Rosenberg looks for hints on how to navigate the market, and finds them in the CFTC COT report (which despite not reporting last week due to the Veterans' Day holiday, is regularly posted on Zero Hedge to glean precisely such clues). To wit: "The asset classes are merely unwinding the excess risk-on trades and pricing out the chances that QE3 will ever see the light of day. Yes, this is what the market was starting to think since Bernanke left the door open for more in the press statement, but we are finding out ex-post that the Fed chairman has less support around the table than was generally perceived. It may pay for the time being to avoid the areas of the market where net speculative long positions exist and is in the process of unwinding. Long covering is a critical source of selling pressure."
Since it appears that the majority of the American public is receptive to understanding moderately complex economic and financial topics only when presented in cartoon format (as in QE2) here is extranormal with the latest, this time making high frequency trading comprehensible to even those with a 2 minute attention span.
Today's $7.9 billion POMO is now history, closing at a surprisingly low 3.5x submitted to accepted ratio. What this does to stocks will be closely watched as Friday's POMO was a failure. Two red days on POMO in a row will be the wrong signal the FRBNY will want to send to the Fed frontrunners. More importantly, today's POMO in addition to last Friday's $7.2 billion monetization, adds to the Fed's total UST holdings of $853 billion as of last Wednesday, meaning the Fed has now tied China for top holder of US Treasury securities, both of which have $868 Billion in holdings. Tomorrow's POMO will make the Fed the top holder of USTs in the world, or at least until the next TIC announcement (also tomorrow) which will show that China's UST holdings as of September very likely grew by another $15-20 billion. Nonetheless, with a run rate of $7 billion in daily monetizations, the Fed will overtake that number by the end of the week as well.
After Matt Taibbi stirred popular spirits last week with his expose on the Rocket Docket foreclosure mill currently operating in Florida, today CNNMoney's Poppy Harlow follows up with a look at just what happens at the front lines of the foreclosure mess. Per the report, “judges are signing off on up to 25 foreclosures an hour. That's one about every two minutes.” The official story, for those who have not had a chance to read Taibbi's piece, is that since Florida has the second highest foreclosure rate in the country, it is stuck with a huge case backlog that must be cleared. The goal is to clear 62% of the back log in one year. These special foreclosure courts though, have become highly controversial, with critics dubbing them “rocket dockets,” and claiming judges are rushing through cases, unfairly favoring banks over homeowners. For once, we get the judges' side, which is rather hilarious: "there is no evidence, nothing has been presented to us in the 4th circuit, that there is any fraud being perpetrated upon the court. What is classified as fraud, can also be classified as sloppiness, can be classified as neglect, but the legal aspect of the word fraud, we do not experience that." Could it also be classified as bribery by the TBTF lobby we wonder?
A week ago we presented an extended research piece by Muddy Water Research, that slammed the Chinese company, essentially calling it a scam, and slapping a token price target of $2.50 on it. Some took this as nothing but a glorified book talking attempt by the two-man research outfit. Yet this morning's horrendous earnings release and outlook cut seems to be validating the bear thesis. And now, adding fuel to the fire, is Canaccord analyst Michael Deng who has just downgraded RINO from Hold to Sell, stating the obvious, namely that "Fraud allegations are difficult to clear." With countless Chinese IPOs having recently gone public on the NYSE, is the world's once most reputable stock exchange about to be deemed the stomping ground for an endless supply of Chinese boiler room names as more and more Muddy Waters' type reports emerge dissecting how the NYSE allowed fraud after fraud to take advantage of its gullibility?
One of the key forward looking topics that so far relatively few wish to touch, is what the implications of record excess money sloshing around will mean for corporate margins. Following the past 3-4 quarters, in which corporate profitability has risen to near all time highs, surging input costs threaten to end the party short, as companies such as Dean Foods demonstrate they have little ability to pass prices through to consumers (nonetheless, they will certainly have to try eventually). But Fed aside, is there a cyclical relationship between the vagaries of the corporate profitability cycle, and broader economic growth? As John Hussman demonstrates in his most recent note, The Cliff, this is indeed the case, as "present levels of corporate profits are followed by negative profit growth over the coming 5 years." Which is why all those calling for margin expansion and S&P EPS growth may wish to reconsider: being wrong about one of the two is bad, being wrong about both means one better be a TBTF...
It is as if Europe is trying to kill the Euro (just as we predicted): the FT reports that according to Fernando Teixeira dos Santos, Portugal's finance minister, the risk that Portugal will have to turn to the international community for emergency financial assistance is high because of the growing dangers of contagion through financial markets that fear the eurozone debt crisis will spread. "The risk is high because we are not facing only a national or country problem. It is the problems of Greece, Portugal and Ireland. This is not a problem of only this country." And just to make it appear sightly less palatable that Portugal is now pointing a loaded gun at its head, dos Santos threw a little of the blame all around: "This has to do with the eurozone and the stability of the eurozone, and that is why contagion in this framework is more likely. It is not because markets consider we have similar situations. They are only similar in what concerns markets, but as I said they are very different. Markets look at these economies together because we are all in this together in the eurozone, but probably they could look different if we were not in the eurozone. Suppose we were not in the eurozone, the risk of the contagion could be lower." And while we are on the daydreaming page, suppose the Euro did not exist: things may have been just a little different, roughly in line with what the euroskeptics have been saying for almost two decades now. Suppose the Fed did not exist either...
