RANsquawk Market Wrap Up - Stocks, Bonds, FX etc. – 09/08/10
Ric Burns documentary about Goldman Sachs is imminent. Because as the WSJ revealed previously, the fact that Ric Burns is paid by Goldman Sachs to make a film about the discount window backed hegde fund, in which Goldman Sachs maintains complete editorial control, sure seems like yet another PR fiasco waiting to happen, on par with Goldman making money every single trading day in Q1 (at least they learned their lesson there, and theatrically let a few losses slip in). Just like you, we can't wait for the final product to finally boost our opinion of the fixed income OTC market monopolist. In the meantime, we present this appetizer as to what the final video will most likely be, courtesy of Minyanville.
China Takes The Property Bubble To A Whole New Level: An Explosion Of (Vacant) Inland Cities Is ComingSubmitted by Tyler Durden on 08/09/2010 15:38 -0400
As if documentary material of what happens when China builds one ultramodern city in the middle of nowhere (hint: it exists in a ghastly void, where it remains completely empty - but that's ok: at least it kept a few million Chinese construction workers employed and "boosted" the country's GDP courtesy of another trillion in underwater loans) was not sufficient, Reuters has prepared an exhaustive special report on how China plans to move forward with the next leg of its housing market titled: "China bets future on inland cities." It is a stunner, and it demonstrates that far from tackling its housing bubble, which as we disclosed previously has already resulted in about 65 million vacant homes, is pushing on blindly without regard for the consequences, and is on the verge of taking bubble mania to a whole new, previously unseen level.
San Francisco Fed: "A Recessionary Relapse Is A Significant Possibility Sometime In The Next Two Years"Submitted by Tyler Durden on 08/09/2010 14:58 -0400
From the San Francisco Fed: "An unstable economic environment has rekindled talk of a double-dip recession. The Conference Board's Leading Economic Index provides data for predicting the probability of a recession but is limited by the weight assigned to its indicators and the varying efficacy of those indicators over different time horizons. Statistical experiments with LEI data can mitigate these limitations and suggest that a recessionary relapse is a significant possibility sometime in the next two years...the likelihood of a recession is essentially zero over the next 10 months but that the odds deteriorate considerably over the following year." And the market rips.
A quick look at market volume: in a word - deplorable. It confirms what Gillian Tett said last week piggybacking on our ongoing fund outflow observations, that there is "a loss of confidence – not merely in the idea that the future will be a brighter place, but also, most crucially, about whether anybody is able to predict that future at all." She concludes: "it is bad for investors to feel confused about the outlook for government regulation or deflation; but it seems that nobody really understands how the basic mechanics of the equity market work any more, it is hard to trust that the stock markets are a good destination for your money. Little wonder, then, that those US equity mutual fund outflows have accelerated." Presenting exhibit A of precisely this phenomenon: today's ES volume is about the worst it has been in, well, ever, at 50% below average!
John Taylor was on Bloomberg TV Friday, and in this extended version of his interview, the head of the world's largest currency hedge fund said that the euro will fall, equities could head lower, credit spreads will widen sharply and government bonds will rally.
Last Friday, the Bureau of Labor Statistics announced the unemployment rate remained flat in July. Since we entered August, Federal Reserve Chairman Ben Bernanke and US Treasury Secretary Tim Geithner have been repeating the mantra that job growth may still be farther off than we’d like. But is the truth we have finally made a more meaningful shift to a perma-temp society of workers?
As Automotive News points out in its expose on better than expected volume and top line results at GM and Chrysler, "Reports of robust post-bankruptcy sales at General Motors Co. and Chrysler Group need an asterisk." The reason, based on internal documents obtained by the publication: digging behind the headlines indicates that retail sales, or those that actually matter and are indicative of a vibrant end consumer (with or without rebates), are actually down year to date: 1% at GM, and 19% at Chrysler. "Essentially, GM and Chrysler regained the fleet business they lost during their troubled 2009 trip through bankruptcy. Counting fleet of all types and retail sales, GM is up 13 percent this year, and Chrysler is up 11 percent. That's close to the industry's 15 percent gain." So basically if one were to strip away the rental companies, all of which themselves were on the verge of bankruptcy in early 2009, and have recently found themselves in a position of strength, courtesy of cheap floorplan financing and various cheap ABS conduits, the two bankrupt auto companies are doing worse off YTD than they did in 2009. If this is not indicative of the "strength" of the US consumer when it comes to medium-ticket purchases, little else is.
