offers very accurate signals for individuals looking to trade against this group. This daily report is designed to help traders focus their efforts on higher probability pairs.