It was fun and games so far, with the occasional 10,000 deaths here and there. Now comes the hunger. Reuters quotes a Libyan public health volunteer who says "Rebel-held eastern Libya will start to experience serious food and medical shortages within three weeks. The unrest is disrupting imports, the local supply of fresh food and domestic manufacturing, people in Libya's second city of Benghazi say, with many shops and factories there still closed since the city fell to protesters a week ago. "We will have serious shortages of food, drink, medicine and medical equipment in two weeks, three weeks maximum. We need outside help," said Khalifa el-Faituri, a volunteer with qualifications in public health and pharmacology." So what was merely your 2011 garden variety revolution is about to get really ugly. Somehow we doubt the Libyans will be happy to find that in the past month or so most food prices have increased by 25% or so. The question is who they riot against next?
Chicago PMI Comes At Highest Since 1988, Surging Input Prices Blamed On "TOO MANY FRICKEN SPECULATORS" [sic]Submitted by Tyler Durden on 02/28/2011 10:56 -0400
Now it's getting plain silly: the Chicago PMI expanded for the 17th consecutive month, grateful for the US policy of total and utter dollar annihilation, printing at 71.2, higher than expectations of 67.5 and the prior print of 68.8. This is the highest since July 1988. And confirming just how credible the data is, the New Order index came at the highest level since 1983. No surprise that inventories surged from 54.5 to 60.2: gotta keep the myth alive. And while priced paid remained near cycle highs, the employment index, in as much anyone cares, dropped from 64.1 to 59.8. But the funniest thing in the PMI was the following response from a survey panel member (all of whom are lamenting the surge in prices): "Seeing turn around in a few areas TOO MANY FRICKEN SPECULATORS in market causing higher price plus weaker dollar and China. Other then that well go figure." Somehow we fail to see how this response mashes with the broader optimistic response.
Today's Moment Of Lunatic Insight Comes From Bill Dudley: "Fed Not To Blame For Emerging Market Inflation"Submitted by Tyler Durden on 02/28/2011 10:32 -0400
Former Goldman managing director, and current uberhead of the Fed Ponzi extend and pretend efforts, Bill Dudley, gets the prize for today's moment of lunatic brilliance. Some choice quotes from a speech delivered to the NYU Stern Busines School:
- Fed is not an exporter of inflation and not to blame for inflation in emerging markets
- It would be unwise for the Fed to overreact to recent commodity price pressures
- Current Fed policy is in the interest of the world's economy
- Rates likely to stay low for extended period
- Several areas of vulnerability for US economy, and sees need to be ever watchful for any price bubbles
So Much For That European Liquidity Normalization: Marginal Lending Facility Borrowings Surge To Fresh Post Launch €17.1 Billion RecordSubmitted by Tyler Durden on 02/28/2011 10:09 -0400
So much for that "normalization" in European liquidity. After on Friday we noted that borrowings under the Marginal Lending Facility dropped by a whopping €12.7 billion to €2.2 billion, the latest ECB update shows that MLF borrowings have once again surged to a new post launch record of €17.1 billion. And while the original surge was first explained by a "fat finger" and later by the need of failing Irish banks to pledge collateral at a punitive 1.75% rate in exchange for overnight access, this time around the same explanation will be more difficult to fly considering that Anglo Irish and INBS were said to have achieved some degree of normalization over the past week. Today's action puts the whole "blame Ireland" explanation in question, and asks who else is in dire need of liquidity. We can't wait to hear what the ECB floats as justification.
Personal Income Jumps 1% In January On Government Generosity, Savings Rate At 5.8%, Highest Since August 2010Submitted by Tyler Durden on 02/28/2011 09:43 -0400
According to the BEA, personal income in January jumped by 1%, on expectations of 0.4%, while Expenditures increased a modest 0.2%, below expectations of 0.4%. The reason - government largesse finally hitting the consumer bottom line: "the January change in disposable personal income (DPI) was affected by two large special factors. Reduced employee contributions for government social insurance, which reflected provisions of the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010, boosted personal income in January by reducing the employee social security contribution rates (employee contributions for government social insurance are a subtraction in the calculation of personal income). The January change in DPI was affected by the expiration of the Making Work Pay provisions of the American Recovery and Reinvestment Act of 2009, which boosted personal current taxes and reduced DPI (personal current taxes are a subtraction in the calculation of DPI). Excluding these two special factors, which are discussed more fully below, DPI increased $11.4 billion, or 0.1 percent, in January, following an increase of $48.5 billion, or 0.4 percent, in December." As a result of this contraction in spending and boost in government largesse, the Savings Rate jumped to 6 month high of 5.8%: the highest since August 2010.
