Archive - Jan 25, 2011

Source: Banzai7 News

The SEC is conducting an inquiry into Illinois' projected pension savings and looking into California's as well...

"Most commodities are continuing their up move into deeply overvalued. As with other assets it does not really matter in the short-term (as long as the trend is positive) but it is paramount for longer-term projections. We have little doubts that commodity long-only who buy to hold are going to experience a >50% drawdown (from current levels) on their industrial metals, crude oil and agricultural positions sometimes in the next 24 months. Demand has been artificially boosted by China strategic reserve building, infrastructure intensive fiscal stimulus, booming demand from the rest of emerging economies and, as the trend persisted, by trend followers and money managers new attraction to the sector (you know it is not correlated so you should buy them to diversify your portfolio... sorry it WAS not correlated...). The introduction of physically-based ETFs is not helping in this matter as it represents a big short-term increase in marginal demand especially when the Fed is busy implementing QE2." Damien Cleusix

In this issue of The Institutional Risk Analyst, we return to the zombie dance party to check in on the queen of the prom, American International Group ("AIG"). First a question: Vampires are all the rage now in popular culture, so allow us to offer a macabre metaphor for AIG. Do you know what a "blood doll" is? A girl who craves to be the regular victim of or willing donor to a vampire. But hold that thought.

Courtesy of today's flash smash in IBM stock, which briefly sent IBM stock surging by 3% on what appears to have been a rogue trade, but may have been more, we now have some further clues into the massive market lifting buy orders that appear out of leftfield at strategic times, typically just before Sputnik moments. Bloomberg explains the melt up in the stock, that coincided with the inexplicable 80 point DJIA rally on no news, that moved the market from its lows, to green (in ES) for the day. "IBM, which makes up 10 percent of the share-price weighted Dow average, jumped to $164.35 on an order for 200 shares on the New York Stock Exchange at 3:18:15 p.m. New York time, according to data compiled by Bloomberg. The stock traded at $160.89 during the same second, followed by five trades for a combined volume of 19,600 shares at between $163.22 and $164.35, or as much as 2.2 percent higher. IBM retreated to $160.78 following those trades." But by then it was too late: the buying spree, of which IBM had been part of, had offset a momentum algo that for some inexplicable required a stunning 500 ES contracts per second for the last 15 minutes of trading - a truly whopping number, and indicative of someone with virtually unlimited pockets doing the buying. Furthermore as the chart below shows, the IBM trade happened just as the buying program went berserk and sent the TICK to the day's high at 1352.

Top five words: "Government", "Spending", "Debt", "President", "Now"...

The most repeated words are "people," "years", "new", "jobs" and "make." Sounds about right. "Debt" is not even in the top 50.

Let’s say that your rainy day jar contains $10,000 to cover any unforeseen problems. Now let’s say that one day I decide that I only need $5,000 to cover unforeseen expenses. Does this random mental calculation mean I’ve made more money and need to report $5,000 more on my tax return that year? NOPE. However, this is exactly how GE, JP Morgan, and Citigroup generated their “stellar” earnings.

"Mr. Speaker, Mr. Vice President, Members of Congress, distinguished guests, and fellow Americans"...

Earlier, Marc Faber appeared on Bloomberg TV, in what may go down in history as his most scandalous interview ever. When asked, in advance of the SOTU address, what he thinks of the president, Faber, who appears to have had enough with all the bullshit, propaganda, and lies, replies: "I think he's done a horrible job and I think that will continue, I think he is a dishonest person, and nothing has changed... Some politicians are more honest than others. I don't think that I have a very high regard for politicians, I have a high regard for businessmen and for people who work, and not for people who abuse the system continuously. And in comparison to other politicians, I think he came in on a platform as a president that would want to change the government in Washington, and actually he's made it worse... We foreigners, we just laugh at someone like Mr. Obama. I was very critical of Mr. Bush, but at least he had one line and he stuck to that line, and at least he set out to do a thing and he was relatively straight on the thing that he did. He may have been wrong, but at least he didn't change his mind continuously, and didn't prostitute himself." If nothing else, how many other people do you know who will compare, in front of a live Bloomberg audience, the president of the formerly greatest country in the world to a whore?

Earlier we reported that according to rumors, Gamal Mubarak, together with his family, had left Egypt and were spotted in the UK. We now have confirmation from the Examiner, that indeed, the Egyptian president, Hosni's, son has left his battered country and had relocated to London indefinitely. What is unclear is how much gold, and other inedible commodities, the president-in-waiting had stowed away in his 97 pieces of luggage. Then again, with Egypt holding (having held?) 75.6 tonnes of gold to Tunisia now 5.7, 97 sounds about right...

Here's what you need to know... about what is rapidly becoming the funniest market ever.

Ever heard the joke "How many European Economists does it take to come to the wrong conclusion about the cause(s) of the American housing crisis?" No? Really? Well, anyway, the answer, it seems, is three:

When it comes to AIG's liquidity crisis, Wall Street's conventional wisdom absolves Goldman from blame. Goldman's people, so the story goes, were smart and therefore prescient about the declining values of CDOs. So their demands for cash margin from AIG, which insured billions of toxic CDOs for Goldman's benefit, were legitimate. By contrast, AIG's people, the poster boys for financial incompetence, kept flailing about because they were in denial until everything reached a crisis point in September 2008. Yes Goldman was smart, and yes, the people at AIG were clueless, which is why Goldman could pull off such an audacious scam. Goldman's demands for margin were made in bad faith, and possibly under fraudulent pretenses. The conventional wisdom overlooks a critical point: The legal documents had no teeth and might have been impossible to enforce. The problems with the documents, in the context of the overall business deal, require a bit of explanation. But it's worthwhile to remember that all these deals are governed by two truisms: First, if you skip a step in analyzing a structured deal, you probably end up with the wrong answer. And second, almost everything about CDOs is kept secret in order to protect the guilty.

Since last week the ratio of selling to buying was #Ref!, it could really only go up. And it has. In the week ending January 21, the S&P 500 saw 2 insider buys (Tiffany and Fastenal for a total of $131,227) and 60 insider sales, worth $373 million, for a total insider sell-to-buy ratio of 2,842x. The biggest selling occurred in Discovery Communications ($101 million), Tiffany (where the $54 million just modestly offset the $119,259 in buying), Apollo Group ($44.8 million), McKesson ($40 million), and Hewlett-Packard ($25 million). So just like the government's definition of inflation, where if you strip away everything you have deflation, absent all the selling in the last year, which now amount to about $20 billion, there has been nothing but insider buying.