Archive - Jun 2010

Silver has been sizzling and causing lots of buzz in the industry. Investors are excited. Part of the hubbub is due to its current run. Since its February 8 low, silver has roared ahead 22.4% (through June 21) and has doubled from its November 2008 low. This excitement has spilled over into greater investment demand – especially so for coins. The U.S. Mint sold more Silver Eagles in the first quarter of this year – just over nine million – than any prior quarter in its history. The Royal Canadian Mint produced 9.7 million silver maple leafs in 2009, also a record. Silver bullion ETFs are growing, too, experiencing a five-fold increase in metal holdings since 2006.

There’s plenty we could talk about with silver, but our goal is to make money. So let’s focus on answering just two questions: Is today’s price expensive or cheap? And, what are the best silver coins, ETFs, and stocks to own?

We have all the answers straight ahead, including lots of actionable info, so let’s jump right in...

Members of the
House-Senate Conference Committee on financial regulation are meeting
for a third day of deliberations on the Restoring American Financial
Stability Act of 2010. As part of the offered modification language which we discussed yesterday, the Committee today will focus to do all it can to eliminate any and every Fed-unwelcome initiative as part of the audit the Fed provision in the Congressional version of the Fin Reg bill. All those who want to see how corrupt politicians destroy any chance of fair and effective financial regulation are encouraged to tune in and focus their attention on Barney Frank.

C-Span Link Here

Reader Wally the Tiger has done an impressive job of connecting the dots in a highly complex situation involving a convicted securities fraud criminal, his wife, and her incredible stock-picking track record, and in providing a list of questions, which if answered without complete satisfaction, would likely provide the SEC with at least an open case of potentially criminal behavior. We would like to use this great piece of research to open up Zero Hedge to reader submissions for comparable such distributed investigative efforts, which, unfortunately, seek to do the job of the woefully inefficient Securities and Exchange Commission. At least, there is always that promise of an SEC bounty for every tip that leads to civil charges. Of course, the receipt of one would imply that in addition to surfing for porn all day, the SEC spends countless hours reading this very blog (which they do) instead of actually doing their job.

RANsquawk Market Wrap Up - Stocks, Bonds, FX etc. – 16/06/10

George Osborne, the UK's Chancellor of the Exchequer, a role equivalent to that of Tim Geithner in the US, at least in public office, not sure about tax "avoidance", has just announced the abolition of the FSA - the English just as worthless equivalent to the SEC. It is time Mary Schapiro's corrupt organization share the same fate. From the FT: "George Osborne moved to redress what he described as the spectacular regulatory failure of the City, announcing the abolition of the Financial Services Authority and a sweeping increase in the Bank of England’s powers." And in other news, UK's Bernanke-equivalent will now double up as uber regulator and Viceroy of the West Indies, due to amazing new powers given to him by the Osbourne super mushroom: "Mervyn King, the Bank’s governor, will become one of the most powerful central bankers in the world, with a new remit to prevent the build-up of risk in the financial system in addition to his monetary policy role." In other words, one big step forward, and an infinite number of steps back. After all why bother with petty theft, when the Central Banks will soon be funneling trillions away from what's left of the global middle class, perfectly legally, in broad daylight, and at record 2s10s.

According to DTCC, net notional outstanding in BP CDS as of June 11 was $1,676 million, based on 2,072 (great error-proofing there Reuters) contracts. This represents an increase of about 30% from the prior week, when net notional was $1,284 million and 1,718 contracts. Most notably, however, the increase is about 60% from $1,066 million and 1,399 contracts as of May 14. The 60% ramp up in CDS "hedging" is to be expected, now that PIMCO has gloriously entered the water. Of course, since nobody has used CDS to hedge positions since about 2002, this simply means that bets on a default in BP have surged. Observant readers will say this is the dumbest way to conclude this, when one can just look at the price of 5 Year CDS, which has exploded in the past month. These readers would be right.

Speaking of circuitbreakers, in a speech on the Senate floor Wednesday, Senator Ted Kaufman pointed to evidence that the May 6 flash crash may not have been an isolated event. On June 2, stock in Diebold, a technological services company, experienced a “mini-flash crash” of its own, plunging 35% and recovering fully in only minutes. The sudden decline and rebound appeared to be the result of an “electronic overreaction” to news reports of Diebold’s long-expected settlement with the Securities and Exchange Commission (SEC) over fraudulent accounting practices. “Regardless of what caused Diebold’s ‘bungee jump’ or the May 6 market meltdown, we should all agree that such unusual market activity strikes at the very heart of our market’s credibility. Regulators should add to their list the need to examine whether the precipitous drop in Diebold stock was the result of high frequency traders who can subscribe directly to market data and news feeds and perhaps had programmed faulty correlations into their algorithms to react to breaking news events. With so much of the marketplace dominated by high frequency traders employing similar strategies, an overreaction by a few algorithms looking to trade instantaneously on the basis of imprecise correlations could trigger a dramatic plunge.”

