Archive - Mar 2010

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

Bernstein cuts FY 2010 outlooks for GS from $225 to $210 after trimming its 2010E EPS from $20.28 to $17.18. Morgan Stanley also cut from $3.14 to $2.97. Oppenheimer cuts Q1 2010 estimates for BofA, GS, Jefferies, JP Morgan, Morgan Stanley Lazard, and Wells.

"The third estimate of the fourth-quarter increase in real GDP is 0.3 percentage point, or $11.6 billion, lower than the second estimate issued last month, primarily reflecting downward revisions to nonresidential fixed investment, to private inventory investment, and to PCE." In the meantime, total current dollar GDP is $14,453.8 billion. As the total debt is $12.606 trillion, the debt to GDP is 87.2%. Adding $6.264 trillion in GSE debt which is explicitly backed and should be on the Treasury's book, the total debt is $18.87 trillion and the Total Adjusted Debt to GDP is 130.6%.

• Market forecast project Issue #8 - 2010 (Value Expectations)
• China announces it may pursue a "managed float" (China Daily)
• Europe agrees IMF-EU rescue for Greece (Telegraph) - the IMF's quota of $15 billion will only cover cash needs through end of May
• The VAT cometh (NRO)
• Budget 2010: interest bill on UK government debt set to soar (Telegraph)
• White house to announce more housing aid, principal reduction for everyone (Reuters)
• The bad news for RBS don't stop: RBS Tier 1 notes fall most in five months after swap, S&P cut (Bloomberg)
• Mortgage delinquencies rise to record 14% (Reuters)

Shortly we are going to see what will be almost certainly a downward revision to the revised 5.9% Q4 GDP number. How big will it be? According to Goldman's Jan Hatzius the real number, which will be based on an "income side" calculation of GDP as opposed to an expenditure, will be about 2.2%, a more than 50% drop from the expected revision of 5.8%. Will the government allow such a GDP indication? Of course not as that would completely kill the stock market rally which is the only thing the administration has going for it. Yet the numbers don't like. As Rosenberg demonstrated Q3's GDP was about -7% absent the government's stimulus. Even with it, it appears at the economy, when all is said and done, will have managed to eek out just a barely positive number. Take that out and you are again left with a mid single digit negative number. And this is the basis for a sustainable rebound? What it certainly will be the basis for, is another percent or two on the S&P as the last remaining short capitlate as State Street recalls whatever shares are outstanding to allow Citi smooth sailing after the government sells several tens of billions of worthless Citi stock.

• China may resume 'managed' Yuan float, avoid sharp gain, PBOC's Fan says.
• Euro rebounds from 10-month low, Asian stocks gain on aid plan for Greece.
• European leaders steer Greece to IMF, pledge loans in last-resort aid plan.
• Japan's consumer price index fell again in February, shows deflation continues.
• Taiwan Central Bank to accelerate liquidity withdrawal to prevent asset bubbles forming.
• AAR CORP to acquire Aviation Worldwide Services for $200M.
• Accenture lowers FY10 EPS view by $0.06, sees EPS of $2.61-2.69 vs. $2.70 cons.

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

More than two years ago, in October, 2008 I sent CFTC Commissioner Bart Chilton very compelling circumstantial evidence that massive manipulation was occurring in gold futures markets based upon my understanding of how massive shorts were initiated in the gold futures markets and bids sometimes pulled, creating a collapse in momentum, at precise times in the NY markets, to create waterfall declines in the gold futures market. Below is the correspondence I had with Mr. Chilton more than two years ago.

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

The Fed's affirmation that it still needs to keep the fed funds rate low is an admission that things aren't working and they don't know what to do. Ben maybe a bit premature with his talk about an exit strategy.

Despite the fact that a high was established for most major markets at precisely 12:48 (EST), the real fireworks didn't occur until 15:28 (3:28 EST), where Volume of NYSE Declining Issues proceeded to more than double its daily tally in the session's final half-hour ... an extremely rare and impressive feat. This intense EOD sell-off tops any form of bearish activity in recent weeks' memory. A technical look under the hood of the NYSE Composite, NYSE VOLD (Up Volume / Down Volume Difference) and 7 Primary US Equity Markets with one of our proprietary Advance/Decline indicators.

Excess marginal dollar liquidity is gone and the USD is spiking in value. Commodities (particularly oil & the energy sector in equity) are rolling over and are ready to sell off big. Equities may follow soon. In the FX arena, long USD is best, especially against EUR (PIIGS), GBP (just another pig), NOK (CEE exposure), HUF (see NOK), AUD, and JPY.

A US debt downgrade could trigger a stampede into the debt of healthier countries. Emerging market debt has a much rosier future of credit upgrades to look forward to than US bonds. A 6.44% yield on an appreciating asset. These days, many emerging markets have little or no debt. The sovereign debt crisis is sending bonds issues by financial responsible countries to decent premiums, while punishing the bad boys with huge discounts. Time to trade in Marilyn Monroe for Carmen Miranda? (PCY), (LQD).

Earlier today the CFTC held a sham hearing in which, among other things, the organization discussed position limits in PM speculation, because, you know, it's the mom and pop speculators that destroy the precious metal market (not JP Morgan or the New York Fed mind you). The hearing could not have come at a more opportune time. GATA has just broken a major story, in which a London metals trader-slash-whistleblower exposes JP Morgan's silver price suppression/manipulation scheme. At this point none of this should be at all shocking, and the only thing that matters is when CFTC's ex-Goldmanite Gary Gensler will be fired for allowing hundreds of billions of dollars to be sucked out of the PM market on behalf of such major market manipulating entities as JP Morgan and the New York Federal Reserve, for whom it transacts. Don't worry - the answer to that rhetorical question is "never", as it is the administration's goal to make all the millionaires among the bulge bracket firms billionaires, via legalized theft from honest investors. Furthermore, if indeed the CFTC is complicit in these manipulative events, as GATA suggest, we hope our objective mainstream media readers enjoin GATA in seeking justice for this criminal breach of proper regulatory enforcement.