- Madoff to NY magazine: Government a Ponzi scheme (WSJ) - Full NYMag interview here
- U.S. cables detail Saudi royal welfare program (Reuters)
- Saudi activists eye protests, wait for new cabinet (Reuters)
- Congress Inches Back From Budget Shutdown Abyss (Reuters)
- Beijing to Slow Growth (WSJ)
- Will 'Chindia' rule the world in 2050, or America after all? (Telegraph)
- Governors Scramble to Rein In Medicaid (WSJ)
- Irish poll winner eyes bail-out ‘manoeuvre’ (FT)
- Organized Labor: On the Way to Obsolescence? (RCM)
- Cash and Credit - Implications for the Financial Markets (Hussman Funds)
Markets mixed this morning. This week will see the release of a slew of economic figures, starting today with personal income estimated to rise 0.4%E v 0.4% prior and personal spending estimated to be 0.4%E v 0.7% prior. Market expectations for spending will likely be less robust than in January because of the recent rise in food and energy prices. The PCE data due out today is a reminder that we face commodity and input inflation, not wage inflation. This issue of divergent inflations will begin to rear its ugly head in the quarters to come as incomes are squeezed and the resulting impacts on spending are felt. In areas of the world where food/commodities/inputs are a significant portion of incomes, policy responses in EM and DM will be key to watch. Inflation hawks will push for rate hikes and there is concern those hikes would have little impact on the inflation at hand. Geopolitics do not help. Are we smoking at the gas station? Is our biggest worry actually not inflation, but global growth disappointment? Given a potentially disappointing consumer, tighter fiscal policies, geopolitical risks on the rise, and potentially tightening monetary policies it would appear so.
The paper-driven sell off in the gold market seen in January has been trumped by continuing robust physical demand in January and February. This has resulted in gold rising nearly 6% in February and silver’s strong industrial and investment demand leading to a 19% rise to new nominal 30-year highs. Political, and more importantly socioeconomic, revolutions in the Middle East and North Africa are leading to a degree of geopolitical instability and risk not seen in many years. This is leading to concerns about oil supplies from the region and hence the 14% jump in US crude oil just last week and deepening inflation concerns. With all eyes on the Middle East and North Africa, there has been less focus on the continuing European sovereign debt crisis. However, the crisis continues and recent days and weeks have seen government bonds in Greece and Ireland again come under pressure. The majority of Irish people are seeking that the massive debts of the Irish and European banking systems, incurred against them, be restructured or defaulted. Therefore, the new government will be under pressure to negotiate a fairer, more equitable settlement with the European Commission and the ECB with possible ramifications for the many European banks who lent irresponsibly to Irish banks...Mooted proposals by the Vietnamese Central Bank to ban “gold bullion trading” (see news below) are somewhat bizarre. If true this would be a very important development as the Vietnamese are some of the largest buyers of gold bullion in the world.
Saudi Arabia Calms Oil Market, Happy To Add Oman's 850,000 Bbls/Day Output To Its Own Extra ProductionSubmitted by Tyler Durden on 02/28/2011 08:39 -0400
Saudi Arabia continues being on an excess capacity roll. After totally butchering the concepts of apples and oranges, specifically as pertains to light sweet and heavy sour, with the market apparently stupid enough not to know the difference, and somehow promising it can make up for lost Libyan output last week when in reality it is in desperate need to export more oil to balance its budget, the increasingly troubled country now is seen as the natural backstop to Oman disruptions. Reuters reports: "Oil prices turned lower on Monday as reassurances from Saudi Arabia that extra supply needs had been met soothed market fears over the spread of protests to oil-producer Oman. Violent uprisings in OPEC member Libya dramatically reduced exports from North Africa, but Saudi Aramco CEO Khalid al-Falih told reporters on Monday the shortfall had been made up. Falih refused to give exact figures, but an industry source on Friday said the top exporter's output had risen to more than 9 million barrels per day (bpd). This compared with roughly 8.3 million bpd in January, according to a Reuters survey." Of course, whether or not there is any actual hike in production in a country long rumored to be vastly exaggerating its spare capacity, we will only know months from now. In the meantime, Saudi will gladly take the few days of stability sub-$100 WTI grants the world, while it decides how to handle increasingly more beligerent neighbors Yemen, Oman and Bahrain.
