Archive - Jun 2010

Summing across the key five Household categories, Equities, Corporate and Foreign Bonds (decline), Treasury Securities, Total Deposits (decline) and Pension Fund Reserves, we get a change of $712 billion in Q1 alone. What the source of this three-quarters of a trillion in new capital in the Fed's dummy category is, is yet another secret that the Fed will never disclose.

Bentek Energy managing director Rusty Braziel sees a great divide developing in U.S. natural gas. Bentek are one of the leaders in tracking and analyzing American gas pipeline flows. Where gas is flowing, who's using it, and at what price. Speaking at the LDC Gas Forum Northeast in Boston this week, Braziel told industry professionals that America may have made some mistakes in designing its gas pipeline network over the past several years. He notes that the boom in shale gas has created a price disparity between east and west. Shale gas plays are located mostly in the east, and carry lower breakeven prices. Between $3.10 and $4.00 per mcf, according to Bentek estimates.

On the wires. Everyone kinda forgot that the Gulf Of Mexico is also bordered by... Mexico.

Now that BP's Q2 dividend of GBP1.8 billion ($2.6 billion) is virtually certain to be cut after increasing political pressure from the US president and house Democrats, impacting thousands of pensioners who rely on BP for annuity payments, the next question is whether the Obama administration will also be able to enforce additional capital structure limitations higher in the capital structure. If Chrysler and the Steve Rattner doctrine is any indication, we would not be surprised to see the administration next demand that BP creditors take the next haircut. Below is a chart of the upcoming 3 years of scheduled principal and interest maturities, payments and amortizations from the UK oil giant. Of BP's total $24.9 billion in debt and loan maturities, $11.4 billion, or 45%, comes due by the end of 2012. Add another $2 billion in interest payments over the same period and you get a number well over $13 billion. The bulk of this is due in 2011. BP better get its act together by then or those bondholders will certainly be seeing an Obama-mandated haircut on their maturities. That is, of course, assuming the company is not bankrupt long before then.

In Chapter 4 we look at the concept of control and how fear is used to control us while we use fear to control ourselves. We learn we make reality fresh every day and we examine the dynamic of apathy. For those of us who come up short, we learn it’s not what you have but how you use it and we visit with the Nailman, who explains that there's no trying, just doing.

Immediately following the suddenly very contentious US-England soccer game on Saturday, part two of the great transatlantic diplomatic fiasco will occur on Monday when BP decides whether to cut its dividend. BP is now caught in a massive political crucible: if it does go ahead and cut, all of Britain will scream for Obama's blood. If it doesn't, Obama, and especially Botox queen Pelosi, will demand that BP be dismantled. Classic lose-lose, and as always, another huge political blunder for Obama whose only action so far has been to appear on TV day after day and, courtesy of teleprompter acting classes, to appear stern and serious. And that's about it, even as the real spilled oil content in the gulf has now been double from prior estimates.

Now that is has achieved complete regulatory capture, and the SEC has been purchased for 30 pieces of silver, Sky-Net is on the verge of sentience. Going forward nobody except the HFT computers will be trading with each other. The computerized market has now made a complete mockery of regulation, and it cost it about 1 day worth of frontrunning based profits. We fully expect the SEC to find "absolutely nothing wrong" with market structure when it concludes its probe into HFT manipulation. In all seriousness, just what is Getco so worried about if it needs to conduct such a blatant example of "regulatory capture"? This is about as subtle as it gets. The HFTs must be really sweating whatever it is that is coming down the road.

David Rosenberg's favorite leading indicator, the Economic Cycle Research Institute (ECRI) Leading Index, fell to 123.2 in the week ended June 4, down from 124 the week before, a -3.5% annualized contraction: the first time this has gone negative in over a year. This is the lowest level since July 31, 2009, when it was at 122.4, as the chart below demonstrates. What is more troubling is a historical comparison to the dark days of the 1970's recession. While the amplitude of the recent pick up has been unprecedented, from -30 to +30, it is only mirrored by the -20 to +20 jump seen in 1971-1973. However, as can also be seen below, the ensuing crash following the first spike, was the worst one in the past 35 years. If history is any predictor, does the ECRI anticipate a comparable collapse in the economy to what was seen in late 2008?