RANsquawk US Afternoon Briefing - Stocks, Bonds, FX etc. – 09/08/10
We already noted that last Friday's NFP number was a major disappointment for everyone objective enough to acknowledge it for what is was. Here is David Rosenberg's even more aggressive condemnation of the continuous lack of economic recovery in this country, whose only impact it appears is to drive futures higher (not regular hours trading mind you - it is far easier to push the market in a desired direction when there are ten people and a few computers trading).
Toxic Smoke Causes Deaths To Double In Moscow, As Russia Announces State Of Emergency In Nuclear Center City Of OzerskSubmitted by Tyler Durden on 08/09/2010 09:59 -0400
Wheat prices may be lower now that the dramatic spike higher has seen various speculators coming out and betting on a reversion, but little has been resolved yet, as Russia now debates extending the grain export ban beyond the December 31, even as fires in the Russian countryside continue to burn, and a record heatwave and lack of winds have concentrated a huge toxic cloud of carbon monoxide above the Russian capital. To be sure, some development has been noted with fires now affecting "only" 170,000 hectares of land, compared to the peak of 190,000, although firefighters are still having a difficult time materially containing the blaze. The worst consequence of the inferno: the mortality rate in Moscow has doubled as a result. The FT reports: "The death rate in Moscow has doubled due to the toxic smog hanging over the city from wildfires raging around the Russian capital and the worst heatwave since records began, a senior city health official said on Monday. Andrei Seltsovsky, the head of Moscow’s health department, said the number of people dying daily in the city had now reached about 700, while the death rate normally averages about 360 to 380 people a day. “The mortality rate has doubled,” the official told reporters." And taking things from bad to worse is the breaking news that Russia has just declared a state of emergency in Ozersk, where one of the largest nuclear storage and fuel-reprocessing center Mayak is located.
Commercial Real Estate Lobby Ask For Taxpayer Aid To Help Recapitalize Banks Saddled With Billions In Underwater CRE LoansSubmitted by Tyler Durden on 08/09/2010 09:37 -0400
The problem that nobody is talking about, yet everyone continues keeping a close eye on, namely the trillions in commercial real estate under water, is quietly starting to reemerge. In the attached letter from the Commercial Real Estate lobby, it reminds politicians that the hundreds of billions in loans that mature in the next several years won't roll on their own, and we see the first inkling of the lobby asking congress for much more taxpayer aid, in this case in the form of Shelley Berkley's proposed legislation to "enable banks to convert troubled loans into performing assets through modest tax incentives to attract new equity capital to existing commercial real estate projects." The letter tacitly reminds that there are thousands of regional banks whose balance sheets are chock full with underwater commercial real estate (and for the direct impact of this simply observe the 100+ banks on the FDIC's 2010 failed bank list). So in case taxpayers are wondering where the next fiscal stimulus will end up going, wonder no more: "The new investments would be specifically used to pay down debt,
resulting in lower loan-to-value ratios of existing loans as well as
improved debt coverage ratios." As the CRE lobby concludes: "By giving lenders the ability to responsibly refinance debt and
rebalance capital reserve levels, the CRE Act will provide the
opportunity for additional lending capacity that will help stimulate
lending to small businesses, job formation and economic growth in
communities across the country." In other words, it is time for taxpayers to help purge banks of existing toxic debt, so that these same banks can resume lending like drunken sailors, in unviable commercial real estate projects just to guarantee that the next major market blow up also destroys the regional banking system, in addition to the TBTFs.
Just in case you missed Goldman's economic team shift to outright bearishness, Jan Hatzius presents several key observations that other economists (particularly BofA's Bianco and Dutta) have yet to grasp. And even as Goldman openly expects a recommencement in debt monetization tomorrow to the tune of $1 trillion, Hatzius openly acknowledges that this decision could be delayed... And such a decision would be a major mistake, as it is already priced in: "Such a decision could prove to be a serious mistake, because a
significant part of the recent easing in financial conditions is
probably due to market expectations of a more expansionary monetary
policy. Indeed, if a disappointment on Tuesday results in a significant
renewed tightening of conditions, the decision might ultimately hasten
the transition to further easing steps." In other words, it is pretty much QE or bust for stocks.