Archive - Oct 2011

All you need to read.

The world is about to peak in global silver production. This will not occur due to a lack of silver to mine, but rather as a result of the peaking of world energy resources, declining ore grades, and a falling Energy Returned On Invested – EROI. The information below will describe a future world that very few have forecasted and even less are prepared. This is an update to my previous article Peak Silver and Mining by a Falling EROI. In my first article I stated that global silver production may peak in 2009 if we were to enter a worldwide depression. We did not have the global depression as massive central bank printing and bailouts have thus far postponed the inevitable.

The next time someone tells you that political party X is not entirely purchased by Wall Street, specifically Goldman, Merrill (aka Bank of Countrywide Lynch) and Morgan Stanley, or that Barack Obama is not the most "gifted" politician in history, show them the following infographic...

Can you guess the year? Some notable quotes, announcements of government "fixes" and an SPX chart are provided for your assistance.

3 big questions for anyone supporting the China Currency Bill 

Bubbles, especially if supported by governments and central banks, wreak havoc when they burst. And in China, there are new ominous signs.

Following up to his must read September 20 presentation from the CLSA economic forum titled "Darkness on the Edge of Town" in which the core topic was the upcoming cliff in the capacity of monetary intervention to impact the economy (something which apparently did not prevent the BOE or the ECB to announce further monetary easing in the subsequent weeks, and which in our opinion will have no impact on the Fed as it eventually sets off on its own merry LSAP path), is the following interview given to Bloomberg TV in which the strategist, previously known for his bold S&P at 400 prediction, in which he defines the new regime as one where supply and demand no longer matter, and all is determined by centrally planning governments across the developed world. The conclusion is that while as a result of failed government policies the developed world stagnates, and the market tumbles, as a result of "earnings not holding up and thus driving stocks lower", it is Asia where any potential growth remains, and as such investors should take their dollar holdings and dump them in India (for example). One last topic was the imminent nationalization of numerous European banks (over and above what happened with Dexia, and the follows up from earlier today, Greek Proton and Danish Max). In some ways, Napier put his finger on today's market pulse when he said that investors will paradoxically like a bank nationalization as it will remove uncertainty if only in the short-term. "It is a very negative long-term thing for Europe" he says, but adds that "speaking to investors at the CLSA economic forum they are so convinced the euro is going to collapse that when it doesn't collapse, the market will probably go up." That said he concludes, "this is a major structural turning point and a bad thing for return on capital in Europe." Oh well, who cares about a year, or a month, or even a week into the future. Career risk is here and it is right now, and one must do precisely whet everyone else does.

As long-term readers recall, the observation of Goldman's dominant presence in the NYSE's weekly program trading reports by Zero Hedge back in early 2009 was one of the key drivers that set in motion the backlash against algorithmic trading and HFT which back in 2009 was the pinnacle of fringe topics and has since become a daily talking point and market scapegoat du jour on days when stocks are down (but never up). It also drew attention to Goldman's prop trading division which Zero Hedge was the first and only vocal opponent of, and has since been demolished courtesy of the Volcker Rule, an event which both Moody's and Alliance Bernstein now say could cost the bank dearly in top and bottom line, yet which Goldman told us on the record "represents approximately 10% of this year’s reported net revenue." Guess it was more, huh... Yet the same NYSE weekly program trading update indicates that Goldman, up until now a monolith in NYSE program trading, has just lost its crown in that field as well. The new king. A firm called Latour Trading, which in the last week traded 484.6 million shares in principal strategies. Which begs the question: just who is this Latour Trading which dares to upstage the firm that does god's work on earth. Alas, their website has been less than forthright. Inquiring minds certainly want to know.

No ... Only True Public Servants

No and Yes ...

"Why is the man who invests all your money called a broker?"--George Carlin

On October 7, 2011 beginning at 12:03:39.950, a massive surge of quotes in SPY, IWM, DIA and other market index ETFs, along with many symbols in the Dow Jones Industrial Average, caused an overload in CQS that lasted several seconds. This, in spite of a 25% increase in CQS capacity just 3 days earlier to a whopping 1.25 million quotes/second. During this event, Nasdaq quotes into CQS became delayed at least 800 milliseconds (800,000 microseconds). Other exchange quotes feeding into CQS also became delayed. We found many symbols with trade executions that appeared several hundred milliseconds before the quotes that could have produced them. How does one ensure trade-through price protection if the price being protected hasn't even occurred yet?  Given the evidence from this event, we have to conclude that Reg NMS must have been secretly rescinded: at least the part that talks about trade through price protection, the NBBO (why is it still being computed?), and the importance of keeping the feed affordable.

A few weeks ago it was Siemens pulling money out of French banks, then it was the Chinese, now it is EADS' (Airbus parent European Aeronautic Defence & Space) turn to warn about French bank liquidity. From Dow Jones: "French banks are experiencing difficulties providing financing for aircraft purchases by airlines, a market that is largely dominated by dollar transactions, Louis Gallois, chief executive of European Aeronautic Defence & Space Co. (EAD.FR, EADSY), said Monday. "French banks clearly have problems financing aircraft purchases," he said, speaking on the sidelines of an event to launch a new French think-tank to promote the French industry. Mr. Gallois's comments come as French banks have indicated that they were planning to cut back on dollar financing, as raising dollars has become increasingly difficult." Not like any of this will come as news to anyone who does not get their news from the mainstream media, but it is something different to see it in practice. Net result: we now finally see why companies are hoarding so much cash on their books - in lieu of an insolvent banking system, they are all becoming their own vendor and customer financing providers! Luckily, a government subsidized EADS is not as insolvent as its peer banks: "EADS is cash rich, and is not faced with any problem when it comes to buying parts in dollars, he said. "We aren't experiencing any dollar shortage," he said, adding that "we know how to deal with it."

Worried that Slovakia's Freedom and Solidarity party, which now holds Europe, and the endless bailout bonanza by the gonads, will sell out ahead of tomorrow's critical vote which may end the bailout blowout once and for all if Slovakia does not vote the EFSF through? Here is your chance to support SaS leader Richard Sulik - whose recent must read interview with Der Spiegel has gone viral - send him an email at the following address: richard_sulik@nrsr.sk

Becasue, at the end of the day, no matter what your Ivy (or wannabe Ivy) League professor tells you, more debt does not fight debt.