Archive - Aug 2010

• Asian stocks rebound from 3-week low on earnings growth; Yen weakens.
• China shares up due to easy-credit policy hopes.
• French GDP rose a better-than-expected 0.6% in Q2 from the previous three months.
• Germany’s GDP grows 3.7% in Q2 - fastest pace since its reunification.
• Massive German growth helps eurozone expand by 1% in 2Q.
• Oil rises above $76 in Asia; bounces back from week's losses.
• Retail Sales in US probably rose in July for first time in three months.
• US car dealership count fell to 18,223 after 258 showrooms shut their doors in H1 2010.
• Autodesk's Q2 EPS at $0.36 (cons $0.27); revs rose 14% to $473M (cons $458.9M).
• Airport operator BAA and Unite union hold talks to prevent strike.
• BP to pay a $50.6M fine for failing to fix safety hazards at its Texas oil refinery.
• Brazil controls mean Petrobras can't turn oil price surge into profit gain.

One of the classic comedy themes of the year has been Goldman's series of failed recommendations on the EURUSD, where the hedge fund has had about a 1 out of 10 "success" rating (for its clients). Today, the Markets Strategist Mark Tan recaps the firm's 3, 6 and 12 month forecast on the EURUSD, which are, conveniently, 1.22, 1.35 and 1.38. That's like saying the S&P will be in a range of 950 to 1500. At least the firm is sure to "hit" its projected range.... And be sure to watch that major inflection point some time in December which send the dollar sharply lower: is Goldman implicitly saying the "real deal" QE will now come around New Year's, just after the elections and just before the government has to raise the debt ceiling regardless? One thing we agree with, as we have long claimed: look for strikes and other expressions of non-appreciation to spike once everyone is back from vacation. As Goldman says: "One of the main reasons we incorporated downside risks to our EUR/$ forecast (1.22 in 3-months) is to reflect the potential for rising political tension again. This could potentially occur as Europe returns from its summer lull and is confronted with the reality of unpopular austerity measures." What are the InTrade odds on CNBC broadcasting the next storming of the Greek parliament?

Second-quarter GDP in Greece estimated to have fallen by 3.5% year-on-year. I'd like to bring to your attention that this is a pace that is over 11.5x WORSE than the projections that Greece used to get the austerity package-based bailout!!! It is also much more in line with what we anticipated at the research group of BoomBustBlog. Anybody want dibs on whether we are also more accurate about the point of Greece's restructuring causing a contagion effect?

RANsquawk European Morning Briefing - Stocks, Bonds, FX etc. – 13/08/10

I will be updating this blog on about a weekly basis with market commentary, as well as articles on specific topics. I will instead also be providing daily market commentary in newsletter .pdf format. If you would like to subscribe (for free) to the Shadow Capitalism market commentary newsletter, please email me at naufalsanaullah@gmail.com so I can put you on the mail list. Thank you.

Until I began to examine the Dodd-Frank financial overhaul bill I had no idea that it would so significantly change the direction of the United States. It's scope is so vast and pervasive that it is difficult to grasp its totality. I wrote this article to try to explain this and why I believe it is so important for us to understand it. Because of its complexity it was not possible to do this briefly, so I wrote this major "white paper" and divided it into four parts to make it easier to digest. Please stick with me for the next few days; your eyes will be opened. This is Part 2.

Wheat prices have doubled in six weeks. Domestic grain traders, seeing nothing but rows of corn, wheat, and soybeans at home as far as they eye could see, were caught totally flat footed. This crop disaster was totally foreign in its origin. Trouble with the canola crop in Canada rippled from Australia, Western China, the Ukraine, and then to Russia, big time. Time to take profits. As any farmer will tell you, pigs get slaughtered.

Today, most pundits are growing increasingly concerned that we are headed for a “double dip” recession. I think this view is idiotic as the US “recovery” was in fact nothing more than a small bounce in economy activity within the context of a DEPRESSION.

Let’s be honest here. The money printing and Stimulus DIDN’T work last time. All it did was buy time. Indeed, from an economic perspective, the only thing the Feds can claim with any certainty is that the Stimulus produced a bunch of economic data points that were questionable in authenticity (GDP, inflation, employment, etc) many of which have since been revised lower (GDP again).

