I will not waste too much of your time to start the day. I remain bearish equities from 1,126, and would use 1,117.50 as a trailing stop here. The key support below is 1,083, and we can expect a bounce there possibly, but if we don't break 1,100 rapidly I will become more concerned about my view. The fact is if the bearish scenario plays out here we should be in a wave 3 or C lower, which either way is quite impulsive. So indecisive price action would make me question the downside a bit. The one thing that can comfort bears here is the Nasdaq daily chart which has a quite bearish set-up here. - Nic Lenoir
The newsletter gurus are now going at it all out, and the bone of contention is, not surprisingly, gold. "With fiat money in retreat all over the world -- and currencies devaluing against each other, the world's peoples will turn to the only money they can trust -- gold. I'm aware that Prechter believes gold will be heading down in a deflation, I disagree. I was there during the Great Depression, and I can tell you nobody at that time had dollars. But if you did have dollars they were trusted and they were considered as good as gold. Today, it's different. The very validity of the dollar is in question."
Trade Deficit Surges To Highest Since October 2008, Trounces Expectations; Q2 GDP To Be Revised To Sub-1%Submitted by Tyler Durden on 08/11/2010 09:08 -0400
As the attached chart shows, the recent Obama initiative to push exports to double in 5 years has started off, just like all other administration efforts, as an abysmal failure. The June balance of trade plunged to ($49.9) billion, on expectations of ($42.1) billion - a surge of $8 billion compared to May's ($42) billion. This number was the highest since October 2008, and just $28 billion away from the all time record. At least we now know who the mystery "importer", that extracted Europe from the economic abyss, was in the past 3 months. And courtesy of the Current Account equation, what this surge in deficits means is that Q1 GDP will now likely be revised to well under 1.0%! As JPM reported earlier, revision in BEA assumptions on wholesale and non-durable inventory alone will push Q1 GDP from the official 2.4% to 1.3%. Today's data is the last nail in the Q2 GDP number, and according to analyst will take out another 0.4% from the GDP, meaning that when all is said and done, Q2 GDP will come out to sub-1%. And this was in a quarter when the stimulus was still expected to be boosting GDP. We now fully expect that the final reports of Q3 and Q4 GDP, some time in 2011, to be solidly negative, as the economy is now officially contracting once again. In other words, the Double Dip is (even more) official.
- U.S. Is Bankrupt and We Don't Even Know: Laurence Kotlikoff (Bloomberg)
Some doctrinaire Keynesian economists would say any stimulus over the next few years won’t affect our ability to deal with deficits in the long run. This is wrong as a simple matter of arithmetic. The fiscal gap is the government’s credit-card bill and each year’s 14 percent of GDP is the interest on that bill. If it doesn’t pay this year’s interest, it will be added to the balance. Demand-siders say forgoing this year’s 14 percent fiscal tightening, and spending even more, will pay for itself, in present value, by expanding the economy and tax revenue. My reaction? Get real, or go hang out with equally deluded supply-siders. Our country is broke and can no longer afford no- pain, all-gain “solutions.”
- So much for that whole "austerity" thing: Zapatero considers easing austerity (FT):
so let's recap - fake financial stability, fake austerity, fake bond
auction results, fake (and delayed) accounting standards (Basel III) - Europe sure has gotten the hang of Keynesianism
- Is tide turning for realizing CMBS losses? MBIA Says It Will Have C.M.B.S. Losses (NYT)
- Bank of England warns UK recovery will be weaker than hoped (Telegraph); Bank of England Cuts Growth Outlook, Sees Inflation Undershoot (Bloomberg)
- The latest bailout for public unions and spendthrift states (WSJ)
- China Output Growth Weakens; Inflation Accelerates (Bloomberg)
- Unemployment Drives More US Home Sellers to Cut Price (Reuters)
- Asia stocks fall to two-week low, Yen gains on concern at pace of recovery.
- China banks told to account for loans; Rmb 2,300B lending gone off balance sheet.
- China industrial output growth weakens on curbs; Inflation rises to 3.3%.
- Economists reduce US growth estimates as lack of jobs hinders consumers.
- FDIC is seeking alternatives to credit ratings in bank-capital guidelines.
