Archive - Nov 12, 2010
We have previously discussed how due to the inability to know at what price (par or market) the Fed is buying back bonds from the Primary Dealers, there is a distinct possibility that due to the par-market difference, especially with many CUSIPs trading near record prices over par, the Fed may be implicitly letting PDs pocket the market-to-notional difference. The total, as shown below, could amount to over $40 billion. Furthermore, by avoiding the tight spread of on the run bonds, the Fed is effectively allowing PDs to pocket a huge bid/offer spread, which assuming a total size of ~$800 billion (low estimate) of all USTs bought over the (initial) life of QE2, aka QE2.5 and higher pre-extensions, amounts to $50 billion over the next 8 months. Since the money paid out is certainly not that of Brian Sack, but of the US taxpayers, to which the FRBNY has repeatedly demonstrated it has no fiduciary obligation, one can see why it is prudent to ask just how much leakage is occurring as the Fed is monetizing. Surely the Chairman can see why at a time when Wall Street is about to pocket $150 billion in bonuses, America can be a little concerned with the possibility that QE2 in addition to being a blatant debt monetization scheme, is also a direct taxpayer funding mechanism to the Primary Dealers. We hope Congressman Paul will demand an answer to the these questions at first opportunity.
And now for some late night amusement from head CNBC entertainer Cramer: "I lost my temper on Twitter this morning. The chatter was that I had put people in the market at the top and taken them out at the bottom. I have done a bunch of things wrong in my life and in my trading career, but that combination is not one of them. There were also the attacks on me about buying gold at the top. What am I supposed to do about this one?"...As Cramer is nothing more than a (tragi)comedian, we applaud his collapse to the level of one Dennis Kneale, whose last gimmick before ending his CNBC career, was engaging the blogo/twittersphere. We are delighted that Mr. Cramer has finally "succumbed" to the same terminal level.
The G-20 meeting in Seoul was not a good one for the Obama Administration and President Obama in particular. Mr. Obama was unable to conclude a free trade agreement with South Korea, and China told him to stop meddling in their internal affairs and put his own house in order first. China is right.
Guess who, after on September 24 David Tepper almost screamed that he was "balls to the wall long" and EVERYTHING was about to go up on QE2, you were very likely buying shares Bank of America and Citigroup from? Why, David Tepper, that's who. In Tepper's just released Q3 13F, the Appaloosa fund manager disclosed that in the quarter ended September 30, one week after his pompous, self-serving speech on CNBC served as a reason to pump the market up by almost 2%, he sold 18% of his BofA holdings (his largest holding both at June 30 and September 30), 11% of Citi, 19% of Wells Fargo, 19% of Fifth Third, 19% of Capital One, 75% of his then $157 million Hartford Financial position, and lighten up on pretty much all of his other financial positions. And congratulations to CNBC for serving as the medium which David Tepper manipulated to his advantage and dump about 20% of his financial stake, which as of June 30 was his biggest, at 56% of total holdings.
There were some very odd occurrences in the world's largest silver ETF, the iShares SLV. After the exponential increase of the price of silver in the spot market, almost hitting $30/share on November 9, the SLV ETF, which like GLD purports to holding the underlying precious metal, saw a massive basket creation demand, amounting to a whopping 523 tonnes of actual silver added to the fund's holdings (equivalent to 16.8 million ounces, at a cost of about $456 million) for the week ending November 12, currently at a record 10,718 tonnes. While we don't purport to knowing how much free silver is available in the open market, the possibility that any one entity could have manged to purchase such a massive amount of actual silver, of which 352 tonnes was supposedly acquired on November 10, without completely destabilizing the actual supply and demand mechanics, and creating a vicious loop where basket creation leads to a further surge in prices, is just slightly mind boggling. As we have speculated earlier, we expect comparable activity in the GLD ETF to follow suit. Additionally, we will shortly look at this week's CFTC COT data to determine just how massively JPM's silver short has impacted the firm's P&L.
The mainstream media attacks on precious metals were so extreme last year that they began to border on the bizarre. The “cult of fiat” was relentless in their attempts to slander gold investors and it seemed as though no matter how well the yellow stuff did, or how dismal the dollar’s performance was, they would never get tired of the disinformation game. Fast forward a year later, however, and they have been utterly silenced. What a difference twelve short months can make…
With everyone's attention focused squarely on Ireland and whether or not the country would be finally put out of its misery, one thing that most missed is that after today's release of subpar economic data, Europe has now entered a double dip. While this is not news to Zero Hedge readers, as we were confident this would happen when the EURUSD passed 1.30 for the first time several months ago, it may take others by surprise. Unfortunately Europe's troubles are only going to get worse. The only way to stimulate organic growth now, read create another export-led bounce, requires the devaluation of the euro. However, that would mean that the ECB would have to not only launch a comparable program to QE, which would paradoxically anger an inflation-weary Germany (whose economy would benefit the most from an export boom) but far more importantly, anger the New York Fed. And this Europe can not afford - keep in mind that in Europe's rickety financial structure in which a whole lot of countries are kept on life support, the ECB is only the second to last (and far less reliable) provider of resuscitation services. The last one is the New York Fed, which courtesy of its FX swap lines, now has infinite leverage over what happens in Europe. Should there be another crisis, and there will be, the Fed's generosity will be tested again. As will the IMF... to whose various credit lines America just happens to be the biggest sole contributor. There is a word for this type of arrangement: total leverage.
