Archive - Dec 2011

While the general media may be ignoring the latest peculiar twist on the "Occupy" theme, or in this case the "occupyourhomes.org", Bank of America is taking it quote seriously. As a reminder, "Tuesday, December 6th is the National Day of Action to stop and reverse foreclosures. The Occupy Homes movement is holding actions around the country in support of homeowners and people fighting to have a home. Find an event near you and join in our day of action tomorrow!. There are actions happening in over 20 cities nationwide. Events are taking place in Brooklyn, Buffalo and Rochester New York; Los Angeles, Oakland, San Francisco, San Diego, San Jose, Petaluma, Sacramento, Paradise and Contra Costa California; Lake Worth, Florida; Atlanta, Fayetteville, and DeKalb Georgia; Chicago, Illinois; Bloomington, Indiana; Minneapolis, Minnesota; Cleveland, Ohio; Denver, Colorado; Detroit and Southgate Michigan; St. Louis, Missouri; Portland, Oregon; and Seattle, Washington." And if you have not heard about today's protest on the conventional media that is understandable: as BAC says internally, this event "could impact our industry." Here are the specific warnings to BAC "field services" agents: i) Your safety is our primary concern, so do not engage with the protesters; ii) While in neighborhoods, please take notice of vacant BAC Field Services managed homes and ensure they are secured; iii) Remind all parties of the bank’s media policy and report any media incidents. Aside from the superficial implications, what is more important is that the big banks are showing precisely what the weakest links in the system are, and what makes them the most nervous: it is not protesters living in tents in a major metropolitan city: it is protesters disrupting the lifeblood of the broken banking system - the home selling/repossession pathway. Expect many more such protests now that Bank of America has tipped its hand.

At this point it is clear that there is no single person in America, and possibly the planet who can influence markets as much as the Chairman of the Federal Reserve Board.  The president may have more overall power (possibly) but in terms of moving markets for weeks at a time, that power primarily belongs to Mr. Bernanke.  An unelected official with almost total control over the “board” he chairs. Some have argued whether the Fed should even exist.  Peter Tchir doesn’t go that far (it is beyond his scope), and it is understandable why the Fed needs some independence.  But we don’t understand why Bernanke isn’t accountable or why there aren’t limits.

Attached is today's picture of a 'touching' moment of "someone else has to pay for it" European cohesion.

Time to add another focal point to the ever larger matrix of geopolitical chokepoints. As this live webcast from Moscow shows, where several hundred protestors are shouting "Russia Without Putin" things in Russia, in the aftermath of the recently completed parliamentary elections which saw Putin's party lose substantial popular support, are heating up. Will the government respond, as it sometimes tends to do, with a crack down on protesters? Stay tune and find out.

Whether it has been investor sentiment, equity implied volatility, or sovereign bond spreads, 2011 has been a year of extremes. The roller-coaster of various spreads, prices, curves, and flows still leaves us cognitively dissonant as we anchor on recent action and forget where we came from. BofA has produced a 'stress heatmap' that at-a-glance illustrates the behavior of 20 critical cross asset class warning signals throughout 2012 and we note this Critical Stress Signal has been in risk-off mode since July 12th - which fits well with the relative perspective we have long-held that high-yield credit is pricing for considerably more concerns than equities for instance. Seven crucial aspects are highlighted throughout the year, most notably the slower than expected tail-risk hedge demands in Europe as we suspect ECB QE complacency remains far too high. Nowhere is that optimism more evident of policy maker intervention than in the money flow indicators currently which are back in non-stressed territory.

A lot of punters are awfully confident that Santa Claus will deliver his usual year end rally this year. A glance at a few charts calls that confidence into question. Let's take a look at a daily chart of the S&P 500. (Those of you who loathe charts, please scroll down and enjoy the pithy conclusion.) While charts are as much a reflection of the reader as the market, several things pop out of this chart to me. One is the bullish flag in September. The On Balance Volume (OBV) was rising while price declined, a classic example of bullish divergence. Given this and some other clues (sentiment hit an extreme of bearishness, VIX spiked,etc.), then the rally in October was not exactly "out of the blue." But when we turn to recent action, the indicators are bearish. OBV climbed to a new high, but price did not even make it up to the previous high--a bearish divergence. Now OBV has plummeted while price has skyrocketed higher, an extremely ugly divergence.

