Whitney Tilson's Releases First Annual Letter Of His New Fund; Discloses -1.7% 2012 Drop

From Whitney Tilson: "After a strong 12-year run, 2011 and 2012 were lost years. I feel very badly about this and apologize to you. But I know you don’t want an apology – you want performance! To that end, I’ve reflected on the mistakes I’ve made, learned from them, and taken significant steps to maximize our chances of success going forward: I’m now the sole portfolio manager and have dramatically simplified, focused, and de-risked the fund. I’m confident that my strategy is sound, I will execute it well going forward, and we will all profit."

Guest Post: How I Reached My Breaking Point Ten Years Ago

Exactly ten years ago to the day, Simon Black was in the Kuwaiti desert waiting for George W. Bush to ‘make his decision’. He knew it was going to happen. At the time, he was a rising intelligence officer, his head still filled with ideals of national duty from my time at West Point. It all came crashing down ten years ago today. On February 5, 2003 Colin Powell, four-star general turned US Secretary of State, made a case to the United Nations that Saddam Hussein had weapons of mass destruction. Now, we won’t bother delving into the inaccuracies of the intelligence he presented. In Powell’s own words, making that presentation to the UN was “the lowest point in [his] life” and a “lasting blot on his record.”For Black, it was pivotal. At that instant, he knew without doubt that his government had reprehensibly lied through its teeth. And if they were lying about this... what else were they lying about? As destructive as these politicians are, though, they’re easy to defeat. Individuals who take action early have plenty of options to buy precious metals, move a portion of their savings abroad to a stable banking jurisdiction, and scout out locations overseas in case they ever need to get out of dodge.

CBO Releases Latest Budget Forecast: Hilarity Ensues

We won't spend any time discussing the accuracy of the "impartial" Congressional Budget Office: we already did that in August 2011 when we showed that back in 2001 the CBO forecast total 2011 public debt would be negative $2.4 trillion; instead the real number was positive $10.4 trillion, a delta of only $12.8 trillion. We also won't spend much time on the just released CBO headline grabbing projection that the 2013 budget deficit will be under $1 trillion, or $845 billion to be precise. Instead we will show the progression of the CBO's baseline forecasts for the period 2012 and onward. We will also note that the now-forecast 2013 budget deficit of $845 billion was supposed to be a deficit of just $585 billion one short year ago, a token 40%+ error rate, but in the immortal words of Hillary Clinton: "who cares." Of course we should note that if we apply the same forecast error to the 2013 budget, it means the real final deficit print will be $1.2 trillion - just a tad more realistic. Finally, we will certainly note that while the CBO believes 2013 may see the first sub $1 trillion deficit in 4 years, a number which will decline modestly in the coming years, the deficit then proceeds to grow and grow and grow, until we reach 2024, at which point the US deficit returns to $1 trillion once again... and never gets smaller. And this is the optimistic version.

The (Gold)Man Who Invented BRIC Says "Clear Evidence Things Getting Better" As He Resigns

The Chairman of Goldman's Asset Management group, unwise supporter of Man Utd, promoter of 'decoupling' myths, and creator of the BRIC mnemonic has decided, with everything looking so tickety-boo, to retire. Whether his great Buy BRICS fail or his BoE leadership bid fail was the final straw is unclear, but for now, the erstwhile permabull (and mocker of market skeptics) leaves us on a bright note:

  • *O'NEILL SAYS CLEAR EVIDENCE OF THINGS DOING BETTER ECONOMICALLY

20 years of 'broken record' survival and the Brit throws in his chips now - just as everything looks be taking off? Leave your farewell message below...

Obama's "We Must Kick The Can" Presser - Live Webcast

Sequester, Schmequester. It would seem Q4's initial warning from the DoD was enough to get the DC-ites scrambling. President Obama takes to the teleprompter to suggest (we assume) humbly that we swap today's sequester plans for tomorrow's 'balanced' slower rate of spending growth (oh and we are sure some new taxes). And yay verily, all will be well once again in the land of make-believe fiscal policy...

