the trader
“I need a Job”- know the Jobs figures
On those vanishing jobs. By Ice Cap Management.
Los Angeles, California – Freda Tolberman loses her job as a shipping clerk with a trucking company. She initially received 26 weeks of unemployment benefits from the State of California, then she received an additional 73 weeks of financial help from Washington. Today, Freda no longer qualifies for unemployment benefits and has given up looking for work.
Louisville, Kentucky- 46 year old Frank McGee also loses his job. Frank has better luck than Freda and does manage to find gainful employment, but at a salary 35% less than what he made before.
Washington, DC- US Bureau of Labor Statistics number crunchers, crunch numbers throughout the night. Despite their best efforts, they are unable to hide the true picture of the jobless situation in the USA.
At its peak in 2008, the US economy was supported by over 138 million workers. Today, despite the American government spending billions to create jobs and printing trillions to save the banks, the American job machine has a total of 132 million people working. That’s a full 6 million less jobs than 3 years ago and is actually the same number of people who were working 11 years ago.
Hard Core Black Swans
To know the unknown. Video on real black swans below.
Hidden debt and much more in the latest things that make you go “hmmm”
Latest “hmmms” by Grant Williams. Must read on Spain and other subjects.
General awareness of the issues facing Spain is finally rising – the 22% unemployment rate and the 50% youth unemployment rate have become statistics that roll off the tongue of even the most casual observer of the country’s fiscal and societal dynamics. But Spain’s real problems lie in the reality of her published government debt numbers and at the heart of her banking system. It is in these two places that any clues lie as to her chances of upsetting ‘Recovery’ on its dash for the line.
Spain is a big economy – the world’s 12th-larg- est in fact, which puts it just behind Russia and ahead of Australia (13th), Mexico (14th) and South Korea (15th) – and if it were to require a bailout, the size of that bailout would soak up the vast majority of the EFSF/ESM combined firepower.
Recently, focus has trained on the veracity of the deficit numbers being dis- seminated by the Spanish regional governments with many commentators and observers positing that perhaps things aren’t quite as they seem: (NYTimes)
And the bad news probably is not over. Some experts believe that as newly elected members of Mr. Rajoy’s Popular Party take control of some regional administrations, they are sure to unearth even more financial excesses. That is what happened in Cata- lonia, where the “hidden debt” problem
first popped up this year. When elections were held there in 2010, the ratio of debt to regional G.D.P. was believed to be less than 2 percent. But after the vote, the departing government disclosed that its full year defi- cit could be 3.3 percent. The new govern- ment later revised that figure again, to 3.8 percent.
Size Matters
With the Volcker rule about to happen in July, the timing of bringing forward JPM’s whale trader is somewhat amusing. The trader so big, we can’t call him by his name, is fueling the prop trading debate. There is no point to worry, derivatives are just used for hedging purposes, and everything is netted out, so the “true” risk is almost zero, or? From Bloomberg.
JPMorgan Chase & Co. (JPM) trader Bruno Iksil’s outsized bets in credit derivatives are drawing attention to a little-known division that invests the company’s reserves and fueling a debate over whether banks are taking excessive risks with federally insured and subsidized money.
Iksil’s influence in the market has spurred some counterparts to dub him Voldemort, after the Harry Potter villain. He works in London in the bank’s chief investment office, which has assembled traders from across Wall Street to its staff of 400 who help oversee $350 billion in investments. While the firm describes the unit’s main task as hedging risks and investing excess cash, four hedge-fund managers and dealers say the trades are big enough to move indexes and resemble proprietary bets, or wagers made with the bank’s own money.
Food price inflation
While at the topic of food price inflation, here is the latest from FAO on food prices. WIll rising food prices in China start new social unrest as some of the food prices have really skyrocketed. Latest from FAO.
» The FAO Food Price Index (FFPI) averaged 216 points in March 2012, virtually unchanged from 215 points in February. Among the various commodity groups, only oils prices showed strength, compensating for falling dairy quotations, while the indices of cereals, sugar and meat prices were largely unchanged from last month’s level.
» The FAO Cereal Price Index averaged 227 points in March, up 1 point from February. Maize prices registered some gain, supported by low inventories and a strong soybean market, but wheat changed little as supplies remained ample. After several months of declines, prices of rice recovered somewhat in March, underpinned by large purchases by China and Nigeria.
» The FAO Oils/Fats Price index rose in March to 245 points, up 6 points (or 2.5 percent) from February, as markets reacted to the prospect of growing tightness in the 2011/12 supply and demand balance for oils. Weak growth in world palm oil production, limited global soy oil export availabilities and declining rapeseed production, all contributed to the rise in oils prices.
China’s inflation is back?