With the QE2 announcement now out of the way, Mr. Bernanke’s game plan is as follows: 1. Lower interest rates for “everybody“ and “everything”; 2. Stocks & Bonds will then increase in value making “everybody” and “everything” feel wealthier; 3. “Everybody” will then start to buy “everything”; 4. Pray that the price of “everything” doesn’t increase too much and therefore cause “everybody” not to buy “everything”; 5. If steps 1 to 4 are successful, businesses will begin to create jobs for “everybody” because they will once again be buying “everything”; 6. Ignore the housing market problem; 7. Ignore the debt problem; 8. Ignore the effect of numbers 6 & 7 on the banks; Pray that foreigners continue to buy newly issued American debt Simple enough. But wait, this is where it becomes interesting.
There is just under two hours left in today's trading session and the AUD.JPY to ES correlation has decoupled. Since we all know it is impossible to finish red on POMO days, it is time to put on the convergence arb and rake in the free money as the late afternoon parabolic ramp up is bound to happen.
There is a reason why groupthink is often the most dangerous concept in the financial industry. When it works: it makes everybody richer. When it fails, it results in the premature end of many asset managers. Nowhere is this better seen today than in the top holders of Apple stock, which according to CapIQ, is held by 1,933 institutions that have at least one share holding in the name, and 402, which have at least 100,000 shares. Cross-referencing the top 100 holders of AAPL stock with the top 100 holders of a recent tech casualty, Cisco, shows that the of the top 100 Apple holders (one of them being Steve Jobs), 93 are also present in Cisco. And a result of the past two-days' drubbing in these two names, these massively cross-correlated top holders in the two stocks have seen over $18 billion worth of P&L losses in the past two days alone. Now many will respond that these firms have also experienced massive profits on the upside, which of course would be correct. However, what many will also conveniently ignore, is that these very firms will all too often leverage unrealized profits and use these as margin to purchase additional stocks, in essence re-creating a new cost basis with every single remargining of the stock. Therefore, should there be a sell of in Cisco, or heaven forbid, Apple, it will pull the rug from the entire market. It also explains why mysterious buying will often materialize: the last thing the market can afford is a massive domino-style sell off due to the plunge in one single name. So far today, Apple dodged the bullet. Cisco still has not. At some point these mutual and hedge funds, however, will receive margin calls to fund over $18 billion in cash collateral, especially since mutual free fund cash is currently at all time lows just over 3%. When that happens, not even Brian Sack will save the market.
Big Money Starts to Dump Apple - A Rational Move As I Warned of Margin Compression on CNBC Hours Before Apple Announced CompressionSubmitted by Reggie Middleton on 11/12/2010 14:36 -0400
On Apple and Heebner cleaning house, whether he did it for liquidity reasons or not, the writing is on the Wall for Apple and the days of no competition high margin iPhone sales are over. Android is in town and has already taken over the lead. Add to that the fact that the equity markets are rather iffy to begin with, people are still heavily indebted and Apple caters to those who pay premiums, and the Apple sale was a no-brainer. Of course, I explained this in detail a month ago, but I guess it took time for the filings to come to light.
Max Keiser shares his brilliantly simple plan to bring down the precious metal manipulation cartel (those two terrific guys, JPM and HSBC who have recently been implicated in an avalanche of lawsuits involving silver price manipulation): "if everyone in America buys a silver coin" (which today costs much less then yesterday courtesy of Jim Cramer's wholehearted, and about 2 years overdue, endorsement of gold last night - a far better contrarian signal than even Goldman's FX desk ever could be), a plan originally proposed by ZH contributor Mike Krieger, "it would crash JP Morgan" presumably as the margin calls result in a cash collateral requirement in the billions of dollars. The premise, of course, is that since there is not nearly enough silver to satisfy demand, it would by definition, result in an explosion in the price of the precious metal.
Move Your Money Part 2: Buy Silver to Help Stop Market Manipulation and Show Too Big To Fail Banks Like JP Morgan Who Is BossSubmitted by George Washington on 11/12/2010 13:50 -0400
Can silver bullets stop a monster from terrorizing us further?