Suez Canal To Hike Tolls On Crude Tankers By 5%

The raging second Egyptian Spring isn't quite the webcast ratings bonanza it was when it first struck in 2011, which makes sense as the current Muslim Brotherhood government has the full backing of the US and thus it is in "everyone's best interest" to not follow how close to a counterrevolution the nation once again is. And while for the time being the country's most valuable asset, the Egypt-controlled Suez Canal Authority is in "stable" hands, that does not mean that the government, which today announced its foreign reserves had dipped precariously to only $13.6 billion, can't enforce inflation where everyone else says deflation reigns. As a result, as of May 1, the tolls for any crude oil and other liquid tankers will rise by 5%, while tolls for other commodities will increase by 2-3%. Expect said additional infrastructure costs to be promptly passed on to end consumers around the globe.

Guest Post: Is The Global Recovery Self-Sustaining?

The mainstream media is overflowing with stories proclaiming the global economy is on the mend.  Really? Based on what engine of growth? If we cut through the Keynesian jargon of aggregate demand and other Cargo-Cult mumbo-jumbo, what we find is the Status Quo is hoping to boost its precious aggregate demand with the same bag of tricks that imploded so spectacularly in 2008: the wealth effect based on phantom collateral created by Centrally Planned asset bubbles. Though you will not find a Keynesian pundit or economist with the courage required to admit it, the same problem of phantom collateral applies to Federal and state debt: the consumption all that debt funded is soon forgotten, but the debt remains to be paid, essentially forever.

No Inflation? Commodities Highest Ever For This Time Of Year

While every central banker and policy-leech spews forth the government-supplied statistics on inflation - noting that all is well, carry on - we recently pointed out that Gas Prices are their highest ever for this time of year. Of course, the standard supply constraints (or technical) reasoning was applied to dismiss this as transitory (even though it has continued to rise since); but what is perhaps more worrisome is the broad-based nature of the real inflation that is leaking into our global supply chain. The 24-commodity heavy S&P GSCI index (widely recognized as a leading measure of general price movements and inflation in the world economy) has never been as high in early February as it is currently - ever. And with global growth stagnating at best, it seems a tough call to blame 'recovery' for this inflating (fastest pace in 8 years) raw material price leaking cost-push inflation (and margin-compression) into the real economy.

Eric Holder Holds One Half Of US Rating Agencies Accountable For Financial Crisis

We urge readers to do a word search for "Moody's" in the official department of justice release below. Here are the highlights:

DOJ COMPLAINT ALLEGES S&P LIED ABOUT ITS OBJECTIVITY - when it downgraded the US?
HOLDER SAYS S&P'S ACTIONS CAUSED `BILLIONS' IN LOSSES - did Moody's actions, profiled previously here, which happens to be a major holding of one Warren Buffett, cause billions in profits?
HOLDER SAYS `NO CONNECTION' BETWEEN S&P SUIT, U.S. DOWNGRADE - just brilliant

Pure pathetic political posturing, because it was the rating agencies, whose complicity and conflicts of interest everyone knew about, who were responsible for the financial crisis. Not Alan Greenspan, not Ben Bernanke, and certainly not Wall Street which made tens of billions in profits selling CDOs to idiots in Europe and Asia. Of course, the US consumer who had a gun held against their head when they were buying McMansions with no money down and no future cash flow is not even mentioned.

Greek Government Threatens Striking Seamen With Arrests Unless They Resume Work

Over the weekend we reported on the second Greek strike of the year, the first being that of subway workers which ended prematurely into its ninth day when the government threatened to arrest all strikers who had snarled traffic in Athens to a halt, this time involving Greek seamen who had left the Greek isles in geographic isolation for a week. Earlier today, the strike which had gone on for a week, was voted to be extended another 48 hours which mean ships would remain tied up in port until early Friday, while the seamen's union will meet anew to debate whether to further extend their walkout. Needless to say, the union is angry at pay arrears and government austerity policies. As of moments ago the union will be even angrier, as the government just announced it would order civil mobilization - or said otherwise, deploy the arrest threats - once again as a repeat desperate measure to halt this latest strike.