- Fed downgrades recovery outlook; Monetary policy bias shifts toward easing.
- Fed reverses exit plans, sets floor of $2 trillion for securities holdings.
- Fed to reinvest principal on mortgage proceeds to counter slowing economy.
- Oil trades near a seven-day low on signs of faltering economic recovery.
- Tropical depression forms in Gulf of Mexico, disrupts drilling of BP well.
- US stock futures point to sharply lower open.
MBA Announces Loan Applications Declined From Prior Week Despite Record Low Mortgage Rates, Now At +0.6% From +1.3%Submitted by Tyler Durden on 08/11/2010 08:13 -0400
The Mortgage Bankers Association released its weekly numbers and the Market Composite Index, a measure of mortgage loan application volume, was up 0.6% from a week before. Yet despite mortgage rates hitting all time record lows, this number was a reduction from the previous mortgage application change of +1.3%. As the press release announced: "The average contract interest rate for 30-year fixed-rate mortgages decreased to 4.57 percent from 4.60 percent, with points decreasing to 0.89 from 0.93 (including the origination fee) for 80 percent loan-to-value (LTV) ratio loans. This was the lowest 30-year contract rate ever recorded in the survey. The effective rate also decreased from last week." In other words, the Fed's ongoing push to lower the 10 Year rate, and this the 30 Year fixed cash mortgage, will be an abysmal failure as we have reached the point where no matter what the actual rate on the mortgage is, marginal refinancing activity is now nearly flat, and soon likely to actually be negative. The Fed has fired its last bullet in an attempt to stimulate home price appreciation and failed.
Guess Which Two Banks Just Used Up $430 Million In Fed USD Swap Lines After A Month-Long Quiet PeriodSubmitted by Tyler Durden on 08/11/2010 08:00 -0400
Yes, that's right - the good old ECB, which had not used the Fed's swap lines in over a month, has come back with a thud, thanking US taxpayers for their generosity. The ECB just announced that it allotted $430 million in its 7-Day USD operation to two banks, for whom the dollar shortage is once again all too real and coupled with the scarcity in EUR we have been discussing over the past month: one wonders just how positioned these banks are if they have allegedly neither USD nor EUR capital in hand. This also means that when the Fed announces its H.4.1 update this Thursday it will show an increase in swap lines with the ECB (and possibly other banks) by $430 million.
Goldman's European strategist, Francesco Garzarelli explains how he interprets the market impact from the Fed's QE lite announcement: First "the Fed’s actions will act to push real rates out to 5-yrs deeper in negative territory (currently -8bp). We forecast that nominal 5-yr yields could reach 1%. Factoring in positive foreign macro influences, and accounting for an already very depressed bond premium, we believe 10-yr government yields could rally to 2.5%, but are unlikely to break below this level on a sustained basis." Second:" we remain of the view that the pro-active stance of policymaking, in the US and overseas (see Monday’s note on China by Yu Song and Helen Qiao), should continue to support moderate returns on risky assets, as cash balances become increasingly expensive to hold, and cyclical volatility declines." In other words, buy stocks. It's good to see the leopard never really does change its spots.
Main Street's Boycott Of Capital Markets Succeeding: Barclays First Casualty, To Fire Hundreds Due To Plunge In Market ActivitySubmitted by Tyler Durden on 08/10/2010 18:36 -0400
For the longest time it was consensus thought that only Wall Street could fuck Main Street. The ride is now turning. After what the FT reports was a 16% decline in fixed income, currencies and commodities trading
revenues for Q2, coupled with advisory revenues down 17%, the bank is now "planning to cut up to several hundred employees following a sharp fall in market activity in the second quarter. Sources close to the bank say that the job losses, which could be announced as early as Wednesday, will be spread across BarCap’s sales and trading staff as well as its back office support functions." Too bad the SEC has not, and will not realize that its only function is to restore the faith of the retail investors in the credibility of the capital markets. Yes, the same retail investor who both on margin and in total has always been the primary driver of stocks. Alas that has not happened and tens of thousands of Wall Streets will soon feel the wrath of Main Street as the boycott of stocks by the broader population comes to fruition, allowing the former "strategists" to experience just how real the difference between the U-3 and U-6 rate is first hand.
