Markets are mixed this morning as they await Thursday’s EU meeting on the future of the EFSF. Yesterday showed that rising oil prices will likely cause a debate within the Fed as the rise could either accelerate inflation or even halt economic growth. Dallas Fed President Richard Fisher told conference attendees that QE2 may need to be scaled back to prevent inflation while Atlanta Fed President Dennis Lockhart supported a possible QE3 to avoid another recession. The debate will likely escalate along with ongoing violence in the world’s oil centers. Consumer credit rose for the fourth consecutive month, increasing $5.0B in January v $3.5BE, led by federal government lending. Meanwhile, revolving credit fell $4.2B, showing a still cautious consumer despite higher borrowing. Today’s NFIB survey release at 95.0E v 94.1 prior came in at 94.5. The rise is indicative of easier lending and improved employment figures, but we note that small business still lag large ones in economic progress.
Oil Breakout Alert - Kuwait, World's Fourth Largest Oil Exporter, Joins Demonstrations Demanding Regime ChangeSubmitted by Tyler Durden on 03/08/2011 - 07:18
Crude dropped overnight, after the FT joined the BBC in the "False Rumor Spreading Korner", after the Libyan Investment Authority held newspaper said some OPEC members are looking to raise oil output to avoid any supply shortfalls. Too bad that just like every other previous rumor-based attempt to drive oil lower, this one was refuted within minutes by the same OPEC members that were allegedly boosting their capacity (which does not exist in the first place). Perhaps if the FT had read the note sent out at midnight by Goldman's David Greely, which noted that there is virtually no spare OPEC capacity left, they would have known why they should have come up with a more credible rumor: like Gaddafi committing suicide after watching the latest episode of Sheen's Korner. So much for the rumor mill. Now on to facts, where instead we see a development which threatens to send oil surging far higher. Reuters reports that formerly peaceful Kuwait has just joined the ranks of demonstrators, demanding the resignation of the prime minister in a peaceful protest early in the day, with a larger one expected later in the day: "Kuwaitis demonstrating outside parliament for the prime minister's ouster came up with a new symbol of Arab discontent on Tuesday by handing out watermelons. "This is for the parliament's poor performance," one of the small band of protesters shouted as he gave a watermelon to a lawmaker making his way into the parliament. The significance was not spelled out, but in local parlance, a person who has a lack of understanding or holds an unrealistic point of view sometimes is called a watermelon. A potentially larger rally was expected later, inspired by spreading Arab protests that toppled leaders in Tunisia and Egypt before sparking the insurrection in Libya and spreading to other Gulf countries including Bahrain, Oman and Saudi Arabia." Kuwait, for those keeping track, is the 4th largest oil exporter in the world.
RANsquawk European Morning Briefing - Stocks, Bonds, FX etc. – 08/03/11
No Silver? No Problem: US Mint Would Like To Know If You Will Accept Brass, Steel, Iron Or Tungsten Coins InsteadSubmitted by Tyler Durden on 03/07/2011 - 22:48
Wonder why the US mint has not sold a single ounce of silver so far in March? Here is a clue: "The United States Mint today announced that it is requesting public comment from all interested persons on factors to be considered in conducting research for alternative metallic coinage materials for the production of all circulating coins. These factors include, but are not limited to, the effect of new metallic coinage materials on the current suppliers of coinage materials; the acceptability of new metallic coinage materials, including physical, chemical, metallurgical and technical characteristics; metallic material, fabrication, minting, and distribution costs; metallic material availability and sources of raw metals; coinability; durability; sorting, handling, packaging and vending machines; appearance; risks to the environment and public safety; resistance to counterfeiting; commercial and public acceptance; and any other factors considered to be appropriate and in the public interest."
On Friday, free and efficient market champion Ted Kaufman, previously known for his stern crusade to rid the world of the HFT scourge, and all other market irregularities which unfortunately will stay with us until the next major market crash (and until the disbanding of the SEC following the terminal realization of its corrupt and utter worthlessness), held a hearing on the impact of the TARP on financial stability, no longer in his former position as a senator, but as Chairman of the Congressional TARP oversight panel. Witness included Simon Johnson, Joseph Stiglitz, Allan Meltzer, William Nelson (Deputy Director of Monetary Affairs, Federal Reserve), Damon Silvers (AFL-CIO Associate General Counsel), and others. In typical Kaufman fashion, this no-nonsense hearing was one of the most informative and expository of all Wall Street evils to ever take place on the Hill. Which of course is why it received almost no coverage in the media. Below we present a full transcript of the entire hearing, together with select highlights. The insights proffered by the panelists and the witnesses, while nothing new to those who have carefully followed the generational theft that has been occurring for two and a half years in plain view of everyone and shows no signs of stopping, are truly a must read for virtually every citizen of America and the world: this transcript explains in great detail what absolute crime is, and why it will likely forever go unpunished.
