Archive - Nov 12, 2010

Can silver bullets stop a monster from terrorizing us further?

Why should this time be different as the current conference broke up with NOTHING accomplished other than to promise to get right on these issues at next year's meeting. REALLY?

Is the game theory defection dump of the world's biggest hedge fund hotel starting? In a just released 13F filing, Ken Heebner's Capital Growth Management has disclosed that he has reduced his holdings in Apple almost to zero. After holding 1.15 million AAPL shares as of June 30 (which made him holder #100 in the name sorted by size), Ken Heebner who is a regular guest on CNBC courtesy of his bullish tendencies, sold virtually his entire stake, leaving him with just 111,000 shares. One can only speculate about the causes, although it is notable that the last time Heebner did a comparable dump was in late 2008, when after the Lehman bankruptcy he liquidated half his million share stake. Is Heebner sensing something comparable to what happened in late 2008 on the horizon? Or was he satisfying margin calls? Or, most innocently, did he just sell what is probably his most profitable position, "just because" - inquiring minds want to know. We will keep an eye out on who else dumped Apple as the barrage of Q3 13F issuance begins today and ends on Monday.

As we try to figure out how it is possible that the market can still be trading down on a massive POMO day, here are some thoughts from Nassim "Fat Tails" Taleb, who has obviously ignored the surgeon general's warning not to discuss the Fed. A visibly agitated Taleb, who may or may not have overindulged in the coffee IV drip earlier, was in full form on Bloomberg TV with Erik Schatzker lamenting that the Fed is not a publicly traded entity with options so that one can buy some seriously out of the money puts on Brian Sack. No choice words were spared, or Black Swans strangled, during the filming of this clip.

Brian Sack proves that all who thought a little technical glitch can stop the Fed from destroying America's middle class and the dollar, are idiots. Today's POMO closes as $7.2 billion of bonds due 2014-2016 are monetized, at a perfectly median 4.0x submitted to accepted ratio. Elsewhere, CNBC is now officially pimping QE2 as its last resort attempt to get greater fools in the stock market. And just like Michele Caruso-Cabrera, who obviously has absolutely no idea how POMO is run, we are eagerly awaiting the price and the yield on the buybacks. We anticipate to wait about 50 years for said data: about the time the Fed's records are declassified.

If there is anything that can crash the market right here, right now, it is a POMO failure (whatever that means). And we almost got one - the Fed has just announced today's QE2 inaugural POMO, which was supposed to start at 10:15 am, and end at 11:00 am, transferring money from the Fed to PD's, so that the latter can go and buy more apples, had a "glitch" and was delayed. Restart time (see attached), 10:42 am. New closing time: 11:30. In other news, Brian Sack's computer is getting the full Norton Antivirus update treatment. Additionally, printer cartridge shipments from Yemen are again permitted.

Here we go. European bailout #2. Eurozone sources say assistance to Ireland does not foresee any debt restructuring or 'haircuts' for bond holders. In other words, more strikes and riots in store, as taxpayers get stuffed with the full bill. Next up on the bailout wagin: Italy, Portugal, Spain, France, BeNeLux, Austria, and everyone else.

Though fraud and complicity are presented in the mainstream media as isolated conspiracies outside the status quo, the truth is that the status quo is now entirely dependent on fraud and complicity for its very survival. Every level of the status quo would immediately implode were fraud and complicity suddenly withdrawn from the system. How is this true? let me count the ways.

The latest completely irrelevant economic data has just come out: UMich consumer confidence has "jumped" from 67.7 to 69.3, in line with expectations. Basically this continues the trend of consumer confidence going absolutely nowhere two years after it has plunged to recent lows. Oddly, unlike before, the current conditions segment of confidence was better than consensus (79.7 vs exp 77) while expectations misses (62.7 63.5). Are Americans starting to get resigned that the present is truly as good as it gets? Elsewhere, ABC Consumer Confidence, continues to be close to all time record highs, confirming that even this "data" is nothing but a policy tool used for propaganda purposes. Perhaps the only somewhat relevant data in today's release is that 1 year inflation expectations pushed higher yet again, from 2.7% to 3% (even as 5 year stayed flat).

