Archive - May 2010

We recently highlighed the words of Erik Nielsen who stated that the E110 billion Greek bailout package will simply not be sufficient, expecting that at least another 40 billion will be needed for an effective rescue operation. Today, the WSJ and German Bild, get on board this theme, likely causing further anguish for Greece and for the euro, as it once again highlights just how incompetentEuropean bureaucrats are. Ironically, in their attempt to lowball the rescue numbers, they may have just doomed the package, because we are confident German opposition (and you should see the cover pages of all German newspapers - there are 99 headlines blasting the rescue for 0.5 praising it) will use this disclosure to mount an attack on the "openendeness" of the what may soon turn out to be a neverending rescue package. And this does not even contemplate Portugal and Spain.

While the current economic data appears rosy, it won't be sustained without credit or rising wages or job growth. Much of existing spending is from a drawdown of savings and various transitory stimulus programs. These things won't last.

These are the definitive 2010 Berkshire Hathaway Annual Meeting Notes. Almost 15,000 words. This is just about as close to an actual transcript as you are going to find. Enjoy!

These once obscure elements have suddenly become the focus of several converging trends in the global economy. It turns out you can’t build a Prius or fight a modern war without rare earths. After shutting down competition, China now controls 97% of the market. A looming Chinese export ban. Time for a rare earths strategic stockpile? (AVARF.PK), (GWMGF.PK), (RAREF.PK), (LYSCF)

According to one expert, Greece’s bailout was undeserved but happened anyway because the stronger European nations were too nervous about collateral damage to allow default. He asks, by solving one problem have they created another?

With America on the fast-track to a centrally planned economy, courtesy of a surging budget deficit and a debt load that would make Greece blush (at the current rate of debt accumulation, US debt will surpass 100% of GDP by mid-2011) it is imperative toreassess the macroeconomic framework of America from a simplistic Econ 101 perspective, as the US economy of the past 50 years (or even of two years ago) is no longer the prevalent model. This reevaluation should necessarily consider the thoughts of Smith, Pareto, and Hayek, as to whether these are even relevant any longer, now that both the government will be running the majority of the country (at least those sectors that are Too Big To Not Be bailed Out), and a corrupt DC will be regulating the multi-trillion financial industry with the dexterity of gloved Parkinson-afflicted kickboxer. Incidentally, none other than current Fed visiting scholar Stephen LeRoy, a professor emeritus at UC Santa Barbara, has put together a coherent investigation into just how relevant the whole premise of the Adam Smith "invisible hand" (not to be confused with the FRBNY "invisible hand" appearing every night in the futures market at around 2 am) is in our day and age. While somewhat theoretical, economic purists and particularly Austrians may enjoy this brief essay.

Fresh signs that the global recovery is taking a firm root helped oil prices soar to new year-and-a-half highs. Traders were also struggling to figutre out what impact, if any, the oil spill in the US Gulf may have on future supplies. Near-term, the impact is likely to be negigible. But, longer-term, it is possible that this catastrophe could lead to much lower off-shore drilling activity off the coastal United States. At this stage, it looks like it will be the reason for a moratorium on new offshore drilling for the foreseeable future. As a result of this outlook, deferred months have started to rise in reaction to the oil spill. Just a few weeks ago, when President Obama discussed opening up the outer continental shelf, it looked like offshore drilling would get an unexpected boost. Now, it looks potentially dead in the water.

After seeing its demands for secrecy rejected soundly twice, once in district court and once in appellate, the Fed is now appealing the "Pittman" decision yet again. As Bloomberg reports, "attorneys for the Fed today asked the full U.S. Court of Appeals in New York to reconsider a unanimous ruling by a three- judge panel." On the other side of the Fed is, as usual, the Clearing House Association: the organization of bankers that stands to lose the most should its secretive bailouts by the Fed no longer be subject to unconstitutional secrecy. There is no reason to expect that the second appeal will work. However, it is the escalation from there that will be most critical. " If the court refuses the request, the Fed may appeal to the U.S. Supreme Court." That Supreme Court Decision, which will likely come around the time of Obama's mid-term elections, may prove to be more critical for Obama' reelection chances than unemployment, healthcare and regulatory "reform" combined. If the Supreme Court does ultimately side with the Fed, it will become clear once and for all who truly runs this country (and the world), and the the US constitution is at best something the oligarchy uses when it runs out of one ply Treasury Paper.