Following a widely publicized bounce in the Paulson & Co. performance in October, a time in which even the since retired beta chaser extraordinaire Bill Miller probably made money, and following the mocked by Zero Hedge 13F announcement that John Paulson had sold gold exposure to buy even more Bank of America stock, we now learn that the fund's LPs have once again resumed crash positions, with the performance of his fund dropping back to 2011 lows at -46% through November. Bloomberg brings us details: "Paulson’s Advantage Plus Fund, which seeks to profit from corporate events such as takeovers and bankruptcies and uses leverage to amplify returns, declined 3.6 percent last month. The fund’s gold share class dropped 2.7 percent in November and 29 percent this year. Paulson & Co., which is based in New York and manages $28 billion, has lost money this year on investments including Citigroup Inc., Bank of America Corp. and Sino-Forest Corp., the Chinese forestry company accused by short-seller Carson Block of overstating timberland holdings. Paulson’s biggest funds, Advantage Plus and Advantage ... have $11 billion in combined assets. The dollar-denominated Advantage Fund fell 3.3 percent in November and 32 percent this year. Its gold share class slumped 1.5 percent last month and 13 percent in 2011. Paulson investors can choose between dollar- and gold-denominated versions for most of the firm’s funds." Perhaps it would be easier for Bloomberg to track what the former Bear trader has actually made money on in 2011. We are confident they would be surprised by the list.

Are we going to get a Christmas Rally in stocks? Perhaps. So thinks Art Cashin quoting Tom DeMark (whose predictions lately have all been about as good as those of another Tom: the infamous Stolper from Goldman Sachs). Either way, any fake rally for purely Career Risk purposes (most hedge funds still underperform the market with two weeks of trading left in the year) will be met with an even more aggressive sell off in the new, "no fiscal stimulus" year. Aka: "the bill."

From the full release: "We could lower the long-term credit rating on EFSF by one or two notches if we were to lower the 'AAA' sovereign ratings, which are currently on CreditWatch, on one or more of EFSF's guarantor members. Conversely, we could affirm the 'AAA' ratings on EFSF and its issues if we affirm the rating on all six of EFSF's guarantor members currently rated 'AAA'. We could also affirm the ratings if we were to lower the current 'AAA' ratings on one or more guarantor members, but had evidence that the EFSF guarantor members were implementing further credit enhancements that were in our view sufficient to mitigate the relevant guarantor members' reduced creditworthiness."

Why did the CFTC abdicate its congressional mandate, pushing a futures broker into the jaws of SIPC where a trustee with no futures experience could rack up exorbitant fees?

Remember that 50 bps RRR cut a week ago which was supposed to telegraph to the market that the PBoC has commenced a monetary easing phase? It appears quite a bit more telegraphing will be needed: unlike in the developed world, where the central banks are entirely in control of capital markets, in China capitalism still has a foothold, however weak, and a result the Shanghai Composite is indicating the direction of where the global economy is truly headed, pro forma for that ridiculous most recent speculation that the US will decouple form something or another.

It looked like S&P had gone off script. They slapped a negative watch on any euro country that didn’t have it already. They even came out with details about which countries faced 1 notch and which faced 2 notches. I’m glad I didn’t have this information on Friday as I wouldn’t have bet we would be up 1.5% on the week given that move. Now, it looks like this move has been incorporated into the plot. It puts added pressure on the countries to come to a “resolution” this weekend. It is being viewed as increasing the likelihood of a deal since the countries all want to avoid the downgrade. If they do reach a deal, then taking them off watch could add to the post photo-op rally.

To bull or not to bull, that is the question...

You better curb that risk Boss, sir, or else... Please!

All you need to read.