Archive - Mar 2010

RANsquawk 10th March Morning Briefing - Stocks, Bonds, FX etc.

If you think that the world of crime has to be shady and underhand, you are wrong. With the beginning of the fourth world war, organised crime has globalised its activities. In this new war, politics, as the organiser of the nation state, no longer exists. Now politics serves solely in order to manage the economy, and politicians are now merely company managers. An oft misunderstand leader, Subcomandante Marcos, now Delegado Zero, tried to warn us more than 12 years ago that "it takes no more than a few minutes for companies and states to be sunk", and that they would be sunk, not by military theater operations, but by hurricanes of finance. More than a decade later, with many of his predictions now coming true, perhaps it's finally time we started listening to him.

A detailed overview of the current state of charge-offs, delinquencies and (yes) improvements in the mortgage industry - and most importantly what can be discerned from these trends...

RANsquawk 10th March Morning Briefing - Stocks, Bonds, FX etc.

Running our cars on moonshine is far more expensive than it looks. Cruising to Wal-Mart in our Hummers, while Africa and Asia starve. Corn grown for ethanol now occupies 10% of the total arable land in the US. The world’s largest producer, Brazil, is shut out of the US to keep our prices high. The birth of yet another entrenched lobby in Washington. Is Iowa really worth it?

As companies quietly and gradually move their pension funds out of stocks, buying long-term bonds, public pension plans are seeking higher returns to make up for ground lost in the last couple of years and to pay all the benefits promised to present and future retirees. As they "double up to catch up", are they putting pensions at risk?

1) Somebody (wink wink) spreads a rumor that shorting government-owned companies will be banned. Citi is one of these companies.

2) Rumor spreads, causing AIG, C, FNM and FRE to skyrocket.

3) Citi announces it is placing $2 billion in TruPS, benefiting from the stock-buying orgy.

4) Cramer, and a bunch of fourth-rate analysts come out of the woodwork, and join the bandwagon, saying how Citi is massively undervalued and how the stock is merely an indication of the market realization that Citi's -100% Tier 1 capital when Marked-to-Market is a much more palatable 349,594,388% when Marked-To-Bullshit.

5) SEC (wink wink) comes out with a one sentence refutation of the rumor late at night, when nobody will notice: "There is no truth to the rumor that we are considering restricting the
short-selling of stocks in which the government has a stake," John
Nester, Securities and Exchange Commission.

And that's how the market works nowadays. Better luck next time.

The concept of entropy is one of the most useful terms for understanding just about everything. While it has its origins in natural law – thermodynamics, specifically – the concept holds true pretty much across all closed systems. In the simplest of terms, every closed system will ultimately degrade toward a state of maximum entropy.

Columbia's Charles Calomiris, who predicted the Argentina sovereign debt crisis (not sure which one: do people actually keep count?) was on Bloomberg TV spreading some more logic, first as pertains to those satanic monsters better known as CDS traders with the following piece of brilliance - "the CDS market always requires two parties in any transaction." This is something that everyone tends to forget. Unlike stocks or cash bonds, where the whole concept of Zero Sum is somewhat murky (especially in naked shorting) in derivatives it is precisely that - one man's loss is another man's gain - no exceptions. Why is nobody scapegoating those traders who enable the speculators to exist? If you raise the CDS offer high enough nobody will buy - we could just as easily blame the CDS sellers for their stupidity and willingness to take on capital losses. But as the whole topic of CDS speculators is pretty much a dead horse at this point. Calomiris also points out another obvious feature of the Greek speculator raid: "the spreads that we saw in Greece at their worst in the CDS market were about 4%. Based on what we know from the history of sovereign crises given the current fundamentals in Greece if anything that is a very muted response in the market. I would have expected a much greater response and I think we will see a much greater response..." Second, Calomiris says that the next country to fall after Greece will be not Spain, but Italy - the reason: massive governmental corruption.

The meeting between the Greek Minister Of Prime Scapegoating and the US Secretary of Treasury Defrauding ("I used TurboTax") has ended "satisfactorily": idiotic lunacy, which we are now convinced has mutated and gone airborne, has spread and now Geithner is very likely infected. According to preliminary reports president Obama may be contagious as well. G-Pap is quoted by Market News as saying that "President Barack Obama gave a positive response to the European efforts to combat some aspects of market speculation that could destabilize markets and the euro." Seriously, is this just some sick, perverted scheme to make going long the dollar (short the euro) illegal? Can we just make it so much easier and simply hand Benny and the Inkjets the constitution to use as 1-ply Treasury Paper one of these days?

Why has the stock market rallied?

Former Bridgewater-ite (which we hear is not doing that hot lately) Rick Bookstaber, who was recently appointed at the SEC in some risk management capacity, comes out with a truly amusing rant on why gold is in a bubble, and, not just that, but that "we all know gold is in a bubble." Ignore the fact that all multi-billionaire hedge fund managers have been loading up, all relevant and semi-relevant pundits have been claiming that gold is gradually becoming the one alternative to fiat debasement which has recently become a global phenomenon, and ignore that even with the dollar going up, gold has defended its 1,100 an ounce price quite successfully. Bookstaber compiles vivid imagery upon even more vivid imagery, and goes as far as comparing the quest for gold with the pursuit of hookers "Even if a guy is just after sex, he at least has the decency to act like there is some substance behind his interest. But with gold, no one seems even to
care about giving a justification, other than “gold has been a store of
value throughout 5,000 years of monetary history”. No one? Dear Mr. Bookstaber, feel free to peruse the following thoughts by Eric Sprott, Dylan Grice, Hugh Hendry, David Rosenberg, Fred Hickey, Jim Grant, David Einhorn and last but not least, Goldman Sachs, on some contrarian opinions to your prevailing dogma. And speaking of unconflicted advance warning vis-a-vis ponzi bubbles, where was your current employer cautioning the general population about the dot com bubble? Or the housing/credit bubble? Or the Madoff ponzi? Or the current Great Currency Deflation Bubble? Perhaps you can expend your time and energy on the real source of soon-to-be unparalleled wealth loss instead of focusing on the fringe "tin foil"-hatted gold community which nobody takes seriously anyway (except India of course which just incidentally bought 200 tons of gold north of $1,000).

Whoa! What a day, where "Risk On" and "Risk Off" trades are being gamed on 5-min. charts from all the "Algo/Igor/Robo" quant traders. Insane volatility as these machines flee back and forth from one group to another, depending upon what happens to be "working" at the moment.

The SEC's Chief Economist and PPT liaison, who previously held the same position at the Gary Gensler (former Goldmanite) run CFTC, has decided to leave the much maligned and impoverished syndicate for greener pastures. His next stop: NERA Economic Consulting.

Headline which tells you all you need to know:

15:32 03/09 GREEK PRIME MINISTER ENTERS MEETING WITH US TSY'S GEITHNER