China’s inflation accelerated more than expected as food prices have turned higher yet again. CPI rose 3.6 percent. As food prices rise, the government has less options when it comes to stimulating the economy. Are we about to see a renewed focus on food prices just like last year? From Bloomberg;
Today’s data show Premier Wen Jiabao’s officials may need to remain alert to the risk of inflation bouncing back even after price increases stayed below the government’s 4 percent target for a second month. China’s economy may have expanded last quarter at the slowest pace in almost three years, showing the limits of the nation’s contribution to global growth as U.S. job growth weakens and concern mounts aboutEurope’s sovereign- debt crisis.
“We expect inflationary pressures to rise going forward as growth momentum has picked up and structural inflationary pressures remain large,” said Liu Li-Gang, Hong Kong-based head of Greater China Economics at Australia & New Zealand Banking Group Ltd. The central bank “will remain cautious in its policy outlook,” he said.
Authorities will seek to “prevent a rebound” in consumer prices and manage inflationary expectations, Wen said during a visit to southern China from April 1 to 3.
Decisive action needed for the pain in Spain
The Elephant in the European room has begun to move seriously. While people were distracted by the relatively small problems in Greece, Spain has continued down the path of poor economic development. It is probably a good time to start buying/averaging “up” on Spanish CDSs as the situation is slipping into further chaos. Reported debt to GDP ratios are closer to 90% , if you don’t use the creative accounting Spain has been reporting. The property sector will get hardly hit, starting this year, and of course this will create other negative effects such as “zombie” banks needing to start hitting the markets with even more properties and bringing forward those “zombie” loans. The sun will continue shining in Spain, but majority of assets will enter the negative acceleration mode. Some more by El Pais.
It was the week that the Government detailed the draft budget of 2012 , a key further tightening of democracy, in order to regain “the confidence of investors and the European institutions”. But it has also been the worst week of the worst of Western financial markets so far this year, the Spanish stock market. And the opportunity for investors in debt again show its teeth. In short, the first time the markets show their distrust in Spain during the brief tenure of Mariano Rajoy, a bitter drink that already in 2011 the previous government socialist. A challenge Rajoy ponders how to respond.
Government sources say they will announce “new measures” in days, to be proposed “overwhelming” to cut a spiral that has moved it the risk premium (the difference with the performance of German government bonds) to 400 basis points, a level record in the fledgling legislature.
Think about the unthinkable
The Economist on why Europe’s leaders should think the unthinkable.
THE Irish left the sterling zone. The Balts escaped from the rouble. The Czechs and Slovaks left each other. History is littered with currency unions that broke up. Why not the euro? Had its fathers foreseen turmoil, they might never have embarked on currency union, at least not with today’s flawed design.
The founders of the euro thought they were forging a rival to the American dollar. Instead they recreated a version of the gold standard abandoned by their predecessors long ago. Unable to devalue their currencies, struggling euro countries are trying to regain competitiveness by “internal devaluation”, ie, pushing down wages and prices. That hurts: unemployment in Greece and Spain is above 20%. And resentment is deepening among creditors. So why not release the yoke? The treaties may declare the euro “irrevocable”, but treaties can be changed. A taboo was broken last year when Germany and France threatened to eject Greece after it proposed a referendum on new bail-out terms.
Full article here.
Indan Quarter (must read)
Guest post by Cravens Brothers.
First quarter 2012 was an “Indian Quarter” with the fourth warmest winter in U.S. history coinciding with the best quarter for U.S. equities since the iMac, Palm V and internet IPOs were warming things up back in 1998. That didn’t end well, but I do hear the sock puppet dog is making a comeback. The S&P 500, Dow Jones Industrial Average, and NASDAQ Composite were up 12%, 8%, and 19% for the first quarter of 2012.
European Central Bank long term refinancing operations (LTRO) in December and late February (essentially $1.3 trillion in 1% loans to banks for survival) took a “Lehman event” (i.e., complete financial system freeze up) off the table for banks, lowered Spanish and Italian yields (the rate at which they borrow) significantly, and acted as quasi-QE for U.S. equity markets (providing money supply to fuel risk taking in U.S. equities). The last of these effects is was what caught most market watchers/pundits/investors off guard. Liquidity is liquidity, regardless of where it comes from. The continued “reflation” of markets through U.S. QE and now Euro Zone “quasi-QE” is something to rent, not buy. You need to be in the game, but you can tap the top of your helmet to get out as well (although if you did that when I played growing up in Texas you may never have seen the field again…different game today…but I digress).
Looking at the balance of the year, it will be interesting to see if the Fed tries to get one more stimulus done before mid-year, in the form of QE, a variation of Operation Twist, or some other monetary experiment to keep markets going. The Fed minutes from their most recent meeting say “no”, but minutes are carefully worded posturing. The Fed does what it wants when it wants, except for a brief few months when it gets bitten and has its hands tied by an upcoming presidential election. So, 1H12 would be the time for stimulus if they do it.
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