Easily the most feared technical pattern in all of chartism (for the bullishly inclined) is the dreaded Hindenburg Omen. Those who know what it is, tend to have an atavistic reaction to its mere mention. Those who do not, can catch up on its implications courtesy of Wikipedia, but in a nutshell: "The Hindenburg Omen is a technical analysis that attempts to predict a forthcoming stock market crash. It is named after the Hindenburg disaster of May 6th 1937, during which the German zeppelin was destroyed in a sudden conflagration." Granted, the Hindenburg Omen is not a guarantee of a crash, and the five criteria that must be met for a Hindenburg trigger typically need to reoccur within 36 days for reconfirmation. Yet the statistics are startling: "Looking back at historical data, the probability of a move greater than 5% to the downside after a confirmed Hindenburg Omen was 77%, and
usually takes place within the next forty-days." The last Hindenburg Omen occurred during the lows of 2009. Today, we just had another (unconfirmed) Hindenburg Omen. It is time to batten down the hatches - something big is coming.

What made America great was her unsurpassed ability to innovate. Equally important was also her ability to rapidly adapt to the change that this innovation fostered. For decades the combination has been a self reinforcing growth dynamic with innovation offering a continuously improving standard of living and higher corporate productivity levels, which the US quickly embraced and adapted to. This in turn financed further innovation. No country in the world could match the American culture that flourished on technology advancements in all areas of human endeavor. However, something serious and major has changed across America. Daily, more and more are becoming acutely aware of this, but few grasp exactly what it is. It is called Creative Destruction. It turns out that what made America great is now killing her!

Ideally, reforming the government-controlled mortgage financing
behemoths Fannie Mae and Freddie Mac would achieve three goals:

1) Minimize the government’s balance sheet risk from a future collapse in home prices.

2) Promote a more constructive pricing of risk that isn’t distorted by government guarantees.

3) Avoid an increase in borrowing costs that could come as the
government’s role is redefined. (Well, this goal might not be ideal:
There is something to be said for a world of lower home prices and
higher market-based credit costs, but any idea that produces that
result seems a political non-starter.)

Oil markets were crushed again on Thursday, with crude oil prices falling another $2.28, to bring the two?day loss to more than $4.50 a barrel. The Dow Jones Industrial Average (DJIA), the bellwether equities average, dropped 58.88 points to 10,319.95. The weakness in equities was once again a major contributing factor to the weakness in oil prices. The euro was also lower on Thursday, but hardly to the extent it was on Wednesday (see chart next page). We now have losses of $5.74/barrel in crude since Monday night’s higher close, which is the largest three?day decline since May, Dow Jones News noted in its daily roundup. Thursday’s losses were also propelled by another increase in unemployment. - Cameron Hanover

The Canada Pension Plan Investment Board (CPPIB) is hedging for choppy markets, snapping up Manhattan real estate and getting into the lending business.

John Carney's New York Times op-ed piece is a tour de force, a paean to nonsensical thinking. In, "Fannie Mae and Freddie Mac: Too Big Not to Fail," Carney ignores the Fannie and Freddie of the real world. Instead, he goes after the Fannie and Freddie that exist only in his imagination.

Apparently what is good enough for Greenlight, SAC, Citadel and Goldman, is not quite up to snuff for Och-Ziff. The 7 West 57th-based, $25.6 billion AUM, hedge fund believes that it should be exempt from responding in an ongoing investigation by the bankrupt Lehman estate, which is probing the abovementioned hedge funds whether they engaged in rumormongering that may have brought down Lehman Brothers. And Lehman is unhappy: in a filing from the Lehman bankruptcy docket, the state claims that "Och-Ziff, one of the world's largest hedge funds, was involved with, or has information that pertains to, the "short-and distort" efforts." If this is indeed true, it is not very surprising that "Och-Ziff has already begun stonewalling to attempt to prevent this information from seeing the light of day by interposing frivolous and dilatory objections to the Debtors' Rule 2004 Subpoena." As the Lehman examination has already proven to be a gold mine for illegal practices conducted by Wall Street, we would not be surprised if the most recent 2004 investigation uncovers some new and even more shocking results. To be sure, Zero Hedge has never been a fan of the "short selling raid" theory - fair value can and always will find a way to creep up to the surface, unless of course it doesn't exist in the first place, like in Lehman's case. Additionally, funds would have to be extra stupid to keep written evidence of this kind of complicit and illegal activity. Which is why Och-Ziff's response is perplexing. And if the estate had credible reason to pursue Och-Ziff, we can only imagine the same must be true about Greenlight, SAC, Citadel and Goldman. Suddenly the Lehman bankruptcy case became interesting all over again.