Archive - Apr 9, 2010

Deep Thoughts From Ian Cumming And Joe Steinberg

From Leucadia's 2009 Letter: "Out of prudence we take a pessimistic view as to when this recession will end. To think
otherwise would be a gamble that we are unwilling to make."

JPY Speculative Shorts Surge To Most Since October 2007, EUR Hatred Moderates

In the week ended April 6, the record number of net speculative Euro shorts seen last week of -85,326 declined by almost 20k contracts to -67,223. The weekly change of 18,103 was the second biggest increase in bullish EUR bias in 2010. This was also manifested in the price of the EUR over the prior week, in which the dollar opened very week on Greek fears then somehow ended stronger even though nothing had been resolved about the Greek situation. Much more importantly for carry traders, the number of Yen shorts surged, with the net number of speculative JPY shorts hitting a two and a half year high of -42,305. Yet the deterioration in sentiment was a fraction of last weeks, when net short positions increased by a massive 41k to -31k. In the other major currencies, both the GBP and the CHF saw a minor improvement in sentiment, although while the CHF is close to the flatline, the GBP continue to be close to record net short levels.

Has The iShares Gold ETF (IAU) Been Covertly Depleted Of 90% Of Its Physical Holdings, With Banks Like JPM And Goldman Pocketing The Actual Gold?

A few days ago we presented an interview of Harvey and Lenny Organ with King World News, in which the Organs recounted their personal visit to Canada's only bullion bank vault - ScotiaMocatta. According to them, the vault contained roughly 89,000 ounces of gold, in the form of "210 400 oz bars, 4,000 maples, 500 eagles, 10 kilo bars, 10 one kilogram pieces of gold nugget form." As GATA's Adrian Douglas confirmed, this was equivalent to about $100 million at today's gold price. Yet what we find perplexing is the disclosed gold holdings of the iShares Gold Trust (IAU) in the very same vault, which amount to 457k troy ounces. Are precious metal ETFs nothing more than a perfectly legal, CFTC supervised operation that allows the "Authorized Dealers" of the world to "withdraw" the physical gold out of various world vaults, even as the retail population ends up holding increasingly more worthless stock certificate whose asset collateral is approaching zero?

Why Are Silver Sales Soaring?

The U.S. Mint just reported another record, but this time it wasn’t for gold. The Mint sold more Silver Eagles in March and in the first quarter of the year than ever before. A total of 9,023,500 American Silver Eagles were purchased in Q110, the highest amount since the coin debuted in 1986.

While this is certainly bullish, there’s something potentially more potent developing in the background. Namely, how this matches up with U.S. silver production. Like gold, the U.S. Mint only manufactures Eagles from domestic production. And U.S. mine production for silver is about 40 million ounces. In other words, we just reached the point where virtually all U.S. silver production is going toward the manufacturing of Silver Eagles. - Casey's Gold & Resource Report

Guest Post: The "Bernanke Hedge" Book

Ben is a lying sack of shit, but there is a rationale for what he is doing. Maybe it’s only because he is trapped in Goodfellas, but he is going to follow the policy—if I understand it right—to the bitter end. So it is good to understand this rationale. Understanding it gives you a new view on hedge construction. Here is a set of simple positions; this book can be refined based on your sophistication. For example, instead of a long bond, a flattener trade is surely better but also more complicated.

Greek PR Smackdown - Goldman's Eric Nielsen Edition (Again)

Erik Nielsen must have gotten quite a beat down from the Goldman Greek PR corps. Earlier, as we disclosed, the firm's European strategist, suggested that something nasty this way comes courtesy of an emergency ECB meeting. Later, he backtracked not only on that statement, but also on all the media hoopla over the country with the inverted curve, saying (independent) media is now the functional equivalent of CDS traders - vile, smelly, scheming bastards. Amusingly, this is very much reminiscent to Erik faux pas in early February when he had the temerity to point out (rightfully so) that the Greek GDP deficit is actually 16%, not 12.2% as was widely believed (and with every passing week it is becoming clear that Nielsen was completely right, as 2009 GDP is now at 12.9%, and probably will be 14% in another month, yet post another smack down had to reissue his note saying it was all his fault for stirring the speculative elements). Too bad Erik does his best to report the truth as he sees it, only to receive the prop desk's Greek trading axis after the fact, which today apparently was in direct opposition with his earlier bearish tone.

