Americans have been very tolerant. We’ve handed money over for Wall Street bonuses rewarding the psychopaths who blew up our economy and created 23.9% unemployment (the real undistorted employment rate). We’ve watched silently as Bernanke lied to us about the banks being fixed—as if we’re too stupid to know that FASB is now just legalized Enron accounting. We’ve rolled our eyes and bitten our tongues when some of the psychopaths later professed to be, “Doing God’s work." We’ve watched our kids get molested by perverts hired off adds on pizza boxes, had our wives breasts exposed during these idiotic searches and ourselves been exposed to radiation while in naked body scanners that could be used in the oncology departments of hospitals. I seriously suspect that people have had enough and that it won’t be long before they break out the pitchforks and torches. Throughout history we’ve read about times when citizens were forced to resort to violence in order to restore law and order.
While we will get into the nuances of why the Austrian AAA rating is the next to go (just after Hungary is downgraded in a matter of weeks if not days, following the country's request for IMF help earlier today) an event which we described ten days ago when the news that Austria's shaky rating was about to be downgraded first broke via the FTD and has since resulted in a major spike in Austrian credit spreads and bond yields, first we wanted to show readers the one ad which explains why the seeds of Austria's credit perfection collapse were sown back in 2007. In the ad, the second biggest Austrian bank, Raiffeisen Bank, explains precisely what its "selection" criteria were to get a loan in Hungary at the peak of the credit bubble (and yes, the ad is real). The ad explains the follow up news, which is namely that Austrian bank supervisors were today told to limit their lending to Eastern Europe. Unfortunately, the horses are out of the barn, and the biggest banks in Austria are about to be at the mercy of the markets, especially once the rating agencies do the inevitable and cur the country by at least 2 notches.
There was a time when central bankers used to fight high oil prices with interest-rate hikes. But we are now in a different era with that equation, and central bankers are more likely to lament, as Ben Bernanke quipped in his spring 2011 press conference, that "the FED can’t print oil.” Yes, precisely. At the zero bound of interest rates and with debt saturation coursing through the private and public sector, the developed world faces not an inflationary restraint from oil prices, but rather an additional deflationary barrier. Welcome to the new oil cycle. In the old oil cycle, new supply of petroleum was brought online to capture rising prices. In the new oil cycle, declines from existing fields neutralize this new supply, for a net global supply gain of zero. In the old oil cycle, recessions benefited large consumer countries like the United States as oil prices fell, giving a boost to the economy. In the new oil cycle, the price of oil falls only for a short time before resuming a higher swing. In the old oil cycle, the developed world set the oil price through swings in its demand. In the new oil cycle, the developing world, with its much lower sensitivity to high prices now sets the floor on oil. Most of all, the new oil cycle caps growth in the developed world. The new oil cycle kills the economies of the OECD nations.
Anti-Tilson ETF Goes Ballistic: Netflix Plunges After Company Announces Equity Raise In Sheep's ClothingSubmitted by Tyler Durden on 11/21/2011 - 18:34
When we discussed the slow motion trainwreck that is the implosion of Netflix back on October 11, our only outstanding question was "when is the inevitable follow on equity offering coming?" We have the answer, and it is now. Netflix just announced in an 8-K filing that it has raised $200 million in convertible notes. The conversion price is a laughable $85.80 or just 16% above the closing price translating into 2.3 million shares of additional dilution, confirming that this is nothing short of an equity raise in sheep's clothing (on the buyer's terms at that), and indicates that the firm may have well entered a liquidity death spiral courtesy of a business model that still has to generate any substantial free cash flow. Naturally, the second investors realize this they will dump the stock in droves, which is horrendous news for Whitney Tilson, but amazing news for everyone long the Anti-Tilson ETF. In other news, it may just be time for Tilson to call it a career.
Remember the massive market ramp that came in on "news" that the Stupor committee would actually have a resolution? It is now time to fade it. Reuters reports that "The co-chairs of the U.S. Congress "super committee" will announce that their panel has failed to reach a deal on at least $1.2 trillion in deficit reductions, a senior congressional aide said on Monday. The co-chairs, Republican Representative Jeb Hensarling and Democratic Senator Patty Murray, are expected to release their written statement soon, aides said." Now this is not any news, but the "faux" catalyst that was used by the FRBNY to send a massive market buy to Citadel was there, and was sufficiently credible to get the vacuum tubes to jump in the buying frenzy. Now let's see the reversal, or not. After all that would make too much sense for this busted market.
