Archive - May 2010

I like Mr. Buffett. I just don't believe everything that comes out of his mouth.

Even with consumers defaulting "strategically" on their mortgages left and right (with planned defaults accounting for 31% of foreclosures in Q1), and thus not having to incur almost any housing-related expenses (courtesy of the Treserve for making it all too obvious that nobody is expected to pay anything they owe ever again), the savings rate still declined by 10% in March, from over 3% to 2.7% of Disposable Income, as Personal Spending (+0.6%) outstripped Personal Incomes (+0.3%), and of this 0.3% increase, 70% was made up of a pick up in transfer payments! At this point we are fairly certain that US consumers are finally mimicking the administration and the financial sector in not caring if they ever get to pay another bill. That, and the government is directly funding the broader population's latest Apple product fix. It sure isn't due to increasing wages, for the simple reason that wages have not increased in years. And whereas in other nations the savings rate is materially higher due to the lack of such "we'll save it for you" entities as Social Security and Medicare, we now know that SSN is virtually bankrupt as we speak, with "cash out" now greater than "cash in." Yet instead of saving for their retirement, Americans are buying, buying, buying. One would think that based on this data real unemployment was lower than 16.9%. It isn't. The government's and the financial sector's methadone clinic has now moved to the suburbs. That this is yet another stimulus high that will ultimately fizzle, because that's what all one-time stimulus programs do by definition: they end, is clear. It is also now clear that the government has no idea what to do when the trickle down benefits from the drunken spending orgy do in fact end.

Just as the White House released a brief note saying the US delegation has walked out on Ahmedinejad's speech at the UN, so Robert Gates was quoted by Reuters saying that "Iran is taking steps to challenge U.S. naval power in the Middle East." The defense secretary added: "Iran is combining ballistic and cruise missiles, anti-ship missiles, mines, and swarming speedboats in order to challenge our naval power in that region." What about weapons of mass destruction? Oh wait... Either way, the only thing from keeping liquidity overflow from taking the Dow to 36,000 is that risk that Oil would hit $1,000/bbl first. And geopolitical events are just what is preventing the JPMs of the world from using the same harsh tactics as they do with PMs. The last thing this administration needs is a middle-east war which would send a gallon of gas to $5, the stock market tumbling, and the clotheless Ponzi economy exposed, as even without paying one's mortgage, if the price of a refill doubles, there are only so many iPads one can buy.

Looking at the market one would think that Bernanke just announced an imminent death warrant would be issued to anyone who dares to sell. Yet not all is apparently good underneath the surface. The Goldman CDS curve is as flat as they come - if it was any flatter, it would be inverted. Which of course would mean that Goldman would qualify for IMF assistance. Yet rumors are rampant: some believe that the reason for the underperformance in the short end of CDS over bonds, is a rapid accumulation of short-dated (and thus cheaper) counterparty risk. Is the market once again mimicking the Paulson 2006 financials trade and hedging against a Goldman failure? Possible. We certainly give this rumor more credence than the other one floating out there, that Hank Paulson is coming back as CEO. That would only be possible if John Corzine and Robert Rubin were to all make a repeat appearance at the mothership.

Institutional memory is short. On Friday the plunging EURUSD was the trigger to kill the market. Today it's the other way around. Despite, as Reuters reports, new concerns about the Greek bailout proceeding, causing the EURUSD to drop from 1.33 to below 1.32, the low volume market is now in a total decoupling induced trance: the same lunacy that "explained" why the Baltic Dry was fairly valued in the stratosphere in early 2008. And volume is of course low, which means it is time to crank out the carry trade. The decoupling from Europe (incidentally the biggest export partner to the US and the biggest import partner to China, but who cares, we all live in liquidity bubbles now) is now complete. The only trade that matters is shorting Japan to buy US lack of risk. Recall that Bernanke issued a directive that nobody can ever fail again. Which in turn explains the outperformance of the financials, because last time we checked the justice department had not withdrawn its case against Goldman. Better get used to it - day trading is now characterized by a market that is now either slow 1% melt up on no volume, or a sudden a and dramatic 1% self off on all volume. And inbetween, the algos make money trading the high rebate bankrupt stocks.

