Archive - Aug 10, 2010

Charlie Gasparino, who recently left CNBC not on the best of terms, and ever since has been casting stone after stone at his former megalith employer, was on the O'Reilly Factor earlier, confirming what everyone has known for a long, long time, namely that CNBC's pro administration bias which appeared spontaneously and unexpectedly in early 2009, came from the very top, i.e., Jeff Immelt himself. Quote Gasparino: "There was this issue where Jeff Immelt, Chairman of GE, called in some of the senior staff [of CNBC] and clearly was worried, according to the people I spoke to, who were in that meeting, about the possibility that we were becoming too "anti-administration." They will deny it officially, but from what I understand, people got called into this meeting and they were basically not exactly read the riot act, but the question of whether they were being fair to the president was brought up. I have never heard that before." Of course, with GE one of the primary beneficiaries of the administration's TBTF largesse (lest we forget what a toxic repository of worthless toxic filth GE Commercial managed to become), this is not at all surprising. We just hope readers keep all this in mind if they ever are exposed to CNBC content.

Bloomberg has created a useful 2-dimensional chart, summarizing on one axis which states have the worst unemployment (Nevada, Michigan and Cali are at the top), but more importantly, which states actually are losing and creating jobs - not too surprisingly, Nevada is the worst in both categories. Also, not too surprisingly, North Dakota, which has about exactly zero TBTF bank branches, is the state with the lowest unemployment, and one of the highest rates of job creation. South Dakota and Nebraska also seem to have avoided the probing tentacles of Wall Street's innovative money machine.The Las Vegas strip, where Deutsche Bank is opening the first hotel with actual functional balconies on it (presumably to facilitate terminal bailouts.. or just bails), was not so lucky.

The Gulf of Mexico disaster has changed U.S. priorities, costs, and energy supply sources for years to come. But the fact that the U.S. needs energy isn’t changing anytime soon, and as mass sources of green energy are still a while away, the most likely alternative might be the most surprising one. With US$15 billion invested annually in offshore drilling in the United States, the disaster in the Gulf of Mexico means that this money is getting ready to migrate elsewhere. And it is the Athabasca oil sands of Alberta, Canada, that are number one on the list. Given the amount of bad press the oil sands get, this could come as a shocker. But technological advances and improvements in recovery methods, as well as reduction of water usage and greenhouse gas emissions, have made oil sands a viable and popular option for the future of U.S. energy.

The reason they call black swans just that is because they are unpredictable. A US bond auction failure is not a black swan as everyone talks about it; the bankruptcy of Europe, Japan, the UK and the US is not a black swan as it is inevitable; that futures will somehow turn green overnight even as they are solidly in the red currently is not a black swan: it is merely a few frontrunning algos working in tandem. However, a rerun of Chernobyl would be considered a pure, unadulterated black swan. Which is why we are following the situation at the PPL Susquehanna Nuclear Power Plant near Berwick where as WNEP 16 reports, "crews are are still trying to stop a freon leak in the unit one reactor
building. PPL officials said freon gas is leaking from an important equipment
cooling system inside unit one's reactor building. Workers were forced
to evacuate the area." Of course, local residents in the Wilkes-Barre region have not been told to evacuate: can't have something like panic now, can we - wouldn't be too beneficial for stocks, which as Greenspan said two weeks ago, are the only thing, not unemployment, not inflation, that matters to the Fed.

The water in the GoM is over 90 degrees. Usually that spells trouble.

While everybody is dissecting the Fed's latest move ad nauseam, I keep things simple. The Fed will do whatever it takes to reflate risk assets to shore up banks' and pensions' balance sheets, and bring about mild inflation to the economic system. Are there risks to QE 2.0? Sure there are, but the bigger risk is if they do nothing at all.

A government official named "Lubchenco" strong-arming scientists to tow the party line, and a government agency "losing" samples instead of sharing results with the scientists who had taken them.

Sounds like the Soviet Union, doesn't it? Too bad it's America.

