Archive - Jan 2011

This is not quite the end of Bank of America (and Wells.. suck it up Munger), but it very could be the start, unless Brian Moynihan's bank now spends hundreds of millions if not much more more bribing judges across the country... The only winners out of this? The plaintiff's bar as usual. Luckily, at this stage burying fraudclosure will be far more difficult for the kleptocratic banker mafia syndicate...

Whitney Tilson, the consummate "value investor" is the latest confirmation of what we have been claiming since the beginning of 2010: namely that with the Fed's intervention in capital markets, those who plan on making money using a gold old fashioned long-short, 130/30 portfolio distribution, value trading are in the bullseye of central planning. What has happened over the past year, when courtesy of the Chairman's endless market manipulation, is that the worst of the worst stocks, those traditionally shorted by all, the 5x beta crapshoots, were the ones the screamed higher, with State Street and BoNY making it impossible to hold shorts in anything, not to mention repo desks calling in borrow on a daily basis, and killed traditional fundamental analysis, where good companies are purchased, and bad ones are shorted. Congratulations Bernanke: with your reckless destruction of prudent capital allocation decisions, you will put every single "value investors" out of business. Which is why we feel for Whitney, who despite his seemingly constant appearance on CNBC at one point talking his book, returned just 10% net for his fund, compared to the S&P which did about 50% better. Hopefully the redemption requests leave something in their wake. On the other hand, like every single self-respecting asset manager, Tilson blamed the bulk of his underperformance on Netflix. Of course, he is absolutely right: the company is worth exactly nothing, but it will likely take a few years for the momo crew to figure it out. By then, all shorts in the name will be but a memory.

chairman bun s. bernanke speaks...through the ALI G Translator

*BANKS LOSE PIVOTAL FORECLOSURE CASE IN MASSACHUSETTS HIGH COURT
*MASSACHUSETTS TOP COURT DECIDES CLOSELY WATCHED IBANEZ CASE
*MASSACHUSETTS DECISION MAY AFFECT FORECLOSURE-CRISIS CASES

This is the last chart we will dedicate to today's B(L)S non-farm payroll data. It shows nothing less than than just how much of a factor the "seasonal adjustment" has become in every December data series, and is the definitive evidence of why only the most gullible but any credibility in the BLS seasonal adjustment mechanics. Unfortunately far from indicating a one time seasonal adjustment, it is no yet another secular trend policy tool, whose goal is to offset the actual drop in jobs. Indicatively while the number is now well over 2x greater than it was in 2000, the US population has hardly tripled over the past decade, requiring such a dramatic increase in fudge factors.

A few words on “adequate diversification” from a legendary hedge fund manager. Emphasis is our own . . .

We have been claiming for almost half a year now that with the policy tool known as stocks now completely irrelevant, the places where traders can still find some Fed-free volatility (for the time being) is in the FX and bond markets. We are confident that in 2011 the MOVE bond vol index will be far more relevant that then the VIX, and that 200 pip daily moves in key FX pairs such as the EURUSD will be a normal occurrence. As validation of the first, just after the NFP number was announced, it was not US stocks, but the massive German treasury market that was halted due to a surge in volatility. This bears repeating: the massive, presumably liquid, and critical sovereign debt market of Europe's biggest economy was halted! We look forward to many more such examples of connected vessels, as computer, robots and the few remaining homo sapiens traders, pursue only modestly manipulated markets in which to trade volatility.

Watch Bernanke sweet-talking his puppets in the Senate Budget Committee live and commercial free after the jump.

We present two takes on the NFP number: first from Knight Capital, and second from most recent entrant in the ridiculous propaganda drama queen race, Goldman Sachs, which is most gladly selling ES as its customers are buying with visions of S&P 1,500 as per David Kostin's latest chartmongery.

The non-seasonally adjusted underemployment rate (U-6), probably the one metric that has the least possible amount of Department of Turh intervention, has come at 16.6%, a jump from 16.3% in November, and the highest since July 2010. It is also the third consecutive month of deterioration, roughly since QE2 started. There goes your economic recovery. But at least quantitative easing is boosting the wealth effect of all those employed (on Wall Street) and adding to the poverty effect of everyone else. In the meantime, can someone please switch the ABC confidence index with the ADP bullshit indicator in terms of data significance?

While today's unemployment number came at a low 9.4%, well below expectations, the one and only reason for this is that the labor force in America has plunged to a fresh 25 year low. Assuming a reversion to the mean in the long-term
average participation rate back to 66%, means that the civilian labor force, which in December came at 153,690, a drop of 260,000 from November,
is in reality 157.6 million, a
delta of 3.91 million currently unaccounted for. Maybe someone can ask Bernanke during his imminent presentation before Congress what happened to the
unemployed population, which would have been 18.4 million if this labor force
delta was incorporated, resulting in an unemployment rate of 11.7%.

More thoughts on the great inflation debate...

Immediate market reaction is not pretty as everyone's completely ridiculous expectation that Barclays' "95% confidence interval" of a 480,000 print ends up being that much hot air.

Summary:

• Change in Private Payrolls (Dec) M/M 113K vs. Exp. 178K (Prev. 50K, Rev. to 79K)
• Change in Manufacturing Payrolls (Dec) M/M 10K vs. Exp. 5K (Prev. -13K, Rev. to -8K)
• US Average Hourly Earnings (Dec) Y/Y 1.8% vs. Exp. 1.8% (Prev. 1.6%)
• US Average Weekly Hours (Dec) M/M 34.3 vs. Exp. 34.3 (Prev. 34.3)
• Labor force participation plunges to multi year low: 64.3%
• 24 thousand added from Birth-Death

From the report:

Goldman's most recently inducted partner David Kostin, who no doubt promised to make his superiors proud for promoting him, just did so this morning. The chartist has just told all clients to sell everything that Goldman is offering as Goldman has just revised its year end S&P target fo 1,500 on expectations of what we believe translates to a priced to absolute perfection, Goldilocks centrally planned economy, where Bernanke finally succeeds where he and his predecessors have failed every single time before. As an aside, and as empirically proven, those who take the other side of the Goldman sell-side trade (i.e., the same side as the Goldman prop trade, as after all it is Goldman which is selling whatever clients are buying) end up making money the majority of the time in the long-run. Keep that in mind as the S&P fails to hit the revised S&P target in 358 days.

Quite a bevy of news overnight, but the entire world is looking for just one big, and very much seasonally adjusted, catalyst.