Some time in January, we presented an extended analysis by Mark Hart's Corriente Fund in which the successful hedge manager presented a comprehensive case for the Chinese bubble. Today, about a year later, and after China is finally on the verge of realy pulling in the liquidity avalanche, tired of importing Bernanke's rampant inflation, Art Cashin looks at the very same Mark Hart in his market commentary: "Several readers asked if I had more details on Mark Hart’s bearish call on China. I pulled up a couple of articles, most notably the U.K. Telegraph. Mr. Hart manages Corriente Advisors. He set up a bearish sub-prime fund in 2006 and a bearish European debt fund in 2007. The anomalies he sees in China are somewhat familiar: Excess floor space exceeds 3.3 billion square meters and there are still 200m being built this year; The price to rent ratio is 39.4 times versus 22.8 times in America before the housing crises; Banks are hiding their exposure in Local Investment Vehicles; On a Sovereign level, China’s debt to GDP comes out at 107%, five times published numbers; China has consumed just 65% of the cement it has produced in the last six years; There are 200m tons of excess steel capacity, more than the EU and Japan’s total production this year. According to the articles, Mr. Hart has been growing bearish on China for months. Several other successful hedge fund managers are also said to be making negative bets on China. It certainly bears watching." We would like to help Art, and provide with a redux of what we posted back in January that summarizes Corriente's outlook.
Madoff Trustee Charges JP Morgan With "Enabling" Massive Fraud; Seeks Over $6 Billion In Recouped Profits And DamagesSubmitted by Tyler Durden on 12/02/2010 - 14:20
Madoff trustee charges JP Morgan with "Enabling" massive fraud; $1 billion in profits and $5.4 billion in damages sought to be recovered. Says JP Morgan had clear doubts about Madoff operation and should have been more vigilant about firm's cash flows.
Blythe Masters Reminds The RICO Club She Hasn't Been Fired Yet As Gold Chart Exhibits Thor's Hammer FormationSubmitted by Tyler Durden on 12/02/2010 - 14:10
Another perfectly normal 6-sigma gold manipulation day where as gold was about to break $1,400, out of nowhere suddenly arrives JP Morgan's very own Blythe Masters. Elsewhere, the Comex check their spot gold screen, sighs, and switches over the SEC-endorsed porn channel. In other words: everything can be sold, except stocks as a down day (now that it is confirmed that banks pledge equity as collateral to their central banks and thus will blow up should market crash) means the Ponzi is failing. That can not happen.
Howard Marks' Scrapbook On Lessons From A Rhyming History; And Why We Believe This Time It Is DifferentSubmitted by Tyler Durden on 12/02/2010 - 13:56
As always, a must read letter (which is a compilation of many prior Howard Marks missives: "Thanks to the tendency of investors to forget lessons and repeat behavior, it sometimes seems there’s no longer a need for me to come up with new ideas for these memos. Rather, all I have to do is recycle components from previous memos, like a builder reusing elements from old houses") from the chairman of Oaktree who, prudent as always, cautions against the latest episode of Fed-funded irrational exuberance: "Investors who engaged in aggressive behavior just a few years ago experienced significant pain as a result. Perhaps the punishment was too brief, and perhaps it was reversed too soon. Thus some are acting aggressively once again. It’s possible that such behavior won’t be punished again the second time around, but prudent investors shouldn’t take the risk." On the other hand, whole countries are now at stake should the market decline. Taking on one central bank is tough... Taking on all the printers in the world may be a task that only nature can eventually tackle.
In a speech which on the surface is meant to convey the skepticism of the Charles Plosser over QE2, the Philadelphia Fed president admits that much more QE may ultimately be needed. "If the economy grows more quickly than I currently anticipate, the purchase program will need to be reconsidered and perhaps curtailed before the full $600 billion in purchases is completed. On the other hand, if serious risks of deflation or deflationary expectations emerge, then we would need to consider whether expanded asset purchases should be used to address these risks." And much more deflation will eventually emerge especially for large scale purchases which rely on credit procurement (coupled with increasing inflation in commodities which are first degree liquidity derivatives): after all, the collapse in the shadow banking system, and the M3, are all the matter, and the Fed has no control over these (now that European greater fool securitized investors are extinct). It is precisely the Fed's QE3 response that should start being factored in. As everything else is noise, we will immediately present the latest meltdown in the shadow economy when the quarterly update is posted at noon on December 9.
