Stocks surging; Bonds surging; Gold Surging...
Nothing really to add: we are likely not only the only ones who miss the market fondly, as one more day passes with it rotting in the grave, after a cowardly ambush and 6 shots in the back by the Chairman.
And Scene: ICI Reports 13th Consecutive Week of Massive Domestic Equity Outflows As Banks Start To PanicSubmitted by Tyler Durden on 08/04/2010 - 17:26
What more can we say here that we have not said for 12 times in a row already. Retail investors are dunzo. The latest update from ICI shows that the week ended July 28 saw a record 13th consecutive outflow from domestic mutual funds as stocks bloody surged. Good thing the HFT algos can now essentially communicate with each other in the actual unique flow patterns of cancelled stock bids, thereby announcing to all other participants the plans of one which promptly become those of all, in the most under the radar concerted effort to "club" the market's HFT participants as one big trading force. As for retail: it is all over. We won't even chart the latest move. Figure it out: nearly $50 billion in outflows YTD as the market is well green. When the coordinated computerized front running game (of stupid carbon based lifeforms) in which one Atari machine sells to another, and repeats into infinity, while all book liquidity rebates, comes to an end and the theater is finally perceived to have been burning all along, watch out for the binary stampede.
If a panic in the broader markets put liquidity-crunch-induced pressure on the gold price, the meltdown should be less severe than in 2008 and the eventual rebound could be dramatic, possibly triggering the mania we’ve been calling for. Remember: the market crash drove gold almost down to $700 in October ’08, but the same fear drove it almost back to $1,000 by February ’09. Silver topped that with a 60% rebound over the same period. As the debt-glue holding everything together continues to lose its grip, the ride will only get rougher. As bad as 2008 was, if the Crisis Creature appears to be coming back when everyone on Main Street thought it was dead, the fear should be much worse – and that should drive gold way, way north. It’s possible the fear, coupled with the lack of any safer alternatives, could prevent gold from melting down at all, sending it instead straight through the roof into the clear blue Mania Phase sky.
It appears those truly concerned with the proper functioning of the market can never truly sit still (especially when, as today confirms, it merely keeps on breaking little by little until it goes poof once again as not even one quadrillion of fake stuffed quotes can keep the market up any longer). Case in point: David Rosenberg, who should be on vacation, yet posted this typically delightful breakdown of the bullshit action in stocks when juxtaposed with the ever deteriorating reality.
After an ugly Q2 and a Friday several weeks ago in which the Paulson funds were collectively down by about a billion dollars, the recently overly bullish hedge fund manager has decided to turn just a little more bearish once again. As The Financial Times reports, the fund has taken down its overall net leverage materially lower across all its funds: "Amid increasing uncertainty over the sustainability of the US recovery and a vicious second quarter that saw many funds hit hard by a spike in market volatility, Paulson & Co has cut its net long bets across almost all its funds. The $3bn Paulson & Co Recovery fund, which was launched in late 2008 to take advantage of a bounceback of the US housing market and economy, has decreased its net exposure from 140 per cent to 107 per cent in recent weeks, the Financial Times has learnt. Net exposure is a measure used by hedge fund managers as a gauge of their directional bias, and is calculated by subtracting total short positions from total long positions, with leverage taken into account. Mr Paulson’s flagship Advantage fund, which manages $9bn of client money, has also shrunk its net long exposure from 72.4 per cent to 67.3 per cent. The more specialist $4.3bn merger arbitrage funds – which make money by trading corporate names engaged in takeover talks – have also scaled down from 58 per cent to 50 per cent."
RANsquawk Market Wrap Up - Stocks, Bonds, FX etc. – 04/08/10
To all the bulls out there, we have a Wien-er just for you. In an essay that is basically a sequel to last week's job application in a second-tier position in the administration by a Moody's strategist and a Princeton economist (yes, yes, we know... oxymorons), the BlackStone head of something, Byron Wien, says the fututre for the market, the economy, and pretty much everything else is brighter than a nuclear bomb (incidentally one going off today would likely send the market into the greatest melt up in history). Lest there be any confuction what Byron's view is: "My view is that the economy is going through a temporary lull and business conditions will improve later this year and in 2011." At least Wien is honest: "In preparing this essay I used research from Goldman Sachs, Lord Abbett, Credit Suisse and International Strategy and Investments for arguments on both sides of the double-dip issue." Mmhmm - that some serious "both sides" source list. And the piece de resistance: "The factors that argue against a resumption of the recession are the strong liquidity position of corporations which have 6% of their assets in cash, a level not seen since the 1960s, and the fact that both housing and autos are at low levels of production and not likely to drop further." Over the weekend we will present an extended analysis finally putting to rest the inane argument that corporations are flush with cash: while true on a gross basis, the net level of cash vs debt, and especially vs equity, is at one of the worst levels in history. This ongoing childish avoidances of the liability side of the corporate balance sheet must stop and someone has to finally shut up these so called sophisticated economists and their endless lies. Feel free to print out two copies of the attached Wien essay: we hear his work "product" is much better in two ply format.