The first thing that needs to be said is that IF we have another systemic meltdown like that of Autumn 2008, Gold will likely go down along with everything else. There are simply too many big players (hedge funds, investment banks, etc) with heavy exposure to Gold who would be forced to liquidate their positions during a systemic collapse. I know this is not what the Gold bugs want to hear, but during systemic Crises, just about every investment on the planet plunges while the US Dollar and Treasuries rally.

For the longest time it was consensus thought that only Wall Street could fuck Main Street. The ride is now turning. After what the FT reports was a 16% decline in fixed income, currencies and commodities trading
revenues for Q2, coupled with advisory revenues down 17%, the bank is now "planning to cut up to several hundred employees following a sharp fall in market activity in the second quarter. Sources close to the bank say that the job losses, which could be announced as early as Wednesday, will be spread across BarCap’s sales and trading staff as well as its back office support functions." Too bad the SEC has not, and will not realize that its only function is to restore the faith of the retail investors in the credibility of the capital markets. Yes, the same retail investor who both on margin and in total has always been the primary driver of stocks. Alas that has not happened and tens of thousands of Wall Streets will soon feel the wrath of Main Street as the boycott of stocks by the broader population comes to fruition, allowing the former "strategists" to experience just how real the difference between the U-3 and U-6 rate is first hand.

Spreads closed wider today with HY underperforming IG and for the sixth day in a row, credit underperformed equity on a beta-adjusted basis. The IG and HY indices closed off their worst levels of the day (just prior to the Fed comments) but notably underperformed stocks in the subsequent rally as every correlated asset class disconnected from stocks post Fed. This was a day of three parts to a great degree: pre-market, pre-Fed, and post-Fed; with credit underperforming equities through each phase and financials weak in general - particularly the majors. IG closed at its widest level since 7/28 and HY its widest close in August. IG and HY saw their largest close-to-close widenings since 7/16 (in percentage terms) - the day of the big drop in Consumer Sentiment.

According to the most recent study by the Center for Responsive Politics, Wall Street has completely given up on Democrats, even as contributions to Republicans have surged to a near multi-year record, or 68% of total. After donations hit parity in December 2009, following a gradual decline from a record Democrat preference in March of 2009, the spread between Wall Street charity to Democrats and Republicans has hit nearly 40% in the GOP's favor. Per OpenSecrets: "The Center's preliminary study indicates that political action committees and individuals associated with the broad finance, insurance and real estate sector have given more money to federal-level Republican interests during every month since December. The gap continued to grow during that time, reaching its widest point in June." The sad conclusion for the Obama administration is that even those who the president burned so much political capital to bail out, and will almost certainly cost him his second term, have turned against him: "But at this juncture, the general trend is clear: The broad financial sector in June appears to have spent a greater percentage of its cash on federal-level Republicans than at any time since May 2008."

After nearly 40 years, BP is returning to Libya amid widespread controversy about an alleged link to the Lockerbie bomber’s release and fears about a potential oil disaster in the Mediterranean Sea. Yet despite the oil giant’s enthusiasm, its future in Libya – a country boasting the largest crude oil reserves on the continent -- may end up as murky as competitors that have ventured there.

A video being hosted by Iranian FarsNews Agency (google translated here) shows mass graves that have been dug in the province of Khuzestan (located closest to Iraq and Kuwait) that are destined for Iranian "aggressors." It appears Iran is actively preparing, at least in the form of TV propaganda, for what at least from its own perspective, is response to an invasion. If any of our readers have a better proficiency with Farsi, we would be curious to understand what the Imam says in the beginning of the video, although based on the context we have a vague idea.

The Fed Open Market Committee, in a major policy shift, voted today to roll its holdings of maturing Fannie and Freddie debt into longer term Treasurys. This represents a significant change in Fed policy and it appears that the anti-deflationist wing of the Fed, led by James Bullard, president of the St. Louis Fed, won over the anti-inflationists.

It appears that the Monster Energy chugging traders on Wall St. had their "Animal Spirits" re-invigorated when they were watching Closing Bell yesterday where Amanda was showing off her cleavage in black. No doubt to prime the pump for today's announcement of QE2 by the FOMC.