Some emotional words from Vermont Senator Bernie Sanders over the increasing social inequality in America, which he now defines as indicative of America's transition to a banana republic: "Many of the nation's billionaires are on the war path. They want more, more, more. Their greed has no end, and apparently there is very little concern for our country or for the people of this country if it gets in the way of the accumulation of more and more wealth, and more and more power. Today as the middle class collapses, the top 1% earns 23.5% of all income, more than the bottom 50%. Today, if you can believe it, the top 1/10th of 1% earns about 12 cents of every dollar in America... It is very clear that the people on top are doing extraordinarily well as the poverty is decreasing... Today the crooks on Wall Street, the people whose illegal, reckless actions have resulted in the millions of Americans losing their jobs, their savings, after we bailed them out, the CEOs are making more money than before the bailout. The US now has by far the most unequal distribution of income and wealth of any major country on earth." Not surprisingly, Sanders is not too happy about the proposed tax cut for the richest.
Was this the peak of the world's most overpriced stock Netflix? A new Form 4 filing indicates that the first defection in realization of a sinking ship may have occurred. On November 4, Netflix Chief Financial Officer Barry McCarthy sold 100,000 share equivalents, with 91,181 shares sold between $200.36 and $201.11 and the balance from option exercise. The sale has left Barry with just 51,563 shares of NFLX stock. Altogether the proceeds from the transaction are listed as just over $17 million. This also means that in next week's massive insider selling disclosure which we will present on Monday, Netflix will feature prominently in the top 10 of the world's artificially levitating companies. If the CFO believes the time to take profit is in, what does it mean for the millions of other hot potato holders? At last check Netflix was down almost $20 from the all time high hit earlier this week. It has far more to go, especially if as we expect the company will announce a follow on equity offering shortly.
Just kidding. More importantly, it now appears that the $1,400 barrier in spot gold will be breached shortly.
$8.3 Billion POMO Closes: Brian Sack Forbids Instantaneous Monetization Of Just Auctioned Off 10 YearSubmitted by Tyler Durden on 12/02/2010 - 12:24
Today's $8.3 billion QE has closed and the Fed has monetized 13 bonds of various CUSIPs between 2/15/2018 and 8/15/2020. The Submitted to Accepted ratio was a very low 3.3x, once again confirming that PDs had excess cash, did not need to rely on the Fed's generosity and as a result are now ramping stocks with aplomb. What is most curious is that after we have disclosed that in the last 2 POMOs the most monetized bond was the just auctioned off issue, today Brian Sack put CUSIP PC8, the 10 Year auctioned off on November 9 on the exclusion list (see bolded below), meaning PD were forbidden from flipping the most recent issue. We wonder if the New York Fed no longer enjoys being under the microscope in that it openly and flagrantly allows almost instantaneous monetization of "just issued" cusips? Of course, that QE2 continues to funnel billions of taxpayer money to Primary Dealers is not threatened one bit. After all millionaire bankers have to become billionaires through ongoing perfectly legal theft from the middle class in some way or another.