Just in case you missed the strategic implications of the prior post, here is some breaking news from BNO: "Israel Prime Minister Benjamin Netanyahu on Wednesday said that Hamas was responsible for the rocket attacks last Monday and that the Jewish nation will retaliate."
The August 3, 2010, armed clash along the Israeli-Lebanese border was a significant strategic incident. On Thursday, July 29, 2010, Israel notified UNIFIL that a few Israeli soldiers would be crossing the security fence in order to cut a tree and remove a few shrubs in Israeli territory but near the Blue Line (the actual border between Israel and Lebanon). This foliage blocks the view of Israeli security cameras positioned deep inside Israel. Israel also notified UNIFIL that these soldiers would be escorted by a small patrol which would stay south of the security fence.
Chinese Banking Stress Test Assumptions Imply Chinese Real Estate May Be Overvalued By As Much As 60%Submitted by Tyler Durden on 08/04/2010 - 14:23
Now this is what a real stress test should look like. Bloomberg quotes a banking insider that "China’s banking regulator told lenders last month to conduct a new round of stress tests to gauge the impact of residential property prices falling as much as 60 percent in the hardest-hit markets." And just in case it is unclear what the reality of the situation is, because as Europe demonstrated all too well, nobody would test for something which is not already priced in, China is effectively telegraphing to the world that it is bracing itself for a more than 50% plunge in select real estate values. "Banks were instructed to include worst-case scenarios of prices dropping 50 percent to 60 percent in cities where they have risen excessively, the person said, declining to be identified because the regulator’s requirement hasn’t been publicly announced. Previous stress tests carried out in the past year assumed home-price declines of as much as 30 percent." The doubling in stress is somewhat to be expected considering the tens of trillions in renminbi pumped into the banking system via whole loans and other CDO products, most of which have gone into building up empty cities, vacant apartment complexes, and unused infrastructure projects. As we noted previously when discussing the recent Fitch report on shadow funding of the real estate bubble, the nearly 50 million in vacant units, the ugly truth about the Chinese bubble is slowly starting to leak out.
As regular readers know too well, a long-running peeve for Zero Hedge has been Goldman's purported ability to take advantage of its huge monopoly in flow trading to the benefit of its prop positions. In fact, Zero Hedge has engaged in direct communication with Goldman in the past on numerous occasions, in which we have alleged that Goldman's prop desk is bad, and Goldman, logically, took the opposite side. We have just learned that Goldman, according to CNBC, is preparing to spin off its entire prop trading division. We consider this a huge victory for capital markets, if indeed this rumor is true, and a huge loss for Goldman, which contrary to representations by Messrs. Viniar, van Praag and others, probably generates well over 50% of its revenue courtesy of some form of interaction with its prop desk. This is a small but critical start to fixing the improprieties of a leaking Chinese Wall" flow-vs-prop problem, that has allowed a two-tiered market to flourish over the past several years.
Mr. Greenspan and Mr. Bernanke have alternatively said over the past decade that monetary policy was not responsible for bubbles, could help deal with the aftermath of bubbles hence it's not the Fed's job to cool the market off, and now over the past couple years Mr. Bernanke (maybe to address the markets' worries) stated that the Fed is very aware of the risks of bubbles associated with excessive liquidity. Still though, it seems to me that the real statement should be: in an over-leveraged system prices of assets respond uniquely to the supply and demand balance for monetary liquidity. Too much cash in the system leads to bubbles, and not enough leads to a collapse. Markets are so highly correlated due to advances in technology, correlation trading, and information circulation, that the system has become completely binary and relying solely on monetary availability.
- Asian shares were mostly lower Wednesday with Yen rising to a fresh 8-mt high vs USD.
- Federal Reserve Bank of NY is facing the prospect of foreclosing on a number of properties in the coming months.
- US auto sales up 5.1% in July.
- US Pending homes sales index fell 2.6% to 75.7 in June.
- ADM reported a profit jumps to $446M despite 5% decline in revs to $15.7B.
- Anadarko Petroleum's Q2 loss narrowed to $40M on 36% jump in revenues.
- Baker Hughes Inc.'s net rises 6.9%, helped by better demand and April buyout of BJ Srvcs.
- BP Controls Gulf Well That Caused Record Oil Spill (Bloomberg)
- ABC Consumer Comfort index plummet near 2010 low at -50, from -48 week prior (ABC)
- California Democrats Unveil Budget Plan (Reuters)
- Foreclosed on - by the U.S. (WSJ)
- Japan Concerned as Yen Rises Towards 15-year High (Reuters)
- Australia Has Record Trade Surplus on Coal Demand (BusinessWeek)
- Moscow Urged to Ban Grain Exports (FT)
- Bank Rossii Bonds Hit Record $34 Billion in Anti-Inflation Push (BusinessWeek)