Archive - Jul 2010

CNN's Anderson Cooper, one of the few people who apparently hasn't or isn't leaving the troubled news network (surely Ted Turner has learned by now from CNBC that his female anchors should wear transparent body suits, show belly button deep cleavage, and install a stripper pole or seventeen for those ever more elusive Nielsen points), reports some troubling developments out of New Orleans. "The coast guard today announced new rules keeping photographers, reporters and anyone else from coming within 65 feet of any response vessel or booms, out on the water or on beaches. In order to get closer you need to get direct permission from the coast guard captain of the Port of New Orleans. Shots of oil on beaches with booms - stay 65 feet away. Pictures of oil soaked booms useless laying in the water because they haven't been collected like they should. You can't get close enough to see that. And believe me, that is out there. But you only know that if you get close to it, and now you can't without permission. Violators could face a fine of $40,000 and class D felony charges. The coast guard tried to make the exclusion zone 300 feet before scaling it down to 65 feet." While Cooper's conclusion is spot on, "we are not the enemy here, those of us down here trying to accurately show what is happening down here, we are not the enemy. If we can't show what is happening, warts and all, no one will see what is happening, and that makes it very easy to hide failure and hide incompetence", it doesn't matter, and little by little, nothing else matters, except for what the administration, the Fed, and the megacorps think it is in America's best interest to be able to see, hear, read, do, and what assets they have, where they can invest... especially if all this is done in conjunction with maxing out yet another credit card to buy the latest and greatest weekly edition of the iPhone.

What's driving bond yields to their lowest level since April '09? Could it just be an ominous 1930s echo...

Having rapidly become the only person worth listening to on CNBC, Rick Santelli's insights on the economy are now far more valuable than any other guest's on the Jeff Immelt propaganda station. Which is why we were very happy to find that Eric King's latest interview was with none other than Mr. Santelli. The topics discussed are numerous, varied and and very critical to our economy, covering such concepts as deflation, deficit spending, bailouts, government spending multipliers, Fed transparency, spending cuts, austerity, the folly of Keynesianism, strategic defaults, direct bidders and treasury auctions, and lastly, tea party dynamics, making this a must hear interview for anyone still on either side of the economic fence, and who enjoys listening to Rick for longer than the 45 second segments the CNBC producers will allow.

June 30 (Bloomberg):

Biggs said bullish bets make up about 70 percent of his investments and isn’t selling because he expects the S&P 500 to finish the year 10 percent to 15 percent above its level now. He favors property developers, oil service companies and technology suppliers in the U.S. and emerging-market equities.

July 2 (Bloomberg):

Signs the U.S. economy is weakening convinced Traxis to
reverse course as the S&P 500 posted a weekly slump of 5
percent, bringing its loss since April 23 to 16 percent. Biggs,
77, said yesterday he cut bullish bets by about half since June
29, when they made up 70 percent of his fund.

The economic mood at 200 West has officially downshifted. In a report by Jan Hatzius, the Goldman chief economist warns that "the second half slowdown has begun." Hatzius says: "This is consistent with our long-standing forecast of materially slower growth of just 1½% (annualized) in the second half of 2010." And while the contraction has been obvious to all those without a metric ton of wool in front of their eyes, the two indicators that have broken Goldman's will were this week's NFP and ISM reports. And not only that, but Hatzius is now firmly in the Krugman camp, blaring an even louder warning that should the government cut off the fiscal subsidy spigot "there is some downside risk to our forecast of a gradual reacceleration in 2011 (to about 3% on a Q4/Q4 basis)." In other words, not only will H2 GDP officially suck, but since Goldman has now officially jumped on the Keynesian gravy train, and as Goldman has rapidly become the best contrarian indicator in the world (we can't wait for David Kostin to realize that endless economic stimulus, GDP and corporate profits are, gasp, related), it likely means that Obama will not allow for even $1 dollar of extra unemployment subsidies or state bailouts just to spite Goldman.

This week's CFTC report indicates that commercial shorts on the CFTC, both gross and net (excluding commercial longs) have hit another fresh all time record, at -482k and -290k. Should the ongoing asset liquidation squeeze forcing gold prices to decline, fizzle out, and should gold prices resume their trajectory higher, the only question will be at what point will this barrage of paper shorts get the marching (and margin) orders to cover. And in related liquidation news, the CFTC COT indicated that the short covering rampage in the EUR seen three weeks ago has not returned. Net shorts once again increased in the week ended June 29 by 2696 to -73,670. This was to be expected after the biggest short covering episode in the history of the the EUR shook out all weak hands. Yet the real action in the last week started on June 30, which data was not captured in today's release. Assuming there was a fund liquidation as we suspect (and which is also impairing the price of gold and other commodities), we expect the net short number out of next week's CFTC to once contract.

