Archive - Sep 7, 2010

We are not sure what is more amusing: the Masetro's unwitting (and quite correct) observation that America is now nothing but a crony capitalist country, or his attempt to back out of what he said that so perfectly captures the essence of the failed corporatocracy currently raging in America. In the following exchange from a DemocracyNow interview, Greenspan is forced to respond to his quote from Age Of Turbulence on the definition of crony capitalism: "When a government's leaders or businesses routinely seek out private sector individuals or business, and in exchange for political support bestow favors on them, the society is said to be in the grip of crony capitalism. The favors generally take the form of monopoly access to certain markets, preferred access to sales of government assets, and special access to those in power." Greenspan's pathetic excuse is that while crony capitalism is a "dominant force" in some other regimes, it is "not the dominant force in this country." Perhaps all those who are fighting with the virtual monopoly granted to certain players, such as Goldman in fixed income trading, and Pimco in government bonds, would beg to differ. So yes, according to the Greenspan definition America is now nothing more than a crony capitalist society, which will only get worse as more and more power it granted to those who are believed to be able to ramp various asset classes, and thus the market in general, higher, because as Greenspan himself pointed out, nothing is as important a "driver" to the economy as the stock market: "if the stock market continues higher it will do more to stimulate the economy than any other measure we have discussed here". In the administration's pursuit of Dow 36,000 to prove that all is well, America has given up on its core constitutional tenets, and is now nothing better than a dictatorial regime in some far-eastern backwater country.

A number of different chemists are finding elevated levels of toxic hydrocarbons in the bloodstream of Gulf coast residents who don't even work on the water ...

The 3 Year came in at a fresh record low high yield of 0.79% (25.34% allotted at the high). The Bid To Cover came at 3.213, one of the highest in recent years, although in line with the prior several auctions. And since Direct Bidders dropped to the lowest since April 2010, at 11.7%, and Indirects were in line at 42.4%, the Primary Dealers once again had to step in and take down the bulk of the Auction, being allotted 45.9% of the $33 billion issue, which was the highest since the 56.6% in May 2009. Yet the Indirect participation is indicative that the 3 Year is where the foreigners are happy putting money in, and stretching all the way to the 10 Year, in their ongoing Fed frontrunning attempts.

Developing news from CNBC. And oddly enough, the SEC reads Zero Hedge: goodbye HFT - we hardly were frontrun nearly enough by ye. We will get you more as we get it. And sure enough, here is Schumer to piggy back with a just released press release, now that the legwork has been done. It is odd that the senator has a problem with HFT only when the market is crashing - how about when it is causing the daily no-volume melt up? Oh wait, that's all good for the administration, where GDP=DJIA. And inbetween all the euphoria, we have one small question: Hey all you SEC idiots: WHY IS FLASH TRADING STILL ALLOWED?

RANsquawk US Afternoon Briefing - Stocks, Bonds, FX etc. – 07/09/10

Today, the Fed monetized $2.708 billion as part of its ongoing POMO monetization operations, to inject the market with a daily dose of liquidity and keep stocks higher. The biggest issue repurchased was the 2.625% of 12/31/14, followed by the 2.375% of 3/31/16, once again confirming that the Fed prefers buying the cheapest issues on the curve spline. Surprisingly, the Submitted/Accepted ratio came at a very low 5.8x: it appears few were as excited by today's monetization as those of prior weeks, when this would come well in the double digit range. And now that the liquidity injection is complete, and the mini ramp post 11am is done, we have to look forward to today's 1 PM auction of $33 billion in 3 Years, which will likely soak up all the non-risk allocatable funds held by the Primary Dealers.

Michael Burry, who needs no introduction, was on Bloomberg TV earlier discussing his latest investment allocation, which no longer focuses on shorting real estate via the cheapest possible instrument, and instead is going long cash assets in the form of farmable land (oddly enough, not multi apartment commercial real estate), small tech, and, yes, gold. “I believe that agriculture land -- productive
agricultural land with water on site -- will be very valuable in
the future. I’ve put a good amount of money into that.” Burry, just like Zero Hedge, laments the surge in cross-asset correlations, which makes all hedging strategies virtually impossible, and is a primary reason for why so many rational investors have decided to depart from the market: "I’m interested in finding investments that aren’t just
simply going to float up and down with the market. The incredible correlation that we’re experiencing -- we’ve
been experiencing for a number of years -- is problematic." Lastly, Burry agrees with the Paulson-Greenspan view on gold, but not any of the other Paulson "Recovery" themes we presented in extreme detail over the weekend: "Paulson's big in gold, and that's something that is interesting to me given how I see the world playing out, but other than gold I haven't really bought into any of the other theses." (And no, you still can't eat it, dammit).