RANsquawk European Morning Briefing - Stocks, Bonds, FX etc. – 11/08/10
Charlie Gasparino, who recently left CNBC not on the best of terms, and ever since has been casting stone after stone at his former megalith employer, was on the O'Reilly Factor earlier, confirming what everyone has known for a long, long time, namely that CNBC's pro administration bias which appeared spontaneously and unexpectedly in early 2009, came from the very top, i.e., Jeff Immelt himself. Quote Gasparino: "There was this issue where Jeff Immelt, Chairman of GE, called in some of the senior staff [of CNBC] and clearly was worried, according to the people I spoke to, who were in that meeting, about the possibility that we were becoming too "anti-administration." They will deny it officially, but from what I understand, people got called into this meeting and they were basically not exactly read the riot act, but the question of whether they were being fair to the president was brought up. I have never heard that before." Of course, with GE one of the primary beneficiaries of the administration's TBTF largesse (lest we forget what a toxic repository of worthless toxic filth GE Commercial managed to become), this is not at all surprising. We just hope readers keep all this in mind if they ever are exposed to CNBC content.
Bloomberg has created a useful 2-dimensional chart, summarizing on one axis which states have the worst unemployment (Nevada, Michigan and Cali are at the top), but more importantly, which states actually are losing and creating jobs - not too surprisingly, Nevada is the worst in both categories. Also, not too surprisingly, North Dakota, which has about exactly zero TBTF bank branches, is the state with the lowest unemployment, and one of the highest rates of job creation. South Dakota and Nebraska also seem to have avoided the probing tentacles of Wall Street's innovative money machine.The Las Vegas strip, where Deutsche Bank is opening the first hotel with actual functional balconies on it (presumably to facilitate terminal bailouts.. or just bails), was not so lucky.
The Gulf of Mexico disaster has changed U.S. priorities, costs, and energy supply sources for years to come. But the fact that the U.S. needs energy isn’t changing anytime soon, and as mass sources of green energy are still a while away, the most likely alternative might be the most surprising one. With US$15 billion invested annually in offshore drilling in the United States, the disaster in the Gulf of Mexico means that this money is getting ready to migrate elsewhere. And it is the Athabasca oil sands of Alberta, Canada, that are number one on the list. Given the amount of bad press the oil sands get, this could come as a shocker. But technological advances and improvements in recovery methods, as well as reduction of water usage and greenhouse gas emissions, have made oil sands a viable and popular option for the future of U.S. energy.
The reason they call black swans just that is because they are unpredictable. A US bond auction failure is not a black swan as everyone talks about it; the bankruptcy of Europe, Japan, the UK and the US is not a black swan as it is inevitable; that futures will somehow turn green overnight even as they are solidly in the red currently is not a black swan: it is merely a few frontrunning algos working in tandem. However, a rerun of Chernobyl would be considered a pure, unadulterated black swan. Which is why we are following the situation at the PPL Susquehanna Nuclear Power Plant near Berwick where as WNEP 16 reports, "crews are are still trying to stop a freon leak in the unit one reactor
building. PPL officials said freon gas is leaking from an important equipment
cooling system inside unit one's reactor building. Workers were forced
to evacuate the area." Of course, local residents in the Wilkes-Barre region have not been told to evacuate: can't have something like panic now, can we - wouldn't be too beneficial for stocks, which as Greenspan said two weeks ago, are the only thing, not unemployment, not inflation, that matters to the Fed.
Spreads closed wider today with HY underperforming IG and for the sixth day in a row, credit underperformed equity on a beta-adjusted basis. The IG and HY indices closed off their worst levels of the day (just prior to the Fed comments) but notably underperformed stocks in the subsequent rally as every correlated asset class disconnected from stocks post Fed. This was a day of three parts to a great degree: pre-market, pre-Fed, and post-Fed; with credit underperforming equities through each phase and financials weak in general - particularly the majors. IG closed at its widest level since 7/28 and HY its widest close in August. IG and HY saw their largest close-to-close widenings since 7/16 (in percentage terms) - the day of the big drop in Consumer Sentiment.