Archive - Nov 2, 2010

For those who trade the CHF (and by risk extension, gold) the following observations by the boss of FX concepts may be of particular interest.

RANsquawk Market Wrap Up - Stocks, Bonds, FX etc. – 02/11/10

Today's market meltup was predicated by ongoing abysmal volume. After an October which was one of the lowest volume months in the past two years, November is shaping up to be even worse. It is thus only expected that when all volume disappears, such as when the market closes, that ES will surge. Sure enough, the Emini takes out the day's high the first trading second of the AH trading session. Perhaps if someone actually traded stocks, there would be those who care.

An 3rd grader can pick the [fr]odd one out. Yet Wall Street can't. Can you?

From Goldman's Krag Gregory (Ph.D): "Expectations for QE2 and the election are high and fear as measured in options has been cut in half. We analyze the “optimal put” to buy for those who are fully invested, have participated in the recent market rally, and are concerned that the Fed or the election may disappoint. In a scenario where the market pulls back -2.5% by market close Wednesday, the optimal hedge is buying SPX November 1125 puts for $6.6, in our view." Yet the top recommendation by Goldman, based on some ironclad technical analysis, is that "VIX Futures are at 24.3, a hefty 12 points above or 2x the average realized vol level of 12 post midterm elections. If the FOMC and election results meet expectations, we see a scenario where implied vol could fall notably. We like using VIX options to position in a limited loss fashion." Therefore Goldman's two recommended trades: Trade1: Sell Dec-10 20-22.5 VIX call spreads for a credit of $1.2 (sell 20 calls/buy 22.5 VIX calls). Trade 2: Buy Dec-10 VIX 21 puts for $1.1. Of course, the past 12 midterm elections all occurred during an unprecedented market regime in which overall vol was trading in the 9-11 range, and as a result killed the swaption market. But who cares. All that matters is that Goldman wants to buy vol from its clients.

In what can easily be characterized as the most blatant error in its history (and soon, potentially, fraud), the Social Security Administration announced that as a result of several erroneous W2 filings by two people, amounting to a $32.3 billion "mistake" the entire statistical wage table released previously has been scrapped and a new one has been released, indicating that wages in the US, and especially for the top earners, dropped, instead of declining modestly, and in some cases increasing. Of course, the timing for the revelation on the day of the elections is a total coincidence. As per the revised tables, average incomes of top earners did not quintuple as had been released on October 15 to $519 million, but instead declined by 7.7% to $84 million. Additionally, as Bloomberg which caught the error initially and demanded a correction, notes, a comparison of the Oct. 15 data and the corrected figures
show the change affected wage statistics more broadly. The Oct.
15 index indicated that the average wage nationwide fell $384 to
$39,269 in 2009. The corrected index shows averages wages fell
$598 to $39,055. And here is the original mea culpa from the SSA: "Yesterday, the Social Security office announced it found
“invalid” wages from two of the 74 top wage earners detailed
in its data." Had it not been for Bloomberg who noticed the ridiculous surge in the top earners, this would have remained unchallenged, and the administration would have certainly used it as bragging rights on how it makes the uberwealth even uberwealthier. Hilariously, spokesman Mark Lassiter provided the best summary to this mega screw up: "We call it erroneous, you
call it fictitious. It’s the same thing.” So... to the government fraud and error are the same? And apparently both pass thorough "quality control".... Uh, what's that GDP number again...

Now they promise they’ve sobered up and learned their lessons and are expecting the voters to welcome them back with open arms and Wall Street could not be happier to welcome the new boss, who is the same as the old boss that let them operate free of rules and restrictions and not only bailed them out when their gambling spree lost them $4Tn...

Other than THAT, everything is hunky-dory...

It might go down like this...

The following is the first installment of a 5 part interview with Buffett biographer, Alice Schroeder, who gives us never before released intimate details about Warren Buffett. Pay special attention to parts 2-4 highlighting Buffett's personal side.

By now it is more than obvious except to a few economists (yes, we realize this is a NC-17 term) that QE2 will be an absolute and unmitigated disaster, which will likely kill the dollar, send risk assets vertical (at least as a knee jerk reaction), and result in a surge in inflation even as deflation on leveraged purchases continues to ravage Bernanke's feudal fiefdom. So all the rational, and very much powerless, observers can do is sit back and be amused as the kleptogarchy with each passing day brings this country to final economic and social ruin. Oddly enough, as Paul Farrell highlights, the list of objectors has grown from just fringe blogs (which have been on Bernanke's case for almost two years), to such names as Buffett, Gross, Grantham, Faber and Stiglitz. And that the opinion of all these respected (for the most part) investors is broadly ignored demonstrates just how unwavering is the iron grip on America's by its economist overlords. Which brings us back to the amusement part. Here are Farrell's always witty views on the object which very soon 99% of American society will demand be put into exile: the genocidal Ph.D. holders of the Marriner Eccles building.

RANsquawk US Afternoon Briefing - Stocks, Bonds, FX etc. – 02/11/10

The market is once again getting plain retarded. One look at what is happening in Europe should be sufficient for every self-respecting investor to throw up all over this bullshit and quit the business forever. 10 Year Irish bonds have just hit an all time wide spread to bunds of just over 480 bps, a jump of 100 bps in a week, as Irish bonds are essentially bidless. And as this is happening, the EUR is pushing north of 1.40, and stock markets everywhere are gunning for new 2010 highs. This is the kind of central banking-cum-centralized planning garbage that can make people plead insanity after a period of brief ultraviolence.

S&P has released its first official estimate of what it believes the cost of Donk will be on the Too Vampiric To Fail. In a nutshell, the range of various costs could be as high as $22 billion, due to a drop in debit fees, lower derivative income, FDIC DIF replenishment, prop trading, and new compliance expenses. Additionally S&P expects another $85 billion in additional required Tier 1 Capital (which is a joke compared to its Tangible Common cousin). One thing is certain: just as Grayson yesterday said that nobody has any idea about what the charges associated with foreclosure and MERS-gate, and all are merely guessing, the same thing can be said of S&P. It is without doubt that the final outcome of Donk will either cost nothing or infinitely more. Yet for some reason this report made the headlines, so we present it for those 3 readers who actually care what S&P has to say.

In The Seven Fat Years, the classic account of the U.S.’s economic revival in the 1980s, the late Robert Bartley addressed the economic hardship experienced in the 1970s, and specifically spent time on the oil spikes that occurred during the lost decade. Of great importance, Bartley made sure to put “spikes” in quotes when describing the major run-up in oil prices.