Archive - Sep 2010

There is a reason why many countries institute mandatory retirement age: it is so that when dementia strikes, and people spout any damn thing that comes to mind, only the nearest four walls are subject to their insanity. Alas, when it comes to Berkshire Hathaway, no such luck. And while we have extensively discussed Warren Buffett's recent inexorable decline from merely a successful rider of the biggest cheap credit bubble in history to a captured puppet of Wall Street courtesy of his tens of billions of Wall Street-related investments, little has been said about his even older, and apparently even more affected by the unpleasant side-effects of a public televised senescence, sidekick, Charlie Munger. Luckily, courtesy of Bloomberg we now know just how deep the rot runs in the Berkshire family. During a discussion at the Universtiy fo Michigan, the 86 year old told the 25 million of Americans who comprise the 16.7% of the underemployed population in the country, to "suck it in and cope." Not only that, but apparently, all those who have been without a job for 99 weeks and more and no longer have recourse to insurance benefits, should "thank God for bank bailouts." Why of course he would say that: after all $26 billion worth of direct BRK investments were the recipient of over $95 billion in bailouts. So when it comes to him, thank god for the bailout indeed... But when it comes to the little man, old Charlie is all about doing the right thing.

Just another story....

WTF is going on here? Did someone feed booze to the collocated computers? Someone smarter than us please explain this.

Just headlines for now, but this likely means the Greek bond roadshow has been cancelled as not even the world's best underwriters were able to generate enough interest for the imminent disaster that will be Greek bonds. One can only imagine how much horror must have gotten uncovered during the roadshow process if investors, even with the backstop of the ECB's endless guarantees, have said "no mas." Luckily, Moody's earlier gave a provisional rating of AAA to the European Financial Stability Fund (EFSF), which it now appears will be used imminently, first for Greece, then Ireland, and then everyone else who comes to the trough. If this news doesn't send the S&P over 1,220, nothing will.

The bank notes it will issue 308.6 million shares for total gross proceeds of €10.2 billion. This is somewhat perplexing as the bank currently trades at €46.88 on the XETRA. In other words, DB is selling one third of itself on a pro forma basis. Of course, this will mean a bloodbath for all the smaller banks once they commence their Basel III required capital raising activities as their discount will have to be far greater than DB's.

BofA's chief technical research analyst Mary Ann Bartels has released a note in which she demonstrates the bullish and bearish technicals currently in the market (although with the only thing mattering anymore is when and how big any given Fed permanent open market operation will be, we question the utility of technicals even). While Bartels is still holding on the a call for a "deeper equity market correction" while noting the obvious ("The equity market this year has frustrated both the bulls and the bears, and this is likely to continue into year-end, in our view") she points out that the broader market signals are mixed. She points out that "most short-term indicators have generated a sell signal and Net Tab is not oversold. We still need to break and hold above S&P 500 1150 to invalidate a potential head and shoulders distribution top. A test of the July low (1010) is still not ruled out. A break above1150 would point to a test of the April high of 1220." Today's action shows just how hard the market is trying to breach the upside resistance and disprove all the economic fundamentals that unequivocally point to an ongoing and accelerating deterioration in the economy. Below are the key charts supporting Bartels' call.

All the pieces are in place for a significant top to form and a potentially devastating reversal to begin. To wit, stocks have spiked up over major resistance at 1,131 on the S&P 500 just as the RSI nears an overbought reading.Meanwhile investor sentiment has swung by to wildly bullish with the Daily Sentiment Index showing 83% of investors bullish on the S&P 500 while the AAII survey shows 50% of investors bullish and only 24% bearish. We also have corporate insiders dumping shares as fast as possible to cash out of the market.

The WSJ is out with a short piece about new rumblings coming from Japan's $1.43T public pension fund, Japan's Public Pension Weighs New Investments. If I may be so bold as to impersonate the Japan deflation-blogger Mish for a moment, let's take a look at a few of the dynamics at play as reported by the WSJ. I'll provide some commentary along the way.

A major fire has erupted under the Harlem River bridge, where a wooden train trestle is in flames. All traffic in and out of New York via Metro North has been suspended. Watch live coverage via Fox News here.

RANsquawk US Afternoon Briefing - Stocks, Bonds, FX etc. – 20/09/10

As stocks continue surging higher on absolutely no news (let along good ones), the one and only natural offset to the demented and deranged actions now undertaken by all central banks continues to be gold, which just moments ago touched on new all time spot highs at $1283.80. And while the president is touting Brian Sack and Ben Bernanke's fantastic handling of the stock market year to date, perhaps he or one of the other members of his shrinking economic team can explain why the S&P in terms of gold is down 12.65% Year to Date!

