Michigan

The new year is finally here, which means the new composition of Congress and the Senate is now in play and tickets to another year of political theater are rapdily selling out. In the meantime, republicans are not wasting a single minute. Michigan Rep Fred Upton, who will lead the House Energy and Commerce committee, said today that he expects "significant" bipartisan support for a proposed repeal of the health care overhaul -- a vote he said would be held before President Obama's State of the Union address, reports Fox News. Politico chimes in: "We have 242 Republicans. There will be a significant number of Democrats, I think, that will join us. You will remember when that vote passed in the House last March, it only passed by seven votes." Of course, this is just more of the same theatrical BS that has made all of America sick and tired with the charade that is "democratic" governance. And wlsewhere, just to confirm that America's banana republic will be cemented in under three months, when Congress passes the debt ceiling to well over $15.5 trillion, Austan Goolsbee was heard advising America not to play chicken with the debt ceiling (i.e., to pass it to an arbitrary number with preferably one hundred zeroes). The alternative to not increasing the ceiling is per Goolsbee, in true kleptocrat fashion, untold misery and destruction.

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To find out, we'll look at a couple comparisons to get an idea of what is going on in the rest of the economy. And then we'll compare the government's efforts in the 1930s to today ...

Home prices, Richmond Fed, and a couple of readings on consumer confidence. More importantly, POMO is back, and Brian Sack will buy back $6-8 billion of bonds due 6/30/2013 – 11/30/2014, in the second to last POMO of the year. Tomorrow, Sack will buy some of the 2 Years that were auctioned off yesterday as the great shell game continues.

Sprott's John Embry is in fine form today: in a just released oped in the Investor's Digest of Canada, the Chief Investment Strategist of Sprott Asset Management LP, and one of the biggest fans of shiny metals in history, makes the following bold prediction, which also explains how he views the concerted attempts by the LBMA to keep gold below the $1,420 all time high: "I am not in the least bit concerned about these shenanigans because I believe considerable additional quantitative easing is inevitable, irrespective of what the Fed says or does in the short term. Goldman Sachs's chief U.S. economist Jan Hatzius clearly shares my view as he has suggested that ultimately as much as $4 trillion maybe required although he anticipates that it will be staged. In my opinion this will act as catnip for gold and silver prices, which could go ballistic by year-end." Presumably, he means 2011. So forget all you have heard about interest rate (real or otherwise) correlations: they don't exist. All that does exist is the willingness of the Fed to 'print.' And with China increasingly starting to tighten, the Fed will need to do double duty if it wishes to keep global liquidity well-offered with near-free fiat paper. While we don't quite share Embry's enthusiasm for gold's imminent escape velocity, we are confident that as long as loose monetary policy is the only means to extend and pretend the ponzi, gold will, in turn, be well-bid.

Are those who have forgotten the past condemned to repeat it or has the market, like Scrooge, truly turned over a new leaf and will forevermore keep the bullish Christmas Spirit alive in its heart - heading ever higher, never again to come down? Ah, there's a Christmas fable we'd all like to believe in!

UMichigan consumer confidence came on top of expectations, at 74.5, a slight increase from the prior read of 74.2. Market snoozes as expected as nothing trades on news right now. The notable observation is that while the conditions component of 85.3 actually declined from prior (85.7) and missed expectations of 86, inflation expectations rose once again, with 1 year inflation rising from 2.9% to 3.0%, and the 5 year up from 2.7% to 2.8%. Perhaps cotton prices doubling in 2010 may actually not have a deflationary impact.

A raft of data before the Christmas weekend, including claims, personal income and spending (and the core PCE index), durable goods orders, confidence, and new home sales…There is no POMO today.

According to the just released census data, whose collection and subsequent contribution to job numbers resulted in so much consternation over 2010, the US population is 308,745,538 with another 3,725,789 in Puerto Rico. Just as importantly, the data will result in a realignment in Congressional seat representation, with states such as New York losing republican seats, more than offset by pick ups in states such as Texas, Florida, Georgia, Nevada, Arizona, Utah, and others. For all those interested in a detailed break down of the 2010 census result, we present the interactive table below.

