Archive - Jan 13, 2011

The artist said that the more complicated an idea, the more worthless. So here is a very simple bizarro world thought experiment:

1. Everyone in America maxed out their credit cards (on average about 4) to pay as much of US debt as possible (link)...
2. Everyone refused to pay their credit card bill when invoiced.

Net result: America pays off the debts incurred to rescue the banks?

If, at this point, it’s not clear that the entire financial system is not a disaster waiting to happen, then I don’t know what else to say. Indeed, our entire system is built on fraud and managed by folks who don’t know what they’re doing. And if you think they’ll get us steer us to safety, consider that around the globe we’re already beginning to see signs of systemic collapse.

The day's key events in equities, vol, FX, rates, corporates and commodities, as well as a recap of tomorrow's upcoming events.

The vast majority of Americans, including many of those who believe that they are "educated" about the Federal Reserve, do not really understand how the Federal Reserve really makes money for the international banking elite. Many of those opposed to the Federal Reserve will point to the record $80.9 billion in profits that the Federal Reserve made last year as evidence that they are robbing the American people blind. But then those defending the Federal Reserve will point out that the Fed returned $78.4 billion to the U.S. Treasury. As a result, the Fed only made a couple billion dollars last year. Pretty harmless, eh? Well, actually no. You see, the money that the Federal Reserve directly makes is not the issue. Rather, the "magic" of the Federal Reserve system is that it took the power of money creation away from the U.S. government and gave it to the bankers. Now, the only way that the U.S. government can inject more money into the economy is by going into more debt. But when new government debt is created, the amount of money to pay the interest on that debt is not also created. In this way, it was intended by the international bankers that U.S. government debt would expand indefinitely and the U.S. money supply would also expand indefinitely. In the process, the international bankers would become insanely wealthy by lending money to the U.S. government.

As the conventional and cheap oil and gas start to dry up in the Middle East… a bigger, even better opportunity seeks to replace it.
For many who aren’t familiar with the region, the Middle East comes across as an updated version of Lawrence’s Arabia, only with lots of oil. But this mosaic of cultures isn’t made up of only Arabs or Muslims, and most Middle East countries are neither awash with heavily armed, rather excitable citizenry… nor with black gold, which is what we’re interested in. Twenty-three countries comprise the Arab League, but only Saudi Arabia, Iraq, Kuwait, the United Arab Emirates (UAE), and Iran are major oil producers.

Nothing like a little stick save in 20 minutes to prevent a, gulp, close at the day's lows. Fidel Sarcastro demonstrates how the HFT crew is now doubling also as SkyNet's goalie.

It has not been a good day for New Jersey. First, governor Christie dared to tell the truth (i.e., that the state could go bankrupt on increasing... yes you read that right - INcreasing - health care costs) which pretty much cost the state a successful bond auction as we reported earlier, and now we find that one of the casualties in today's Coinstar collapse is none other than the State of New Jersey, which owns a (less than) whopping 460,000 shares. Granted the loss for NJ is only $8.2 million but it is never nice to kick a man down as he is on the very of insolvency. The table below shows all the biggest losers in today's after hours wipe out in Coinstar. Notably, at position 4, is Jim O'Neill's latest fiefdom, Goldman Sachs Asset Management, which continues to live up to its reputation of one of the worst asset managers on Wall Street.

According to a loosely-organized apocalyptic Christian movement, May 21, 2011 will be the "end of days." On or about that same date, the price of oil in the United States will begin to climb to $4 a gallon, according to two savants of the oil industry. The former is highly unlikely but the latter is very probable. The escalation in the price of oil is predicted by the legendary oil man T. Boone Pickens, known for his financial acuity as well as his oil expertise, and John Hofmeister, who retired as president of Shell Oil Company, to sound the alarm about the rate of U.S. consumption of oil. In an interview with a trade publication, Hofmeister predicted that oil would rise to $4 a gallon this year and to $5 a gallon in the election year 2012. Separately, Pickens—who has been leaning on Congress to enact an energy policy that would switch large trucks and other commercial vehicles from imported oil to domestic natural gas—predicts that oil currently selling for just over $90 a barrel will go to $120 a barrel, with a concomitant price per gallon of $4 or more.

RANsquawk Market Wrap Up - Stocks, Bonds, FX etc. – 13/01/11

Who would have thought that such things as consumer wealth and cash actually matter for companies? After CSTR enjoyed a doubling of its stock price in the past year, it now appears many of these were based on the same thing that has driven the entire economy: hopium. The company has slashed Q4 revenue guidance from $415-440 to $391, and now sees EPS of $0.65 and $0.69 compared with guidance in the range of $0.79 to $0.85. Coming to pretty much every single consumer discretionary (ahem Netflix) stock near you.

How is the government STILL bailing out the giant banks? Let me count the ways ...

Intel reports revenues of $11.46 billion on expectations of $11.36, with EPS coming at $0.59 on expectations of $0.53 and whisper number of $0.56. After a kneejerk reaction higher, the stock has pared back gains and is now about $0.20 cents higher. Earlier, it was reported that INTC Put contracts had risen to a 10 year high of 323,825 so there likely is quite a substantial short base in the name.

We call it chart of the day, but it could just as easily be the chart of the century, as this one chart, presented courtesy of Sean Corrigan of Diapason Securities, captures without a shadow of doubt the revolutionary regime change that occurred in US (and global) capital markets with the advent of cheap credit policy in the aftermath of America's near brush with hyperinflation in the early 1980s. The chart demonstrates the "great regime change" that occurred some time in the 1980s-90s, and confirms that whereas inflation used to be the biggest threat to equity returns (and thus stock prices), as can be seen by the inverse correlation between the S&P and bond yields in the 1962-1974 period (note the UST10 yield is inverted for this period), this correlation flipped in the late '90s and and 2000s, and it has become a direct correlation. In other words, whereas before a surge in yields (and thus a drop in bond prices) would cause stocks to drop, now we see a stock market which correlates directly with yields (and inversely with prices). As Corrigan summarizes: "T-Bonds used to trade with, but now trade against equities. Growth, not inflation, is the limiting factor in the market's calculations."

"It’s the machines’ market now; we just trade in it." - Felix Salmon and Jon Stokes

I've got a bad feeling that the Great Intervention Rally of 2009 - 2011 is about to hit an iceberg. January 2011 is eerily reminiscent of January 2000. Ignoring warning signs of being overheated and overloved, the stock market rose month after month, defying doubters. With 12,000 within one good day's run, the Dow reached 11,908 in the week of January 10, 2000, and then rolled over. The next week it sprinted again for 12,000, hitting 11,834, but alas, the mighty advance was over. The S&P 500 topped out a few months later and then started down a relentless three-year slide. I sense a dislocation coming in global markets.