Archive - Apr 26, 2010

Zero Hedge deconstructs every lie and prevarication in Lloyd Blankfein's prepared statement ahead of tomorrow's Senate Hearing on "Wall Street and the Financial Crisis"

Last Friday was the first 90% Downside Day since February, sentiment gauges are as bullish as they’ve been since the “calm before the storm,”, the CBOE equity put/call ratio is at extremes last seen in August of 2000, stocks are the most overbought since the rally began in March 2009, we’ve gotten within spitting distance of “The Lehman Gap,” volatility is back to complacent levels, and by Jeffrey Saut’s count, last Thursday was session 34 in the “buying stampede” that began on February 26th (rarely do such skeins last more than 30 sessions).

RANsquawk Market Wrap Up - Stocks, Bonds, FX etc. – 26/04/10

The rush for money debasement around the world has escaped nobody's attention, and as a result the one undilutable commodity (unless everyone demands physical delivery at the same time) gold has seen investors around the world scramble to get their hands on the commodity, either in physical form or via ETFs. The World Gold Council has released its Q1 2010 update, according to which "Investors bought 5.6 net tonnes of gold via exchange traded funds (ETFs) in Q1 2010." This has brought the total amount of gold in monitored ETFs hit a new record of 1,768 tonnes ($63.4 billion worth of the shiny metal). Some more on the unquenchable demand for gold: "GFMS reports that the over-the-counter market saw a moderate increase in net demand during the first quarter. Meanwhile, previously existing long positions have generally continued to be very firmly held. Net long positions on gold futures contracts, a proxy for the more speculative investment, fell from the highs experienced in Q4 2009, but they remain high by historical standards." Despite the persistently high price of gold, and despite the strength of the dollar over the past quarter, demand for gold is not going away.

The pressure is on the 19-year old motion-chasing "portfolio managers" at TIAA-CREF, CalPers, Harvard Endowment, Gates Foundation, et al to buy whatever is going up and sell losers immediately, and continue looking in the garbage bins for more "alpha" to goose returns.

MBO (Buffet BO) next? Just headlines from Dow Jones right now.

UBS' Investment Research goes for broke (and not in a good bank/bad bank SNB bailed out way either) with its most recent Market Outlook: the bank which at this point is fighting tooth and nail to prevent client departures and deposit withdrawals is instead focusing on predicting the future, and the future rocks. To wit: "Over the past several months, economic activity and earnings results have come in better than expected. As a result, we are increasing our 2010 and 2011 S&P 500 operating EPS estimates to $90 and $100, respectively, from $83 and $92. 2010 EPS improvement should be driven by margin expansion and easy comps. 2011 should be more of a revenue story." Forget that a few months ago 2010 was supposed to be a "revenue story." And when the revenue story does not materialize in 2011, UBS will simple say 2099 may be finally the year in which CAT's revenues will be greater than its earnings. Yawn: the only thing that matters is whether or not Bernanke will keep ploughing on with negative real rates, and whether the PDs will continue the shell covert monetization games, thanks to which Bid To Covers on 1 Minute CMB Bills will soon hit infinity. The excess cash sure isn't going to come from Money Markets: at YTD rates of depletion, there should be no actual cash left in the system within 12 months.

Eleven indicted Somali pirates dropped a bombshell in a U.S. court today, revealing that their entire piracy operation is a subsidiary of banking giant Goldman Sachs. There was an audible gasp in court when the leader of the pirates announced, "We are doing God's work. We work for Lloyd Blankfein. We were functioning as investment bankers, only every day was casual Friday," the pirate said.

William K. Black, a regulator during the dark days of the Savings & Loan Crisis, gave the most sensible testimony about the financial crisis heard in Washington so far.* Fraud thrives and spreads in a regulatory free, highly paid, criminogenic environment. Cheaters prosper driving honesty out of the market. It's time to bring back Black and resolute regulators like him. Our proposed "financial reform" bill is a sham, and the health of our society and our economy is at stake.

Caterpillar had what was perceived as a blowout quarter even though its Q1 2010 earnings were well below Q1 2009. As Karl Denninger summarizes: "Machinery sales were down 1% from a year ago - but I thought a year ago was the depths of the recession and we have been recovering since?  So how do we get a negative year-over-year  comparison? Worse, in North America (that's here!) machinery sales were down 15% with dealer inventories half of year ago levels.  That is, not only is heavy equipment not selling, dealers don't think it will be in the near future either.  So how did we get big increases?  Asia, up 40%.  Yep, that matters, and it's what drove the results. Engine sales were even worse, off 28%, and even in Asia they were down, in that case 15%." Yet what everyone is focusing on is the projected future so bright, all the sell-side analysts (note, they are called "sell" side) gotta wear shades. One caveat: as CAT itself points out, the future will be so bright only if the Fed and foreign Central banks continue their monetary lunacy. The WSJ recaps the earnings call: "The company raised it outlook for 2010, though revenue declined on
continued weakness in developed economies, especially the U.S. and
Europe. It cited concerns about central banks withdrawing stimulus too
soon." So let's get this straight: the company's actual top line results were worse than a year ago (and after firing everyone, the firm was hard pressed not to report better EPS), and its entire bet on the future, which is what is causing its stock to spike, is purely a function of Ben Bernanke's mood on any given day, or what "Firm Directive" his GS masters may have slipped him that morning. That sounds like a brilliant investment thesis. We will buy two big earth excavators right now and a whole lot of CAT calls to go with that.

Here's a list of companies whose share prices have shot up at the same time that their fundamental and macro outlooks have collapsed - at least in our opinion. I present some (retail) food for thought.

With half of Europe broke, and the IMF more than ready to disburse US taxpayer funding with the largesse of Tim Geithner (is $100 billion in increased IMF aid a TurboTax recognized tax deduction?), it is no surprise that the rescue aid recipients are lining up. First up after Greece is the Ukraine, which has announced it is seeking $20 billion from the IMF according to Deputy Prime Minister Serhiy Tigipko. As Business Week reports: “Having a program with the IMF will help us lower the price of future Eurobonds, because such a program gives investors more confidence,” Tigipko said. “It will also help sustain economic growth.” Looking at Greek record spreads and CDS levels, we can't help but wonder just how investor confidence is supposed to be buoyed by yet another bail out. And confirming that our own Alice in Wonderland capital markets have gone global, the reason why the Ukraine needs rescue financing is greater than anticipated growth. "Output may grow between 5 percent and 6 percent this year, compared with an earlier estimate of 3.7 percent, Tigipko said. The acceleration will be triggered by higher prices for Ukraine’s key exports such as metals and lower fuel prices, including Russian gas, he said."

Society doesn’t self organize for the benefit of the many but rather society is organized for the benefit of the few as the most effective way to rape, rob and pillage the many. Who needs war when the process of abuse can be institutionalized and glorified?

Moody's Investors Service has taken the following rating actions on covered bonds issued by Greek banks:
 
- Mortgage covered bonds issued by National Bank of Greece S.A. ("NBG"): Downgraded to Aa2 and placed on review for further downgrade; previously on 31 March 2010 downgraded to Aa1;
 
- Mortgage covered bonds issued by Alpha Bank S.A. ("Alpha"): Aa2 placed on review for possible downgrade;  Previously on 31 March 2010 downgraded to Aa2;
 
- Mortgage covered bonds issued by EFG Eurobank Ergasias S.A. ("EFG Eurobank"): Aa2 placed on review for possible downgrade; previously on 31 March 2010 confirmed at Aa2.