Looking for a job? Hurry up...

From Dave:

While nonfarm payrolls were basically in line with the consensus, declining 216,000 in August, there were downward revisions of 49,000 and the details were simply awful. The fact that 65% of companies are still in the process of cutting their staff loads is quite disturbing — even manufacturing employment fell 63,000 in August, to its lowest level since April 1941 (!), despite the inventory replenishment in the automotive sector and all the excitement over the recent 50+ print in the ballyhooed ISM index. The fact that temp agency employment is still declining, albeit at a slower pace, alongside the flat workweek and jobless claims stuck at 570,000, are all foreshadowing continued weakness in the labour market ahead. Until we see signs of a sustained turnaround in the jobs market all bets are off over the sustainability of any economic recovery

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Fannie, Freddie, Ginnie & Co

We take a look at a chart related to yesterday's Global Markets Daily, which discusses the sources of demand for US debt. One of the more interesting charts related to this argument is below, which shows that Agency Debt is now priced as a nearly perfect substitute for US Treasuries (Thank you Goldman).

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More about the slowdown ...

From Dave Rosenberg

In the strangest of days, the stock market sold off, but the dollar sold off too. Usually when the equity market goes down, the dollar improves from a flight to safety. This time around, the flows were into the Yen. And despite the decline in the dollar, things that are priced in dollars all went south, from copper (China's imports of copper fell in July for the first time in six months — and by 15%!), to gold, to oil (don't look now but crude is down four months in a row). The CRB index got clocked two points and based on the performance of the Baltic Dry Index, more declines are likely over the near-term. Only the 11bps rally in the U.S. 10-year Treasury note made sense (then again, this is in the face of a $75 billion supply calendar). But the 3-year T-note auction did go very well (amazing what can happen after the market cheapens up like it did) with a strong bid-to-cover ratio of 2.89 (versus an average of 2.52 at the last seven auctions) and a record 62.5% indirect bidding, which was the strongest since this maturity was brought back into the fold in November 2008 (now that was impressive). What happened to the foreign buyers' strike?

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Holidays for politicians

Politicians are always in for funny things.
Take this graph about the spending of the American Congress on travel.
The busiest travel period is August when they are in recess.

Now this one is coming from Dan Ferris:

Remember when members of Congress chastised the Big Three auto executives for flying to Washington on private jets? The message the government was sending to big business was clear... "You will not squander taxpayers' money." Congress didn't want big business wasting government money because, of course, that's their job... And the government hates competition.In an ironic turn, the House just approved almost $200 million for the Air Force to buy three top-of-the-line Gulfstream 550 jets (at $65 million apiece) for transporting top government officials and congressmen.Here's the catch, the Air Force only asked for one jet as part of a routine upgrade to its passenger air service, but the House Appropriations Committee took it upon themselves to add another $132 million to the Defense bill for two more jets to be stationed in Washington, D.C. Nobody can waste our money like the U.S. government

I love Americans.

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Everything going fine?

Last week the Non-manufacturing ISM Report On Business disappointed as it dropped from 47.0 to 46.4.
Where is the rebound?
Expectations where not met.
Even more: much of the data showed that the contraction in the service sector is accelerating. Not decreasing.

Look out, folks

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Flu

The US government has failed rather miserably in coaxing parents to get vaccinated against illnesses. Only about 15 percent of kids get all their recommended shots, one of the main reasons why worries that there will not be enough swine flu vaccine to go around this fall likely are overblown.
It’s one of the reasons why companies not named AstraZeneca plc (NYSE: AZN), GlaxoSmithKline plc (NYSE: GSK), Novartis AG (Nasdaq: NOVN), Sanofi-Aventis SA (NYSE: SNY) and Australia’s CSL Ltd. might not see any business from providing swine flu vaccines this season.
But then there is Wal-Mart. About 140 million people shop at Wal-Mart each week. A deal with the retailer could certainly help the government reach its goal of getting about 159 million people the vaccination this fall, especially young children that CDC officials also want to see get a regular flu shot.
There’s been no talk of pricing yet, but count on Wal-Mart to make price a fixture of any outreach. Don’t be surprised if there are 2-for-1 specials for families, and special deals for kids that also get a regular flu shot.

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We repeat: the US is not Japan... or is it?

I still remember those days that Greenspan assured us that never ever the US would be submitted to a Japan-like slump. No way would a deflation à la Japan hit the States. Moreover, the United States couldn’t afford to wait deflation out the way the Japanese did/do: too many people who owe too much money to too many creditors. But hey, there we are: falling prices, big output gap, rising unemployment and credit losses that surpass the monetary and fiscal stimulus in a huge way.

