Archive - Jun 2010

While the May jobs report was disappointing, it's nowhere near as bleak as many believe. One month's data will not make the difference. Lots of hysteria out there, but the reality is that US fundamentals are improving and this will eventually spill over into the labor market. A deeper analysis reveals some encouraging trends...

It's not like anyone believed the data anyhow, right?  I mean, seriously.  Everyone was doing it.  Greece... Hungary... several other unindicted co-conspiring jurisdictions.  Punishment by the market will be swift and merciless now that the open secret that governments outright lie about their economic data on a routine basis is out.  (That is, unless a short selling ban is instituted to protect the lying liars who lied about lying).  We ask you.  What is there to have confidence in anymore if even the Hungarian government is full of it?  Well, how about Radio Zero?

Connection details: http://radio.cl.zerohedge.com

Or just connect direct: http://72.13.86.66:8000/listen.pls

The best and most erudite investment bank in the offshore drilling space, Pareto, analyzes the impact of the 6 month offshore drilling ban. The firm observes: "With a 6 month drilling ban in the GoM and oil spewing into the sea at a rate of more than 12,000bpd, both sentiment and fundamentals for offshore drilling is challenged. The long term consequences are uncertain as it is still unclear how long the ban will eventually last and how many rigs will leave the region as a consequence. However, as long as the ban does not significantly exceed the current 6 months, we believe a large part of the US GoM fleet will remain in the area. Nevertheless, this unprecedented disaster will shape the future of the industry through a stricter regulatory climate and an increased environmental focus." Furthermore, as Pareto points out, with Ultra Deepwater day rates about to plunge to $50-75, EBITDA for most of the UDW exposed Gulf rigs will certainly be impaired. Nonetheless, with firms like NE, SONG, and SDRL all trading at sub 3x 2012 EBITDA, and with pretty decent asset coverage, there could be some good investment plays in either the stock or the first-lien space.

A variety of not so positive stories about PHYS have recently appeared in various blogs and websites. These have claimed to present a full perspective, yet by providing a unilaterally lopsided view, have done anything but. Another point of contention has been the record premium over NAV recently seen in PHYS - this is another widely misunderstood topic. In order to bring some objectivity to the debate we provide the following research report by BNY ConvergEx, which comes up with some very different conclusions on the ETF than the mainstream bashing of this very valuable investment vehicle.

As a reminder, for anyone considering this a buying opportunity (other than for a swing trade) based on rebalancing or mean-reversion should note two things: fund outflows are picking up for risk assets, and, even more importantly in our view, risk budgets will mean that allocations will be materially lower (in their wondrously pro-cyclical manner) as we note IG's three-month realized vol is its highest since NOV08 and HY's three-month realized vol is its highest since OCT07 (higher still if we adjust for intraday vol)!

Yes, I'm talking about a cameo by the Nobel Prize winner, famed economist and New York Times columnist, Paul Krugman and Sean P. Diddty in an upcoming summer comedy with enough sex and drugs to kill a small commune--"Get Him To The Greek."

In light of today's [abysmal|terrific] NFP report, it is probably not a bad idea to take on unemployment propaganda, but from a slightly different angle. Below, courtesy of madatoms, is a chart summarizing the truth and myth about unemployment.Of course if you are Obama, unemployment is really employment, which brings this chart to a whole new level of David Lynch appreciation.

Solvency and liquidity crisis, misrepresented budget deficits, 22% bond yields, fraudulent currency swaps, scapegoatful government forever trapped in denial, IMF bailout package, and so much more - even the most sophisticated can get lost in the labyrinth of the Greece crisis: the critical domino that set off the sovereign insolvency wave of 2010. Here are three clips for "the rest of us" that explain everything that has happened in a way that even Larry Summers (and Sellers) will understand.

Every now and then, what starts out as an apparently isolated incident of tragedy or stupidity turns out to be one of those defining events in history. A morning in September at the start of the decade turned out that way, when what seemed, at first, to be an errant act of navigational aerial stupidity turned out to be an initial salvo of terrorism. Now, we have what started out as a human tragedy, the loss of life aboard an offshore rig, turning into a defining moment for the oil industry, national security and domestic oil supply. The BP disaster has turned offshore drilling into a political quagmire, and has destroyed one of our nation’s pillars of domestic oil supply.

Three days into the month, and the Treasury has already redeemed $169 billion in debt, of which $137 billion in Bills. Run-rated (for Bills alone) this is about $5.5 trillion annually, or basically 63% of all marketable US debt. And somehow the Treasury is lowering the amount of new bond issuance beginning next week. We wonder just where Tim Geithner will get the much needed cash to plug not only the increasing daily deficit spending (today alone the US burned $21 billion net of debt transfers, gross the number was even worse), as well as to fund daily rolls once rates start eventually increasing. This is financial suicide, although the Treasury knows that all too well. It is now stuck in a corner and has no way out than to hope for the best.

After today's NFP number, even the most rosy-eyed optimists know that the jobs situation in the US is if not openly reverting into a double dip yet, then certainly scraping the bottom. What many are confused about is just why Obama and Biden were touting today's NFP so aggressively: the massive disappointment in the market post the announcement leaves only two possible explanations: 1) the president's advisors are all truly incompetent and have no idea what the market perceives as good or bad news, or 2) this was a calculated move to send markets lower, which in turn would hit the euro. If the latter is indeed the case, the question remains whether this is a benevolent (assist European exporters) or malevolent (throw Europe into unfixable turmoil) move. The response should be made clear long before the mid-term elections. Yet even with all these open items, the bottom line is that today's BLS report was very much irrelevant. As David Rosenberg highlights, it is not the actual employment, it's the income that this employment generates, that is important. And as he observes: "real organic income is still not growing and down nearly $500 billion from pre-recession levels."

So this is all $887 billion in stimulus gets you? There are now more than 15 million unemployed, including 6.8 million who have been jobless for more than six months. Until today’s number, our nine month long recovery produced a net loss of 133,000 jobs! At this stage of the 2003 recovery, we were regularly clocking 200,000-300,000 a month in job gains. Is Michele Obama already secretly scoping out new private elementary schools in Chicago?

RANsquawk Market Wrap Up - Stocks, Bonds, FX etc. – 04/06/10

It is pretty difficult to argue with deleveraging market neutrals, of which the HSKAX is the most indicative example, supported by the entire infrastructure of the JPM-Fed complex. Just like a month ago, so our post two days earlier that HSKAX is predicting something bad was about to occur, was disregarded by some... Probably the same ones who could have saved themselves a 4% drop in the S&P. And with the deleveraging continuing, we invite all skeptics to keep ignoring this one very critical signal.

Tim Smalls, head of trading at Execution-Noble was just on TV, saying that there is no volume in this meltdown and this should be disregarded. We wonder just what kind of trading Mr. Smalls engages in: we hope it's the kind that actually shows price AND volume, because to us things seem a little different than what he asserts as fact on the cable station (with a declining audience) that will actually carry him. Below is the PV cumulative divergence chart of ES: we wonder if Mr. Smalls, who is unlikely positioned well in today's action, would also say we should discredit all the prior up days this week that occurred on far, far lower volume as well. Furthermore, as the entire bear market rally and forced short squeeze over the past year has been on consistently declining volume, is the market's FV really still 666?