Archive - Mar 2011

Bill Gross, with the possible exception of Goldman Sachs, has the best access to the US Federal Reserve and US Treasury Department of any investor on the planet. During the 2008 Crisis it was rumored the Treasury had him on “speed dial.” So for Gross to be dumping ALL of his US Treasury holdings means that the US debt Crisis is coming and coming fast.

Corporate insider appear to have moderate their relentless dumping of stock. After selling around have a billion in stock each week, corporate executives and officers, sold only $185 million worth of S&P 500 stock in the week ended last Friday per Bloomberg. The biggest selling was in the stock of HJ Heinz ($39 million), Pall ($20 million), and First Solar, Cisco and Priceline in 3rd, 4th and 5th positions (not all that surprisingly). As for buying, it continues to be lethagic and is rescued each week by the 10b-5 buying in Titanium Metals stock which accounted for 70% of last week's 10 million in purchases (one of the 8 transactions that comprised insider buying). Look for tomorrow's ICI number to see if domestic outflows have extended to a 4th consecutive week now that retail has once again lost its appetite for top ticking the market.

A big call from me. QE is dead.

As we wave goodbye to David Rosenberg, with his last free Breakfast with Dave issue coming out today, we present his most recent free thoughts on QE3: "QE3 will come but not as early as Mr. Market would like."

When we reported on some peculiar action in MBIA CDS back in February, we said that one of the reasons for the massive tightening in MBIA CDS which ripped from 55 pts up to 37 pts in the span of two weeks was possibly on CDS commutation speculation (this in addition to ongoing aggressive litigation by MBIA against mortgage originators who may be commutating CDS in a quid-pro-quo fashion to achieve prompt settlement). But whatever the reason for the move, one thing was certain: one bank more than anyone, will be hurt materially by the move - Morgan Stanley. As we said "According to a source, Morgan Stanley was short risk the monoline after it had obtained protection on a static pool of CMBS via an MBIA-related entity called LaCrosse Financial. And as LaCrosse wrote protection against the static pool that was non-transferrable by Morgan Stanley, the bank hedged its counterparty risk by purchasing protection on MBIA itself. So while CDS was blowing out, MS was profiting. Then over the past two weeks, the bank has seen hundreds of millions in paper P&L evaporate through the window. The only question is when will Morgan Stanley close its now underwater protection (which continues to bleed a substantial amount of theta), especially since the actual credit event may have just been pushed back indefinitely. In other words, those who are short the MBIA CDS may wish to wait just a little longer, and see just what the breaking point on Morgan Stanley's collateral call is." Well, per another source, and per Euro Money magazine, that breaking point has been reached and MS has now been forced to close its exposure, at a loss that some speculate could be in the billions.

Just in case you all missed this outrageous Fraudclosure "settlement" from Florida AG Pam Bondi.

Protecting Our Strategic Interests in Broccoli

The time is now to collectively fight back. We can work together to demand that the big banks are held accountable for their crimes.

The Confidence Board has released its Consumer Confidence Number, which in March went in freefall from the revised previous print of 72, highest in 3 years, to a below consensus 63.4 (expectations of 65). But while this number is largely irrelevant, the Inflation Rate index surged from 5.5 to 6.7, the highest since October 2008.

From S&P, although nothing new here. EURUSD does not even blink on the news: "Given Portugal's weakened capital market access and its likely considerable external financing needs in the next few years, it is our view that Portugal will likely access the EFSF and thereafter the ESM. While we believe Portugal's public sector debt trajectory could start to decline in 2013, thereby creating the possibility that Portugal may be able to obtain ESM funding without being required to restructure its debt (based in part upon our reading of the "sustainable path" language in the EC's concluding statement), the issue of subordination remains. We are therefore lowering our sovereign credit ratings on Portugal to 'BBB-/A-3'. The negative outlook reflects our view that the macroeconomic environment could weaken beyond our current expectations and that a political impasse could undermine the effective implementation of Portugal's adjustment program, leading to non-negligible policy slippages."

Case Shiller data is out, and it is as horrible as ever. The Home Price Index came at 140.86 compared to 142.42 previously. Basically the double dip refuses to stop, and that even despite yesterday's "stunning"(ly irrelevant) pending home sales number.“Keeping with the trends set in late 2010, January brings us weakening home prices with no real hope in sight for the near future” says David M. Blitzer, Chairman of the Index Committee at Standard &  Poor's. “With this month’s data, we find the same 11 MSAs posting new recent index lows. The 10-City and 20- City Composites continue to decline month-over-month and have posted monthly declines for six consecutive months now. “These data confirm what we have seen with recent housing starts and sales reports. The housing market recession is not yet over, and none of the statistics are indicating any form of sustained recovery. At most, we have seen all statistics bounce along their troughs; at worst, the feared double-dip recession may be materializing."

Confirming just how leveraged hedge funds and general investors were exiting February is the latest margin debt data from the NYSE, which indicates that the recent trend of pursuing beta on ever increasing margin continues.Total margin debt jumped by a whopping $21 billion from $289.6 billion to $310.3 billion, the highest it has been since July of 2008. It should, however, be kept in mind that this is a gross leverage number. To get the far more accurate net number, one needs subtract the margin debt from Free Credit Cash Accounts and Credit Balances in Margin Accounts, or in other words, the "net worth" of the investor (the less the supporting cash, the lower the "capitalization ratio" of the speculator). And here things get very concerning. The Net Free Credit (or net margin debt depending on whether one puts the + or - sign in front), calculated as Total Free Credit less Total Margin Debt jumped from ($46) billion to a massive ($57) billion. This is the third lowest net worth reading ever reported by the NYSE. Only the ($67.8) billion in May 2007 and ($79) billion in June 2007 are worse, and confirm that everyone is levered to the gills at virtually the same level as when the market was at its all time highs. We all know what happened next.

Just headlines for now. Unclear what prompted the move, and whether this will embolden the discontents to push even harder for a full regime overhaul.

The July 21 deadline for the hedge funds to register required by the one year anniversary of the Dodd-Frank bill is fast approaching, and the industry is roiling with turmoil. The net result for the rest of us could be shrinking market liquidity and falling asset prices as hundreds of funds shut down or move overseas rather than meet the new, onerous disclosure requirements and the vastly increased legal liabilities they imply.

Asian demand is especially strong in the increasingly important China. The Chinese strong cultural affinity and love affair with gold (primarily due to a distrust of Chinese paper money) shows no signs of abating. Indeed, it may be accelerating as was seen in the recent figures from the Shanghai Gold Exchange and customs in China and now reports (including from CNTV – the national TV station of the People's Republic of China) of shortages of raw gold or unrefined gold. China, now the largest producer of gold in the world is seeing its gold mines struggle to cater for surging Chinese demand. The raw gold trade has been growing by up to 30% per annum and demand has leapt in recent months leading to a developing raw gold shortage in China. The industry in China expects only 27,000 tonnes of raw gold can be delivered this year. That is way below the estimated demand of 50,000 tonnes. A potential supply shortage of 23,000 tonnes of gold is a large amount of gold in the small gold bullion market which is tiny versus equity, bond and derivative markets. It is infinitesimal when compared to the $4,000 billion a day traded in currency markets.