And the government is trying to prop up the creditors. Just like they did in Japan. The banks have gotten trillions in loans and guarantees. Is this stimulating the economy?

Hehe...

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Consume and be confident

How much confidence has the American consumer.
Here you go?

Aonther green shoot turning brown.

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The big reversal trade

Some weeks ago we mentioned the following trade: long stocks, long commodities short dollar and short bonds. Look what happened in June. This trade was reversed. With the new quarter started it will be exiting to see what the next big trade will be.
What are the chances a new bull market in stocks will be the next big thing. First: it takes bulls to have a bull market. Or Big Money. But program trading data – soon to be abolished – suggest that the Big Boys are loaded with long position in indexfutures making them the only bulls in town in their league. I mean: the dumb money is bullish to, but not able anymore to move markets as computers and hedggies have overtaken these markets.
Does it make sense to lower the volume in order to let the individual investor participate in the direction of the market while taking the other side? Of course, but it means less profit and these guys are soooo greedy…

Anyway. We think financials still play an important roll and it doesn’t seem there’s much bullish action going on in this sector.

Tomorrow, US markets will be closed.

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a bottom in gold in the maing?

Nobody seems to notice but last week has the Obama administration pushed a bill through the US House of Representatives approving 106 bln USD supplemental ‘security’ funding for Iraq and Afghanistan but attached to it was a 108 bln USD credit line to the IMF on condition that the American members of the IMF Board agreed with the proposed 400 tons of IMF gold. On a total of 3217 ton. On its balance sheet they are booked on the basis of the historical cost or 8.7 bln USD, while the market value amounts to 95 bln USD.

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Please, give my bonds back

Did someone hear recently anything new about the 134 bln USD US bearer bonds which were carried by two Japanese at the Swiss Italian border?
If these bonds are real – though I doubt it – than Italy will keep a third as their statutory penalty for non-declaration at the border. Or 40 bln USD.
Please will the owner step forward? North Korea? The mafia? ECB?
Who printed 249 US Federal Reserve bonds worth 500 million USD each? The funny thing is that the US is not issuing bearer bonds. Or do they…?

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Credit cards vs employment: beware

As the unemployment rate surges (not only in the US but everywhere), we see in the US the continuing high correlation between credit cards delinquencies and unemployment. This is not boding well.
There appears to be universal agreement that the unemployment rate will remain very high well into 2010. Does this mean consumers and banks have tougher sledding ahead than the “green shoots” theorists are currently pricing in?

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I want my bonus back

Yesterday was another trading day that can serve as an example how ridiculous markets have become lately. Regulated, well observed, big markets.
The S&P500 was trading lower by 1% throughout the day on very low volume and suddenly some institutionals bought massive blocks of the SPY. It were the comments of Paul Krugman, some yelled. No, the Chrysler news did it, was written by others. It’s just old fashioned manipulation.

Today there is TARP news: an announcement will be made which banks are allowed to pay back the TARP money and are in to repay bonuses again.

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The difference between new and old? None

People ask what’s the value of the shares of the old GM.
The answer is: nothing.
It’s a penny stock on his way to zero.
What will be the value of shares in the new GM?
Well, because the old GM’s US pension fund with almost 100.000 million USD in liabilities is transferred to the new GM, the shares of the new entity could be worth as much as the old shares in a couple of years.

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The shape of the interest rate curve

Security KAG has created a chart of the US Yield curve describing how the spread between rates of 3 months, 5 years and 30 years are developing since 1991. The yield curve went almost flat in 2006. That was the time to set up a steepener. Now we’re on our way back to flattening.
Well… we all could have been rich by following this chart.

Flattening was the case until recently.
The long term interest rates of US Treasuries are rising and prices imploding.

We can make the same exercise for Europe.

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Unemployment

Although it’s difficult to compare the unemployment rate of Europe with the States, the ‘official’ US jobless rate is on his way to pass Europe’s. After Spain and Lithuania the States ranks third now:

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It's there - at last

De stress test report is out.
It’s on page 8 that we can read everything about the “SCAP Buffer”, or the amount of money these banks will need to raise in order to come into compliance with the stress test. By far the biggest number on that row is the $33.9 billion for BofA, but that’s just 2% of BofA’s risk-weighted assets. Check out, by contrast, the $11.5 billion that GMAC is being asked to raise: that’s a whopping 6.6% of risk-weighted assets.