Ruh-roh ...

Oil spill + bee collapse + speculation = higher food prices ...

Volume today was a fraction of Friday's, which is probably why the numerous breakout attempts (at least three) over 1,200 in ES failed. The distribution on Friday pushed out many of the momo hands at lower levels, so few were willing to jump right back in, even with the Primary Dealers gunning for new post 1,200 highs, and the algos frontrunning every large block order with reckless abandon. Since many of the algos are controlled by the PDs, champagne was served all around at 4:15pm. In the meantime, the US treasury is facing another imminent debt ceiling increase most likely at about the time of the mid-terms, as we have been predicting since December of 2009. Those massive repo-based capital gains don't come cheap (to the taxpayers).

RANsquawk Market Wrap Up - Stocks, Bonds, FX etc. – 03/05/10

As part of today's surprise disclosure of Goldman's outstanding lawsuits (oh, so now it's material), we find that the firm is a party to a subpoena request for potential involvement in the Galleon massive insider trading case. While the existence of the subpoena is surprising, it does not seem to implicate Goldman in any actual wrongdoing. At least not yet. Should the full trade ticket trail indicate that Goldman was executing trades on behalf of Quad Capital and Incremental Capital trader Michael Kimelman, whom we discussed previously, and who is the object of the investigation, it would not be difficult to compare trades executed in flow on behalf of Kimelman and compare these with trades done by Goldman's prop trading desk. Of course, if Goldman prop suddenly decides to take the same side of the trade as Kimelman did at or around the same time, then Lloyd may need to out his PR campaign in turbo boost mode. We hope the presiding Judge on the case Richard Sullivan is smart enough to have requested all of the firm's trading records surrounding the times and dates of any trade potentially executed with Kimelman.

Today the Treasury issued its quarterly Treasury Refunding statement in which it announced that previous estimate for Q2 borrowing were woefully below expectations. We are confident none of our readers are "surprised" by this development, although seeing how it is an "upside" surprise it will be further evidence of the benevolent decoupling of the US economy from the world. In a nutshell here is what Tim Geithner's payday lending operation announced: "During the April – June 2010 quarter, Treasury expects to issue $340 billion in net marketable debt, assuming an end-of-June cash balance of $280 billion, which includes $200 billion for the Supplementary Financing Program (SFP). The borrowing estimate is $71 billion higher than announced in February 2010. The increase in borrowing is primarily related to cash balance adjustments associated with the recent restoration of the SFP to $200 billion. During the July – September 2010 quarter, Treasury expects to issue $376 billion in net marketable debt, assuming an end-of-September cash balance of $270 billion, which includes $200 billion for the SFP." In other words, the Treasury itself, which chronically underestimates its funding needs by about 20%, sees $716 billion in net funding needs in 6 months. Zero Hedge is prepared to make a market (and no we won't disclose to you that you are idiots if you sell protection on this bet either) on this number actually being north of $850 billion. In April, the Treasury issued a net of $176 billion in total debt (includes Trust Funds and marketable debt), to end the month at $12,892,729,000,000. The final Bill redemption balance in April was a paltry $596 billion, or $675 including Bonds. Let us repeat: in April the US Treasury had to roll over two thirds of a trillion in debt. Assuming the treasury is correct, the Treasury balance will be $13.23 trillion on June 30, and $13.6 trillion on September 30.

How many times can they run the same play over and over? The Eurozone dive bombs, and investors immediately start buying REITs, retailers, and other assorted garbage. Maniacal trading has overtaken the stock exchanges as the 20-yr. old motion chasers are getting frantically horsewhipped by the FemBot portfolio managers to "buy whatever is going up, regardless of fundamentals".