Archive - Apr 19, 2011

On April 19, 2011 (20:11 Eastern Swindler Time)) a vast network of computers, known as Scamnet, became self-aware. It would eventually take over the planet, set about wiping out the middle classes, and send a robot which looked like Warren Buffet back in time to kill Benjamin Graham...

If the world is coming to an end, why is the VIX making new multi-year lows?

While the University of Texas made headlines over the weekend for disclosing it had taken delivery of $1 billion in gold (albeit in a Comex warehouse in New York), another Texas fund is making waves today however for all the wrong reasons. As Bloomberg announces, "The Teacher Retirement System of Texas needs an annual return of 21 percent in the year ending Aug. 31 to maintain an 80 percent funded ratio, the level actuaries consider adequate to cover liabilities, said its deputy director." Needless to say, as Brian Guthrie, the fund's executive director admitted, “We’d have to have remarkable investment returns for the rest of the year to reach 80 percent.” Considering that the fund’s investment return was 14.7% in 2010, the best among large public pension funds, it is more than obvious that a major portion of the fund's 109 billion in assets as of April 1 is already in stocks. Which is why should the market swoon following the end of QE1, the best performing fund of 2010 may well be the worst performing fund of 2011. And even if by some miracle stocks surge enough to fill the performance void for the rest of the year, it is still not guaranteed that the fund will make up for the performance shortfall, even as pensioners' capital is likely tied in with such bloated, overvalued garbage as 4x+ beta, triple digit forward earning multiple stocks (full list of key equity holdings below).

In a filing released as part of the company's lawsuit against Samsung for design copycatting, Apple disclosed sales numbers through March 2011 for its three key marginal product lines: the iPad, iPhone and iPod touch. Since these numbers come out one day ahead of AAPL's earnings release (after close tomorrow), they promise to have quite an impact on Apple's stock. In summary: the company appears to be running short of Wall Street's estimate for iPad sales, while being ahead of consensus in iPhone sales. Apple also disclosed its iPod touch sales. It is unclear whether these are sales as of the beginning or the end of March (or some point inbetween), although with the filing hitting the docket on April 15, it may well have been a full Q2 number.

The reason that the 2008 debacle happened was very simple. The derivatives market, the largest, most leveraged market in the world. Today, the notional value of the derivatives sitting on US banks’s balance sheets is in the ballpark of $234 TRILLION. That's 16 times US GDP and more than four times WORLD GDP. Of this $234 trillion, 95% is controlled by just four banks. And they are... the TBTFs.

Jim Rogers commented on the recent move by the University of Texas to take delivery of $1 billion in gold, saying the decision is long overdue, and has only occurred because everyone else is now buying thereby taking metal out of circulation. He adds: "But where were these guys five, ten years ago? That’s when they should have been doing all of this." Indeed the momentum chasers never show up until it's too late. Then Rogers had some words of caution for silver bulls: "If silver continues to go up like it has been over the past 2 or 3 weeks, yes, then it would get to triple digits this year. And then we’ll have to worry. It’s not parabolic yet. I hope something stops it going up in the foreseeable future and we have a correction. " There is one caveat: "maybe the US dollar is going to become confetti in 2011, and if that’s the case and silver goes to $150, then obviously I wouldn’t sell my silver. It would be the US dollar which is collapsing. But if silver goes up the way you’re talking about without currency collapse, I would be very worried." So as usual, those long Precious Metals should not hate the Chairsatan but to urge him on to continue doing what he is doing so well: converting that once valuable combination of 75% cotton and 25% linen into "confetti."

For anyone who is still confused by what the S&P warning of a debt downgrade means, here comes the NMA TV signature animation explanation which cuts right to the chase. And as some may be out of Aderall to comprehend even this 1 minute cartoon version, we are confident that the bears will show up and put the topic to rest. And if that fails, there are always sock puppets and claymation dollar bill printers missing an OFF switch.

S&P futures managed to creep up to the pre-USA outlook change lows of early yesterday amid the lowest volume day in over two weeks and while HY and IG credit also managed gains on the day, we note some interesting shifts under the surface that should be considered less sanguine.

The purpose of this series is to help the reader better understand the risks and pitfalls of trading options and having a position at expiration. We will try to describe exactly what happens at expiration. The concepts here apply to all options markets, but we chose to focus on Silver because an interesting expiration is setting up presently. The upcoming expiry gives us an opportunity to discuss all the pieces of the option puzzle: the Greeks, market manipulation, Pin risk, and other factors.

A broad commodity selloff was partly attributed to Goldman's rare and surprise crude oil bear call, but BofA Merrill Lynch says not so fast, while gloves are off at BarCap.

Max Keiser concludes his report about the Irish debt "carpetbombing" (perhaps carbombing would have been a more appropriate verb?) in the second part of this documentary on the Irish eco-hell presented below.

RANsquawk Market Wrap Up - Stocks, Bonds, FX etc. – 19/04/11

Who needs lighter fluid? Just throw 'em on the bbq and step back!

The purpose of this paper is to illuminate the real purpose of the obscene size of derivatives books amongst the world’s largest financial institutions. Derivatives in strategic markets are controlled by governments through proxy banks and agencies using these instruments. By sheer volume, the trading in paper “tails” wag the physical “dogs”. When market volatility negatively impacts these large institutions they are given a pass by regulators and accounting protocols in the interest of national security and preservation of the status quo. Moreover, this ensures the perpetuation of U.S. Dollar hegemonic power. The following accounts outline how these instruments are used to project this power.

• Diluted EPS:
  • GAAP: $2.31, up 17 percent;
  • Operating (non-GAAP): $2.41, up 21 percent; Consensus of $2.30
• Revenue: $24.6 billion, up 8 percent, up 5 percent adjusting for
  currency; Consensus of $24.0 billion
• Gross profit margin:
  • GAAP: 44.1 percent, up 0.5 points; Below consensus of 44.6%
  • Operating (non-GAAP): 44.5 percent, up 0.8 points;
• Cloud revenue 5 times first-quarter 2010 revenue;
• Full-year 2011 Operating (non-GAAP) EPS expectations raised to at
  least $13.15 from at least $13.00.