Archive - Jun 2010

The only thing worse than the oil flowing out of the GoM gusher, is the BS now openly flowing out of the government propaganda machine, which has jumped the shark beyond all semblance of credibility. How consumer confidence in May was the highest in over two years, at 76, higher than April's already ludicrous 73.6, and highest since January 2008, is not even worthy of commentary. It must have been the flash crash, the BP oilspill catastrophe, the market's 10% drop and Europe's bankruptcy that really pushed consumer confidence to that near record level... Just who do these people call to "gauge" confidence anyway: just Barack Obama, the president, the POTUS, and the Teleprompter in Chief (not necessarily in that order)? We must have missed when the Chinese ministry of propaganda, data fudging and bullshit, LBOed the US government's data dissemination bureaus (no doubt with Goldman Sachs pocketing a cool billion in advisory fees, and even throwing in a free second lien on Mykonos in the process), but with this most recent release we have no doubt it happened.

With the ECB determined to hold the EURUSD above 1.20 for the time being, the question of whether the EUR will hit parity with the CHF first is becoming more topical. The Swiss currency has been dropping consistently every single day, and just hit a fresh all time high against the EUR at 1.3491, and looks like it will hit parity with the so called reserve currency within the month. Even as gold is once again on fire (+ $10 so far today), investors have suddenly realized that with all of Europe moving its deposits to Swiss banks, it may in fact be the Swiss currency that is safest out there, backed by an increasing amount of deposits, and not to mention, gold. Should the Fed indeed announce a $5 trillion QE expansion as predicted by AEP yesterday, and Bob Janjuah a month ago, look for the "risk haven" currency to promptly regain its place as everyone's favorite short, leaving just the CHF on top, especially since the SNB now appears to have given up on intervention for good.

By now, everyone is well-aware the US, as the Federal level, is insolvent, and continues to exist merely thanks to 1) the ability to print money and 2) having the world's reserve currency for the time being. Yet more and more are focusing not only on the calamitous, and even more bankrupt, state fiscal picture, but increasingly so on the smallest bankrupt quantizable element: local governments. The following surprisingly objective note from Goldman's Alex Phillips separates fact from propaganda in this increasingly more critical discussion, now that the question of how soon the administration will need to provide state bail out funding reaches critical mass.

Yesterday, the open interest at the 1250 strike acted as a magnet in a market looking for an excuse to do something. However “they” could not quite get the pin. Historically, this means the next day has a higher probability of a wash out. But thus far today that is not the case. Could this mean that we are in a market where secular interest and macro hedge fund buying power is finally overwhelming the small but deep liquidity pool of Bullion Dealers? We certainly think so. This is an evolutionary process, and will take time.

It is going to be an ugly day for BP longs. BP stock has crashed in early trading in London, dropping as much as 8% at one point to 296p. It has subsequently recouped some of the losses and last was off "only" 4%. Reasons for the plunge include new bankruptcy rumors, concerns about hurricanes in the Gulf region (that took a while), and general worries about "fat tail" events as a trader told us.

The final Q1 GDP revision came in at 2.7%, a huge drop from prior, and especially the first GDP forecast which was 50 bps higher. Trillions in stimulus and the economy barely grew. Time to revise Q3 and Q4 GDP forecasts to just over 1%, and to whack those S&P EOY forecasts. Digging through the data, consumer spending fell to 3% from 3.5% earlier, business investment was revised down to 2.2% from 3.1% previously. The only imprvoement, the PCE price index rose to 1.6% from 1.5% prior. All in all, a complete disaster.

• Asian stocks decline on US growth, Greek default concerns.
• German luxury carmakers add shifts and cut breaks to meet demand
• Monsoon rains may be more than predicted, helping output of crops in India.
• Mortgage rates on 30-Year U.S. loans slide to record 4.69%
• Yen near two-week high against Euro on speculation global economy slowing.
• Adobe enters into stock repurchase agreements for $400M.
• Alibaba.com buys US e-Commerce site Vendio to boost sales outside China.
• AO Smith lowers 2010 EPS below consensus, due to one-time charge from flood.

As if anyone thought otherwise, the final shape of finreg has now been formalized and as Shahien Nasiripour at the Huffington Post notes, "many of the measures that offered the greatest chances to fundamentally reshape how the Street conducts business have been struck out, weakened, or rendered irrelevant." Congrats, middle class, once again you get raped by Wall Street, which is off to the races to yet again rapidly blow itself up courtesy of 30x leverage, unlimited discount window usage, trillions in excess reserves, quadrillions in unregulated derivatives, a TBTF framework that has been untouched and will need a rescue in under a year, non-existent accounting rules, a culture of unmitigated greed, and all of Congress and Senate on its payroll. And, sorry, you can't even vote some of the idiots that passed this garbage out: after all there is a retiring lame duck in charge of it all. We can only hope his annual Wall Street (i.e. taxpayer funded) annuity will satisfy his conscience for destroying any hope America could have of a credible financial system.

And now for the envelope... oops, it just burned down. Oh well. First no budget, now, no GDP. According to unsubstantiaed rumors, the fire is headed to the records room at the US Treasury next. Unfortunately for our creditors, there will soon be no paper record we owe money to anyone. And like that, our $13.1 trillion in debt, it's gone.

Margin calls from losing positions have forced hedge funds to free up cash by covering shorts in natural gas. Real demand isn’t coming until we have vastly more pipelines, power plant conversions, and above all, storage, than we have now. Until then, the big production companies are going to race to out produce each other, praying they can use volume to offset price cuts, creating a huge weight on prices. (CHK), (DVN), (UNG).

I have released my opinion of UAL and CAL as candidates in my short portfolio listing, as well as the detailed logic behind the decision.

RANsquawk European Morning Briefing - Stocks, Bonds, FX etc. – 25/06/10

This is a major four part series dealing with what I feel is the primary question investors must now answer: is our future to be inflation or deflation? The answer has vast implications to our investment planning and decisions for the near term, and possibly for our long term. It is a very complex question with a lot of moving parts involving economics and politics. This is Part 1.

In his latest column, the Daily Telegraph's A. Evans-Pritchard does a good job of recapping all the various reasons why Bernanke has now completely cornered himself, and facing a newly collapsing economy, is left with just one recourse: the printing of more, more, more paper. This should not come as a surprise to anyone who has read even a few posts on Zero Hedge - the only response the Fed is left with as deflation accelerates, and as the Fed and the banking cabal refuse to do an orderly reorganization whereby financial firms grow into their balance sheets via a debt restructuring (and equity wipe out), is the spewage of more, inflation-stimulating, fiat. Ironically, as this newly printed and rapidly diluted monetary representation (because it increasingly is not equivalent to money) makes its way only and almost exclusively to those with direct discount window access, i.e., the mega banks (and for some ungodly reason, the clearinghouses soon), the assets that will be bid up are all tangible commodities, while secondary assets, which are contingent on a properly functioning reserve banking (money multiplier) system, collapse in a deflated heap of liquidations. Yet one notable section in AEP's post draw our attention: "Key members of the five-man Board are quietly mulling a fresh burst of asset purchases, if necessary by pushing the Fed's balance sheet from $2.4 trillion (£1.6 trillion) to uncharted levels of $5 trillion." We are very curious where the DT's reporter has found this information, since if it comes from a credible source this is a massive game changer, and while many have speculated this will happen sooner or later, to know for a fact that QE is definitely coming is major news, and, if true, we are stunned the WSJ's Jon Hilsenrath, who recently has had his ear "very close" to the Fed's internal process, has not reported on this yet.

The difference — three or four percentage points — translates into hundreds of billions of dollars when applied to pension obligations.