Archive - Dec 28, 2010

Daily Oil Market Recap: December 28

Oil prices came in higher on Tuesday, largely in response to a weaker US dollar. As the morning wore on, the euro started losing ground against the greenback, turning into negative territory just before 10 AM. At that Consumer Confidence came out at a disappointing 52.5, down from the previous reading of 54.3. Expectations had been for an improvement to 56, so the figure was not helpful. Consumers are clearly still anxious about the future. At this time, crude oil prices came near unchanged, just holding on in positive territory. That was as poor as it got, though. Equities rallied from there and oil switched to following the DJIA, while the dollar followed a straight line higher through the session. - Cameron Hanover

How Allstate Used Sampling To Confirm BofA/Countrywide Lied About Virtually Everything When Selling Mortgages

A few days ago, news broke that MBIA was allowed to use statistical sampling in its ongoing Bank of America fraud lawsuit. This happened despite the Countrywide acquiror's loud protests. And now, courtesy of today's brand new lawsuit against BofA (and Agent Orange himself) filed by Allstate, in which the insurer "seeks unspecified damages, alleges fraud, negligent misrepresentation and violation of U.S. securities laws" we know just why Bank of America was so very against allowing sampling to be used by plaintiffs. According to the full report (pdf attached below), Allstate has determined that Bank of America misrepresented virtually everything in its prospectuses: from the percentage of owner-occupied properties reped in prospectuses (about a 10% differential), to the LTV thresholds on represented loans (both at the 90% and 100% threshold), while inbetween finding willful and malicious intent to defraud and deceive. We are confident that none of this, however, will result in a prison sentence for Mozillo, as laws in America are meant to be broken by anyone who can demonstrate an LTV more than 100,000% or have more than $100MM in annual income (including that derived from golden parachutes).

Guest Post: Former Shell Oil Chief Predicts $5 Gas by 2012

Though he’s no longer running one of the largest companies in the world, former President of Shell Oil John Hofmeister warns that the outlook for gas prices in the coming decade is not looking good: "when prices are so high - $5 a gallon for gasoline by 2012 - I believe that’s going to happen - that’s going to set a new tone, it’s going to be panic time on the part of the politicians, they’re going to suddenly get some kind of a sense we better do something." The scary thing is that Mr. Hofmeister is basing his $5 per gallon gasoline prediction on supply/demand issues, not even taking into account the unfettered digital creation of dollars by the Federal Reserve.

Roubini: "It's Pretty Clear The Housing Market Has Already Double Dipped"

Hopefully today's 4th consecutive decline in home prices, as per the earlier noted Case Shiller October data (and with both mortgage rates and foreclosure inventory surging, we are willing to bet that following the reported November and December CS data, the decline will be for half a year straight), makes it sufficiently clear that housing has double dipped, and that the primary goal of Bernanke, which is not to pad banker bonuses, but to reflate home prices and recreate that mythical HELOC "fake wealth effect" piggybank, has been a complete failure (he sure is succeeding in getting WTI about to soon hit $100/barrel). Just in case there are any doubters left, Nouriel Roubini sat down with CNBC's netnet to confirm what virtually everyone else already knows: "It's pretty clear the housing market has already double dipped," per Nouriel, who recently took advantage of the NYC housing downturn and bought a $5.5MM pad. "And the rate of decline is stronger than in previous months" - precisely what we pointed out a few hours back. In other words, the double dip is accelerating. Today's jump in 10 and 30 Y rates will not help.

Does S&P's Top-Ticking Incompetence Mean It Is Time To Short Credit?

Today's Bloomberg has a good article on how S&P: that most reliable lagging market counterindicator has thrown in the towel, and is upgrading anything that moves. "Ford Motor Co., the world’s most profitable automaker, and San Jose, California-based EBay Inc. were upgraded by S&P along with 756 others, compared with 722 downgrades, according to data compiled by Bloomberg. In 2009, S&P slashed corporate debt grades more than three times as often as it raised them, the data show." The article continues: "S&P boosted grades for non-financial issuers 1.5 times as often as it cut them, while Moody’s Investors Service made 1.9 upgrades in those sectors for each downgrade, the ratings companies said." In other words, the crisis is all over according to S&P. Luckily, we all know one thing that the ratings agencies apparently don't: that when it comes to top or bottom ticking the market, there is nobody even in the same ballpark as these two business model relics (both of which only downgraded Ireland after the country became insolvent). Which is why, as the chart below, courtesy of Andrew Yorks, demonstrates, the time to go balls to the wall short credit is now.

NYSE Short Interest Drops To Lowest In 2010

According to the just released NYSE short interest update, the number of shares short on the NYSE group has just dropped to 2010 lows, after dropping by over 1 billion since the August highs. This has occurred pretty much in linear fashion: in the last 4 months, there has been just one two week period in which the shorts have increased. What is just delightfully ironic, is that even as broad market volume has collapsed, biweekly short covering has surged on a relative basis. In essence, the bulk of the market buying has been short covering, which traditionally is always 'offer-lifting' heavy, as shorts are willing to pay any price to cover underwater positions, especially if there is an accelerant involved, such as when a repo desk advises its "client" that State Street has decided to force squeeze financial stocks for the nth time since March 2009.

Another Hole In The Bond Bubble As 30 Year Gets Reacquainted With Gravity

Following today's ugly 5 Year auction, and hot on the heels of the 180 degree EUR reversal from this morning, coupled with the renewed surge in gold and silver, the entire bond complex is again in free fall (and no, Build America Bonds has not and likely will not be renewed in its current form), lead by the 30 Year. And if this was based on an expectation of real rates rising, as the pundits would claim, which would be an expectation of economic improvement, then gold would not be flirting with its all time highs. Which means that today's market action in every asset class is representing the economy accurately, especially following the 4th consecutive home price drop be Case Shiller... every asset class except for stocks of course. Then again, with volume once again abysmal (MVOLNYE just under 1,400), HFT/Fed levitation programs are the only thing that is trading 100x P/E hot grenades as per always.

Simon Black's "Best Of 2010": Explains Why Planting "Mutiple Flags" Is Crucial For Our Insolvent Age

Simon Black, who for the past few months was frolicking in middle earth has reemerged again, this time from Buenos Aires, and shares a "Best of 2010" compilation with readers. "As we're quickly approaching the end of December, I thought it would be appropriate to republish a few letters from earlier this year. 2010 brought substantial growth for this community-- our numbers swelled, and I know that many readers probably missed some important letters from earlier days. Today I want to repost a letter that I originally sent to you in early January, just after the 2009 holidays. In it, I defined what planting multiple flags is, and why everyone should be thinking about it. As the events of 2010 have unfolded, I think those reasons have only become stronger."

Weak 5 Year Auction Spooks Bonds, Big Tail To When Issued

Today's $35 billion 5 Year auction closed surprisingly weak, pricing at a high yield of 2.149%, a huge tail as they were trading at 2.07% WI. The bond came at a 2.61 BTC, Indirects accounted for 35.6%, Directs for 6.2%, and the balance, or well over half, was soaked up by Primary Dealers, who had to make sure this auction was not a dud. As access to our Treasury database is limited those wanting to see the auction represented visually will have to take our word for it for just how ugly it was. We are confident the bond weakness will be misrepresented by the Kool Aid Krew as a very positive development for stocks.