If RIA Novosti's update on the Middle East escalation is correct, the Middle East's worst kept secret, that Saudi Arabia would interfere militarily in Bahrain before the country fell, has just been confirmed. From RIA: "Saudi Arabia has sent dozens of tanks to Bahrain, where anti-government protests continue for about two weeks, Egypt's Al-Masry Al-Youm newspaper said on Tuesday. Eyewitnesses reported seeing "15 tank carriers carrying two tanks each heading towards Bahrain" along the 25-km King Fahd causeway, which links the small island nation of Bahrain to Saudi Arabia." And while nobody expects the DXY to do much if anything on this news, now that the dollar is irrelevant in the FX realm, the same can not be said about silver. Silver just hit $34.43 minutes ago, the highest print in the last 31 years.
While US stock futures continue to be obstinately high capitalizing on the last remaining shreds of a confirmation bias out of formerly strong European economy from the time when the EUR was still low, and with the US economy failing to pick up the world slack even with the dollar at 4 month high the hangover sure to set in any minute (and the oil price certainly not helping), perhaps the only true indication of risk is being represented by the local MENA stock markets, of which the Saudi is currently the best example (after Egypt's stock market opening planned for today, was once again delayed). At last check the TADAWUL was down over 7% and the trend is certainly not your friend, while Saudi CDS was the biggest widener this morning per CMA, hitting 140 bps. The wildcards at this point are Iran and Syria, the first of which will see any push into Bahrain as a religious provocation, while the latter is a host to a brand spanking new Russian navy base. If any of these two see some media prominence in the next 48 hours, look for today's slide to continue.
- China says media must 'cooperate' after clampdown (AFP)
- Shirakawa Says Current Yen Level 'Not Working As An Additional Risk Factor' (WSJ)
- China Sees Drop in New Bank Loans (WSJ)
- EU Raises 2011 Growth Forecast, Sees Inflation Accelerating (Bloomberg)
- Europe Wary of Rethink Over Irish Bail-Out (FT)
- Charlie Sheen v Muammar Gaddafi: whose line is it anyway? (Guardian)
- BOE's King Says Raising Rate to Make a Gesture Is Self-Defeating (Bloomberg)
- Cameron Says UK Could Arm Rebels (FT)
- Bill Gross Gets `A' for Effort on Trader Greed (Bloomberg)
- Australia's central bank keeps benchmark interest rate steady, as expected.
- China Treasury Holdings rise to $1.16 trillion in December, US data show.
- China’s PMI fell to 52.2 from 52.9 in Jan - slowest pace in six months.
- European economy recovers; joblessness below 10% but inflation still above target.
- Oil trades near one-week low after Saudi Arabia offers to cover supplies.
- US approves first deepwater drilling in Gulf since BP oil spill.
Markets in positive territory this morning. NY Fed President William Dudley said yesterday that unless inflation expectations are significantly surpassed, short-term interest rates will remain low, while also adding that no change in current monetary policy is likely. In contrast, St. Louis Fed President James Bullard said yesterday in an interview that the Fed will finish QE2 without full dispensation. The statements reflect the heating debate over the future of the current stimulus program. Economic events today include ISM, which by all preliminary indicators should print ahead of the 61.0E. Such a high print might well set the stage for a front end selloff, which we would use as an entry point as we do not believe the historical relationship between ISM and overall GDP growth will hold owing to the fact that ISM will be more bolstered by large sized exporters that are neither the trough of the economy, nor the path it will take back. Additionally today features Fed Chairman Bernanke’s Humphrey Hawkins testimony. Today’s Senate Banking Committee portion is usually calmer than tomorrow’s House Financial Services Committee schedule, but we expect the usual grandstanding from legislators and for Bernanke to be cautiously optimistic regarding the economy, but defensive about monetary policy. The market has in the past interpreted commentary regarding potential exit strategies as being indicative that those strategies are about to be employed, therefore we think Bernanke will avoid that discussion as best he can. If he does not, however, we believe that as with the ISM above, the front end should be bought up on a selloff.
As oil (read Brent) looks set to take out interim highs following news of a rapid escalation in Bahrain and Saudi Arabia, it will be interesting if Ben Bernanke, in his first of two semi-annual Humphrey Hawkins reports before Congress and the Senate, will actually discuss what is relevant: namely the inflationary surge in every single commodity, and plunge in the dollars, and the Fed's continuing preposterous policy of only caring about the Russell 2000 instead of actually doing anything to improve the economy. Reuters' advance look of today's presentation before the Senate Banking Committee at 10:00 am which will be webcast on Zero Hedge is quite amusing: "Federal Reserve Chairman Ben Bernanke will likely remain skeptical about the strength of the economic recovery in testimony on Tuesday, despite recent data pointing to improvement, signaling the central bank is unlikely to cut short its $600 billion stimulus plan." Why skeptical? Has he not been listening to the endless stream of permabulls on TeeVee every day, not to mention the teleprompter, all of whom have invested their entire reserve of credibility in lying to the public that we are in a V-shaped recovery and what not. Or is the economic recovery only and always merely a function of the Fed's ongoing injection of $100+ billion directly into the banking system (and the Russell 2000)? Because oddly the "pundits" always continue to ignore that one minor point.
