Archive - Oct 2011

According to the German edition of the FT, G-Pap is once again using the R-card (that would be resigning-cum-retiring) - the last time he did this was back in early July when he had to persuade the government to vote for the July 21 Greek bailout #2. He was bluffing then. He is likely bluffing now, although if he isn't, it means game over for Greece and probably for the European dream, not to mention united currency. From FT: "[G-Pap] has been trying for months to keep his country from bankruptcy - Tens of thousands of Greeks are against the austerity policies of the government on the barricades. No wonder the prime minister is thinking of throwing the rocks." Since this is google translation, we assume "throwing rocks" is loosely translated as getting the f#*$ out of Dodge while the getting is good, while the private jet still has fuel and while the gold is still in the cargo hold.

A new Anonymous statement to the media regarding a DDOS attack set forth to take place October 10th. Expect a day that will never, ever, be forgotten.

As most know by know, a flurry of rumors that American Airlines may be on the verge of bankruptcy not only took down the stock by about 40% at one point today, but was halted around 6 times following repeated consecutive circuit breaker triggers. Yet none of that is material at all to the biggest holders in the stock, and especially those analysts at their companies who recommended AMR, and are all about to be summarily sacked. While John Paulson is not an investor in AMR, other "balls to the wall" funds like Appaloosa, with 5.6 million shares, are. Below is the full list of top 25 entities losing about a third of their notional on AMR today.

Where is the US and global economy going? What will happen to the dollar and euro? And how can investors protect themselves from the fallout? All these questions and more were answered at the Casey Research/Sprott, Inc. Summit When Money Dies. Kevin Brekke reports live from the conference…

The credit markets here are actually deteriorating and are showing signs that there is growing default concern, rather than just pressure to reduce risk. If investors only wanted liquidity they could sell some of the bonds that have performed better.  If they weren’t hedging jump to default exposure, they wouldn’t be starting to bid up the front end of the curve.  Investors are examining their positions closely and are exiting the positions they fear the most in an economic downturn.

From NBC: "A massive fire is burning at Magnablend chemical plant in Waxahachie. The company has three facilities in Waxahachie and the fire is at the Central Facility at 1601 state Highway 287 Bypass just east of Interstate 35E. According to their website, the chemical company has 80,000 gallons of bulk liquid storage at the facility. The fire is very intense and moving beyond the property and into an adjacent field toward the Ellis County campus of Navarro College. A fire truck in the parking lot managed to keep the fire from spreading to the building.  The college was evacuated immediately after the fire broke out. The fire continues to push toward a train loaded with tankers stopped on the tracks. A fire truck at the property was engulfed by the fire as it spread quickly across the ground." Watch the live video below.

UPDATE 3: C -9.7%, BAC -9.3%, MS -7.1% & CDS blowing too in Financials (GS +60 at 387bps, MS +53 at 547, BAC +34 at 451, C +32 at 347...and Insurers (AIG +70 at 540, HIG +45 at 465, MET +27 at 390, PRU +35 at 340, and BRK +20 at 270)

UPDATE 2: Citi, MS, and BofA all down 8%!!!

UPDATE 1: Citi, MS, and BofA all down over 7% now, XLF -3.5%!!

In the last hour, financials have accelerated to the downside very rapidly. It seems perhaps that the credit markets were on to something and now equities are realizing that something is definitely worrying market professionals.

MS -5.7% at $12.7 (from highs just above $14 this morning as Cramer recommended), BAC -4.75% at $5.82 (lows since MAR09), GS -3% at $91.7, C -6%, XLF worst performing sector -2.5% (Is Kass still renting?)

Now that the FT is reporting that as part of the ongoing emergency talks to rescue an expiring Dexia, one of the proposals is a spin off of a Dexia "bad bank" - something which worked for UBS, which is still a partial protectorate of Switzerland, but will most certainly not work for governmentless Belgium, the question is "who is next" Luckily, we have the following handy summary, courtesy of Reuters' Peter Thal Larsen who has pulled a chart from an Espirito Santo report, showing a 2-D matrix of liquidity (i.e. liquid assets as a % of wholesale funding assets), versus reliance on wholesale funding - the one component in European interbank markets which is now completely dead. Needless to say red is bad. And if one thinks that Dexia is about to file, then it may be last rites time for Soc Gen, BNP, Raiffeisen, and DnB Nor.

As of milliseconds ago, one share of Bank of America stock is now $5.99, a level it has not seen since the apocalypse back in March 2009, and upon penetrating it, a huge volume surge followed as an avalanche of sell orders were activated. However, we are confident this will be temporary. According to largely amusing rumors, Bank of America will follow through with its expropriation procedure and withdraw $5 from longs' brokerage accounts for each share they hold, effectively doubling the market cap in the process. So you see: there is nothing to worry about. Warren: resume your bath, both literal and metaphorical.

From significant outperformance early in the European trading day, Financials lost considerable ground as the US opened and bank funding problems were admitted. Obviously, Europe had some catch up to do to the afternoon session in the US Friday, but it went beyond that with Senior Financials closing near the day's wides even as the broader equity market in Europe was only down around 1.3%. The underperformance (against their intrinsic value and peer asset classes) of both Main (the investment grade credit index) and Senior Financials (which are both the lowest cost liquid indices to 'hedge' with in European credit suggest significant macro protection is still being added here. EUR making new multi-month lows below 1.33 as EURJPY tanks and CEEMEA sovereigns widening dramatically also does not help restore confidence as Gold gets a safety bid and USD strengthens.

Here's what markets do when they break critical support: they re-test lows. That sets up an eventual target for this decline of 670, which would be a re-test of the March 2009 lows. Bulls have to answer this question: once the 200-week MA is broken, why shouldn't this market re-test the recent low? If it's "different this time," what makes it different from every other era and market? It might be a good time to recall that index funds are only "safe" in the sense that they aggregate the risk of all stocks in the index. A market that declines 40% will take index funds down 40%. There is nothing "safe" about long-equity funds that track a market heading down. Nobody knows what will happen tomorrow, much less 30 days from now or three months from now, but as of this snapshot of the market, the evidence of a Bear market decline is rather substantial, and the technical evidence of a Bull market is rather thin. As the saying goes, keep it simple.

How will GS put a real hedge, a counterparty risk mitigating prophylactic if you will, over that big green stalk that is representative of Total Credit Exposure to Risk Based Capital? Short answer, Goldman may very well be to big for a counterparty condom. You pretty, brand name Goldman counterparties out there (and yes, there are a lot of y'all - GS really gets around), expect to get burned at the culmination of that French banking party I've been talking about for the last few quarters.