This highly informative (and very disturbing) graphic prepared originally in 2009 by the Guardian, makes it all too clear just why Europe is so concerned about its banking sector, and if it isn't, why it most certainly should be. While the top 5 banks in the US have roughly $7 trillion in assets (all of which are largely undercapitalized, as the little black circles show a bank's market cap, thus demonstrating the gaping hole between assets and equity, and yes, these are dated as they indicate the mkt caps as of early 2009, but that is largely irrelevant for this exercise), just the top five banks in France alone have nearly $1 trillion more in assets than all of the US banks (and are even more undercapitalized). Add to this the UK, Germany, Spain, Italy, Belgium, and the Netherlands, all of which are intricately interconnected with one bank's assets representing another bank's liabilities, in the world's biggest circle jerk, and you can see why quite literally the fate of the world depends on Europe containing the fallout from the ongoing financial crisis. Imagine for a second that these tens, if not hundreds, of trillions in assets in European banking assets are marked to market, even as the liabilities are completely fixed, thus crushing trillions in equity value, and you can see just how precarious the financial stability of the entire world is. One little falling domino forcing a MTM scramble across the banking sector will end Europe's financial system. The only amusing consequence of this doomsday hypothesis is visualizing the powerless and decentralized consortium of the ECB, BOE and SNB attempting to stop an avalanche of a hundred trillion in busted bank assets. One can see why Jean Claude Trichet is the world's most nervous human being.

Anemic but don't throw in the towel just yet....

It was only a month ago that Jim O'Neill was openly taunting those who refused to suckle on Goldman's Kool Aid teat: "dear grizzlies…….bet your worried about today’s rally?   See u later." (sorry, we won't let this go for a long time). Then again, those who did believe Goldman's and David Kostin's advice that the market would be 30% higher now, are down to 70% of AUM (the very same David Kostin who on September 12, 2008, the weekend before Lehman blew up, predicted a 12% rally by the end of 2008 on the road to "S&P 1,400"). So, yes Jim, the grizzlies are far less worried at this point. Wish we could say the same for the bulls. Which incidentally may explain why Jim O'Neill has been completely gone from the scene for the past month. Luckily, he has now reappeared, and is once again dispensing bullishness to all who care to listen. The quote du jour this time: "While I can understand why some of the China bears will be full of the
joys of Spring right now, this is a “desired slowing” and unlike some
of the many issues in the West, the quicker they slow, the better." And we thought Bob Pisani had trademark to the "a nuclear holocaust is a victory for the bulls" phrase. Needless to say, we disagree with everything Jim has to say, except for his world cup pick. That said, we certainly enjoy his spin for the comedic content.

Stocks were the worst performers on a beta-adjusted basis relative to IG and HY in the US as EUR seemed to lose it status as worst of a bad bunch for a week as SovX and FINLs managed decent gains on the week. It seems our view of the credit market anticipating a turn in the cycle was correct and the consumer-sensitive sectors have seen equity play catch up to credit's warning signs from MAY. Many sectors are getting closer to fair across the capital structure but Leisure, Energy, Telecoms, and Consumer NonCyclicals still have room to drop in equities relative to credit's perception of risk. Tech, if anything, looks a little overdone in its sell-off in equities but this is perhaps due to less liquid credit and more highly levered Tech plays in stocks.

RANsquawk Market Wrap Up - Stocks, Bonds, FX etc. – 02/07/10

Bad algo. Go in that XOR gate (in retrospect, with this market, this should actually be a NOT gate) and stay there for 1 trillion co-located CPU cycles. In other news, the volume in the last minute was 50% above normal, hitting 44k contracts in 60 seconds. Good thing the circus rang the closing bell for the Nasdaq or else people might take this market seriously.

Just because idle frontrunning Cisco routers are sad routers. Also, the Fed has a trillions pieces of paper just collecting dust: explains why Goldman and JPM allegedly received RFPs for the most creative way to squeeze the last nickel out of their momentum trading clients recently. Lastly, let's not forget today's John Holmes NFP report that confirmed beyond a reasonable doubt that the Depression is over. The only silver lining is that had this occurred in early 2009, the market would have been up about 1,000 points in 2 minutes on 10 SPY shares. It appears even the Liberty 33 team is now composed exclusively of census workers (hired and fired about 20 times in the current week).

I was all for it, until I started researching the issue ...

Yesterday, Zero Hedge summarized our thoughts on David Viniar's claim that it is impossible for Goldman to present derivative revenues on a standalone basis. Today, we provide Goldman the chance to "set the record straight" on the issue. Here is Goldman's side, courtesy of Lucas van Praag. We are surprised that Mr. van Praag focused on the more shallow issue of the daily P&L production which the firm provides for broad firm consumption: various Goldman groups under the FICC umbrella (and under the narrower "prop-trading" definition) have their own formats, and we are happy to present to our readers the non-mortgage daily P&Ls, if Goldman would be so kind as to provide it to us. Perhaps the delineation of derivative P&L is far more specific the CDS trading group (alas, we currently do not have access to that specific form P&L). Mr. van Praag, however, did not answer our inquiry as to whether the firm keeps track of cash and derivative P&Ls by strategy, which is a far more relevant issue. For the record, we are still 100% confident that a P&L track by strategy, and subsequent stripping of cash legs is a simple enough exercise, and one firm's self-respecting back office can complete such a task in minutes.