Archive - Jun 4, 2010

President Obama has now become a professional economist, because like most professional economists his unemployment forecast was wrong. The May unemployment data clearly reveals a flattening of the economy.

At approximately 8 p.m. on Thursday, June 3, the operators of the well, which is owned by EOG Resources, Inc., lost control of it while preparing to extract gas after hydrofracturing the shale. As a result, the well released natural gas and flowback frack fluid onto the ground and 75 feet into the air. The well was eventually capped around noon on June 4. "The event at the well site could have been a catastrophic incident that endangered life and property. This was not a minor accident, but a serious incident that will be fully investigated by this agency with the appropriate and necessary actions taken quickly."

A week ago, Goldman's Jim O'Neill asked the following question:

"Anyhow, dear grizzlies....bet your [sic] worried about today’s rally? See u later."

To which the grizzlies respond with their own question:

"Isn't payback a bitch Jim "N-11" O'Neill? See u later."

For the three dumbest money mutual fund managers who still listen to this "analyst", this is probably news. He also cuts the company's EPS estimates. The four main risks he sees to GS are: European debt situation, weak current business environment, lack of formal regulation bill, and SEC civil lawsuit. And that's all the time we'll dedicate to Dick "Buy Lehman" Bove.

Earlier we reported that the Fed is now in the business of bailing out real estate companies, specifically Tishman Speyer. Little did we realize we are about to have another Stephen Friedman moment on our hands. It may, but probably won't, come as a surprise, that Jerry Speyer is on the Board of Directors of the very same Fed that approved the restructuring of his firm's loans in Chicago. We are confident Jerry recused himself of any deliberations that used taxpayer money to provide his firm with a couple hundred million in immediate funding. We just wonder if Tishman Speyer is also considering converting to a Bank Holding Company and accessing the Fed's Discount Window: after all, what's a few hundred billion in taxpayer capital between conflicted CEOs-slash-directors of companies that have no business in getting indulgences from the Fed? Oh yes, that would be just another example of the now perfectly accepted, legal and encouraged concept of conflict of interest, "less than arm's-length" dealings between kleptocrats and middle class money.

Update 2: Elizabeth Ivers, a spokeswoman for driller EOG Resources, said the well has been brought under control, just about 16 hours after it started spewing gas.Spadoni said no one was injured and there are no homes within a mile of the well.

Update: the gas well operator is EOG.

The Pittsburgh Channel reports that an explosion at a gas well in the Marcellus Shale, has forced a mile-wide evacuation in Clearfield County, PA. The irony of this event occurring even as CNBC shows some guy mopping up oil with hay from a bucket is beyond sublime. Also, so much for clear energy. There are no details as yet which company's well was responsible for the explosion, although there are is one junk-bond laden firm which comes to mind.

As we continue our exploration of our individual and collective insanity, we spend some time examining that lovable megalomaniac ego inside each of us, why and where it all went wrong, the sliding scale of insanity with lots of finger pointing, how we certify our madness for comfort and support, our mental toxic waste dumps and the first sighting of light at the end of the tunnel. Or is that just the crazy train express to DC? Here’s one car wreck we can all safely examine as we drive by in our economic suicide machine.

Some interesting tactical observations heading into the close via Goldman. Probably the most relevant is the divergence between the USDJPY and the 2 Year: whereas the two have traded on top for the past two years, in the past month we have seen a very notable divergence. Goldman's advice: short the USDJPY big at any level above 92, as the fair value based on the 2 Year is 88. On the other hand a 4 point drop in the USDJPY would cause a wipe out in stocks, due to its impact on the EURJPY, so in essence this is like saying short the market and go sell an overpriced 2 Year. Nonetheless, for recoupling chasers, this should be a pretty sold and profitable convergence trade. Another observation from GS: a close below 1,091 will lead to a retest of 1,036.6. This is now pretty much a given.

• U.K.-headquartered oil major BP continues to face operational challenges to stem and clean up the oil spill in the Gulf of Mexico.
• Prolongation of the spill raises the likely range of longer-term remedial costs and compensation claims relating to environmental damage.
• We are lowering our long-term rating on BP to 'AA-' from 'AA' and placing our long- and short-term corporate credit ratings on CreditWatch negative.
• The CreditWatch placement reflects our intention to reassess the longer-term impact on BP's business and financial risk profiles.

For all who think that the Fed has received the Ukrainian-cum-Marriott Garden Inn unlimited one-hour special giftset only from the TBTF banks, you are wrong: it appears the broke real-estate industry has also provided some favors to the FRBNY, and is now demanding, and receiving, preferential treatment. Tishman Speyer, whose 5.7 million sq. foot portfolio acquired from Blackstone in 2007, has been unable to renovate its insolvent properties as lenders have been unwilling to negotiate a restructuring. One of the lenders is none other than the Federal Reserve, which took over loan commitments by Bear Stearns. Crains New York reports that the FRBNY has finally relented and at what likely is a loss to taxpayers, has given Tishman $100 million to restructure its loans at preferential terms. Tishman's take on this development was pretty clear: "It's great for our tenants and it's great news for everybody we do business with,” said Casey Wold, Tishman senior managing director in Chicago. “We now have enough capital to improve the properties and lease up the entire portfolio to stabilization." Thank you taxpayers - you now have indirectly bailed out the following Chicago properties: Civic Opera Building, 10 & 30 S. Wacker Drive complex,1 N. Franklin St., 161 N. Clark St. and 30 N. LaSalle St.

Just because the LBMA/JPM can't juggle their top kill of both PMs and FX, we have another all time record.

If you are like us, you just can't get enough of Bob. The only economist from RBS whose opinions are worth reading, who will never make any financial pundit lists (especially not ones that have Jim Cramer on them), due to his unpleasant habit of being too "truthy", shares 17 minutes of his latest perspectives in this CNBC Europe interview. Not surprisingly, Bob blasts the lunatic response of resolving debt problems with more debt. This time he also shares some additional political perspectives: “Having elected people who said everything would be all right, ultimately the US and UK had to elect Reagan and Thatcher to get us back on track” and eventually angry voters in the developed world will shift to the far right. Some more US-centric perspectives: “The US mid-terms will be crucial. We will see a shift to the right as the Tea Party movement demands change. "There are 220 million people in middle America who are angry and believe stimulus spending has been wasted on vested interest and the banks that they believe got us into this mess. For all the talk of positive growth in America, those outside of LA and New York are hurting and want cuts in government spending, not more borrowing and spending.”

Intervention fails. Next stop is the November 2005 low of 1.164.

RanSquawk report that according to "well-placed sources in Beijing" China is now buying EUR above 1.20 to stabilize the currency in advance of a G20 meeting later in June, per a previous agreement with the G20 members. This surely explains why the euro magically got vacuumed up by 60 pips in a manner of seconds as soon as a breach of 1.20 was imminent. Alas, as we pointed out previously, the half life of central bank interventions is now laughable: at some point interventions using fiat methods will have no impact whatsoever. On the other hand, all those who are short the market, and thus the euro, and in the process are facing the Fed, the ECB, the SNB (or not so much anymore), and now the PBoC, now have a whole new appreciation of the word "Sparta"

RANsquawk US Afternoon Briefing - Stocks, Bonds, FX etc. – 04/06/10