Archive - Jul 7, 2010
Global Pension Heat Rising
Submitted by Leo Kolivakis on 07/07/2010 20:27 -0500As the heat wave sizzles North America and Europe, global pension heat is rising. Let's hope stock markets keep sizzling instead of fizzling because at this rate, it won't take long before we reach the pensions boiling point.
Guest Post: Sovereign Debt: The Death of Nations vs. the Wealth of Nations
Submitted by Tyler Durden on 07/07/2010 18:53 -0500The gap between the truth vs. the lies that pass for truth in the media has never been so wide. But living a lie is very destructive, so it’s important to cross this gap. Today I want to clear up one of the most important lies reinforced by the media–the idea that we have sovereign countries.
No doubt most of you have heard of the sovereign debt crisis that so many countries are facing. We hear endless economists, reporters, and billionaire hedge fund raiders talk about it. But the phrase they use is fictitious. It is a fabrication of the Ivy League, Wall Street, and erudite periodicals like the Financial Times of London. Sovereign debt is an impossibility. It cannot exist.
Guest Post: Why Corporations Matter, Part 1
Submitted by Tyler Durden on 07/07/2010 18:12 -0500"I posit that the invention of the corporation made the progress of our civilization—and the explosion of humanity’s numbers—possible. I would argue that without corporations, the Enlightenment would not have happened, and the civilization we currently enjoy would not have come into existence. I would further argue that, without the concept and practice of the corporation, today we would be living the bad bits of the Middle Ages."
- Gonzalo Lira
Daily Oil Market Recap: July 7
Submitted by Tyler Durden on 07/07/2010 18:01 -0500Asset prices staged a healthy rebound across a broad swath on Wednesday, with a strong finish by the DJIA at 10018.28, up 274.66 on the day. Commodities were also being added to investors’ portfolios again, with gold, copper and oil all staging powerful advances on the day. Only natural gas prices, which decided to ignore the best fundamentals in weeks, were lower on Wednesday. The euro was also fractionally higher, although it no longer seems to be synchronised with anything else. For months, it was the leading factor in higher oil prices and then its weakness helped push both equities and commodities lower. Now, it seems to be marching on its own flank, across the river. Crude oil prices broke a six?day skein of lower prices, and traders seem to have been following equities for
the most part yesterday. There were reports that some traders were buying oil futures as an early attempt to get long in front of major support, in anticipation of a possible shortcovering rally in front or immediately after this week’s reports. Many more observers cited some encouraging quarterly earnings forecasts (State Street was mentioned by Dow Jones) and there was merger activity reported in the technology sector, which has continued to attract investor attention throughout the recession.
ICI Reports Ninth Sequential Equity Fund Outflow In A Row
Submitted by Tyler Durden on 07/07/2010 17:39 -0500
ICI reports that topping off the underperforming H1 market action was yet another equity market outflow, this one to the tune of ($227) million. This represented the ninth sequential domestic equity mutual fund outflow in a row, and accounts for fund flows of over ($30) billion YTD. This follows on the heels of last week's once again deteriorating AMG/Lipper HY fund outflow report. Retail investors are not only not participating in the market, but are actively continuing to redeem capital out of any form of equity, transferring it into taxable bond funds. Mutual funds continue to not only be low on cash, but facing ongoing redemptions. Luckily, HFTs have none of these problems: all they need is to sniff out a major block bid from a dealer with discount window access, front run it while blowing up the NBBO via subpennying, accelerate the momentum, without needing any actual material capital, and end flat on the day. Mutual Funds will of course take the pick up in price levels and thank HFTs kindly, knowing full well they are unable to be marginal price setters any longer. So aside from the logistics of ramping the market on capital liquidations and margin calls, 4% market surges such as those seen in the past two days make perfect sense.
Bank Of America Joins Economic Slowdown Chorus, Pushes First Rate Hike Estimate Out To 2012
Submitted by Tyler Durden on 07/07/2010 17:09 -0500Bank of America, via economist Ethan Harris, has joined the chorus of large banks reducing economic forecasts, and as a result has reduced its GDP projections for 2010 and 2011 to 3.0% and 2.6%, from 3.2% and 3.3% respectively. The inflection in 2011 is notable as now the bank sees a material slow down in the economy where before it saw growth. Also, BofA is now expecting that the Fed will leave the Fed Fund language unchanged unchanged for 18 months, until March 2012. This is not surprising: with QE2.0 around the corner, it means that the Fed will soon be implicitly lowering rates. Of course, should the Fed find some naughty pictures of Barney and Chris, it may soon pass laws that allow negative interest rates for the first time. Of course, nothing at this point would be surprising.
Guest Post: Gold, Black Gold and Equities Technical Charts
Submitted by Tyler Durden on 07/07/2010 16:52 -0500
It looks as though we are getting the over due bounce in the stock market everyone has been anticipating. The large rally today (Wednesday) has covered most of the ground as it has moved up over 3% today. Overhead resistance looks to be only 2% away before sellers step back in and try to pull the market back down.
If the market goes up for another couple days then gold should have a small pullback to test support. When the equities market starts to drop again money should flow back into gold and send it higher as the safe haven of choice.
