Morning Reading – January 31, 2011

FT BeyondBRICs: Egypt downgraded

Egypt has had its credit rating downgraded by Moody’s as tens of thousands of people gathered in Cairo on Monday for a seventh consecutive day of protests against the ruling regime.

Econbrowser: Geopolitical unrest and world oil markets

Change is on the way in the Arab world, with Egypt the latest focal point. Here I review recent events and their implications for world oil markets.

Reuters: RPT-FACTBOX-The Suez Canal

The Suez Canal is one of the world’s busiest waterways and a vital source of foreign currency revenue for Egypt’s economy.

JESSE’S CAFÉ AMÉRICAIN: Despite the Miss on Expectations Today’s US 4Q GDP Number Was Still a Puffball

For me the ‘tell’ that something was dodgy was the unusualy lower chain deflator which is used to calculate the ‘real’ GDP by removing the inflationary effect. .3% versus 1.5% expected and 2.1% prior. For every tick lower on the deflator the headline GDP growth number rises.

JESSE’S CAFÉ AMÉRICAIN: SP 500 and NDX March Futures Daily Chart – The Sleeper Awakens

This is familiar. Demonstrations are taking place in a country for several days, and suddenly the US financial markets take notice and dive as it is risk trade off. Sounds like Greece all over again, without the flash crash.

JESSE’S CAFÉ AMÉRICAIN: Gold Daily and Silver Weekly Charts – Potential Intermediate Bottom in Gold

The almost incessant bear raids on gold and silver took a break today as what economists like to call an ‘exogenous event’ took risk off the table, triggering a sharp flight to safer havens.

JESSE’S CAFÉ AMÉRICAIN: Gold Chart – This Is What I Thought Was Probably Going To Happen Ex Egypt

Just to expose a little more of my process, this chart represents what I had *thought* might probably happen in this gold correction. This is a very oversimplified representation, because I also thought we might be making this low around February 4, but I was too lazy to draw in the extra bars to show that scenario as well. But you get the idea.

Consumer Metrics Institute: What the BEA’s Advance Estimate of Fourth Quarter 2010 GDP Was Really Telling Us

Additionally, the reported real (i.e., inflation adjusted) annualized growth rate of 3.17% benefited from a relatively low annualized inflation assumption of 0.3% for the quarter — which contradicts a number of other current inflation estimates, including the December year-over-year CPI numbers (running 5 times higher at about 1.5%), the PPI finished goods numbers for December (reported to be over 10 times higher at a 4.0% annualized rate) and the BEA’s own “deflater” for the prior quarter (which was set 7 times higher at 2.1%). Arguably, a major portion of the 3.17% growth would evaporate if the 0.3% “deflater” proves to be unduly optimistic.

The Big Picture: Dimon: Let the big dumb banks fail

In Davos, JP Morgan Chase’s Chairman and CEO says that even his own company could and should be dissolved if it failed.

The Big Picture: Ch 18, Bailout Nation: Citigroup: Too Big to Succeed?

The Big Picture: Limerick: FOMC January Meeting

“With jobs disappointingly slow,
Home prices depressingly low,
And inflation subdued –
We, the members, conclude:
On the good QE2 we shall row.”

The Big Picture: Marc Faber on China, Obama, Politicians

Daily Options Report: VIX-Plosion 2011

Quite the green candle in VIX on Friday.

After meandering for the week, VIX exploded 24% on Friday, the largest single day pop since those Flash Crash days of last May.

What’s it all mean?

Seeking Delta: World Market Valuation Heat Map

Based on data provided by Aswath Damodaran, Professor of Finance at NYU, I have created the following world market valuation heat map. Big thanks to Prof. Damodaran for making this data available to the public.

Zero Hedge: Complete John Paulson 2010 Year End Letter

…in which we learn that the head fixed income trader, Brad Rosenberg, of the fund whose boss made $5 billion in 2010 has traded over $100 billion in bonds.

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