RANsquawk European Morning Briefing - Stocks, Bonds, FX etc. – 01/03/11
Jim Rogers joins Zero Hedge in being highly skeptical about just how credible Saudi's call for a 1MM + boost in its oil supply is: "Saudi Arabia has been lying about the reserves for decades. Saudi Arabia the last two times said they are going to increase production and they couldn't increase production. Don't fall for that. The reason oil is going up is the world is running out of known reserves of oil." Of course, then there is the question of do we trust the Quantum fund creator who retired at 37, or do we go with the sellside lemming brigade of monkeys with typewriters who will groupthink anything and everything to death, just to get paid another completely unwarranted bonus. As to those who are concerned that the commodity "bubble" is about to pop, Rogers says: "It's still years away." And some reinforcement for the gold and silver bulls: "Gold will certainly go over $2,000 by the end of the decade, and silver will pass $50." And as a hedge to his great commodity bull market call, Rogers continues to be short Nasdaq stocks. His thesis: "If the economy gets better I am going to make money in commodities, if it doesn't get better, I am going to make money in commodities cause they are going to print huge amounts of money." Call it the adjusted Tepper call.
China Forced To Deny It Will Experience HYPERinflation In 2011, As Russia Unexpectedly Hikes Interest RatesSubmitted by Tyler Durden on 03/01/2011 00:44 -0400
And now for this evening's stunner, via Dow Jones. "There won't be hyperinflation in China this year, the state-run China Securities Journal reported Tuesday, citing Yao Jingyuan, the chief economist of the National Bureau of Statistics. The abundant stocks of grains and main agricultural products in China are key factors in stabilizing consumer prices, the newspaper quoted Yao as saying. China's consumer price index rose 4.9% in January from a year earlier, picking up from December's 4.6%." So putting aside what official denial means about the validity of a story, not to mention this utterly bizzare and completely out of left field statement, China's best and only reason why it won't have hyperinflation is that it has "abundant stocks of grains and agricultural products."... We can, at best, hope that this has to be some early version of an April Fool's joke, or else things are truly far worse than anyone expected. Also, just where does China put the threshold cut off on "hyper" - 10%? 20%? 50%? Is it at least safe to say that China may well experience mega, turbo, or nitrous inflation (and we generously put all three terms to the left of "hyper" on the X-axis)?
Earlier today, we reported that the US military is in the process of repositioning its forces in the area around Libya "to be able to provide flexibility and options." And while we have yet to get an updated US naval map for this week (the last one can be found here), it appears that the USS Enterprise which was previously on its way to the Straits of Hormuz has made a 180 and has now backtracked completely through the Red Sea and is now once again north of the Suez, where it has joined the big deck amphibious warfare ship Kearsarge. This means that the USS Vinson is again left alone to protect the highly combustible gulf region, which now includes both Bahrain and Oman, in addition to Yemen and of course Iran and Saudi, on revolutionary watch. It may be time to send Abraham Lincoln, which in turn is patrolling the South China Sea, back to the Persian Gulf as the possibility of a flashpoint escalation there is far greater than around Indonesia (which however would leave all of Korea and China unguarded). Keep an eye out on CVN 74 and 76 - Stennis and Reagan. If those two start making a move west, then next steps can be extrapolated quite easily.
Nothing new for regulars here. Yet the fact that CNBC, following Cramer's endorsement of gold, is now apparently pushing silver on retail is very troubling: can't the fast money crew just stick with pitching Netflix or some other widowmaker to their demographic. That said, since per Nielsen, said demo did not even register in recent surveys, we are not all that concerned. That said, the people still demand Doug Kass to appear with an immediate rebuttal how he is all in short silver, just to neutralize the suddenly disconcerting feng shui.
