Philly Fed Comes At -0.7, Misses Expectations Of 0.5, Prior At -7.7, Stock Trading Computers Momentarily StunnedSubmitted by Tyler Durden on 09/16/2010 10:07 -0400
The Philly Fed has just reconfirmed a contraction, following last month's -7.7 plunge, now coming at -0.7 on expectations of 0.5. Let the spin begin. In the meantime, here are the facts: The New Orders index at the lowest level since June 2009, Prices Paid lowest since August 2009, and from the report "For the second consecutive month, firms reported a decline in both new orders and shipments. Employment levels remained steady this month, but firms reported declines in average work hours. The survey’s broad indicators of future activity continue to suggest that the region’s manufacturing executives expect growth in business over the next six months, but optimism remains below levels earlier in the year."
The recent ISM print of 56.3, which was so ridiculous, not one economist had predicted a number as high, and was therefore sufficient to validate that the US government is now actively managing the Department of Truth, managed to send stocks surging, and disconnect completely form all other correlations, as yet more stat arb desks imploded. Yet what goes up, must come down, especially in an economy gripped by the greatest Depression in history. Which is why, here is Goldman's Andrew Tilton, member of what has now become the world's most bearish economic team, explaining why the very next ISM, and certainly as soon as within a few months, will be sub-50, which will be the catalyst to plunge stocks even as all hedge funds have gone all in chasing last minute September beta with the Fed's blessing.
Initial jobless claims come in at 450K, a drop of 3K from last week's revised slightly higher to 453K, a number which as readers will recall was estimated by various states and also the US government due to the holiday weekend. Oddly enough the action was in the continuing claims category, where the weekly number surpassed expectations of 4,464K to 4,485K, and the previous number was revised from 4,478K to 4,569K. And the worst piece of news for the economy: there was a decline of half a million in those on Extended Benefits and Emergency Claims as more and more people exhaust their total maximum 99 week allottment.
Diana Olick was right - the home price double dip is not only here, it is getting worse. RealtyTrac reported overnight that general foreclosure activity (i.e., default notices, scheduled auctions and bank repossessions) — were reported on 338,836 properties in August, a 4 percent increase from the previous month. One in every 381 U.S. housing units received a foreclosure filing during the month. The spin is that this was a modest decline (5%) from August 2009, but represents another inflection point in a trend which up to now had been declining. “The trend lines of decreasing default notices and increasing bank repossessions converged in August, with virtually the same number of new default notices and bank repossessions for the month — a clear indication that the clogged foreclosure pipeline is being carefully managed on both ends by lenders and servicers,” said James J. Saccacio, chief executive officer of RealtyTrac. “On the front end, seriously delinquent loans are rolling into foreclosure at an unusually slow rate, while on the back end the dammed-up inventory of properties already in foreclosure is moving to REO in steady stream rather than a flood — presumably to prevent further erosion of home prices.” Of course, banks are doing all in their power to prevent the realization by the consumer class of just how much lower home prices have still to go. Most notably, the bulk of the foreclosure action in August occurred in bank repossessions, which came at 95,364 U.S. properties in August, the highest monthly total in the history of the report and about 2 percent higher than the previous peak of 93,777 bank repossessions (REOs) in May 2010. August REO activity increased 3 percent from the previous month and was up 25 percent from August 2009 — the ninth straight month where REOs have increased on a year-over-year basis. In other news, we expect Jim Cramer to come out with another call, like his wrong summer 2009 pronouncement that the bottom of housing is here.
Someone forgot to tell gold to crash today. The spot price for the next true currency, and self-imposed non-Fiat standard, was at $1,277, a fresh all time high, as it prepares to take out the stops at $1,280, which would send it promptly over $1,300. As Jim Rickards pointed out, the daily devaluation of gold and all fiat currencies continues as gold is now the only absolute that can not be diluted by central bank printing, and in a world of relative daily currency devaluation, it will increasingly be the benchmark against which to judge the bankers' desire to destroy their own paper money. And as the BOJ action demonstrated, gold is going much, much higher. In the meantime we expect CNBC anchors to continue making fun of gold.
Contrary To UBS' Expectations, SNB Keeps Rates Flate At 0.25%, Rumor Of CHF Intervention As CHF Plunges Over 100 PIPsSubmitted by Tyler Durden on 09/16/2010 08:44 -0400
Despite UBS' expectation of a 25 bps hike, the SNB kept its rates flat at 0.25%. Yet applying some parallel universe principles, the bank announced that it is lowering its inflation expectations even as it boosted its GDP growth estimate to 2.5% from 2%. This in itself was sufficient to weaken the CHF, although the dramatic move in the currency crosses have led many to believe that Phillip Hildebrand just couldn't take the pressure and decided to sell a few billion of the currency now that FX intervention is the norm. We are waiting to hear if the SNB confirms or denies any intervention this morning.
- BOJ becomes 'wild card' as Kan may demand stimulus after Yen intervention.
- EU new car registrations fall 13% YoY in August.
- Geithner says US examining ways to pressure China into faster Yuan rise.
- Greece rules out possibility of default; FM says restructuring would ‘break’ Eurozone.
- India hikes rates to contain inflation; move signals end of loose monetary policy.
- Most Asian stocks fall, led by mining shares; Japanese exporters advance.
- Naked-short sellers, derivatives traders face European Union restrictions.