Retailers, REITs Celebrate Michelle's New Red Outfit

Anyone notice that Michelle C-Squared has been gradually dolling up for the inevitable Dow 11,000? Hate to sound like a broken record, but it appears that each day we have another round of breakouts in the retail and REIT sector, as if fund managers are giddy at the prospect of Michelle losing a few buttons on her blouse on Monday.

Apollo, Goldman Back To Their Old Fleecing Ways, MetalsUSA IPO Bombs, Costs Goldman's Top Clients 8% In One Day

In the hubbub over the Greek default and the resultant market melt up, one thing was promptly forgotten - the IPO of a company that one year ago was on the verge of bankruptcy. PE firms are smelling the market top and are bailing out in droves from portfolio holdings, selling shares to those who can't get enough of this downtickless rally. Metals USA, a service center, went public at $21.00, coming to market above the indicated range of $18-20. Good thing lead underwriter Goldman did not tell the orderbook it was coming out with a Conviction Buy on the stock potentially as soon as yesterday (although certainly not today... at least not yet). Alas, not even the squid's soothing words of discounted comfort were enough to save this public offering from bombing, as the midline of this range is precisely where the stock closed - at $19.20, or over 8% down from the offering price. Some overzealous basic industries "experts" are now drinking their newly discovered deposits of unemployment courtesy of $3 happy hour pints.

A Totally Unmanipulated Melt Up

In what can hardly be described as a travesty of efficient markets, the Dow closed at the perfectly normal level of 10,997.35 after the complete lack of a concerted effort by the primary dealers to reroute recently acquired capital into stocks that are now trading at triple digit forward multiples. Fear not - the resilient U.S. consumer who now realizes that no contracts have to be honored (courtesy of a unrepentant skeleton) and instead all money must be rerouted into shares of, will make sure that the market is and always will be a leading indicator to a 400% debt/GDP economy. Also ignore that the Dow hit 11100.98 as if possessed by a mysterious GETCO DMMon, that was also perfectly explainable. After all, over the weekend, as Morgan Stanley whisper expectations indicate, Greece will default. That, together with an imminent meteor impact that is set to wipe out humanity and leave SkyNet in charge of trading stocks, should be sufficient for newly crowned Supreme Justice 80286 to make offers of any securities not only illegal but punishable by lethal and prompt use of Norton Antivirus software and/or H2O.

Housekeeping Note

We apologize for the two hour detour. Good news - it was not due to some malicious attack on the server (that we can isolate). Bad news (well, good news in a way) - it was due to unprecedented record traffic. We had well over 2,000 information addicts on at any given moment. For our sole server this is about 4 times sustainable load. We hope that we will soon have the capacity to expand our infrastructure and have a much more seamless process - we have done a reverse inquiry with several major LBO firms and are hoping for ultra high yield financing to be arranged by one of the TBTFs (we have specifically stated the yield will have to be at least 100% as we want to make sure we don't pay even one coupon payment and instead default promptly and be bailed out by America) - preliminary results are favorable. In the meantime, we will have to monitor traffic and when things get heated redirect our readers (in an internet first) to other much more wholesome activities such as getting a cup of coffee, browsing through slideshows, watching CNBC, and restocking on various essentials.

More Bad News For Greece: Bailout Rate Now Rumored At 6% For Up To 3 Years

Forget the earlier disclosure about low Greek bailout rates. According to more recent headlines, the loan will be 6% for three years, 7% if longer. This means there is no bailout as Greece can not sustain those kinds of rates, and the EU is merely buying itself time to prepare for the imminent unwind of the EMU.