Everyone recognizes that, despite our status as a reserve currency, the U.S. cannot sustainably spend far in excess of its means. But when it seems as if we all want the other guy to make the necessary sacrifices we reveal, in the process, our own, although more mature, sense of entitlement. This is, of course, not a uniquely American problem. One doesn’t know whether to laugh or cry at the spectacle of 17-year old French students protesting the fact that their retirement age needs to be extended from 60 to 62 in a country in which the average life expectancy is nearly 81 years old. But without political leadership designed to do the right thing regardless of the electoral consequences, it’s hard not to feel that the correlation between the West’s sense of entitlement and the price of gold will only grow. - Startegas Research
Retail Sales Ex-Autos In Line With Expectations, As Empire Index Plunges: New Orders Drop Largest Since September 2001Submitted by Tyler Durden on 11/15/2010 - 09:41
October advance retail sales came in at 1.2%, higher than expected 0.7%, and higher than a previously revised 0.7%. The bulk of the beat came from auto sales. Stripping for those, yields retail sales of 0.4%, right in line with expectations. Furthermore, the ever critical General Merchandise stores category in its Non-seasonally adjusted form, dropped from 50,010 to 46,189, hardly the SA beat that was reported. Elsewhere, the Empire Manufacturing Index was clobbered missing expectations by over 25 points, printing at -11.14, on expectations of 14, and a previous read of 15.73. The new orders index plummeted 37 points to -24.4, its sharpest drop since September 2001.
As if the rest of the world telling Ben Bernanke he has finally flipped, was not enough, here comes the opposition from within, after 23 public figures, among which economists, financiers, hedge fund managers and Dick Bove (not sure what he is) have sent an open letter to the Bernank demanding QE2 be immediately pulled. With the imminent market collapse that would follow such an action we are not surprised to see Jim Chanos among the list of signatories, although that long-biased Paul Singer of Elliott Associates would endorse such a contrary to his interests letter, is interesting to say the least.
- G-20, APEC Yield Little to Fix Imbalances, Stem Inflow Concerns (Bloomberg)
- Ireland Talks With EU as Germany Pushes It to Take Bailout (Bloomberg)
- Europe stumbles blindly towards its 1931 moment (Telegraph)
- Portugal Faces Investor Scrutiny (WSJ)
- Greece Expects Budget Pressure From EU, IMF (WSJ)
- Lacker Says Fed's New Easing Push Too Risky (Reuters)
- Banks escaping big foreclosure class actions, because borrowers cannot demonstrate economic harm, according to plaintiff lawyers (Reuters)
- Who Will Stand Up to the Superrich? (NYT)
- Dollar boosted by higher Treasury yields (Reuters)
RANsquawk European Morning Briefing - Stocks, Bonds, FX etc. – 15/11/10
After recently the market took all calls of a flattening in the 10s30s to task, one would think that those anticipating a curve flattening (Zero Hedge included) would finally have learned their lesson. This has not happened so far, especially since a continued sell-off in the long-end will soon move from being a boon to the curve carry trade, to a flashing red signal of inflation expectations which will likely wreak further havoc across all asset classes. Also, quant models are already on the edge of refusing to bid up the 7 and 10 Y even as they are forced to sell 30Y, no matter what the Fed is telegraphing it will do. In his attempt to anchor the curve around the belly, Brian Sack has let the 30Y flail in the gusts of increasing inflationary expectations, and quite soon the plan will backfire. Which is why we believe that with future POMO schedules, the FRBNY will disclose an ever greater portion of monetization in the 17-30 Y segment, over and above the 4% disclosed originally on November 3. One analyst who refuses to give up on the flattener trade is Morgan Staney's Igor Cashyn, who as of Friday, has reiterated a call for imminent de-steepening, although unlike before where the flattener was to be traded via nominals, this time the Russian goes straight into Real Yields.
Weekly Recap, And Upcoming Calendar - Light Domestic Econ Data With All Eyes On POMO, Europe And ChinaSubmitted by Tyler Durden on 11/14/2010 - 20:53
The week ahead is reasonably light in terms of data. In the US the key releases to watch include retail sales, IP and the Philly Fed. As European tremors escalate the ongoing positive momentum in US data is unlikely to be EUR friendly in the near term. The Philly Fed will also give us a forward looking signal with respect to broader PMI trends in the US. More importantly, there will be a POMO every single day of the upcoming week, which will add ~$30 billion to the Fed's total UST/TIPS holdings. Traders will be nervous to confirm whether the new POMO regime will be a dud after Friday's inaugural POMO ended up being a disaster for POMO-bulls.