... to which the market has just one response: Brian Sack's POMO. Yet as reality and Fed perception are disconnected to record degrees, at some point even infinite money printing will have to be fully discounted. In the meantime, an $8 billion POMO prepares to lead off the latest QE2 AAPL, AMZN, NFLX pump in 20 minutes.

Yesterday we highlighted that Goldman had closed out its long China trade in anticipation of reactionary measures to what the Beijing politburo decided to telegraph as high inflation (after all there is no such thing as Chinese "economic data": it is whatever the central committee agrees on). The news sparked a fresh wave of selling in the SHCOMP resulting in the biggest two-day selloff for the index in months. Today, Goldman pours more fuel on the fire, by raising its 2011 Chinese CPI expectations from 1.3% to 4.3%, which guarantees that the State Counsil will have to hike rates as it is obvious that the CNYUSD currency peg will not be removed as long as it is being used as a political scapegoat by Washington. Furthermore, ongoing insanity by the Fed guarantees that surging commodity prices will generate even more inflation in China, which in turn will eventually lead to higher prices in the US, leading to greater margin contractions, leading to more layoffs, leading to the need for what the Chairman will see as even more QE, thereby compounding the most virtuous cycle in the global economy that nobody talks about, as more and more money sloshes around the global system, and finds packets of least resistance. However that is a topic for Q1 2011.

According to the ECB, borrowings by Irish-based lenders’ from the European Central Bank rose to €130 billion as of Oct. 29, up almost €10 billion from €121.1 billion at the end of September. Adjusted for size, this is roughly equivalent to US banks borrowing a few hundred trillion from the Fed, give or take a few trillion. "Pass thru" institutions include both international and domestic banks in Ireland. In other words, the ECB continues to buy the bonds issued by Ireland, to provide the funds to Irish banks so they can buy their own bonds, and when all this fails, the ECB can step in and provide money to the government directly. Elsewhere, the CDS of Anglo Irish bank blew out by 20% yesterday, and have surged by over 10,000 bps since the end of October to nearly 13,000. Luckily, the end game is known: Ireland will be bailed out by the ECB, the country will become another Greece, lying each and every day about its deficit and economic recovery, until yet another country gets mauled. At some point the Fed/ECB/IMF's rescue ploy will fail. Then, it will be best to be far away.

• Fed's Lockhart Says Tax, Regulatory, Fiscal Uncertainty Hurts Employment (Bloomberg)
• Globalized "cooperation" proves it is completely worthless as usual as US loses all leverage - G20 Closes Ranks but Skims over Toughest Tasks (Reuters)
• ...As is US foreign trade policy, as Obama is humiliated once again: U.S. Hit by Trade Setback (WSJ)
• Krugman stunned deficit commission wants to cut deficit (NYT, h/t Fernando)
• Bankrupt California searching for idiots to sell $14 billion in bonds to (LA Times)
• As Zero Hedge has been saying for over a year, Taxes May Solve U.S. High-Frequency Trading Mess: Peter Coy (Bloomberg)
• Fed Efforts to Revive Economy Find Critics (NYT)
• Why Oil Could Top $100 a Barrel (Bloomberg)

• China inflation surges to 25-month high; jump in prices could lead to more rate rises.
• Euro falls to six-week low versus Dollar on Europe slowdown, debt concerns.
• Home prices fell in nearly half of U.S. metropolitan areas in the third quarter.
• G-20 leaders endorse gradual changes in currency values, to develop early warning system.
• Obama opposes permanent top tax rate extension, Advisor says.

It has been a few month since everyone was throwing the word "contagion" around just to sound smart. Prepare to get a whole lot more of that. PIIGS CDS are now at a fresh all time record, way wider than during the May days, that lead to the flash crash and Greece's bankruptcy. All this means that the fair value of the market is now even lower than where it was on May 6, but the tail risk has been internalized by not only US but European taxpayers. That rubber band will snap again. Just a matter of time.