First we had FRBNY Dove Bill Dudley talking up the Goldman party line that QE3 may, just may, be necessary (recall Goldman initially asked for $2 trillion in QE), and now the dove from the west coast makes news as San Fran Fed (also known as the Captain Obvious academy) president Janet Yellen basically says that rising commodity prices don't warrant policy shift. And by policy shift she means a change to the current easing regime. Some other dovish statements: "it would be difficult to get a sustained increase in inflation as long as growth in nominal wages remains low" which is wrong - how many billions do American consumers "save" by not paying their mortgages; "structural explanations cannot account for bulk of rise in unemployment during the recessions" ... so why do we need economic "explanations"? "structural explanations cannot account for bulk of rise in unemployment during the recessions" - yup: Captain Obvious class 101; "long-term inflation expectations remain well-anchored despite jump in short term expectations" - anchored to what - the Rudy von Havenstein inflation projection wall chart? "decline in jobless rate reflects in part drop in labor force participation" - advance topics In Captain Obviousness; "real consumer spending slowed around turn of the year after brisk gains in autumn, consumer sentiment weaker in March" - but CNBC just spent all of last week telling us how strong the consumer was in March; and most importantly: "accommodative monetary policy stance still appropriate because unemployment too high, underlying inflation too low" and "inflation effects from higher commodity prices likely to be transitory but must watch inflation expectations" uhh, what happened to well-anchored? To rephrase: the QE lunacy will continue until morale (and hyperinflation) improves.
OK, so the JPM vault that contains a whopping 30,844 ounces of silver (about two hours worth, given the torrid pace at which JPM delivers) was just approved by the COMEX in March. JPM’s probably got lots of silver stashed all over the place, right? Maybe, maybe not. One thing is for sure, JPMs customer(s) are some of the worst investors the world has ever seen. After selling almost 5 million ounces in the first three months of 2011, they’re buying now. That’s right, in March alone they delivered 374 contracts (@ 5000 ounces each) and bought…..zero. So far in April, they’ve bought 92 contracts and sold, you guessed it….the goose egg. And yes, they are indeed buying at new highs (See here and here). How bad would it suck if we learned that this clueless market participant was in fact the US government?
Trader therapists everywhere are rejoicing at the bumper crop business CYH longs are about to provide them with. Because the almost 50% plunge in the stock earlier has certainly driven quite a few of the stock bulls to the edge. So just who are the biggest losers? Well, mutual funds of course. But who cares: slow money knows it is there to be raped by the ultra fast churners and packet stuffers on Wall Street so we will not shed many tears of them. On the other hand quite a few hedge funds not only are among the biggest holders of the stock but appear to have been adding quite aggressively. The biggest losers: TPG Axon with over $46 million in losses, Trilogy Capital with over $23 million and York Capital, down $20 million on the day. Alas, the latest attempt to do the old hedge fund gang up on the stock, in which all three hedge funds added massively in the Q4 2010 quarter appears to have been an abysmal failure and whoever presented CYH at whatever idea lunch or dinner was shared among these three funds is about to be black listed from the hedge fund community for a long time. Keep in mind these are stale numbers: the latest holdings update will not come until mid May when Q1 holdings numbers are released. We wouldn't be surprised to see today's totally traumatized troica to have added quite a bit more to their holdings.
Goldman Causes Selloff In Commodities: Closes Top 5 Trade Of 2011: Long Crude, Copper, Cotton And Platinum (CCCP)Submitted by Tyler Durden on 04/11/2011 - 11:29
Wondering what just took the carpet from under the commodity complex? Heeeeeere's Goldman.
As we discussed extensively last week, the Repo-Excess Reserve is now officially dead: the O/N GC rate just printed at a ludicrously low rate of 2 bps confirming that the Fed's future attempts to normalize the short end will be very entertaining to watch. A bigger problem is that now banks which previously had this "free money" trade to rely on for guaranteed Fed-funded profits are now straight out of luck. Which means that the only carry trade is the tried and true FX funding trade: short crap currencies where there is no chance of a rate hike for years (such as the dollar and Yen) and go long currencies of growing developing countries whose central banks are tightening.
Community Health Plummets, Repeatedly Hits Circuit Breakers Following Lawsuit From Tenet Claiming Patient OverbillingSubmitted by Tyler Durden on 04/11/2011 - 10:43
Another day, another circuit breaker triggered. But this time not in some cheap Chinese fraud, but in "legit" hospital company Community Health Services, which is plummeting following the announcement of a lawsuit filed by Tenet "claiming the rival hospital operator improperly admitted patients to overbill insurers including Medicare." The stock has now been halted not once... not twice... but three times. And every time it is opened, freefall resumes. The chart says it all: and yes, not even the brilliant SEC contraption of circuit breakers can't do much if anything to prevent reality finally meeting anti-gravity.
Who can forget the frenzied all out bashing of Toyota on all government propaganda stations after the brake pedal got stuck just at a time when GM was emerging from bankruptcy, and before it was forced to engage in stuffing dealers with its bloated inventory. Yet very little if anything has been said about the curious case of the Chevy Cruze... and the falling steering wheel. The WSJ writes: "Imagine turning your car’s steering wheel, or giving it a gentle tug, and having it break away from the steering column. Now you’re speeding along holding the suddenly useless wheel. It sounds like a vision from a cartoon, or every driver’s nightmare. And it happened to at least one driver of a 2011 Chevrolet Cruze compact car last month, and General Motors Corp. is recalling 2,100 of the cars as a result." Because in Soviet Amerika, working steering wheel is an accessory. Phil Lebeau: insert Chuck Norris joke here.... Phil... Phil?