Update: According to Bloomberg, this was yet another mini flash crash, where an errant trade somewhere, somehow caused a massive surge in the price as several trades cross at $900+, a few million percent above where the stock has been trading in forever. The stock has now resumed.

Not sure what reason is just yet. But at least those new circuitbreakers get a workout... to the upside.

Update: BP says to increase planned divestments to $10 billion in next 12 months.

The barrage of very angry English tabloid headlines is coming. The company announces it expects to make $30 billion in cash flow from operations in 2010. Problem is in 2009 it had $20 billion in CapEx, so even with dividend cut, this is a stretch.

EVERY GDP rebound in US has been led or at least accompanied by a rebound in housing starts. The one exception was the period 1963-66 (highlighted in blue), which occurred under Lyndon B. Johnson's presidency. Then as now the divergence in GDP from housing was heavily driven by government spending under the "Great Society" legislation, which included Medicare and Medicaid as well as significant spending on Vietnam (sound familiar). Ultimately, the binge was unsustainable and growth collapsed starting in 1966 as bond the vigilantes started to growl and inflation picked up. This is the scenario I believe we are facing and I think that growth will erode significantly into the end of the year as the economy falters possibly dragging growth to -3% YoY by Q1 of 2011. Further fiscal spending will be impossible as the public mood is turning against spending and political gridlock will tighten ahead of this autumn's elections. The big difference between the 60's and now is that we aren't looking at inflation but full blown deflation.

If anyone still harbored any doubts that there is an urgent need to resolve the Middle East crisis one needs only look at the events that unfolded two weeks ago off the coast of Gaza when Israeli commandos stormed a Turkish relief vessel heading for the besieged Palestinian territory. The end result of that operation, one which turned out to be a monumental public relations fiasco for Israel, was that it raised the level of animosity between Israel and Turkey, a level which was already dipping well into the red zone – pushing it another notch deeper into the danger zone. One must not forget that Turkey is a full-fledged member of the North Atlantic Treaty Organization and that further schism between the Jewish state and a NATO country could have serious implications on the Alliance.

The master book talker, does what he is a master in - talks his book. In other news, as BP has about $24.9 billion left in debt, could all American Pension funds purchase it post haste, so that a collapse of BP would not only cause widespread pension destruction, but yet another US taxpayer funded bailout. One thing that is (virtually) certain- the Chicago TRS is selling each and very BP CDS, just cause, you know, they like to live dangerously.

Tomorrow Spain is coming to market with €3.5 billion in 10 and 30 Year Bonds, which just like all previous recent auctions, are expected to come in at far wider spreads to prior issuance in May and March. The 10 Year benchmark will come with a 4% coupon, while the 30 Year will have a 4.7% clip. Which is not to say these will come at par. At the last 10 Year issuance on May 20, the 10 Year came in at 4.045%, while the 30 Year priced to yield 4.758% on March 28. Reuters reports that some so-called analysts see demand for the bonds to be strong: "Domestic has supported until now and I don't see why that would change," said sovereign debt analyst at RBS Harvinder Sian. Of course, this is the same Harvinder, who blasted Zero Hedge for correctly predicting the bank run in Greece in February, long before anyone else, at a time when investors could have listened to us, instead of Sian's soothing words, have a great exit point and not lose their shirts, unlike those who are still holding bonds at a 600 spread. In other words, in our book Harvinder is as good a contrarian indicator as Goldman's FX team, and is simply confirmation that in addition to Greek exposure, RBS is likely loaded to its nationalized gills with soon to be even worthlesser Spanish Treasuries. Our advice: fade the auction, especially with refuted, and thus confirmed, rumors that Spain is not, repeat not, about to demand €250 billion in European/IMF rescue funds. And, as if anyone needed another indication, the ticker of Banco Santander is STD... That about says it all.

Let's see: Simmons sees BP at $0 and expects nukes to be deployed to clean it up its mess; Simmons & Co. on the other hand upgrades BP to a Buy on Friday with a $52 PT. Should pretty much explain it.

Bench 'em, coach!!!