Markets down for a second day this morning. Look forward to the release of initial jobless claims this morning which may provide some additional insight into last week’s unemployment numbers. NYSE shares rallied yesterday off of Deutsche Boerse AG’s announcement of its negotiations to buy the exchange, which would make it the country’s largest market for derivatives. While speaking in front of the House Budget Committee yesterday, Fed Chairman Ben Bernanke reminded Congress that the Fed is not solely responsible for the U.S.’s overwhelming deficit. He defended QE2 but hinted that there is a limit to its effectiveness. The chairman acknowledged that fiscal adjustments "occur at some point." On a related note, today will see the release of the U.S.’s monthly budget deficit.
Why Contrary To The Chairman's Lies, A Record Steep Yield Curve May Be The Most Bearish Indicator AvailableSubmitted by Tyler Durden on 02/09/2011 16:38 -0400
The most important characteristic of current capital markets, aside of course from now completely irrelevant stocks, which there is no point in even discussing any more as the Russell 2000 has become nothing more than a policy tool for Bernanke in pitching idiot Congressmen how "successful" his failed monetary policy has been when all it indicates is how good he is at manipulating stock prices, is the record steepness of the yield curve, as we have been pointing out month after month (oddly the topic never gets boring as it hits a new record wide with each passing month). And while to Ben the steepness is simply more good news to regale his questioners, who have no idea what the difference between a bond price and yield is, with, it is just as easily the most bearish indicator available. Nick Colas explains why "the bears also have more fodder from the steep yield curve than an Alaskan salmon run: the long end of the curve could be blowing out over inflation fears, persistent government debt issuance, or even a future downgrade of U.S. sovereign debt." But don't worry- the Chaircreature will never acknowledge that there is a yang to every ying. Especially not when the ying has to be so well priced, that Bernanke's midichlorian count has to be off the charts to get his liquidity extraction timing perfectly and avoid either a hyperdeflationary or hyperinflationary collapse.
Federal Reserve Chairman Rudolph Shalom Von Bernankestein will testify before the House Budget Committee starting at 10 am Eastern today. Congressional employees of the Fed and the Banking syndicate are expected to question the Fed's plans on avoiding inflation and the current unemployment rate. We expect more of the same "QE is working because after spending $2 trillion we got 650,000 part time jobs, and we are certain it is working because rates are surging, and wholesale mortgage are now again at the higest since April, which doesn't make sense but I am a Princeton economist (Ph.D.) and you don't get this complicated stuff."
Love them or hate them, only the most self-deluded can claim that the NIA, and its predictions, have been incorrect so far in this monetary 'printing' cycle. Sure they may have an agenda, and yes, Gen Ben may one day pull his money (if he is willing to see the S&P plunge to 666 and well below, so not really), which would kill all commodities, and certainly gold, in their tracks, but focusing solely on their message will have spared many massive real (not nominal) losses as surging commodity prices dwarf the modest pick up in stocks. Today's note from the NIA, while unpleasant, looks at the disastrous long-term consequences of the Chairman's monetary policy, and concludes rightfully so, that absent a diametric shift, which after today's press meeting may well require a revolution as the creature appears to be well on its way to QE3, 4 and so on, what is happening in Egypt is a preview of what will happen in the US in a few short year. Furthermore, the NIA's prediction that rice is up, up and away is in line with what Zero Hedge has been claiming since October (link). Also as a reminder, and as David Tepper just confirmed today, the realization that Rubber is the third and last R-bubble is starting to percolate...
The lies come hot and heavy:
- Initial claims for unemployment insurance have generally been trending
down, and indicators of job openings and firms' hiring plans have
- QE 'Effective at easing financial conditions'
- Recovery likely to be 'more rapid' in 2011 than 2010
- 'Overall inflation remains quite low'
- Recovery in consumer, business spending may be solid
- Economy seems to have strengthened in recent months
But here's the only one that matters:
- Unemployment, inflation likely to defy Fed mandate
Which mandate is that Genocide Ben: would that be the mandate to kill off half the world with your revolutionary policies before the Russell hits 36,000?
New Jersey Governor Chris Christie said he doesn’t mind breaking promises to pensioners to close a $10.5 billion budget deficit -- even if they sue...
This is a warning to prepare for potential stealth bank runs cascading from North Africa and Ireland through to EU regional banking centers. Stealth bank runs are the unrecognized and perilous serpent lurking presently below the European financial surface. They prey on slower moving archaic bond vigilantes and anyone else swimming in these dangerous uncharted waters. Investors need to fully appreciate that a modern bank run looks and operates differently than what is depicted in the movies and what we most likely expect to occur! For starters, it isn't the individual depositor lining up, it's now Corporate CFOs or Treasurers at their terminal en masse! Secondly, it isn't driven by local depositors; it is now driven internationally by Corporate Finance committees! Thirdly, there are no telltale line-ups at bank doors. It is stealth, which will happen in an unexpected electronic 'flash crash' panic blur! Today, a triggering event will initiate global 'key strokes' that will move unprecedented amounts of money within hours.
Treasury yields are "blinking red", but the Fed keeps acting like nothing's wrong. What's the deal?