ES tumbled back down to its VWAP at the close of the day session after mounting a run back towards 1200 in the afternoon. This equity move was the second total disconnect from credit markets of the afternoon and reverted back to credit's sanity though HYG was clearly the instrument of choice (once again) for credit hedgers looking for lower cost shorts or liquid hedges. The USD was modestly higher from Friday's close and Oil rallied back this afternoon to almost perfectly match the USD shift. Gold, Silver, and Copper all lost significant ground (around 2.5%) though all were well off their early European-close-liquidation lows. TSYs rather interestingly closed near the high yields of the US day-session - though well down on the day - as 2s10s30s and Oil were the main drivers of broad risk-asset strength. CONTEXT remained notably below ES all day - maintained by the weakness in Gold, 10Y, and AUDJPY as the EURJPY ripfest into the EU close helped the risk-on crowd modestly. It was a muddled day with correlations breaking down and dramatically illiquid-looking moves as the late-day drop on very large volume suggests some sense of sanity with the uncertainty we face was priced in.
Listening to all the mouth foaming commentary out of assorted TV channels and economics professors which have apparently suddenly woken up from their deep hibernation regarding the imminent death of the gold market, one could be left with the impression that gold was wiped out, collapsed, imploded and will never rise again. After all: what does it really bring to the table aside from complete lack of monetary dilutability and a safe haven to hundreds of trillions in derivative counterparty risk (in its physical form that is, as Celente recently found out), not to mention a hedge to human idiocy as Kyle Bass said a few days ago? Well nothing really... So we were shocked, shocked, when we ran a simple chart comparing the performance of gold and the S&P Year to Date to discover that outperforming by a margin of about 23% is... gold? Huh. But wait, the real safe haven are bonds many would say. After all, the US has no counterparty risk and it has prudent fiscal and monetary authorities. So how do they compare? Well, as of today: flat, with gold actually outperforming modestly. That's right - gold and the US long bond, even following the recent "drubbing" in gold have generated the same price return. So... what were we talking about again?
Less than two weeks ago, when reporting on the news that Fitch has finally woken up to the reality that European insurers, already massively pregnant with European bonds, are the next shoe to drop, something we have been saying since 2010, we said, "For once, Fitch took the words right out of our mouth, and in the process reminded us that the time of the stupendously named ASSGEN CDS (357 bps, +41 today) is here (for our previous coverage on Generali, read here, here and here)." We also added: "And just because we like to live dangerously, we believe the time has come to knock on the door of the grand daddy of all: Pimco parent, German uber-insurer Allianz, where the crisis will eventually hit like a ton of anvils if and when things really get out of control." Here is the first trade update, 12 days later: Generali is 100 bps wider, Allianz is 40 bps. So as traders stock up on even more default protection to the companies which are certainly not too big to fail (ALZ used its trump card with the EFSF as CDO squared idea... and failed), we urge them whatever they do, to not tell Bill Gross to look at the soaring default risk of his parent company.
While pervasive asset liquidations are dragging everything lower, stocks and gold included, one thing is doing amazingly well and is up over 7% intraday and nearly 36% in the past 5 days. The "thing" is, naturally, the Anti-Tilson ETF: the pair trade of being long GMCR (Tilson's vocal short) and short NFLX (Tilson's legendary flip flop). Just like theStreet did an amazing job of being the contrarian indicator du jour, so Tilson continues to be the market's most valuable (counter) indicator.
One could be forgiven for suspecting a hint of self-preservation in a research note by the firm that faces the most intense pressure given its apparent European sovereign exposure but Jefferies' strategist David Zervos' note today seems extreme in many ways. With the sanctity of the known world at risk, Zervos describes the group-think of sado-fiscalism that has invaded German minds and how the Fed is the only one left with the 'bazookas' big enough to get the job done. Besides, he notes, we did not spend all that money on the Marshall plan just to have Europe blow up the world again!
Luckily the market is all stable and stuff and can handle the prospect of a potential Iran war.
- SARKOZY WRITES LETTERS CONCERNING IRAN'S NUCLEAR PROGRAM
- SARKOZY SAYS IRAN'S PROGRAM IS A 'SERIOUS AND URGENT' THREAT
- SARKOZY SAYS NEW SANCTIONS WOULD FORCE IRAN TO NEGOTIATE
Now where is that weekly US naval update...
This has to be an almost as epic call as Dick Bove's upgrade of Lehman days before its bankruptcy.
While we spend a lot of our time pointing out critical factors driving the reality of our markets and economies, today's note from David Rosenberg, of Gluskin Sheff, provides a spot-on and unarguable description of what every one of your favorite long-only strategist, sell-side economist, and hope-heavy CNBC anchor told you would happen - and hasn't! Then Rosie goes on to compare Italy to Lehman in a not so flattering light.