A Look At The Lawsuit Against Michael Lewis, In Which We Find That Brad Pitt Has Bought The Movie Right To "The Big Short"Submitted by Tyler Durden on 02/28/2011 21:26 -0400
Earlier today, some hilarious news hit the tape after it was made public that disgraced CDO trader Wing Chau has decided to go nuclear and sue Michael Lewis and Steve Eisman due to their all too honest representation of the Harding Advisory asset manager, in Lewis' book "The Big Short" (not spared from the lawsuit was even book publisher W.W. Norton). "Michael Lewis was sued by Wing Chau, president and principal of Harding Advisory LLC, who accused the writer of defaming him in his 2010 book. The book "depicts Mr. Chau as someone who ignored his professional responsibilities, made misrepresentations to investors, charged money for work that was not performed, had no stake in the CDOs he managed, was incompetent or reckless in carrying out his responsibilities, and violated his fiduciary duties by putting the interests of 'Wall Street bond trading desks' above those of his investors." It appears that Chau missed at least one additional defendant: Jody Shenn of Bloomberg, who in 2010 wrote a scathing article titled "How Wing Chau Helped Neo Default in Merrill CDOs Under SEC View" which provided just as damning and just as accurate a portrait of the (allegedly) pathologically greedy manager who presided at the "center of an epidemic of conflicts of interest." And while we present the key highlights from Shenn's piece which is a must read for anyone interested in what will surely be a recurring drama in the coming months (the Michael Lewis op-ed repartees will be worth the price of admission alone), what appears to have forced Chau to take this career ending step (sorry Wing, no more AUM for you) is that he is about to hit the silver screen. In the full lawsuit we read that "Brad Pitt's production company, Plan B Entertainment Inc., has bought the movie rights and is working with Paramount Pictures Corporation to produce [The Big Short] film." Well isn't that special...
Is PIMCO The Fed's "Agent Provocateur" In Scuttling Billions In Legal Putback Claims Against JP Morgan And Bank Of America?Submitted by Tyler Durden on 02/28/2011 20:44 -0400
Perhaps it is time for JP Morgan to revise its estimate for putback liability claims. As a reminder back in October, it was none other than JP Morgan which said: "We estimate putback risk to be approximately $23-$35bn for agency mortgages, $40-80bn in non-agency and roughly $20-30bn for second liens and HELOCs. However, there are a number of reasons why these estimates are on the high end, including losses already taken and loss reserves established." Well, there appear to be a number of reasons of why these estimates may have been on the very low end as well, the first one being that the bank itself just announced "it faces up to $4.5 billion in legal losses, in excess of its established litigation reserves, should its worst-case legal scenario occur." And if JP Morgan is seeing billion more in putback exposure, then what should Bank of Countrywide Lynch say, which just reported that the amount of debt which is being put against the firm for fraud of various types has just doubled from $46 billion to $84 billion. Luckily, according to a DebtWire report, PIMCO and BlackRock are actively doing the Fed's bidding in attempting to form a splinter group within the putback litigants and to settle with BofA for a nominal charge. Will the Fed be once again successful at subverting justice?
In a January 2009 ABC interview with George Stephanopoulos, then President-elect Barack Obama said fixing the economy required shared sacrifice, "Everybody’s going to have to give. Everybody’s going to have to have some skin in the game." For the past two years, American workers submitted to the President’s appeal—taking steep pay cuts despite hectic productivity growth. By contrast, corporate executives have extracted record profits by sabotaging the recovery on every front—eliminating employees, repressing wages, withholding investment, and shirking federal taxes. Washington’s embrace of labor market flexibility ensured companies encountered little resistance when they launched their brutal recovery plans. Leading into the recession, the US had the weakest worker protections against individual and collective dismissals in the world, according to a 2008 OECD study. Blackrock’s Robert Doll explains, “When the markets faltered in 2008 and revenue growth stalled, U.S. companies moved decisively to cut costs—unlike their European and Japanese counterparts.” The U.S. now has the highest unemployment rate among the ten major developed countries.
Chinese Treasury Holdings Revised $268 Billion Higher To $1.12 Trillion, Fed Still Top Holder Of US DebtSubmitted by Tyler Durden on 02/28/2011 17:36 -0400
Earlier, the Treasury International Capital website released its periodic update/refinement of Treasury holdings. Not surprisingly, the most impacted holders were China and the "UK" which as we had previously speculated was nothing but a custodian front for Chinese institutional accumulation. China, which according to the most recent TIC data, owned $891.6 billion in Treasurys as of December 31, is now said to hold $1,160 billion, an adjustment of $268 billion. This upward revision came almost exclusively at the expense of the UK, which saw its holdings decline by $269 billion, in other words a nearly dollar for dollar shift between the UK and China. Japan, the third largest holder, was virtually unchanged at $882.3 billion compared to $883.6 billion pre revision. Oil exporters also saw a modest drop to $212 billion from $218 billion previously (all numbers as of December 31). Still, even with this adjustment, the Fed continues to be, and likely will never be surpassed, at the top position in terms of Treasury Holdings.