Even as the conference board reported that US consumer confidence recently surged to fresh multi-year highs, on who knows what: presumably the fact that ever more Americans are happy that Ben Bernanke can manipulate the stock market higher, it has continued to plunge in the UK, a country which is identical to ours, except for all the pervasive data manipulation. As Bloomberg reports, "Polling firm GfK NOP Friday said its headline measure of consumer confidence fell to -29 in January from -21 in December to reach its lowest level in 22 months." And more: "According to GfK's survey, consumers became significantly more pessimistic about the outlook for the economy in the coming 12 months, much more downbeat about their personal financial prospects, and much more reluctant to make major purchases. "January's eight point drop represents an astonishing collapse in consumer confidence," said Nick Moon, managing director of GfK NOP Social Research. "In the 35 years since the index began, confidence has only slumped this much on six occasions, the last being in the midst of the 1992 recession." And all this happened even before snow caused the UK economy to enter official stagflation. This is simply an advance indication of what will happen in the US once the Fed stops monetizing in June (which it won't), and when the last remnants of the latest bout of fiscal stimulus finally disappear. Unfortunately the government's recent attempt to break the oil price surge, which is the biggest black eye in its attempt to reflate, will fail spectacularly once Egypt formally revolts at some point over the next 6-12 hours.
CBO's Revised Budget Sees 2011 Deficit Rising By $500 Billion To $1.5 Trillion; $4 Trillion In Deficit Through 2013 Guarantees QE3+Submitted by Tyler Durden on 01/26/2011 11:12 -0400
No surprise: the projected deficit just went up by another half a trillion: "For 2011, the Congressional Budget Office (CBO) projects that if current laws remain unchanged, the federal budget will show a deficit of close to $1.5 trillion, or 9.8 percent of GDP." This is up from $1.07 trillion: a very small margin of error there. But don't worry - like true Keynesians the CBO expects that future deficits will have no choice but to go down: "The deficits in CBO's baseline projections drop markedly over the next few years as a share of output and average 3.1 percent of GDP from 2014 to 2021. Those projections, however, are based on the assumption that tax and spending policies unfold as specified in current law. Consequently, they understate the budget deficits that would occur if many policies currently in place were continued, rather than allowed to expire as scheduled under current law." So between 2010's $1.3 trillion, 2011 $1.5 trillion, and 2012's revised $1.1 trillion, we have $3.9 trillion just in deficit costs to plug. And as Zero Hedge has repeatedly demonstrated the actual debt to be issued is usually about 33% higher than the deficit funding need, meaning that over the next 3 years the US will need to issue about $5 trillion in debt. Which means further debt monetization is guaranteed as foreign investors have now fully withdrawn and the Fed is all alone in gobbling up every dollar in gross issuance. QE3 is guaranteed and we are stunned that the market continues not to realize this.
Crescenzi On Tracking The Inflection Point In The Radioactive Hyperinflationary "Yucca Mountain" Excess Liquidity WarehouseSubmitted by Tyler Durden on 01/26/2011 10:41 -0400
PIMCO's Tony Crescenzi is out with his latest summary of US monetary conditions. Nothing revolutionary, just a good solid theoretical summary of what to look for in anticipation of the "massive monetary madness" turn. Crescenzi likens the trillion in excess reserves to a "Yucca Mountain" of toxic, hyperinflationary "nuclear waste" storage, and suggests the following approach for tracking the inflection point: "when banks begin to utilize their excess reserves to make new loans and create new money rather than store the reserves in “Yucca Mountain,” the case will then grow for the Fed to begin removing the reserves. This has not happened yet, but when the process begins it will be evident from the Fed’s weekly H.8 report on the assets and liabilities of commercial banks." None of this is new for Fed watchers. As usual what we enjoy the most are the historical anecdotes of hyperinflation, the same way in ten years, historians will put America in the same case study: "History is laden with failed attempts at creating new money to shed debt. Greek tyrant Dionysius of Syracuse, now Sicily, at around 400 B.C. resorted to coinage debasement when his fortunes declined. Germany, of course, debased its currency before World War II, leading to hyperinflation. More recently, Zimbabwe printed massive amounts of currency, also leading to hyperinflation – I purchased trillions of Zimbabwe dollars on eBay for a few U.S. dollars! Such are the ravages of excessive use of the printing press." Certainly worth the read.
The SEC is conducting an inquiry into Illinois' projected pension savings and looking into California's as well...
Look around you, America. Everything needs to be done. The barns are falling down: the cities, the schools, the houses. The railways have been pulled up, the factories and mills are closed, the silos knocked over, the fields paved, the ports silted in and ruined. The children have run away; your poor and the old are abandoned. Who did this to you? You did it to yourself, and if you want a nation that functions, one that can feed and clothe you, one that has decency and prosperity and goodness, you’re going to have to go make one. That means grabbing the shovel that’s closest to you and starting there. That means if you see a need, some failure, some ugliness, you are the only one who’s going to change it into beauty and success. That means helping, sharing, teaching useful skills to everyone who’s willing to do the least work—for we must each do all we can. That means displacing the corrupt everywhere they’re found, everywhere they’re protecting each other, methodically, legally, one by one, starting in every Town, State, and National body, in corporations, public groups, government hall, and in your living room.
Last week the S&P 500 experienced its first weekly decline in eight weeks. On January 19th the index fell by more than 1%, something it hasn’t done in 37 trading days. The technology heavy Nasdaq was down 2.4% as AAPL was a big drag, falling 6% on the week. Smaller stocks, captured by Russell 2000, underperformed large caps in their second weekly decline since mid-November, down 4.26%. Further, transportation index diverged from the Dow, sometimes a harbinger of less than optimistic technicals of sorts. Earnings per share reports that beat estimates are coming in at 68%, below the past four quarter average of 74% and risk premiums are too low as VIX indicates complacency which can be seen by the routing in financial stocks last week. In each of the past three years, the stock market has weathered serious January selloff and has never experienced four down Januaries in a row. Pending on the outcome for this week, we will learn if this precedent upheld.
Austerity has arrived in America. At this point, it is not a formal, mandated austerity like we have seen in Europe, but the results are just the same.