RANsquawk US Afternoon Briefing - Stocks, Bonds, FX etc. – 11/06/10

As nobody, and we mean nobody, is trading today, it is surprising to see the risk-FX decoupling so early in the day. Usually these free money "gifts"don't happen until 3pm. But we'll take them at any time during the day: it just means that the corr algos are broken far earlier than usual. After 5 out of 5 such spread divergences closed momentarily in the last 5 days, will today be lucky 666? If the last week is any indication, the EURJPY-ES spread will close within the hour.

As if Spain needed any more reasons for an unprecedented liquidity shortage, here is the latest action from S&P on Caja Madrid, which as we reported yesterday, is in the process of soaking rescue funding as part of its merger with Bancaja and several other smaller banks. "The negative implications reflect the possibility that we could lower the counterparty credit ratings. We expect to resolve the CreditWatch placement in two steps. First, we will evaluate the magnitude of the expected deterioration in Caja Madrid's financial profile over the next 18 months and the ensuing implications for the savings bank's stand-alone credit profile. As a result, we could lower our assessment of the SACP by one or more notches in the short term, depending on the extent of the weakening we foresee. We could envisage, however, lowering our ratings on Caja Madrid's hybrid instruments by one or more notches."

It has been a while since we published Passport Capital's exhaustive report on gold. Now that the LBMA's favorite chemical element is once again as notorious as ever, it is time readers again refamiliarized themselves with this definitive guide not only on the pros and cons of owning the shiny metal, but the history of gold through the ages, and why, as John Exter famous Pyramid correctly predicted long ago, when the Kondratieff winter's Minsky moment approaches, physical gold will be all that's left. This is not a gold sales pitch: it is an analysis that everyone who is concerned about the fate of fiat currency should read.

A week ago Hungary had the unfortunate mishap of telling the truth when it compared itself to Greece, resulting in a massive selloff of the Forint and leading to fresh lows for the euro. Today, it is Japan which is using the very same strategy in an attempt to devalue its own currency. So far it's working. The BBC reports that Naoto Kan has been a little truthier than the G-20 plenary sessions generally allow. We now look for the PM's reign of truth to be even shorter than that of his thousands of predecessors during the past couple of years: "Naoto Kan, in his first major speech since taking over, said Japan
needed a financial restructuring to avert a Greece-style crisis."Our country's outstanding public debt is huge... our public finances have become the worst of any developed country," he said." Obviously, none of this is news. However, the market certainly does not appreciate when it is told that what it sees day after day in the non-mainstream media is actually the truth and nothing but the truth. What next - Tim Geithner coming out to say that a downgrade of the US is actually long overdue?

LOL

As we reported previously, the Scottish Widows Investment Fund, which is a top holder of BP stock, has lost about $70 million in its BP holdings over the past month. One would think that faced with such a drubbing the portfolio manager would decide it is time for risk off and either take the position off or diversify. One would be wrong. As seems to be the default case these days, when in doubt, and when losing tons of money, double down. After all the US government itself has now gone all in on in the Ponzi's last days, why should anyone else do the prudent thing? Reuters reports that among the bond managers gulping up BP bonds in chase of bargains, is Roger Webb, investment direct of SWIP (Scottish Widows Investment Partnership). "We think the dollar bonds in particular look quite cheap -- ultimately we are happy to get to an overweight position." And what heartless president would ever say "die" to a company in which an entire nation's widow population is invested and likely to lose their retirement funds, even if it means that no actual saltwater is left in the Oil Blob formerly known as the Gulf of Mexico.