The latest report from RealtyTrac indicates that, as expected, November foreclosure activity has fallen off a cliff. In November "default notices, scheduled auctions and bank repossessions were reported on 262,339 U.S. properties, a 21 percent decrease from the previous month and a 14 percent decrease from November 2009. One in every 492 U.S. housing units received a foreclosure filing during the month." This is the largest Y/Y and M/M drop in RealtyTrac's records. “Foreclosure activity decreased dramatically in November, with fewer than 300,000 properties receiving a foreclosure notice for the first time since February 2009,” said James J. Saccacio, chief executive officer at RealtyTrac. “While part of the decrease can be attributed to a seasonal drop of 7 to 10 percent that typically occurs in November, fallout from the foreclosure robo-signing controversy forced lenders and servicers to hit the pause button on many foreclosures while they scrambled to revamp their internal procedures and revise or resubmit questionable paperwork.” It's a good thing then that our very own, and very corrupt, attorneys general are about to announce a major settlement that will wipe the slate clean and allow the conveyor to crank out 1000 foreclosures a day once again... And all manner of thing shall be well.

According to the latest Bloomberg poll, a whopping 71% of respondents (many of whom are likely bankers) have said that bonuses at banks receiving bail out funds (that's all of them) should be banned this year, and another 17% believe that a 50% tax should be imposed on all bonuses exceeding $400,000 (which, in another record bonuses year, will likely be most of them). This goes back to our thesis presented over a year ago that since Wall Street is essentially a government utility, it should be treated as one, with set IRR targets and caps, and bonuses for bankers, whose every action results in a government bail out sooner or later, should be closely controlled and scrutinized in concordance with traditional utility metrics. Then again, in keeping with the spirit of the middle-class wealth transfer program so well presented by Ben Bernanke over the past 5 years, this proposal has about a snowball's chance in hell of passing. This is doubly so now with a Republican controlled Congress whose allegiances to the banker class are not exactly top secret.

We have already broadly discussed the recent euphoria in the market which especially in the Nasdaq has hit 5 year+ extremes. And as always in times of such irrational exuberance, the disconnect between perception and reality is truly astounding. David Rosenberg presents his views on the latest developments in the market's ongoing fight with manic-depressive disorder.

Twin deficit day, with import and export prices and consumer confidence sandwiched in between. At 2pm today we get the next POMO schedule, which will likely be larger than the $105 billion purchased in November-December due to a greater amount of MBS prepays. Furthermore, as there is no bond issuance in the next several weeks, the net effect will be a substantial demand squeeze as there is no incremental supply. The Fed will surpass $1 trillion in UST holdings within 10 days.

The European / IMF bail-out package for Ireland – announced one week ago – was somewhat smaller than expected at €85 bn and failed to calm market jitters spreading to other Euro zone periphery countries early in the week, most alarmingly to Spain and Italy. It was only with the ECB’s announcement that full allotment liquidity operations would continue through Q1 2011 and with a jump in ECB purchases of Portuguese government bonds on Thursday that stress in the Euro zone periphery abated somewhat...Following last week’s turbulence on the periphery, this week’s key event will be the Irish parliament vote on the 2011 budget, which is scheduled for Dec 7. A failure to pass the budget could quickly exacerbate tensions across the Euro zone periphery, by highlighting the political costs of needed budget cuts.

For those wondering why the market leaked higher in the last hour, it is because someone got an advance copy of the transcript (or advance notice) that in this Sunday's latest attempt at faux transparency on 60 Minutes, the bearded mutant-cum-supreme genocidal overlord says that more QE is coming. From Reuters: "The euro rose to a session peak against the dollar in late afternoon New York trade on Friday after a report on the CBS website that Federal Reserve Chairman Ben Bernanke did not rule out buying more than $600 billion of bonds in further quantitative easing." It also explains why the euro is back to 1.34, and is right in line with our expectations that the EURUSD is only weak so long as the market realizes that much, much more QE is coming. How much? See the chart below for our ongoing expectation of what the Fed's balance sheet will look like soon. And yes, the $7 dollar jump in gold late in the day may be multiplied 10-20x on Monday after the world realizes that the US economy is as fucked as always.