Art Cashin Uncovers Another Unintended Consequence Of Immigration Reform

As UBS' Art Cashin points out, the weekend talk shows were filled with talk of immigration reform, and yet, as he exclaims, no discussion of Social Security. The avuncular arbitrageur, however, sees immigration reform from a different and insightful perspective noting that while immigration reform may finally get the undocumented worker a fairer break, Social Security will lose significantly...

Service ISM Declines, Beats Modestly As New Orders Drop; Respondents Complain About Obamacare

It is only logical that the catalyst that has pushed the entire market higher, that would be the "all critical" Spanish Service PMI which soared very credibly a few short hours ago, would be doubled down when its US cousin came out. Sure enough, moments ago the Institute for Supply Management revealed that the February non-manufacturing ISM declined from 55.7 to 55.2, but was just above the expected 55.0, which was enough to send the headline scanners into full blown liftathon mode and the S&P to intraday highs. Ignored was that the key New Orders series actually declined from 58.3 to 54.4, yet offset by a jump in Employment from 55.3 to 57.5. What was amusing was the jump in New Export Orders to 55.5 from a contractionary reading. We can't wait to learn just whom the US is exporting its mission critical services to these days. Finally, and perhaps most relevant, was one of the healtcare related respondents who said the truth, the whole truth and nothing but the truth on the issue of Obamacare: "Healthcare reform causing continued slowdown and less investment." That's only the beginning.

China Imports Record Amount Of Gold In December On Price Drop

Back in December, as always happens every year for the past 3, a margin call driven liquidation wave pushed the price of the gold to multi-month lows, providing merely yet another lowball buying opportunity (for which let's all thank John Paulson, again). One buyer who certainly would love to thank whichever marginal seller was liquidating their gold, is none other than China, which as was reported a few hours ago, imported an all time record 114.4 tons of gold in the month of December, or more than all the gold held by the Greek central bank (assuming it hasn't been confiscated by ze Germans or the ECB, or deposited in G-Pap or Venizelos' private HSBC safe in Geneva yet: a very aggressive assumption).

DELL Deal Done

With a modest premium over yesterday's closing price (and 25% premium to Jan 11th price), and thanks to a big hand from Microsoft (with a bridge not an equity participation), Michael Dell (and Silver Lake) are taking Dell private.

  • *DELL TO BE ACQUIRED BY MICHAEL DELL-SILVER LAKE FOR $13.65-SHR
  • *DELL TO BE BOUGHT IN DEAL VALUED AT $24.4 BILLION :DELL US
  • *DELL DEAL TO BE FINANCED BY FUNDS INCLUDING $2B MICROSOFT LOAN
  • *DELL SAYS THERE IS NO FINANCING CONDITION :DELL US
  • *DELL PACT PROVIDES GO SHOP PERIOD FOR 45 DAYS         :DELL US

Funding by BofAML, Barclays, CS, and RBC - better hope the CLO demand keeps up. Full PR below:

Why Aren't There More LBOs?

With yields compressed to record low levels, thanks to Bernanke's repression, and a consensus expecting margin stability and a huge hockey-stick in earnings going forward, the question is why aren't there more LBOs? Earnings yields relative to high-yield financing is back up at levels seen during the LBO Boom of 2003-7 and Private Equity shops appear full of money on the sidelines, so why aren't there more LBOs? At its simplest level, an LBO is enabled by a relative mis-pricing between debt and equity ‘costs’ that a private equity firm can utilize to fund the deal (cheap credit relative to equity in the WACC). These factors appear defensible but the main fear we have is their sustainability.

