Archive - Nov 29, 2010

Let's make sure this is done right ...

The inquiry into various hedge funds is no longer merely civil. The AG (yes, people, America does have an attorney general although you may be forgiven to think otherwise) is now officially involved. From Dow Jones: "Holder Confirms Criminal Probe On Wall Street"

While this data point is of interest, I would always ask the question: why use something if it doesn't work?

Just a headline from Reuters right now: "White House says WikiLeaks and people who share information with them are criminals"

Unclear is Assange is about to be charged with treason. It is also unclear if the First Amendment is still valid. If so, we will try to bring you an update on this situation.

Today's second, and larger, POMO has closed. Brian Sack bought back $7.226 billion of notes due 5/31/2013-11/15/2014, at a perfectly as expected 4.1x Submitted to Accepted ratio, confirming that PDs have extra paper in the longer-dated end (the Submitted to Accepted ratio on the earlier auction was ~6x). And for those who followed our recommendation from this weekend to buy the highlighted CUSIPs have experienced a 100% frontrunning success rate, which couple with this morning's 93%, speaks for itself just how "unpredictable" the Fed's monetization actions are. And, even more hilarious, precisely as we expected, CUSIP PU8 was one of the most monetized bond issues. As a reminder this is the bond that was auctioned off on November 8, or three weeks ago. Today the PDs put back $1.7 billion of their total PU8 exposure back to the Fed. And so the Treasury -> PD -> Fed shell game continues without interruption, but in the meantime, the PDs get the benefit of picking up the spread, which as we highlighted previously amounts to about a $50 billion gift for the duration of QE2.

And now for some very provocative, "out of the box" views: Simon Black, better known as Sovereign Man, presents some disturbing thoughts which are sure to get the broader spirits elevated. Instead of continuing to fight what some see as a losing ideological battle with a government which no longer even remotely represents the broader population's interests, Black says simply to walk away: "When you think about it, what we call a 'country' is nothing more than a large concentration of people who share common values. Over time, those values adjust and evolve. Today, cultures in many countries value things like fake security, subordination, and ignorance over freedom, independence, and awareness. When it appears more and more each day that those common values diverge from your own, all that's left of a country are irrelevant, invisible lines on a map. I don't find these worth fighting for...The government beast in your home country feeds on debt and taxes, and the best way to win is for bright, productive people to move away with their ideas, labor, and assets. This effectively starves the beast and accelerates its collapse. Then, when the smoke clears, you can move back and help rebuild a free society." Perhaps Black is right and this is the best, and possibly only, non-violent way to fight the political-financial plutocracy?

The bailout of Ireland is destined to for failure, or it fails to solve the issues that have brought it about. The amount of debt in comparison to likely future GDP Ireland is mired in is literally staggering, and that's without the little secret slipped passed some in whispers and fine print in regards to the so called bailout.

Now that Ireland is a vassal state of the EU, and its democracy as its citizens know it, is finished, it was only a matter of time before the EU's Economic Affairs counsel started telling Ireland what and how to conduct its affairs. Sure enough, it took all of 24 hours between the "bailout" and the first order. RTE reports that Olli Rehn "says it would not be advisable for any new government to try to renegotiate key aspects of the IMF/EU deal." In other words, the EU is promptly realizing that the new Irish government is likely to reneg in part or all of the just struck deal and is therefore interjecting itself in the process. "In an interview with RTÉ News, Commissioner Rehn said it did not want to involve himself in democratic politics in Ireland, but he said: 'They are key parts of the programme so I would not advise re-opening these'." In other words, despite hating to do so, Rehn is now supreme dictator of Ireland, and the nation must do his every bidding if it wishes to not receive the Mutual Assured Destruction treatment and not get any banker Holiday greetings cards this year.

I honestly cannot tell you who is the more vile, despicable villain in this debacle. Is it the banks, who started this mess with their idiotic lending practices? Is it the lobbyists and lawmakers, who turned Ireland into a tax haven for EU Corporations and destroyed the economy by funneling tax breaks to the wealthy? Is it the Irish Government,... Is it the bondholders,...

The onslaught against Chinese fraud stocks is getting stronger as we expected, and the cottage industry of those looking for Chinese public scams is starting to make some serious cash. Today's casualty is China Education Alliance which according to Kerrisdale Securities "is fabricating its SEC financial statements. We believe that the company’s revenue and profit are highly overstated in its SEC filings and that the company is mostly a hoax." Stock down about 18% at last check. Of course, from $3.61 to zero it still has a long way to fall. All in all, this is just another slap in the face for the NYSE which continues to admit the biggest (alleged) scam companies to trade on it, destroying all credibility of prescreeing, merely to pursue a listing dollar here and there.

RANsquawk US Afternoon Briefing - Stocks, Bonds, FX etc. – 29/11/10

The first POMO of the day has closed and Brian Sack has just monetized $2.170 billion of bonds maturing between 2/15/2021 and 11/15/2027, which represents a high 6.4x Submitted to Accepted Ratio as PDs had $13.9 billion in bonds they wanted converted to Netflix shares, and only got satisfied on 16% of the Submitted. But more importantly, as per our Fed Frontrunning Cheat sheet, virtually all of the bonds that were monetized were predicted to be bought by Sack, and in terms of notional, the frontrunning success ratio hit 93%. As a reminder here is where we demonstrated the specific CUSIPs that were most likely to be acquired. Sure enough of the $2.17 billion in notional, $2.02 billion was monetized precisely as expected.

In 10 minutes the teleprompter in chief will announce that he is about to freeze government salaries for two years. Of course, government workers thank him, as this means federal salaries which have exploded in the past 5 years will be stuck at all time highs for at least two years, even as nominal salaries for everyone else (except FIRE workers of course) continue to decline. As we suggested a few days ago, in order to promote some vaguely credible idea of austerity, instead of freezing salaries, Obama needs to be cutting. Why? One look at the chart below explains it all.

Most asset classes are at key junctures this morning. S&P futures sit on a H&S neckline, Gold is fairly close to its neckline as well, and both are also on the 50-dma support. Bunds have also tested the major trend support. EURUSD in the meantime has not really made any formalities and dived through the 200-dma. Trouble could be just around the corner as the world is not digesting the details of the Irish bailout as the forces in power expected. - Nic Lenoir

The negative incentive effects of unemployments are well known. What's maybe not discussed enough are the less visible effects of jobless benefits, which include reduced productivity on the job, not to mention reduced savings thanks to it being known that unemployment brings with it a check from the government