Archive - Apr 2010

April 30th

Just A Reminder

"In case politicians don't understand what's at stake, the market kindly gave them a little reminder with a nasty close for equities today. In the early morning it seemed people were quite willing to ignore GS's misfortunes in its dealings with the ever more schizophrenic government. Washington simply cannot understand why it can't destroy speculation and leverage yet keep the equity market up, as it is the only economic driver in the US since easy credit is no longer available. Tough indeed: since nothing or close to nothing is manufactured in the US we need our upper class's investments to skyrocket so it is inclined to spend thereby providing service jobs. US politicians have a lot of work on their plate with the financial reform. Any measures too drastic in terms of balance sheet reduction will be tough on financial assets and curb lending, and any measures to curb speculation on commodities will hit this asset class hard and the commodity stocks along with them (miners are amongst leaders in US equities). European politicians have one fine mess to sort as well and money markets are pricing in higher Libor and funding difficulties ahead already. Without expanding too much on the subject, there is no one I would like less to depend on to make the right decisions." Nic Lenoir

Treasury Redeems A Gargantuan $643 Billion In Treasuries In April

A week ago we were practically speechless when we showed that the Treasury had redeemed nearly $494 billion in Bills in April. A truly stunning number and an indication of just how much cash the Treasury needs to have access to to keep rolling its ridiculously short average maturity debt load. Today we stand even more speechless: according to today's DTS, the Treasury has now redeemed $596 billion in Bills in Aprils: an all time world record, even when accounting for the Fed's steroid abuse period of SFP 1 (we are currently in the second iteration). Add $47 billion in Notes and there are almost $650 billion in redemptions. This number is simply ridiculous. Forget the interest expense: this ever increasing roll is the number one danger to the US and world economy. Should the Treasury be unable to keep issuing shorter and shorter dated debt (and it already is skirting away from even the belly of the curve), it is for all intents and purposes game over.

Net Euro Shorts Spike, Regain Record Highs, As Dollar Longs Surge To Highest Since August 2008

This week's risk aversion trade is nowhere more evident than in the spike of Net eureo shorts for the week ended April 27, as reported by the CFTC. After having retreated to as low as 66k two weeks ago, the net speculative position in the european currency has surged, hitting record resistance in the 97k range. (see chart below). And even as Europe fears drove speculators to abandon the euro, the one currency which is sitting in no man's land, the USD, this week saw net longs rise to the highest value since August of 2008. Feel free to oull up a chart fo the EURUDF pair and see when the last time it was preparing to blow out so wide was,

Distribution And Rotation, aka Sell Off

The sectors that brought us to the ridiculous highs are getting sold off. The financial sector now faces a choice between offering a sacrificial lamb or becoming a regulated utility. We hope it opts for the first (we have a few candidates in mind), as the latter will likely lead to the prompt realization that we never really emerged from the great depression v2. Goldman once again reminded everyone today who is still in charge. As for tech, say good bye to the stimulus wave. In fact, Q1 GDP will be merely the next point on a declining curve. Unless a new stimulus is instituted promptly, this is now the middle of the W. The same for the artificial and one-time bounce in GDP as we have been saying since April of 2009. The bears, for the first time in 13 months are finally smelling blood. And we have a weekend chock full of catalysts,number one and two being the Greek bailout and the resultant civil war, and Lloyd Blankfein on Charlie Rose, digging himself into an even deeper hole. The best damage control for the squid right now is silence. Pity that stooping to the level of the morts has always been the mollusc's weakest side, and soon to be its undoing. Also add to that the Bund short-end screaming tighter, and the surge in the dollar, as in the sudden and dramatic evaporation of all carry trades, and you have set the stage for the Lehman unwind. Next week will be fun. Next week will be fun.

Econophile's picture

Whether you like it or not, Goldman is THE scapegoat for what is perceived as capitalism's failures. Goldman was not the cause of the boom or the bust, but Congress is looking for heads. The threat of criminal indictment hangs over Wall Street. Let the bloodletting begin.

John Taylor: "Switzerland, Surrounded Again"

"World War II was fought over the control of people, whether they lived or died, their philosophical beliefs, and their land. In the end, the Swiss were willing to give up almost everything to not succumb to the National Socialists. Today, the Swiss are in a less stark, but surprisingly similar spot. They are surrounded by another all-encompassing concept: the euro. At first glance this might seem comical, but the German government stands ready to pay very large sums of money to any thief who can produce a list of German account holders at Swiss banks and the Italians are photographing the license plates of all cars crossing into Switzerland to check them against their tax records. Government agents and spies are involved as well. As far as we know there are no deaths in this war, but there are many financial losses, jail terms, and bankruptcies. In the past, the victims were wealthy men and corporations, and the battles had significant moral overtones, but the recent movement toward euro disintegration expands the battlefield, increases the risks astronomically, and will victimize all of western continental Europe, including Switzerland , from the lowliest clerk to the mightiest corporation." John Taylor, F/X Concepts

Chris Pavese's picture

Remain Calm! All is Well!

As we discussed in our Q4-09 Broyhill Letter, it appears that the EU’s initial plan of action (see illustration below) was not exactly a robust plan after all. At the time, we suggested that Mr. Almunnia consult his history books, when he claimed that “There is no bailout problem. In the euro area, default does not exist.” Actually, European nations have defaulted on their debt a stunning 73 times since 1800, with Greece in default more than 50% of the time!

Just Because Washing Down Endless Daily Porn Surfing With Some Taxpayer Funded Happy Hour Never Felt So Good

From a reader:

Surprised to find out that the tax payer may be footing the bill for the SEC’s bar tab.  Tried to grab a beer at the Gin Mill Bar in NYC the other night, but with 100 members of the SEC inside, it kinda killed the vibe.   See attached.    

Well, in all honesty this beats the AIG taxpayer funded trip to Ritz Carlton Half Moon Bay. Plus, being so corrupt and so incompetent (telling someone you work for the SEC creates a whole new category in mental visualization) as the average SEC worker, is in fact hard work. These are traits that in a different century, Charles Darwin would likely say should be critical for sexual selection... cue porn jokes here.

Full Letter From Marcy Kaptur And 61 Congressmen Demanding Erik Holder Investigate Goldman

The noose is tightening, even though one could speculate the one doing the tightening ought to be on the other side of the rope as well. That said, we sure miss the days when Dick Bove used to provide instacommentary on Wells and Goldman, typically of the buy every dip format. That beard makes him look so wise and grizzled... That, or in dire need of grooming.

Reggie Middleton's picture

Remember, practically everybody poo-poohed my research and opinion in 2008 when I said Goldman was drastically overvalued. Those 600% to 1,000% gains on put options proved otherwise. Speaking of which, look at those July 150 puts… Can you smell what old school, fundamental analysis (you know counting profit and discounting for risk) is cookin’???