Bob Janjuah Sees "Final Parabolic Spike Up" To 1575 Followed By Up To 50% Market Crash

Bob Janjuah may nt have rvrted to his RBS wrtng style of yore, yet, but the New Nrml appears to also fnly b getting to 1 of our fvrte strategists, who has finally gone bold, ALL CAPS. "IF I AM WRONG AND WE TRULY HAVE FOUND ECONOMIC AND MARKET NIRVANA SIMPLY THROUGH THE CENTRAL BANK PRINTING PRESS AND ENORMOUS INDEBTEDNESS, THEN I WILL HAVE NO HESITATION IN ENJOYING THE FUTURE, THINKING ABOUT THE FUNNY MONEY MIRACLE, NEVER NEEDING TO WORRY ABOUT ECONOMIES OR GROWTH EVER AGAIN (all hints of sarcasm entirely intentional)....Real wealth can only be created by innovation and hard work in the private sector, with policymakers, the financial sector and financial markets there to aid and encourage/incentivise. Real wealth is not created by the printing press and by excessive government spending. We simply cannot turn wine into water – after all, if it were that easy, why have we not done this before (with any lasting success, as opposed to abject failure, for which there is plenty of evidence)! "

The Observation Of Trifles

The financial world is used to bubbles. We like to speak about them, point to them, bet upon their comings and goings and wave facts and figures about them like wild men when we appear in the media. It is the way of the markets. We have had bubbles in Real Estate, dot.com, bonds, stock markets and all kinds of other singular spaces. What we are faced with now is also a bubble but one unlike we have ever seen before because all of the major central banks have acted in concert which pumped money in from everywhere while, at the same time, limited what could be done with our new found small bits of paper because they playing field was leveled by distortion en masse. I would say that the entire financial system, every market, every space is in a bubble as a result of what they central banks have done.

Chinese Warship Prepared To Fire At Japanese Destroyer Last Week

It seems the world may have been this close to World War III as recently as last week. Kyodo reports that a Chinese warship last week directed "fire-control" radar against Japan's Maritime Self-Defense Force vessel in the East China Sea, where Japan and China are involved in a dispute over the ownership of a group of uninhabited islands, Defense Minister Itsunori Onodera said Tuesday. The Japanese government lodged a protest with China on Tuesday afternoon as the radar was for taking aim at a firing target.  "Beaming of radar for firing is very abnormal, and it could have put us in a very grave situation if things went wrong," Onodera told a press conference, urging the Chinese side to refrain from taking such aggressive moves.

Mariano Rajoy's Mindblowing Defense: "It Is All Untrue, Except For Some Things"

In case there was any doubt that the European circus could get any more ridiculous, here comes Spain's uber-unpopular Prime Minister Mariano Rajoy, already embroiled in a massive kickback political scandal, with a quote that just blows everyone away: "I repeat what I said Saturday: everything that has been said about me and my colleagues in the party is untrue, except for some things that have been published by some media outlets." And scene as your frontal lobe explodes.

Frontrunning: February 5

  • Obama to meet with Goldman's Blankfein, other CEOs Tuesday (Reuters)
  • Chinese Firms Shrug at Rising Debt (WSJ)
  • McGraw-Hill, S&P Sued by U.S. Over Mortgage-Bond Ratings (BBG)... but not Moody's or Fitch
  • Dime a Dozen: Dollar Stores Pinched by Rapid Expansion (WSJ)
  • Dell Board Said to Vote Monday Night on $24 Billion LBO (BBG)
  • BOJ Governor Shirakawa to step down on March 19 (Reuters)
  • Alberta may offer more to smooth way for Keystone (Reuters)
  • Facebook Is Said to Create Mobile Location-Tracking App (BBG)
  • Barclays takes another $1.6 billion hit for mis-selling (Reuters)
  • Apple App Advantage Eroded as Google Narrows IPhone Lead (BBG)
  • Texas School-Finance System Unconstitutional, Judge Rules (BBG)
  • World Risks ‘Perfect Storm’ on Capital Flows, Carstens Says (BBG)