RANsquawk US Afternoon Briefing - Stocks, Bonds, FX etc. – 03/05/10

The man who went long Lehman days before its bankruptcy, again reminds the world of his presence, and for some reason we find his latest update on Goldman (Buy, $200 PT), titled Andrew Mellon and Goldman Sachs, notable enough to bring attention to it. For that we apologize. In other much more important news, in the 15 seconds in which Buffett wasn't talking his book, he found enough time for one insightful observation: "All currencies are likely to lose purchasing power." Wish we could say Bove had anything insightful to say: his punchline "It appears that President Obama needs a symbol of financial evil that must be expunged from the system. That symbol is Goldman Sachs." leaves a bit to be desired. Then again, we are shocked that Bove's recommendations have any "relevance power" remaining at this point.

The Highbridge HSKAX index just suffered its biggest drop since March 2009. Market Neutral players are getting carted out feet first as liquidity is now totally gone and 100k SPY blocks move the market. Nobody but the upward biased and risk-free primary dealers want to participate in this market. MNs are deleveraging massively as the index hits lows not seen since mid-2008.

If you thought a Fed bailout is ugly, you ain't seen nothing yet: this is what a European bailout looks like. Not much commentary needed. With Europe and the IMF explicitly funding the delta from the smooth inverted curve (it's inverted because the market knows too well the country will default) and with a bulk of Greek debt in the short-dated side of the curve, the implicit immediate loss borne by European and US taxpayers is about 6% on $145 billion of debt or about $10 billion, which investors in the short end are underwater by currently. We are not even accounting what the impicit cost for the broader parallel curve shift as a result of this intervention is, but something tells us it is in the tens of billions too. Yet somehow, we are certain that the ECB and the IMF will spin this as a massive victory for the bulls. We are confident the appropriate talents of CNBC in this regard have already been retained.

As the attached chart demonstrates, the S&P may soon take out the 1.00x ratio to gold price per oz. With the IMF facilitated Greek bailout, the euro is now a sideshow and nothing more than a political corpse in the hands of a few million Nordrhein-Westfalen voters next weekend. That a bailout of a country can hinge on whether the already indicated German majority (59% oppose the Greek bailout at last count) can manifest itself in the decisions of the weakest link, should be enough for even the biggest skeptics to bury their dreams of euro viability. And as we have long pointed out, what is the alternative - massively overpriced and overbought stocks, where a jittery market can wipe out 10% in flash, the dollar, which will certainly soon suffer the full wrath of its natural born killer, the Federal Reserve, or industrial commodities, where oil is trading at prices that boggle the mind when considering the record inventories lying around, not to mention that China's rapidly changing liquidity policy may soon take make the lives of copper and other longs a nightmare. We are confident that gold, which over the past two weeks has been a one way ticket higher, will continue to strengthen, and once the 1:1 parity with the S&P is broken, the next resistance level will be in the $1,300's.

As long as you believe what you are told, all is well in consumer spending and retail land... But you've got to believe!

• BP PLC is being hit by massive losses from the spill.
• CAN Financial's March results: $226M loss last year and $245M gain this year.
• Continental and United announce a merger.
• Glencore considering a merger with Xstrata.
• Goldman is being defended by Buffett.
• ITT's March net income declined from $184M last year to $146M this year.
• Sysco's March net income rose from $226M last year to $248M this year.

RANsquawk European Morning Briefing - Stocks, Bonds, FX 03/05/10

RANsquawk European Morning Briefing - Stocks, Bonds, FX etc. – 03/05/10

Weekly technical profiles of Ashford (AHT), Ares Capital (ARCC), Alleghany (AYE), CF Industries (CF), Cummins (CMI), Complete Production Services (CPX), Estee Lauder (EL), National Bank of Greece (NBG) & QQQQ UltraShort (QID) with explicit trade setups