Long White Candlesticks On Ever Declining Volume, Or Melt-Ups On Ten Shares Or Less Coming To A Busted Stock Market Near You
Submitted by Tyler Durden on 07/07/2010 16:20 -0500
As the chart below indicates, the past two months have seen some dramatic moves in the market, beginning obviously with May 6, and continuing through today. As the highlighted long white candlesticks demonstrate, which are basically the 4 huge meltup days in the last 45 days, the volume associated with said melt ups has been occurring on increasingly lower volume. Of course, this is not surprising, and is occurring as a consequence of two trends i) ever fewer stocks determining the general direction of the market as pointed out yesterday, ii) implied correlation and stock dispersion at all time records or the "no alpha all beta" trade and, iii) generally declining volume with the bulk of it driven by HFT-dominated positive gamma ETFs such as top market volume SPY. As for those interested the actual numbers, the volume associated with the candlesticks left to right was 500.9 million, 395.5 million, 240 million and 248 million today. At this rate the next 300 move in the administration favorite Dow, or the next 40 moves in the ES will be on half the last melt up, then half of that, etc. Of course, all this means that very few if any retail investors benefited from today's move which, as always, was purely beta, and thus leverage, driven.
RANsquawk Market Wrap Up - Stocks, Bonds, FX etc. – 07/07/10
Submitted by RANSquawk Video on 07/07/2010 15:28 -0500RANsquawk Market Wrap Up - Stocks, Bonds, FX etc. – 07/07/10
Deranged Stock Buying Presents 10 ES Point Arbitrage Opportunity Via Daily Decoupling
Submitted by Tyler Durden on 07/07/2010 15:25 -0500
When stocks go straight up as they did in the last 20 minutes of trading (and pretty much all day, see chart) all sorts of broken things happen. In this particular case, the AUDJPY - ES correlation is presenting a clear opportunity to pick almost 10 ES points. For all who enjoy making virtually guaranteed money (10 out of 10 past decoupling has converged), the time has come to short ES and to buy the AUDJPY, which is in fact the leading indicator of the carry-driven secondary dataset known as the equity market.Also, please ignore the market's straight vertical line all day. That's certainly part of Bernanke's new normal.
"New Looks" on CNBC Anchorettes Incites Vertical Meltup
Submitted by RobotTrader on 07/07/2010 15:02 -0500Melissa Francis and Amanda Drury had a decidedly different look today. As usual, the optimistic Alpha Dog hedge fund traders reacted to the "new and different" look and assumed the "worst must be over". They responded by immediately buying stocks in a near panic. Even the little old ladies got fed up with 1.80% Treasury yields and went wild buying utilities.
GMO's Jim Montier Destroys Kartik Athreya
Submitted by Tyler Durden on 07/07/2010 15:01 -0500Remember the Fed economist who said all bloggers are idiots, and only Ph.D's are smart enough to understand why the market can go up 4% on double dip depression news? Neither do we. But the following obliteration of the Richmond Fed's errand boy by GMO's James Montier, who is once again back to posting on his blog http://behaviouralinvesting.blogspot.com, is completely worth the read.
Frantic Buying Takes Market Over 10,000, June NFP Miss Now "Priced In", As Is Double Dip
Submitted by Tyler Durden on 07/07/2010 14:51 -0500
There are probably a few words available to describe just how "forward looking" the market is, as it has just taken out the horrendous June 29 NFP number, and the plethora of ISM and other assorted negative news since then. Fundamentals don't matter, just carry and leverage. With alpha now dead, we hope at least massively leveraged beta plays continue to provide some benefits to whoever is left trading.
Will The Unwind Of One GDP's Worth Of Impaired Foreign Loans Cause The Swiss Franc To Surge And Trash The Swiss Economy?
Submitted by Tyler Durden on 07/07/2010 14:13 -0500
The UBS Private Wealth Management team seems to think so. In a report titled "Franc loans might become a threat for Switzerland" the UBS economists analyze the impact of the surging EURCHF (last at 1.33, not to mention the USDCHF which is quickly going to parity), combined with the over $500 billion in Swiss franc loans lent abroad to banks and non-banks, that "The franc's rapid appreciation remains painful for foreign borrowers, as the amount of their franc-denominated debt has increased remarkably in their local currencies. The franc would receive further support if borrowers were to switch their loans into local currencies at some point in the future, as they would have to unwind their franc short positions." In other words, should a positive feedback loop be activated, the already dramatic squeeze in the covering of CHF positions will accelerate dramatically, likely pushing the CHF far beyond parity and causing major pain for both the local Swiss manufacturing industry and offshore lenders who join the unwind party late. Quote UBS: "At some point, franc borrowers might realize that the franc might stay strong for longer, which could induce them to switch their loans. While the franc is affected by many factors, should the borrowers of franc loans at some point decide to switch their loans into local currencies, it could support the franc further, as the borrowers have to unwind their franc short positions. We therefore conclude that the large amount of outstanding Swiss franc loans to foreign countries remains a threat for the Swiss economy."
Are We Heading Toward A Double Dip?
Submitted by Econophile on 07/07/2010 13:47 -0500It's hard to ignore the data that is coming out. There is a definite slowing trend in the economy. It supports my forecasts of a slowdown coming in the second half of this year. Expect the data to be its normal uneven trend, but it is clear that the economy is slowing. Here I show you what I'm seeing.






