Archive - Mar 2010

February was not an auspicious start to Obama's record budget deficit-busting plans. The Daily Treasury Statement for the full month of February was just released, and it disclosed that while corporate tax withholdings, net of refunds, actually climbed marginally to $3.4 billion from $(3.4) billion in February 2009, individual tax withholdings plunged to a multi-year low of $30.7 billion. Combined, the two items also posted a multi low of $34 billion, less than the previous recent low from February 2009 when the first leg of the Greater Depression was allegedly at its zenith (see chart below). We can't wait to hear how the "recession is over" brigade will paint this particular data point.

The Ontario Municipal Employees Retirement System (OMERS) announced a 10.6% rate of return for the year ending December 31, 2009, and won an award for Canadian pension fund of the year. Did it really merit this award?

Jim O'Neill must be in hog, er PIIG, er BRIC heaven: it appears his employer, Goldman Sachs, is about to become the proud owner of O'Neill's all time favorite Manchester United. At least that way the reason for an AIG brand still advertised on the front of all ManU players' shirts will finally make sense: call it bailout advertising, in which AIG (indirectly) paid about $160 billion in taxpayer money to Goldman and a few others so its name would grace the uniforms of Goldman's latest acquisition. According to Sky News, a consortium of investors, which includes Goldman Sachs and law firm Freshfields, affectionately called the Red Knights, is preparing to acquire the soccer team from the much hated Glazer family, which in the span of several years has gotten ManU's debt/GDP ratio (or some other BS metric) to be almost as bad as that of the United States. Alternatively, it is oddly ironic that the bank that does God's work will soon be the owner of the Red Devils. The question: will Lloyd soon be sitting in satan's box at Old Trafford?

Following up on the earlier post in which German TV station ProSieben has disclosed proof of the existence of tungsten "gold" bars in circulation within the bank community, we share with you the following highly informative presentation by Adrian Douglas of Market Force Analysis titled "LBMA OTC Market - "Alchemists" Turn Paper Into Gold." For anyone who has even a passing interest into what, as the author characterizes, could possibly be "the next Madoff scandal, except multiplied by 100", we recommend reading this paper.

The earthquake in Chile last night caused a spike in Copper, as the country is one of the top producers of the metal. As more information is released about the conditions in Chile, the market corrected and posted a quite bearish candle on the day (see dail copper chart). If we gapped down below 331 tomorrow we would basically have an island reversal on the recent highs and on the back of a failed retest so far of the support of the former bullish channel now resistance. We think this presents technically a possibly very good shorting opportunity. - Nic Lenoir

How would you hedge against a Black Swan event today? We put our observation cap back on to find that, amid all the hedging going on, one bet stands out. In our search to find clues that determine future directions of financial markets, we find that inflation risk offers the most widespread cause for concern. Inflation, the White Swan, is a fundamental macroeconomic risk factor for a broad range of investments and therefore an obvious cause of anxiety. The prevailing wisdom is that, to protect against this risk, one should hold onto positions in emerging stock markets and commodities. We also find the use of Treasury Inflation-Protected Securities (TIPS) on the bond side very popular. In essence, these tactics are widely considered to be sure bets to safeguard against the inflation that will surely follow the large increase in the money base.
However, we constantly argue that poor immunization and assets mismatch will lead to a dynamic rebalancing act. We feel we are closer now to this event. - Yves Lamoureux

German TV station ProSieben finds what appears to be some evocative proof of gold counterfeiting, in the form of tungsten gold substitutes coming to the W.C.Heraeus foundry, which is the world's largest privately-owned precious metals refiner and fabricator, located in Hanau, Germany. The foundry has isolated at least one 500-gram tungsten bar due for melting, originating from a (so far) unnamed bank, which as the head of the foundry stated made the unpleasant discovery that "not all the glitters is gold."

As of last night, a variety of financial firms have received subpoenas seeking information on collusion to short the euro. We are currently pursuing more information and will post once we get it. Certainly sovereign CDS traders can not be far behind (especially those who traded with a less than bullish bias over the past month) from the wrath of the Greek, Spanish and British secret services, and now - various US legal and criminal administrations, which are currently convinced that it is just speculators who are at fault for 15 years of fraudulent eurozone budgetary presentations and countless bond offerings based on fake financials, finally coming to the fore. Seriously, sell anything, and you will soon be facing the business end not of misdemeanor, but real-deal felony charges, and possibly with sprinkles of treason to boot.