The Fed now has to choose between two bad options: either keep pushing down the dollar and let oil's inevitable rise trigger a recession, or let the dollar recover and watch stocks crater as the "risk trades" reverse. If the dollar Bears have to cover their short bets, the ensuing rally in the dollar might well be explosive and self-reinforcing. If the Fed lets the dollar depreciate in an uncontrolled fashion, then we may well end up with the hyper-inflation (loss of faith) that many expect. My question remains: what course of action will benefit those issuing the whispered orders to their lackeys and toadies on the Fed and in Congress? Will a disorderly and disruptive collapse of the dollar serve the Financial Power Elites' best interests? I don't see how it would. Rather, I see it wreaking great damage on their holdings. Thus it wouldn't surprise me in the least were the Fed to shock the markets with a "surprise" rate increase within the next few weeks or months. Destroying the real economy to maintain the "risk trades" is a foolhardy way to close down a lose-lose position.
This is the beginning of the end for Chinese reverse mergers. Alas, after having been the single most profitable trade in the market for the past 5 months when Chinese reverse merger frauds would guarantee up to 50% gains in the span of hours after people refusing to drink the kool aid and actually do their homework would expose one after another of these abortions which the flailing domestic exchanges (NYSE and NASDAQ) would gladly list in exchange for much needed fees, the party is coming to an end. Interactive Brokers has just announced that it will hike margin requirements from 50% to 100% over the next 3 days on virtually every single Chinese reverse merger name. Shortly, everyone else will follow through with a comparable increase. Timber ahead... and time to find the next "sure money" shorting scheme.
After years of being the primary supplier of funding to the US credit-money shell game, one more ex-PBoC member wakes up from the "great normalization" acid trip, and in a Caixin editorial says what virtually everyone now understands all too well: the Treasury market is one "giant Ponzi scheme." Oh, and it wasn't obvious when China was the biggest holder of debt for years (until the Fed became the biggest monetizer of US Treasuries late in 2010)? Sounds like a rather serious case of buyers remorse is creeping into the buying mindset of America's formerly primary enabler. The $64 trillion question now, as always, is whether China, whose holdings have been flat for a year will follow in Pimco's footsteps and actually commence selling longer-dated paper. If so, and with QE3 now expected to end even if temporarily, the aftermath will not be what Congress wants to see.
And like that, we now have one less conflict. From Reuters "French special forces have detained Ivory Coast's Laurent Gbagbo and handed him to leaders of the rebel opposition, after French tanks forced their way into his residence, a Gbagbo adviser in France said. "Gbagbo has been arrested by French special forces in his residence and has been handed over to the rebel leaders," Toussaint Alain told Reuters." We would prefer not to visualize what happens to Gbagbo in the hands of his news captors. Importantly, considering the primary determinant in cocoa prices YTD has been the ongoing civil war in the African country, the promise of an end to hostilities sends Cocoa prices plunging, dropping the 10 metric ton contract by nearly $100 in the span of seconds.
Silver's nearly 3% surge in trading in Asia may indicate that the long expected short squeeze may be underway. Bullion banks with very large concentrated short positions may be being forced to buy back their short positions – propelling silver higher. This could see silver surge over the record nominal high of $50.35/oz in short order. At the same time caution is merited as silver has risen nearly 10% in April so far and over 33% year to date. Speculators need to be very cautious as margin requirements may be increased again and profit taking could lead to sharp falls in price. Leveraged speculation is extremely high risk and should be avoided by investors and savers. Proof of the lack of animal spirits in the silver marker is seen in the data which shows that speculative sentiment on the COMEX (as seen in the Commitment of Traders/ COT data – see chart below) is subdued. While the total silver ETF holdings increased to a record, they are not far above the levels seen in December 2010 (see chart above). Importantly, even at $41.30/oz the dollar value of the total silver ETF holdings remains very small at just over $20.5 billion. To put that number in perspective, today bankers put a prospective value of around $60 billion on Glencore, one of the world’s largest commodity trading companies. BP has set up a fund worth $20 billion to cover legal claims from the oil spill disaster.
The last time Bill Dudley hosted a Q&A on inflation, he made the now legendary phase, noted here, that people should just eat iPads and let their betters worry about such trivial problems as "transitory" inflation. Today Jan Hatzius' predecessor and Goldman's plant at the New York Fed continues his Titans of Taste (substitution) world tour, speaking in Tokyo, Japan, where he is experiencing one after another aftershock while discussing "Regulatory Reform of the Global Financial System." Select highlights from the speech: US economy in better shape than last summer; QE2 is partially responsible for recent rebound although the US economy has lost momentum in past few months due to oil prices; oil prices are negative to economic outlook; big focus for Fed is inflation expectations; expectations have not become anchored; CPI rise in US may be more modest than other countries as US starting at lower base; "it is important to not to overreact to rise in headline inflation as its likely to be temporary", there is more slack in the US economy than in Europe; "there should not be too much enthusiasm about tightening monetary policy too early", and many other such dovish rambling which once again confirm that Hatzius and Dudley are laying the groundwork for additional QEasing.