Archive - Apr 2011

Did you know...

No commentary necessary.

It isn't a Wall Street CEO. But it is a start. One of the most well known market manipulation crimes of the pre-Great Financial Crisis era, has just been fined $30 million. Yes, it is far less than what Hunter has made during his career, but it is not just a wristslap either. And at least it has finally happened: after 5 years many had assumed that regulators would totally screw this up as well. From DealBook: "Energy regulators on Thursday fined a former hedge fund trader $30 million for his role in a scheme that manipulated prices in the natural gas futures market. Mr. Hunter and Matthew Donohoe, a fellow Amaranth trader, sold huge sums of natural gas futures contracts in early 2006 to drive down the settlement price of the trades, according to the Federal Energy Regulatory Commission. Mr. Hunter placed the trades during a so-called settlement period, the last 30 minutes of trading on the day that a futures contract expires." Now... For that precious metals market manipulation that only fringe lunatic website allege is happening...

Often times we are amazed that Deutsche Bank's Peter Hooper works in the same place as that other "economist." The reason is that yesterday, Hooper, who tends to have some of the most original sellside thoughts, came out with one of the best summaries of America's fiscal dead end:an 8 page summary far more accurate and detailed than anything to ever come out of the rating agencies, yet one which reaches the correct conclusion. What is startling is that a Wall Street institution (well technically desk.... there is of course that other "economist") is willing to come to grips with the truth. Which according to Hooper is rather ugly: America may have 2 years at the most before it all comes crashing down when the world's former superpower hits its own Minsky Moment.

Do we need bounty hunters? How about 70% tax rates?

And for today's case of pure unadulterated idiocy:

• ( RTR ) 04/21 02:30PM OBAMA SAYS HAS ASKED ATTORNEY GENERAL TO CREATE TEAM TO "ROOT OUT" FRAUD, MANIPULATION IN OIL MARKETS THAT COULD HIT GAS PRICES
• ( RTR ) 04/21 02:31PM OBAMA, IN PREPARED REMARKS, SAYS TEAM'S FOCUS WILL INCLUDE OIL MARKET TRADERS AND SPECULATORS
• ( RTR ) 04/21 02:31PM OBAMA SAYS WILL MAKE SURE THAT NO ONE IN OIL MARKET IS TAKING ADVANTAGE OF THE AMERICAN PEOPLE FOR THEIR OWN SHORT-TERM GAIN

Number of mentions of the one true satanic culprit for oil price explosion? Zero. For everything else there is scapegoating. And again. And again.

Chairman Bernanke has placed himself in a box. It is not a box of his choosing, but rather the result of his misguided economic beliefs, use of flawed statistical data, geo-political events occurring during his watch, poor decisions and a penchant for political pandering. Some of these may be requirements for academia success but not for leading global financial markets during turbulent times. It is time for Professor Bernanke to return to the collegial setting of Princeton University while the world still has time to correct the path he has mistakenly set us on. I was angry during most of former Chairman Greenspan's tenure because of his persistent use of liquidity pumping to solve every problem from Y2K to the Peso crisis. Greenspan's inability to see a bubble two inches from his nose and yet still pontificate about irrational exuberance, rather than taking the punch bowl away from the party, incited me. Bernanke does not affect me that way. He simply disappoints and leaves a taste like eating dry shredded wheat, with the hope of a child, to eventually get the prize at the bottom of the box. Character flaws show during times of stress. Honesty, integrity, value systems and beliefs are put to test and are highlighted under the public media microscope. I'm sure Chairman Bernanke is a nice guy, loved by his family but he is missing a backbone. On April 27th, 2011, that will become obvious to all.

We have gotten to a point where not only do we need annotated explanations of Fed speak, but annotations of the annotations, in this case of the Fed's deemed oracle, who for many years, has been the WSJ's Jon Hilsenrath (for some particular nuances of the "editorial" relationship between the New York Fed and the WSJ read here). Today's article in need of "between the lines" interpretation is Hilsenrath's "Bernanke to Open Up as Fed Embarks on Era of Glasnost" which can be read here. Luckily, Gleacher's Russ Certo comes to our aid, in attempting to predict what the general population can expect both next Wednesday during the Fed's first ever press conference, as well as for as long as Bernanke still is given authority to debase the US dollar.

Okay, if you have anything in a close vicinity to you that you wouldn’t want broken, move it away before you watch this clip…

Yesterday we reported news that has so far received almost no media exposure, namely that thousands of striking truck drivers had poured into Shanghai's Waigaoqiao zone, one of the city's busiest container ports, protesting over "rising fuel prices and low wages." Today, via Reuters, we learn that this situation has escalated materially, and progressed into violence: "A two-day strike over rising fuel prices turned violent in Shanghai on Thursday as thousands of truck drivers clashed with police, drivers said, in the latest example of simmering discontent over inflation. About 2,000 truck drivers battled baton-wielding police at an
intersection near Waigaoqiao port, Shanghai's biggest, two drivers who
were at the protest told Reuters. The drivers, who blocked roads with their trucks, had stopped work on Wednesday demanding the government do something about rising fuel costs, workers said." And while we have violent uprisings over austerity in Europe, now we have violent strikes over inflation in China? The question thus now is just how much longer will China continue to take massively ineffective steps such as RRR and rate hikes, both of which have been a tremendous failure in reining in inflation, instead of picking the nuclear option of revaluing the currency. And while many believe China may announce something along those lines over the weekend, Win Thin, global head of emerging market strategy at Brown Brothers Harriman, is not so sure and put the odds of a yuan revaluation at 25%. "With regards to currency policy, we are putting forth the following three possibilities along with odds: 1) keep current pace of appreciation (10%), 2) do one off revaluation (25%), and 3) speed up pace of appreciation (65%)." Either way, with more people joining the populist movement against inflation, China is now between a rock and a hard place: will it continue happily importing Bernanke's inflation exports or finally retaliate. Unfortunately for its economy, the appropriately called "nuclear option" of revaluation, will leave it export economy flailing. So the real question: is China ready to migrate from an export-led to a consumer-led model. Alas, the answer is a resounding no.

Never mind the auditor resignation and other myriad indications of severe accounting fraud...

RANsquawk US Afternoon Briefing - Stocks, Bonds, FX etc. – 21/04/11

And in exclusively silly, but oh so symbolic news, the race track crowd bursts into a frenzy following the ultimate comeback story, as One Ounce Of Silver has now taken a full length lead over One Share Of JPM Stock into the final stretch.

For a stunning reminder of just how much of a haircut the market is expecting on Greek debt in actual cash terms, look no further than the country's 30 Year bonds. These are now trading just above 50 cents on the euro. That's a "50% off" blue light special and roughly comparable to the recovery the market is expecting on the paper. Alternatively any "liability management exercise" price on these notably above 50 will result in a Greek revolution.

The question of centralization versus decentralization might be even more important than fossil fuels versus nuclear versus alternative energy …