LTV On Vehicle Financings Plunges To All Time Low, As Equity Check On Car Purchases Hits Record $6,668 Per Car From ($116) In 2006Submitted by Tyler Durden on 03/07/2011 - 20:21
One of the more important data points in today's G.19 (consumer credit release) statement was that the Loan To Value ratio on vehicle financings (at least those reported by the government) in January dropped to 80%, from 81.8% in December, which is a new all time low in the history of the series. The recent swing in this ratio has been very perplexing: the plunge from 95.1% in July 2008 just before Lehman to 84.9% in September of 2009 is explainable: after all lending virtually ceased and banks were cautious with lending out any money absent a material depreciation buffer (and yes, at the peak of the credit bubble, the LTV ratio hit 100.4% in September 2006, when banks were willing to finance more than the value of the car, confirming just how much excess credit money was sloshing around courtesy of a cranking securitization ponzi and a humming shadow banking system). Then following the March 2009 lows, LTV ratios once again moved higher and peaked in December 2009/January 2010. They have been in decline ever since, and the decline has accelerated over the past 4 months, when it was 86.5% in September, down to 80% in January. In absolute terms, this means that in January the amount financed was $26,673.4 per car, the lowest since February 2009. Yet this has happened even as the average car prices continues to rise, and the implied January 2011 car price was $33,342. In other words, the average equity check that buyers have to finance is a record $6,668!
My take is that there's nothing inherently wrong with unions, as long as they are voluntary associations of people – they're just associations working in certain trades or in certain places. It's natural. Sure, why not? But there are problems with the way unions exist in reality today, particularly when membership is made mandatory. That's a violation of the human right to work. When you can't work unless you join the union, and union membership is limited – often to people with political connections or family relations with union officials – it's clear that the union is not a defender of the little guy, but a kind of protection racket. It's a fraud. That doesn't just harm the individual worker who may wish to enter a unionized field; it has broad economic consequences. When only union members can work, the union can set wages at whatever level they want. That makes the product or service in question more expensive for everyone in society. In other words, unions don't help the average working man – they only help those who can get into the unions. They hurt everybody else: non-union workers, employers, and consumers at large. And it gives union bosses extraordinary power.
The last time Charles Biderman appeared on CNBC, he was carted onstage (and promptly off) in the late hours before Christmas Eve, when it was virtually assured nobody would hear the self-evident truths out of his mouth such as this one: "individuals have been selling, companies are net selling, insider
selling and new offerings are swamping any buyback and any cash M&A
activity since QE 2 was announced. Pension funds and hedge funds don't
really have that much cash to invest. So what nobody's asking is what
happens when QE 2 stops: if the only buyer is the Fed, and the Fed stops buying, I don't know what is going to happen...When
I was on your show a year ago I was saying the same thing: we can't
figure out who is doing the buying it has to be the government, and
people said I was nuts. Now the government is admitting it is rigging the market." Now that the great muni scare forced retail to take proceeds from muni liquidations and invest in stocks just as the market topped out, CNBC brought Biderman on again, hoping to get something, anything, bullish out of the flow of funds expert. Wrong. "In December of 2009 received a lot of ridicule for saying that the Fed is rigging the market which as everybody is well aware." As for the "sustainable economic recovery" i.e., what happens to Quantitative Easing: "They probably will end for a while, we think there is going to be a QE3 and 4, or until the market says: "No Mas - we are not going to believe this game the Fed is playing... The Fed is printing over $100 billion a month to buy other assets and pay bills, and economic growth is picking up at a $200 billion annual rate. This is very inefficient method of boosting the economy, and then how do we repay these trillions that have been created out of thing air in the future." At which point the producer "screams get him off my show."
Fragile Consumer Credit Recovery Fizzles As Government Is Responsible For $25 Billion Of $5 Billion Increase, Revolving Credit DropsSubmitted by Tyler Durden on 03/07/2011 - 17:40
After consumer credit seemed poised to be at a critical inflection point in December, after total credit increased by $6 billion, and all important revolving (i.e., credit card) credit component increasing by $2.3 billion, and the government - recently the only source of incremental consumer credit - largely absent from the monthly pickup, the January number confirmed this single month occurrence was largely a fluke, and was predicated by the already discussed consumer weakness seen in the beginning of the year. Not only did today's consumer credit update indicate last month's increase was revised lower by 33%, to just $4.1 billion (revolving revised from $2.3 billion to $2.1 billion), the revolving credit improvement is now dead and buried, after there was another drop in total revolving credit to the tune of $4.2 billion, more than wiping out last month's increase and printing the 28th of 29 consecutive monthly declines in revolving credit. Yet what is most troubling is that while non-revolving credit increased by $9.3 billion, $24.9 billion of this increase was due to the Federal Government, while the traditional source of credit: consumer banks, plunged by $15.1 billion M/M, the biggest monthly drop since the securitization-commercial reclassification in March of 2010. In addition all other holders of debt saw their notional amounts decline with the exception of savings institutions which increased by a token $345 million. Unfortunately for the Fed, consumer deleveraging is alive and healthy, meaning that the US government will need to fund the private sector indefinitely in the future, which also means monetization of the relentless surge in debt (note today's record $224 billion monthly budget deficit) will continue.