A month ago, we discussed the death spiral that the Illinois Teachers Retirement Fund has now entered by openly commencing to sell its securities. We stated: "At this point it is too late: for TRS, and likely for many, many
other comparable pension funds, which had hoped that the Fed would by
now inflate the economy, and fix their massively incorrect investment
exposure, the jig may be up. As liquidations have already commenced, the
fund is beyond the point where it can "extend and pretend", and absent
the market staging a dramatic rally, government bonds plunging, and risk
spreads on CDS collapsing, the fund is likely doomed to a slow at
first, then ever faster death." This speculation immediately prompted a response by Dave Urbanek who replied to Leo Kolivakis (we have yet to hear from Mr. Urbanek directly), who said: "Please remove your post of Tyler Durden’s inaccurate analysis of the Illinois Teachers’ Retirement System. It is not excellent. It is wrong. TRS is not in a death spiral. We’ll still be operating and paying pensions for years to come." Yup - about 10 years to be precise, and then it's over. Today, Bloomberg's Jon Erlichman settles the debate, by focusing on the Illinois State Board of Investment in a special video report, where he confirms that absent state funding "the $9.6 billion fund, in less than 10 years, could have no money left. If they get no state funding and they just have to rely on employee contributions, there you go, you could go from $10 billion to zero in less than ten years." There you go indeed. Our condolences to Illinois pensioners - you now have about 10 years of natural asset coverage, absent your pension funds becoming the latest government-sponsored ponzi scheme.

Today's POMO is over, and the result is a whopper: Brian Sack has just injected a record for QE Lite $5.2 billion in stock, in order to complete all the elements of today's orchestrated Obama Town Hall meeting, during which the president is now fully expected to announce that he not only managed to end the recession singlehandedly (what an opportune time for the NBER to announce its results), but that stocks are now ripping every single time he appears on TV (same goes for gold, oil, and pretty much everything else: and furthermore, Treasurys are unchanged, refuting all of Mr. Pisani's BS about capital reallocation in process). $5 billion today, add another $6 billion on Wednesday and Friday, lever up 30 times and you have some $300 billion in free buying given to the Primary Dealers so they can ramp the S&P to 1,150 by the end of the month. Job well done Mr. President. Too bad nobody but Wall Street and a few HFT prop desks care about the stock market any more.

The NBER has finally announced the most worthless and overdue piece of data, namely that somehow, miraculously, the US recession that started in December of 2007 ended in June of 2009. We have yet to hear when the distinguished Ph.D.-bearing shamans of Keynesianism at the NBER will convene to decide when the Depression that started in December of 2007 will end. Our estimate is sometime in the mid 2020s, long after the Dow hit 36,000 as news of total nuclear annihilation was priced in by WOPR. From the NBER: "The Business Cycle Dating Committee of the National Bureau of Economic
Research met yesterday by conference call. At its meeting, the committee
determined that a trough in business activity occurred in the U.S.
economy in June 2009. The trough marks the end of the recession that
began in December 2007 and the beginning of an expansion. The recession
lasted 18 months, which makes it the longest of any recession since
World War II. Previously the longest postwar recessions were those of
1973-75 and 1981-82, both of which lasted 16 months." Somehow we think the 17% of America's labor pool that is not fully employed will beg to differ with this assessment. But at least bankers will be able to justify their 2010 record bonuses.

Core Molding, Nucor Steel, and now Plantronics. Individual flash crashes have become such a daily occurrence that they are expected, in fact hoped for, if merely to confirm that nobody but a bunch of deranged robots is left trading stocks. While you won't hear about it on CNBC, as it may go just a little against the station's puff piece on how HFT is not, like, really all that bad, on Friday, just after 2 pm, the stock price of Plantronics (PLT) plunged from $31 to $24 in the span of milliseconds. And most amusingly, not a single circuit breaker was triggered in the plunge! The reason - the SEC's panacea to SkyNet, which incidentally is never proactive and always reactive, the contraption known as circuit breakers, is only applicable to Russell 1000 stocks. PLT, however, with a 'modest' market cap of $1.5 billion belongs only in the Russell 2000 index, which doesn't have any single-stock circuit breakers tied to it. The result: a whole lot of trades that should have cost the rampant algo millions in losses. But never fear: the Nasdaq steps in and makes life for its clients all peachy (while spitting in the faces of everyone else), DKing all the "clearly erroneous" trades, once again confirming that any price discovery that occurs not in compliance with what the exchanges believe is a fair and honest price have no chance in hell of standing. After all, the ponzi monster must be fed with ever increasing stock "prices" even if such prices are merely in the eye of the beholder, the exchange, and the several robots that do all the trading which #Ref out the second there is a pronounced downtick.