Pimco Offloads $40 Billion In Treasurys, As Frontrunning Fed Creates Billions Of Profits; Gross Does Not Expect QE 2 On Sept. 21; Pimco's "Fed Frontrunning" Tell ExposedSubmitted by Tyler Durden on 09/15/2010 21:28 -0400
As we pointed out last month, in June and July Pimco raised its allocation to government bonds to the highest ever, or 63% and 54% of its then-$239.3 billion Total Return Fund. As a reminder this is when the 10 year was well above 3%, and which proceeded to plunge in yield (soar in value) in August, as the sheer panic of QE Lite (and what it means for QE 2) enveloped the market, and when the Hindenburg Omen correctly predicted a 5% drop in stocks beginning in August 12. Stocks have now risen by over 7% in September, which was to be perfectly expected considering the market has seen $10 billion in redemptions (don't ask... bizarro), yet bonds have only gradually sold off, and as rumors of QE persist, the 10 Year continues to be just off its all time tights. This may change now that it has been made clear that Pimco sold over $40 billion in UST bonds in the month of August, just as bonds reached all time highs. Yet to get the sense of urgency behind Gross' earlier actions, consider that the bulk of the purchases were done on margin (pink line in chart below) as the fund borrowed $35 billion in June (and $29 billion June), using all the borrowed cash to fund Treasury purchases. And since the cash repo rate would have effectively wiped out the carry profits on the bonds, it is now blatantly obvious that Gross was very well aware there would be a massive capital appreciation in Treasuries beginning some time in July or August (cough QE Lite cough), and was actively buying all he could on margin in advance of the move.That's right, ladies and gents - we have just discovered Bill Gross' frontrunning "tell" - 1-2 months before every Fed intervention, he loads up the securuity that will benefit the most from any particular round of QE using borrowed cash. As the effective duration of the fund increased substantially in June and July it is obvious that Gross was buying up the long end of the curve, expecting a major flattening of the curve. Which, once QE Lite was announced, is precisely what happened. Incidentally, this purchasing on mega margin was repeated by Gross just once before: when Pimco's holdings of MBS surged from $80 billion to $113 billion in January 2009... just before Ben Bernanke announced QE1. What a series of lucky coincidences!!!
Only a partisan two-bit hack economist/liberal rag columnist from an Ivy League University with a Nobel Prize could look at the following two charts and conclude that the Japanese Government failed to revive the Japanese economy over the last twenty years because they spent far too little on fiscal stimulus. Japanese government debt as a percentage of GDP was 52% in 1989, prior to their real estate and stock market crash. Today it stands at 200% of GDP. Current budget projections show the debt reaching 250% of GDP by 2015. Meanwhile, Japanese consumers and corporations have been reducing their debt for the last 16 years. The net result has essentially been a 20 year recession. The pundits who never see a crisis on the horizon point to the fact that Japan has not collapsed under the weight of this debt as proof that the U.S. debt level of 90% of GDP has plenty of room to grow without negative repercussions. This is the same reasoning “experts” used in 2005 when they proclaimed that home prices in the U.S. had NEVER fallen on a national basis, so therefore there was no reason to worry about home prices. A basic economic law is that an unsustainable trend will not be sustained. When the 3rd largest economy in the world implodes, the reverberations will be felt across the globe.
Stocks Surge To Celebrate Unprecedented 19th Sequential Equity Outflow, $10 Billion In September RedemptionsSubmitted by Tyler Durden on 09/15/2010 15:59 -0400
It is beyond a joke now: ICI's latest data discloses that in the week ended September 8, domestic funds saw outflows of $2.2 billion, following last week's massive $7.7 billion. And yes, ETFs experienced outflows as well. So far September has experienced nearly $10 billion in outflows, even as the market has ramped by over 6%. Who is buying this shit? Just ask The New York Fed and Citadel: they may have a few pointers (wink wink). This is the 19th sequential outflow from US stocks, and amounts to $65 billion in redemptions for the year. With the market pretty much unchanged YTD, it means that mutual funds can not resort to capital appreciation as a substitute to outflows, and most are on their last breath (Janus: blink twice if you are still alive please). The kicker: the S&P is at the level it was when the outflows began back during the flash crash. If that doesn't restore all your confidence that Uncle Sam will be so good at managing the market (just like he has done with everything else), nothing else will. Throw in a little HFT, a little subpennying, a little Flash trading, a little DMA trading, a little quote stuffing, a little hedge fund clubbing, a little specialist front running, a little daily flash crash in big caps like Nucor Steel, and you can see why next week we will most certainly have our first inflow in 20 weeks. Or not. It doesn't matter. Nobody that is made of carbon, or who doesn't already have direct access to the Fed for zero cost funding, is trading stocks anymore.
It's worth stepping back on occasion to consider the progress that has been witnessed in particular academic fields. Astronomy took a giant step forward centuries ago when it finally realized the sun was at the center of the solar system. Geology adapted to the fact of a round earth. The continuous evolution of Physics boggles the mind. Engineering perpetually pushes into new frontiers. And how does Economics compare...
Just last week, it was reported that the turnout for the Democratic primary was the lowest in 80 years. While the Republicans are clearly energized by their concerns about the direction the Democrats are taking the country in, the Democrats themselves seem to have decided to forgo the voting process, perhaps in favor of a refreshing nap. No question about it, the president is in the hot seat. While I am sure that back in 2008 Barack Obama was one happy camper about having taken the presidential prize, today one has to wonder if that victory has led him to certain bitter regrets.
His problem, the problem bedeviling the government at its highest level, is that there is actually no palatable solution to the persistent debt crisis now gripping the U.S. economy by the throat. In fact, the only tangible solution might be best termed the “Smoking Ruin Solution.” Allow me to elucidate.
RANsquawk Market Wrap Up - Stocks, Bonds, FX etc. – 15/09/10