RANsquawk European Morning Briefing - Stocks, Bonds, FX etc. – 28/02/11
In Response To 6 Deaths, Oman Protesters Block Roads To Main Export Refinery, Burn Down Police StationSubmitted by Tyler Durden on 02/28/2011 08:11 -0400
After two deaths resulted from protests spreading to that other Yemen (and Saudi) neighbor over the weekend, the situation has deteriorated once again, as Reuters reports the death tool has hit 6, and now "Omani protesters
demanding political reforms blocked roads leading to a main export port
and refinery on Monday as the death toll from Sunday clashes with police
in the Gulf Arab sultanate rose to six. About 1,000 protesters were standing in the road to block the entrance to the industrial area of the coastal town of Sohar, which includes a port, refinery and aluminium factory. Hundreds more were protesting at a main roundabout, angry after police opened fire on Sunday at stone-throwing protesters demanding political reforms, jobs and better pay. Protesters later burned the town's police station and two state offices." Apparently not even Oman's attempt to follow through in Saudi's footsteps and paradrop money is having much of an impact: "The government, under pressure over its response to the Sohar protests,
pledged on Sunday to create 50,000 more government jobs and hand out
unemployment benefits of $390 a month to job seekers." In the meantime, according to Merrill there is little hope of a return to normalcy in Libya for a long time: "With Libya apparently at risk of a civil war, there are reasons to believe that oil supplies in that country could be off for months," it said in a note to clients, received by Reuters on Monday. So now that Saudi Arabia is the only gulf country not to be rioting, maybe someone can update us on what is happening in suddenly very quiet and even more peaceful Algeria.
All who enjoy hearing a meaty Marc Faber fire and brimstone sermon, that cuts through the bullshit, will be happy to know that the Gloom, Boom and Doom author conducted a 40 minute interview with the McAlvany Financial Group, which covers all the usual suspects: gold, silver, precious and industrial metals, the "crack up boom", the future of the Ponzi and capital markets in general and much more. Of course, it wouldn't be a Faber interview without the requisite soundbite: "I think we are all doomed. I think what will happen is that we are in the midst of a kind of a
crack-up boom that is not sustainable, that eventually the economy will
deteriorate, that there will be more money-printing, and then you have
inflation, and a poor economy, an extreme form of stagflation, and,
eventually, in that situation, countries go to war, and, as a whole,
derivatives, the market, and everything will collapse, and like a
computer when it crashes, you will have to reboot it." Of course, on a long enough timeline...
After last week we saw the Euronext, the Italian and the London Stock Exchanges crashing and burning, it is now Australia's turn. According to the ASX, the exchange is "currently experiencing technical difficulties regarding trade dissemination on Partition 3 Securities" which in non-binary means the prices on the ASX are not updating. Must be all that pent-up buying pressure over the continuing Libyan revolution... Of course, those who only trade the futures, such as the big banks and the quant desks are immune as futures are still trading without a glitch. How long before the threat of a racist, unpatriotic down print takes down the Nikkei, the Shanghai Composite, and finally the Deutsche NYSE? Luckily, the Nasdaq where only C-grade vacuum tubes trade any longer, will be spared.
With violent protests springing up like mushrooms, following recent appearances in North Korea and Vietnam, and following last weekend's failed attempt at a Jasmine Revolution, China's authoritarian regime is about to be put to the supreme test. Bloomberg reports that "Chinese Premier Wen Jiabao pledged to punish abuse of power by officials and narrow the growing wealth gap as police blanketed Beijing and Shanghai to head off planned protests inspired by revolts in the Middle East." In other words, beatings (and disappearances) will continue until morale finally improves. As for the beatings, Bloomberg's Stephen Engle managed to experience one up close and personal: "Security officers also detained several foreign journalists, including
Stephen Engle, a reporter for Bloomberg Television. The Wall Street
Journal saw Mr. Engle being grabbed by several security officers, pushed
to the ground, dragged along by his leg, punched in the head and beaten
with a broom handle by a man dressed as street sweeper." Yes, China may be the most repressive regime when push comes to shove, but should 1+ billion angry and hungry Chinese decide there is nothing all that unique about China compared to Tunisia, Algeria, Egypt, Libya, Bahrain, Oman, Saudi Arabia, Ivory Coast, Vietnam, North Korea, Djibouti and countless more to come, not even the most convincing "blanketing" by police forces will do much of anything to prevent the only revolution that matters.