Chris Wood, who publishes the famous Fear and Greed newsletter, which Zero Hedge has republished on many occasions in the past (and whose latest edition can be found here), has some very scary things to say about the dollar in his interview by the CNBC lunch brigade. While Wood is still optimistic on Asia, and specifically China, due to lack of deflation in the region (for now), and expects an appreciation of the yuan soon, he is about as pessimistic on the dollar and "developed" economies as they come.

Lest someone think the market is all safe and sound, here comes the FHA to remind that without government subsidies we are all staring at the sub 666 S&P abyss. "Federal Housing Finance Agency Acting Director Ed DeMarco today announced the extension of the Home Affordable Refinance Program, (HARP), a refinancing program administered by Fannie Mae and Freddie Mac, to June 30, 2011. The program is a key component of the Administration's Making Home Affordable Program announced last February. The HARP program expands access to refinancing for qualified individuals and families whose homes have lost value. The program was set to expire on June 10 of this year."

Greek bailout rumors are fine and dandy, even if you can get 10 for the price of a Kindle these days. They originate roughly every 2 hours, "sourced" by the same lowly bureaucrat in Athens, and day after day are proven flat out wrong. And while rumors are fleeting, and Merkel keeps saying that the only reason why Germany does not want to bail out Greece is because Greece has actually not asked for any bail out (Europe may be doomed, but its bureaucrats sure have taken the art of passing the buck to next level), what we do know are the specific funding milestones over the next two months that alas will not accept rumors instead of accrued interest or bond maturities. Goldman's Erik Nielsen provides a wonderful revised roadmap for what will happen in the immediate future, not what may happen in order for Greece to have its cake (European bailout) and eat it too (avoid riots that may soon be put on the escalating warfare conviction buy list). In the meantime, our belief is that every day that concludes with no bond deal announced, will cost Greece another 15 bps in yield for whatever GGB issue the country finally comes to market with. Today it is 7%, tomorrow 7.15%, a couple of years from now: 100%, then 1,000% after that, etc.

An increasingly cautious Bill Gross joins his yet more pessimistic colleague El-Erian, in noting that disruptions to the MBS market may be severe post March 31, primarily as a function of concerted liquidity withdrawal by not just the Fed, but central banks across the globe. Not surprisingly, Gross would like to see a very small investment by Germany in its Greek bailout so as not to impair PIMCO's existent Bund holdings. Yet Gross is sounding surprisingly timid on future German sovereign debt prospects, which has now been singled out as the least of all evils (hardly the most glowing endorsement) except for Canada. Is PIMCO now hoarding not just Brazilian, Polish, Russian and German bonds, but aggressively acquiring Canadian treasuries as well? Rosenberg will be happy.

I asked Chairman Bernanke about Federal Reserve agreements with foreign central banks and if he had had any conversations about bailing out Greece, which he flatly denied. However, he recently announced that the Federal Reserve will be looking into Goldman Sachs’ derivative agreements with Greece. Goldman Sachs, as we know, has “too big to fail” status with the Fed, so it is conceivable that any Greece-related catastrophic losses at Goldman Sachs will once again be passed on to taxpayers. - Ron Paul

Abu Dhabi Media website The National has disclosed some rather disturbing news about peace "prospects" in the middle east. It appears this past Friday saw a war council convene in Damascus, between Syrian president Bashar al Assad, Iranian president Mahmoud Ahmadinejad and Hizbollah chief Hassan Nasrallah to "devise counterattack plans and assign tasks in the event of an Israeli
offensive on one or all parties, wrote Abdelbari Atwan, the
editor-in-chief of the pan-Arab newspaper Al Quds al Arabi." And more troublingly, "the Iranian president said he expects war to break out somewhere
between spring and summer of this year. Meanwhile, the Hizbollah chief
vowed to strike the Israeli capital, its airports and power stations if
Israel dared to attack Beirut’s critical infrastructure."Let's recall that Goldman's most recent 2010 and 2011 WTI estimates call for prices to rise to $90 and $110/bbl, respectively.

The $26 billion 3 month Bill closed at 0.125% with 92.53% allocation on the high yield. WI last traded at 0.135% at 11:30 am. The $28 billion 6 month Bill closed at 0.185% with 12.03 allotted at high. WI last traded at 0.195% at the time of auction. Both auctions were very well bid, pricing inside of the WI price at 11:30am, and Bid to Covers both well over historical averages and the prior auctions. Direct bidders were once again a major component of the take down, coming at over 14% for both auctions.