The ‘bank’ in the worst shape is GMAC. Yes, the same GMAC who wants to take over the obligations of Chrysler Financial.
Whatever the conclusions are, Tim Geithner has what he wanted: he gained precious time.

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And then... coming home

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FASB: time of death 2 april 2009 14.48

US payrolls fall with 663.000 in March and the unemployment rate is rising to 8.5%.
Isn’t there any spark of hope?
Yes. Hat tip to Chris

But markets paid more attention to the FASB 3 against 2 vote to suspend mark-to-market. The nice thing is that this will give some temporary relief. But no way the difficulties will walk away. It repairs something at the valuation side, but nothing changed at the liquidity side. Problems remain: you have to continue stuff that you cannot sell and that’s what you want because the rot is creeping up, every day a little bit. If you have to hold this toxic waste until maturity then the chances grow everyday that the paper will default. Now, is that what you want as a bank?

No…

The bull case is that although accounting changes should not alter the economic reality, this change will change banks’ behavior through less forced selling and less need to raise new capital to bolster their capital ratios. The bear case is that if banks value their assets and liabilities with no reference to market prices, it becomes impossible for external investors to understand exactly what the value of banks’ balance sheets really are and risks undermining market confidence rather than bolstering it.

From Paddypower we have this photograph.

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No evidence - part 2

More amazing stories are popping.
This one is about Semgroup.
We go back in time. To 21st July 2008.
From Reuters:

NEW YORK (Reuters) - Semgroup LP declared bankruptcy on Tuesday after $3.2 billion in oil trading losses torpedoed the formerly 12th-largest private U.S. company.
The Tulsa-based company racked up the massive losses as oil prices ran up record gains, undercutting short crude futures positions Semgroup bought to hedge against its 500,000 barrel-per-day trading business.

And

Semgroup took a $2.4 billion loss on July 16 after it transferred its New York Mercantile Exchange oil futures trading account to Barclays Plc, converting what they called "loss contingencies" into an actual loss.

Included in the NYMEX loss was $290 million owed to Semgroup by a trading company owned by co-founder and former chief executive Thomas Kivisto, who was placed on administrative leave on July 17.

We all remember that right at that time oil peaked at 147 USD/oz. Then this peak momentum turned rather quickly. Is this a coincidence?
SemGroup got themselves in trouble because they sold NYMEX furtures beginning round 70/80 USD as a hedge. Now, these guys were professionals. How come oil went higher to 140 USD/barrel?
Should it be possible that the steep hike of the oil price was orchestrated to bring down Semgroup?
At least that’s what Forbes writes:

But now some of the people involved in cleaning up the financial mess are suggesting that Semgroup’s collapse was more than just bad judgment and worse timing. There is evidence of a malevolent hand at work: oil price manipulation by traders orchestrating a short squeeze to push up the price of West Texas Intermediate crude to the point that it would generate fatal losses in Semgroup’s accounts.

“What transpired at Semgroup was no less than a $500 billion fraud on the people of the world,” says John Catsimatidis, the billionaire grocer turned oil refiner who is attempting to reorganize Semgroup in bankruptcy court. The $500 billion is how much the world would have overpaid for crude had a successful scam pushed up oil prices by $50 a barrel for 100 days.

This article mentions that Citi, Merrill Lynch and especially Goldman Sachs knew the trading book of Semgroup. The biggest counterparty of Semgroup was J. Aron & Co, the commodities trading arm of Goldman.

Forbes continues:

When crude oil peaked in July, Semgroup ran out of cash to meet margin requirements on options contracts it had with Aron, contracts on which it had paper losses of $350 million. Desperate to survive, Semgroup asked Aron to pony up $430 million it owed on physical oil. Aron said no, declared Semgroup in default on its contracts and demanded immediate payment of losses.

Semgroup went out because they couldn’t come up with the margin anymore. A classic if you want to take out somebody.
Then came Barclays:

Shortly before it filed for bankruptcy, Semgroup sold its trading book to Barclays Capital. Barclays’ bold bet was that the price of crude would fall, erasing the losses. It is believed that 30 days later Barclays was sitting on a $1 billion gain as oil indeed fell, to $114 a barrel. Barclays wouldn’t comment other than to confirm it still owns the book. That prices plunged after Semgroup failed is more evidence of manipulation, says Catsimatidis: “With the portfolio in Barclays’ hands they could not squeeze the shorts anymore. The jig was up, and oil collapsed.”

Of course all conspiracy theories are flatly denied.
But how much the world has paid for this game?
And now we pay up again to save these guys…

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