Archive - Mar 26, 2010

Charlie Gasparino has just broken the story that Larry Summers may leave the Obama administration, presumably after the elections, based on the former DE Shaw man's disclosures to various Wall Street execs. This is not a very surprising move for Obama, who has bet his entire mid-term election campaign on his counter-Wall Street rhetoric, if not actions. Too bad that by this point, due to over a year of purposeful inactivity, the TBTF are Too Infinitely Big To Fail. With Summers a horrendous legacy of the administration's extensive ties to Wall Street, it was only a matter of time before he and Obama quietly parted ways. Following this development (and not a second too soon), everyone's attention shifts to Tim Geithner who has overstayed his welcome in the "public" scene for just about his entire tenure, and is way overdue in checking in to his reserved Goldman Sachs cubicle.

Germany, Canada, Latin America, Asia ...

In an exclusive report, Kitco has just released yet another stunner in the world of precious metals. It turns out that Eric Sprott has attempted to purchase gold from the IMF, according to information provided to Kitco by Frank Holmes, CEO of US Global Investors. "I just spoke with Eric Sprott, who bid to buy [the IMF's remaining gold on the block] and they refuse to sell it." As Kitco points out, "the IMF might be holding out for a bigger buyer or a central bank or for higher prices. But Holmes argues the IMF's rejection of Sprott's bid means markets are being manipulated." Back to Holmes: "I think there is a lot of manipulation done by governments around the world in the currency markets which affect the bond markets so to me it's just normal course." Holmes concludes "with an election year there may be a gold rally that could be two standard deviations, or $300 dollars, to the upside. So you could see gold run to $1300 to $1500 quite easily." This all isoccurring as ever more pundits finally realize that as fiats are discredited across the world, the only safe, non- dilutable resource is gold.

RANsquawk 26th March US Afternoon Briefing - Stocks, Bonds, FX etc.

And you thought we were joking when we said the various exchanges will start breaking when the selling volume intensifies.

From an internal email:

"One of the exchanges to which we submit order flow is experiencing a system outage affecting some Listed and OTC orders"

Awaiting official information from the NYSE if it is in fact the impacted exchange.

You see it wasn't North Korean torpedoes, it was the South Korea Sovereign Destabilization Fund, LLC. Its principals are all about to be exiled by the SEC to St. Helena for life.

We have long said that Delaware Senator Kaufman is probably one of the very few unbought, objective and honest politicians in D.C. His latest speech, "Ending Too Big To Fail" proves this yet again. It is unfortunate that even as the Dodd "reform" bill is about to pass, which incidentally has nothing to do with reform (once again - the only" financial reform" we have gotten since the advent of the Obama administration have been short selling curbs - can't have stocks going down now, can we), and all to do with placating Wall Street interests, who have paid handsomely to the authors of the bill to pretend as if reform is being done, that true activist reforms like Kaufman are being largely ignored. Hopefully after the mid-term elections, politicians from both side of the spectrum, who now blatantly ignore their voters, will finally realize you can avoid the long-forgotten concept of democracy only for so long.

Several South Korean sailors were killed and one of its naval ships with more than 100 aboard was sinking on Friday after possibly being hit by a North Korean torpedo, South Korean media reported.

A South Korean vessel fired at an unidentified vessel towards the north and the South's presidential Blue House was holding an emergency security meeting, Yonhap news agency said.

D'oh!

From Fox News via Yonhap:

URGENT: SEOUL, South Korea -- A news agency says a South Korean navy ship has fired shots at an unidentified ship.

The South Korean navy reportedly shot at an unidentified ship near
North Korea as one of its vessels is sinking near the maritime border
along the country's west coast.

South Korea's Yonhap news agency said late Friday that the navy ship fired shots toward North Korea.

The report comes as South Korean officials confirm that a navy ship
is sinking off the west coast near the border with North Korea. There's
no word yet on what caused the sinking.

Program trading as a percentage of total NYSE volume exploded last week with quadruple-witching. Index Arbitrage activity across the 20 most active member firms increased 1,190% ... with RBC and JP Morgan accounting for 53.55% of all reporting member firm activity. Crossing Session II volumes jumped 146% ... with Barclays, Goldman and Morgan Stanley accounting for 91.61% of all reporting member firm activity. Principal activity rose 71.39%, from just over a billion shares traded to 1.7619 billion ... with significantly escalated volumes for everyone but Goldman.

"I cringe when I hear men like Kansas City Fed President Tom Hoenig muse that the Fed will ultimately need to get the Fed funds rate back up to a 3.5-4.5% zone. I deeply respect Mr. Hoenig, both as an economist and as a man, but I just don't see why the Taylor Rule of the Forward Minsky Journey should apply to the Reverse Minsky Journey. Simply put, the 2% real Fed funds rate constant in the Taylor Rule should, in my view, be considered toast. In a world of deleveraging and hoarding cash it makes absolutely no sense to reward holders of cash with an after-tax real rate of return." - Paul McCulley, Pimco.

As part of yesterday's hearing with Ben Bernanke before the House Financial Services Committee, Ron Paul provided the following statement in which he blasts the Fed's ever-increasing cluelessness over monetary policy and its disastrous Catch 22 implications: "the Fed only sees what is seen, the superficial results of its policies, and not what is unseen, the effects of its monetary intervention throughout the economy. Monetary inflation leads to malinvestment and causes the boom phase of the business cycle. Once the malinvestment is realized the bust phase occurs, and these malinvested resources need to be liquidated in order for the economy to recover. But the Fed actively works to prevent this liquidation and does everything in its power to continue inflating in order to prolong the boom. The first act of intervention begets the second and subsequent interventions, each bigger than the first, as each economic bust gets larger and more severe." As the only thing that currently matters for the economy, for LBO rumors, and for stock picking in general is the overabundance of liquidity, one wonders to what rabbit holes the Fed's push for central planning of the US economy will eventually lead us: "The Soviet Union's economy failed because of its central planning, and the United States economy will suffer the same fate if we continue down the path toward more centralized control."

In April of 2000, we first stepped to the plate and bought Berkshire Hathaway (BRK) and made it one of our larger holdings, where it has remained until last month, when we sold half our position. After a few romantic days alone with the 2009 Berkshire Hathaway Annual Report, and several emails to people we know in the insurance world to confirm for the 32nd time in 20 years what we know and don’t know about insurance accounting, we admit to mixed feelings about both the half we sold and the half we retained. As anyone with even modest investing experience can honestly attest, sometimes it just ain’t easy. What follows is our thought process. - RCB Investment Management