Archive - Jul 2010

For the first two quarters of this year, we’ve been pounding the
pavement on the risks inherent throughout Europe. The 50+ article (and
counting) series known as the Pan-European Sovereign Debt Crisis is
rife with opinion, analysis, commentary (albeit rather smart ass
commentary), and data that is hard to come across from objective
sources.

RANsquawk European Morning Briefing - Stocks, Bonds, FX etc. – 19/07/10

In case you missed George Wahsington's update, here it is straight from the AP horse's mouth. And, if this story is true, we can only hope one is not long BP stock or short the CDS. Logically, all this occurs as the Sunday Times reports that BP has "started canvassing shareholders about a restructuring in the wake of its Gulf of Mexico oil spill which could include a break up of the business."

"The S&P500 fell about 7% by early February. Then, it went straight up, rising about 16% by late April only to give back all those gains and a bit more by the end of June. Just after the economy finally appeared to be recovering earlier this year, a series of weak economic data have put the recovery into question. What will happen next? We have no idea. We have maintained a conservative and defensive portfolio, with a small net long position throughout and have almost entirely avoided the volatility of the schizophrenic market...We made some gains on our macro positions (most notably gold, which appreciated from $1,113 to $1,244 per ounce during the quarter)." - David Einhorn

Uh oh ...

Just when BP finally seems to have got a handle on the Macondo well with the successful containment cap, multiple explosion and oil spill are taking place--halfway around the globe--in China.

Well, what is it going to be? Another crash or do we u-turn and head back up???

Buy USD & JPY and leave the Bloomie for a few months.

Some big guns are still long. Are they wrong?

John Taylor is his usual painfully forthright, objective and candid self in this must read Capital.de interview in which he analyzes the prospects before Europe (not good), and compares the Euro to a "chicken, with a severed head running across the yard before it dies." Taylor believes that so long as Europe continues to exist in its make believe monetary never-never land, any efforts to bring some form of fiscal rationality in the form of austerity, will be underminded by the continuing lies on the monetary and financial stability fronts. This fits in with Roubini's recent admonition that Obama should finally start treating Americans as adults. Yet in light of recent evidence that Obama has taken more vacation time and golf breaks than even his predecessor, any chance for him to be taken seriously may be long gone. Furthermore, Taylor notes that instead of the ECB demonizing FX traders like himself, the bureaucrats should be thanking him, as he is one of the few voices of reason, and just like in the Asian crisis of 1997, those who listen to him ultimately prevent major capital losses (kinda like what ZH suggested to those invested in Greek bonds some time ago, to the utimate chagrin of an overly defensive RBS). Yet the most notable observation to us at least, is that Taylor confirms our previous statement that Goldman is lying about the contribution of prop trading to its top line. Of Godman's revenue, Taylor says: "80 percent of the revenues which now come from proprietary trading of the bank. No matter what happens, Goldman Sachs always profits." Compare this to our statement from December 2009: "Goldman's head of PR claims the Goldman's prop trading accounts for
only 12% of net revenue. Zero Hedge disagrees, and we would like to
pose a question to Mr. van Praag which we hope Goldman will answer for
us in order to refute our observation that Goldman may be disingenuous
in its public statements." Goldman's subsequent response to us did nothing to refute our allegation: "We’ve said publicly that prop trading represents approximately 10% of this year’s reported net revenue.  We generate the vast majority of our revenue in FICC by facilitating trading activity for our clients and nearly all our revenues in FICC are “due to capital at risk” (your phrase)." Shortly after this exchange, finally bringing due attention to Goldman's prop trading operations, the Volcker Rule appeared, and all else equal, will likely impose major restrictions on Goldman's top line, which could be as big as an 80% cut.

Not sure if I buy the reservoir depletion theory ...

In his Friday commentary piece "Tax and Spend. And Spend", Nicholas Colas of BNY ConvergEx read our mind and posted this concise summary on the comparison between 2009 and 2010 tax withholdings, and the unique dynamics thereof. Whereas we will present a detailed analysis of this comparison shortly as there have been numerous interesting themes to discuss, we present the following piece from Colas as a great backdrop to our soon to be posted results. And for all those claiming the tax picture in the US is improving (we are looking at you Daniel Gross), here is the simple reality of the situation: "Simply put, for every $1 of proceeds from taxpayers, the Federal government issues more than $1 in new debt." Must read for all "improvement-ists", especially since Colas references the holy grail of all financial reporting: our all time favorite necessary and sufficient DTS.

Without buyers stepping in, extremes in bearish sentiment will be just that - extremes in bearish sentiment.

A summary of last week's most read posts:

1. The Financial Con Of The Decade Explained So Simply Even A Congressman Will Get It
2. Jim Grant Is Confident QE 2.0 Is Just Around The Corner
3. Boston Properties' Mort Zuckerman Obliterates Barack Obama
4. Guest Post: The Dangers Of A Failed Presidency
5. Rust Discovered On Bank Of Russia Issued 999 Gold Coins
6. U.S. Stripped of AAA Credit Rating...By China?!
7. China Has Been Covertly Funding A Housing Bubble Five Times Larger Than That Of The US: 65 Million Vacant Homes Uncovered
8. Will Sprott's Brand New Physical Silver Trust Become JPMorgan's Biggest Nightmare?
9. Wonderbra Obamanomics: Keynesianism Explained Using Victoria's Secret Models
10. Chinese Treasury Dump Brings Its Total Holdings To One Year Low, As "UK" Continues Exponential Accumulation Of US Bonds

To spin or not to spin– that is the question:

Whether 'tis nobler in the mind to suffer
The slings and arrows of outrageous measures,
Or to take arms against a sea of Top 40
And, by opposing, end them. To scratch, to filter
No more – and by a filter to say we end
This track and the thousand natural beats
That dance is heir to – ‘tis a consummation
Devoutly to be wished. To dance, to fall
To roll, perchance to peak. Ay, there's the rub,
For in that roll of bliss what dreams may come,
When we have shuffled off this trance interlude,
Must give us pause. There's the respect
That makes calamity of so long song.