All who thought that China was merely posturing when it announced a few days back it was creating a fund to allow its domestic investor base to allocated capital to foreign gold ETF, may wish to reconsider after it was disclosed late last night that China gold imports jumped by 500% in the first 10 months compared to all of 2009 on concerns of rising inflation according to the Shanghai Gold Exchange.Other concerns probably include what is happening to the FX and stock market which have now moved on from cash flow to Keynesian failure discounting mechanisms: ironically the higher the S&P is pushed by the Brian Sack cabal, the more sovereign bonds are bought by the ECB, and the more bankrupt European countries are said to be doing perfectly ok by their new dictator Olli Rehn, the more gold will be bought across the world. China does not disappoint: from Bloomberg: "Imports gained to 209 metric tons compared with 45 tons for all of 2009, Shen Xiangrong, chairman of the bourse, told a conference in Shanghai today. China, the world’s largest producer and second-biggest user, doesn’t regularly publish gold-trade figures and rarely comments on its reserves." And that would be in the form of JPM's bogeyman: physical.
Max Keiser's Plan To Destroy JP Morgan Goes Mainstream, After The Guardian Posts His "Silver Squeeze" ThoughtsSubmitted by Tyler Durden on 12/02/2010 - 11:21
As Zero Hedge readers know, the reason why the US mint sold a record amount of silver American Eagle coins in November is unlikely a coincidence, and very possibly an indication that the recently disclosed plan as espoused by the MKs (Mike Krieger and Max Keiser) to destroy JP Morgan is working: to wit, if every person buys an ounce of silver, JP Morgan and its massive synthetic silver short position, will have no choice by the cover, face unprecedented margin calls, and possible lead to an end for the New York Fed's favorite bank. Today, Keiser goes mainstream, detailing his thoughts in The Guardian, which courtesy of its massive circulation is sure to reach far more readers to whom this idea is new. To keep a track of how well this plan is working, we suggest readers check in with the US mint, which frequently updates the amount of silver American Eagles sold on its website (link). The full Guardian article is below.
Following yesterday's completely non-arbitrary release by Jan Hatzius of his about face economic upgrade at precisely 4 minutes ahead of the Fed data dump, Goldman has released the first 5 trades of its top 2011 trades. Hopefully these trades will perform far better than the basket of 2010 trades which left Goldman clients flat at best (especially the FX component which was a total disaster and which Thomas Stolper apologized for yesterday). On the basis of its suddenly rosy outlook for the economy (as always, Goldman by definition is buying whetever a client is selling and vice verse) here are the first five trades that Goldman believes will be the best money makets for the next year.
1. Short $/CNY via 2yr NDFs, currently at about 6.4060, target of 5.9, expected potential return 6%
2. Long US large-cap Commercial Banks (BKX), at 44.76, target of 57, expected potential return +25%
3. Long US High Yield (Selling protection on the CDX HY index), at a current spread of 528, target of 450, expected potential return of 8%-9%
4. Long Nikkei 225 (NKY), at 9,988, target 12,000, expected potential return +20%
5. Long a Basket of Crude, Copper, Cotton/Soybeans and Platinum (‘CCCP’), indexed at 100, expected potential return 28%
Some historical parallels on where the current state of disintegration of the latest artificial European Union construct falls in historical terms from FX Concepts' John Taylor. "As supporters of the hypothesis that historical events display cyclicality that if studied and understood can improve decisions about the future, we are always trying to place current events in a historical context. Our goal is always to develop a strategy that can anticipate the twists that current historical actors will take. The recent crumbling of the Eurozone has been a perfect example...Finding a way to examine these events, we compared the situation leading up to the troublesome periods. We found a very interesting parallel between the 34 years following the Congress of Vienna in 1814-1815 which ended with the tumultuous 23 year span of revolutions and nation-building in Europe, and the time that followed WWII until the millennium, a 55 year span. This period ended with the founding of the euro."
Behold Jean Claude Trichet's fat finger. ECB now lifting every bid. Note that the PGB was at 84 before yesterday's two rumors that drove the market (both sovereign bonds and stocks) higher are now refuted. We have a suggestion: perhaps Trichet and Brian Sack can just take it out back and beat each other. The winner's currency goes to zero and the respective stock market goes to 36,000.
Hearing that as the head of the ECB continues to not answer any question, his organization is buying Portuguese and Irish bonds actively. If the vigilante attack intensifies not even the ECB will be able to withstand the onslaught.