In some fields of research, dishonesty and misconceptions can cost lives. In economics, dishonesty and misconceptions can cost MILLIONS of lives. Mainstream financial analysts (and the MSM in general) have lost all sense of responsibility for what they do, and thus, continue to put our society at risk and continue to lose vaster portions of their audience year after year. The problem is that the vacuum left behind by this mass exodus from the MSM has not yet been correctly filled with principled alternative news providers. We are growing everyday, but the information void is still ever present, and the memory hole continues to be exploited by global bankers. Some people don’t know where to turn, and have instead given up on looking for the truth altogether. My only option has been to continue drilling away at the root points of disinformation, along with many other uncompromised researchers, and hope that consistency and perseverance win the day by accumulation and attrition. With that strategy in mind, we will now examine the instabilities behind our current recession/depression. We will then follow by deconstructing the most prominent economic misconceptions surrounding them (often perpetuated by the MSM), along with those misconceptions you will probably hear in the near future… - Giordano Bruno

Now that the administration is in full panic mode with just two months away from the mid-terms and facing a record low approval rating, it is throwing the kitchen sink at the DOL and BLS to make sure it doesn't enter November with 10% unemployment rate. Over the weekend, we saw a flurry of micro stimulus programs announced by the president, which will have no measurable long-term impact, and in some cases result in growth declines in the future, yet likely result in a very short period of Cash-4-Clunkerseque sugar high boost to the economy. Here is Goldman's summary of the most recent set of proposals, on which Jan Hatzius' take can be simply summarized with just one word: "dud"

With the market still drunk with hopium and grotesque stupidity from last week, after surging triple digits on an NFP number which was exactly as expected (returning strikers added 10,000 workers and the Birth-Death model, when accurately measured, contributed a net 17,000 jobs, so strip out these two effects and we actually end up with +40,000, which was bang on the consensus estimate) here is another reality check from David Rosenberg for all those who may be confused and believe that buying the "dips" or the market is in any way a prudent decision, when all it does is begs for someone to pull the rug from under the feet of speculators who believe that momentum and an implied correlation of 1 is indicative of improving fundamentals. Additionally, as nobody else seems to enjoy touching the topic, here is another observation on why we continue to live in a depression.

"After two months bankers would like to forget, Wall Street may need a September to remember to avoid closing the books on the worst quarter for investment banking and trading revenue since the peak of the financial crisis." So begins a Bloomberg piece highlighting why the ongoing boycott by retail investors (who incidentally hold the bulk of the S&P's market cap) of terminally broken capital markets may finally achieve more than all futile campaigns to pull deposits out of the TBTF banks ever could. It is no secret that regular, non computerized, investors have now shut out Wall Street as they now have absolutely no faith left in capital markets, a phenomenon we have been tracking since its inception. The "joke" that are capital markets has led such asset manager as Jim Rickards to tell his clients to pull their money from the stock market. He won't be the last. Yet incidentally, this simplest form of denial to participate in the ponzi is precisely the stake that will go right through the heart of the various vampire entities controlling capital formation. The alternative is a toxic spiral whereby low revenues, mean more Wall Streeters get fired, leading to yet lower revenues, and so forth, once again demonstrating that just like any natural system, you can only push the balance out so far, before the system snaps right back. Ironically, this will happen without any regulation or intervention whatsoever, as the regulators have become as corrupt as the markets they are supposed to oversee, leading investors (and not speculators) to take matters into their own hands. The pain for Wall Street is just starting... It couldn't have happened to a nicer group of people...

The USDJPY has just dropped to a 15 year low as the market is in full risk-off mode, hitting 83.54. Philip Hildebrand is also seeing black and blue as the EURCHF approaches all time lows, now that the BoJ once again let matters into other central bankers' hands. In the meantime, based on funding correlations (AUDJPY and Curve Butterfly) stocks are so mispriced here, it is just getting ridiculous: ES is easily 20 points rich to correlation intrinsic values. There appear to be no viable correlation desks left in the world, willing to take on the Fed's now grotesque mispricing of stock markets.

Gold is rapidly approaching its all time high intraday high (and someone please inform Dennis Gartman that Gold in euro terms is close to its record again), as spot has surged $12 in a few minutes and is now near $1,260 (record intraday was $1,265 set back in June). In addition to the CHF and the JPY, gold is once again the safety trade. This comes hot on the heels of the recent report issued by UniCredit SpA’s Jochen Hitzfeld, the most accurate gold forecaster tracked by Bloomberg in the last three quarters, in which the analyst raised his estimate for the metal’s average price next year by 12 percent to $1,400 an ounce, and for 2012 to $1,600. As the full report below indicates, the surge will be helped by concern about the effect of government economic- stimulus plans and speculation about increased demand in China, the world’s second-largest buyer after India. Hitzfeld also is so daring as to think what will happen when actual demand, and not central bank interventions, sets the price of gold: "gold supply will increasingly be determined by investors. Twenty years from now, investors will probably find it hard to imagine that there was once a time when jewelry demand determined one of the world’s most important asset classes. If investors were to switch only 1% of the global market capitalization of equities and bonds into gold, at the current gold price of around USD 1,250 per troy ounce, this would translate into demand of 36,000 tons. According to the US Geological Survey, this is roughly equivalent to the known gold reserves. In reality, however, there will be a mix of gold purchases and increases in gold prices. At a gold price of USD 2,500, only 18,000 tons of gold would be required to reach a share of 1%." But you still can't eat the damn thing!