Update: Rebels Reject Offer; Latest Libya Development: Gaddafi Offers Rebels To Hold People's Congress To Let Him Step Down With GuaranteesSubmitted by Tyler Durden on 03/07/2011 - 17:00
And the imminent update, which is just as expected: "AL JAZEERA SAYS INTERIM REBEL GOVT REJECTS GADDAFI OFFER OF MEETING TO CONSIDER HIS RESIGNATION"
Just out from Reuters: "AL JAZEERA SAYS GADDAFI OFFERS REBELS TO HOLD PEOPLE'S CONGRESS TO LET HIM STEP DOWN WITH GUARANTEES"
Silver is blasting through all barriers, topping $36.5 this morning! The white bullion market is tight, and the short squeeze in the futures market is exerting a constant upward pressure on the price. If current trends persist, the all-time high of $49.45/ounce will be reached in the near future...Given the still gigantic short positions on the silver futures market, this short squeeze could persist for some time. Increasing price volatility as the squeeze continues is likely. But the all-time high of just under $50 per ounce could, if the current pace of appreciation persists, be broken this year.
Stocks-Crude Inverse Correlation Passes 2008 Levels, Just Off All Time Highs: Major Correction Ahead?Submitted by Tyler Durden on 03/07/2011 - 15:36
A week ago we presented the suddenly surprising inverse correlation between stocks and crude, commenting that: "the last time WTI to Stocks hit a correlation of -0.5 is just after the market peaked in late 2007, early 2008, as the market had started its decline which culminated with the global sell off of everything not nailed down, bringing the S&P to 666. The correlation between the two assets is again -0.5. If Brent confirms the WTI correlation, it may be time to run." Subsequently every chartist jumped on this observation, yet it is today's update that is material significance: as of a few hours ago, the inverse correlation between the Brent front month has just passed the lows recorded in 2008, just before the market tumbled, when increases in oil prices no longer produced increasing stock prices (i.e., market topping). In other words, "it is now time to run" as we have just surpassed that level. And in fact, a longer term chart shows that we are just off the all time lows in the MSCI-Brent correlation. If this series continues dropping a correction is virtually assured.
In recent weeks we have been arguing that tail risk remains and is unusually realistic given the potential sources of shocks. We have also found that in many cases clients are reluctant to buy into these fat tail scenarios (actually 'reject' may more accurate than ' are reluctant' ). The argument is basically that they have heard it many times before in the last two years and asset markets have continued to flourish. We would argue that the correct approach is to ask whether the macro risks looking ahead are those that can be dealt with using the policy tools at hand. Consider the obvious potential risks: an oil shock, commodity prices and advancing headline inflation in the context of growing concerns about social and political disruption. We would make the case that the risk is high that if any of these shocks were to move to centre stage, it would be harder for policy makers to deal with them because printing and spending money is not quite the solution to these problems that it was to the financial shock of late 2008 and early 2009...which brings us back to Black Swan fatigue. When we see currency vols so cheap in a world that appears to be so risky and in which policymakers do not hold a terribly strong hand, it makes a strong case for hedging tail risk, even if FX price action is apparently indicating otherwise.
The shift in risk perception is on. While stock are not quite feeling it yet (they will), today's fulcrum security appears to be high yield debt, as tracked by the JNK ETF. A quick look at the most active options classes page shows something surprising: as of 2:30pm Eastern roughly 4250 puts had trade, compared to.... 4 calls. Yet while investors have certainly turned sour on junk very rapidly, they should be far more bearish on stocks. Not only have stocks outperformaed bonds far more during the QE2 rally (as expected), but a simple correlation model accounting for empirical beta confirms that the SPY is almost 12% rich to fair value as implied by the JNK. Which means that if investors are really bearish on high yield to the tune of 4250 to 4, they should be far more bearish on the stock market.
As Credit Suisse points out, today the Gold/Copper ratio is up by over 4% to 3.32, which happens to be the biggest one day move since June 29, and confirms that not only the copper run may be over, but that derisking and the flight to safety trade is truly back on. Although one hardly needed to see this chart to come to that conclusion: even as the market continues to expect an announcement from Bernanke that CTRL-P Central (f/k/a the Marriner Eccles building) will start printing crude any minute, the wait may end up being quite protracted. And while gold has not been touched yet, and in fact continues to trade at all time highs, we wish to repeat our warning that should the crunch in the S&P continue (even if it is modest by historic amounts), it is very likely we may see liquidations in HF precious metals holdings considering the HF margin debt position is at virtually all time highs, meaning the toxic spiral of plunging prices and broad deleveraging in advance of margin calls, will lead to a sell off in anything and everything that is not nailed down.