Archive - May 11, 2011

And while the open warfare between speculators and the administration, senators and exchanges continues, the gasoline fundamentals are poised to take another turn for the worse. As Reuters reports, "Valero Energy Corp's and Motiva Enterprises refineries in St. Charles Parish Louisiana, west of New Orleans, will be flooded if the Morganza Spillway is not opened, the St. Charles Parish emergency preparedness director said on Wednesday." Alas, the decision is not a simple one, and diverting the water from Louisiana, and attendant surge in gas prices once refining critical capacity is taken off line, would result in the flooding of Morgan City. From KFLY: "Officials say a decision on opening the
Morganza spillway could come soon.  The Morganza Spillway is upriver
from Baton Rouge and could be opened today, or this weekend. The floodway pours into the Atchafalaya River, and on to the Gulf of Mexico. Right now, inmates are filling sandbags to protect properties that could
be damaged if the spillway is opened.  If the Morganza spillway is
opened, Morgan City could see up to 20 feet of water. Mark Bernucho owns a fire and safety supply business across the street
from the 22-foot seawall, and he said it's the only thing keeping the
water away. The U.S. Army Corps of Engineers installed water gauges
Wednesday, to monitor the rising river waters." So the administration is faced with another dilemma: not divert and potentially see a surge in gas prices, or divert, and risk flooding and be accused of pandering to the oil lobby, one short year after the same lobby was villainized for the biggest oil spill in history. The biggest loser, however, is all the real estate in proximity to the flooded Mississippi river.

This is your President calling. Be afraid ... be VERY afraid

MERS, Mortgage Electronic Registration Systems, sued over Michigan foreclosures for over $100 million in actual damages on multiple counts, including fraud and wrongful foreclosure, as well as more than $300 million in punitive damages...

Today is shaping up to be an identical replica of the action from last Thursday as seen on the chart below. That's two flash crashes in less than a week. Whether this is driven by another margin hike known only to the CME and its closest, or due to news from Reuters that 17 senators have written to the CFTC to immediately crack down on excessive speculation in crude oil, is unclear, and largely irrelevant. The outright campaign to stomp out any non-stock trading is in full force. The message is clear: the only place where investors can henceforth put their money in is in stocks.

Because one video is worth one thousand pictures...

The fed has just released its new POMO schedule for the period from May 12 to June 9. In essence, every single day between now and Thursday June 9 will see a POMO, except for holidays and June 2. The total amount to be monetized is just $93 billion consisting of $80 billion in Treasurys (no surprise) and just $13 billion in MBS, confirming that as we have expected, the QE Lite component of monetization is coming to a rapid end as few if any prepay their mortgages with the Fed any longer. The MBS component is down from $17 billion as of the last schedule, and from $22 billion two months ago. The total monthly amount of $93 billion is the lowest of any monthly QE2 schedule. And following the end of this schedule, there is just another 20 days before QE2 ends on June 30, meaning from now until the end of the ramp, there is at best about $160 billion in incremental capital courtesy of Brian Sack and Printocchio. Furthermore, as of the end of this POMO schedule, the Fed will have monetized just $711 billion. Throw in another $60 billion total
for the remaining period through June 30, and the Fed will be woefully
short of its upside range of monetizing up to $900 billion in USTs and
Agencies.

Own a home? Don't expect to be selling it anytime soon.

Some may accuse us of simply recycling the same post over and over, with pictures of what appears like periodic violent rioting in Athens. Trust us: these are brand new, and the main reason why there is a seemingly massive media blackout of the events in Greece is because the journalists themselves are on strike. Luckily, the WSJ has compiled the following selection of pictures showing just how ugly the reality in an otherwise civilized European country has become. And since much of the proposed next round of austerity spending cuts would come from reducing wage costs in the public sector, cuts in operating expenses at state-owned enterprises, and reduced defense and health-care spending, the vicious cycle of more violent demonstrations will continue as even more cuts are implemented.

For those who thought Google was simply a search engine and ad company, I strongly suggest that you read on - Cars, home automation, the leading smartphone OS, toys, TV, music, movies, enterprise computing... It's getting serious folk!

And so another $24 billion in liquidity is sucked out of the market, at least temporarily until PDs flip Cusip QN3 back to the Fed. The bond priced at a 3.21% high yield, and a 3.00 Bid To Cover, the lowest so far in 2011. Nonetheless, the bond came inside to the WI which was about 3.222%, confirming the risk off aspect of today's market. Primary Dealers took down 44.4%, with Direct responsible for 8.4%. This means Indirects were left with 47.2%: better than April, but the second lowest of 2011, only better than April's 42.4%. The other question of how this will settle, together with yesterday's $32 billion and tomorrow's $16 billion, under the debt ceiling, we will discover in a few days.

Today's (further) ceiling busting $24 billion 10 Year bond auction is set to price in under 10 minutes, at 1 PM. That's $24 billion in liquidity that wil be taken out of the market on this flashy crashy day. Keep an eye on cross-asset volatility as the bond prices. One thing is certain: the CME will hike a variety of margins today based on vol models across the commodity space in the aftermath of this second wipeout in a week, which will be further exacerbated by a plethora of margin calls hitting at 3:45pm as Prime Brokers start dialing for dollars.

Update 2: NYMEX GASOLINE, HEATING OIL LIMITS NOW 50 CENTS, CRUDE $20. Basically the CME just doubled daily limits. Of course, the CME is happy to double the drops... but never the surges.

Update: CME RESUMES TRADING ON NYMEX CRUDE, PRODUCTS FUTURES

Uh, what?

• CME HALTS TRADING ON GAS, CRUDE OIL, HEATING OIL FUTURES
• CME TRADING HALT IN ENERGY FUTURES WILL LAST 5 MINUTES

So now crashes cause the entire market to be halted? Swell

So much for the Chinese IPO bubble, which accounted for 25% of all public offerings in the past year. DATE, which just went public at $11, is now plummeting as underwriters have entirely abdicated their market floor duties. Below is the much vaunted "Chinese Face Book" RenRen, whose epic collapse is a harbinger of what will happen to our own pretty soon. Also, we demonstrate what happens when an equity bubble pops and an IPO stock plunges 10% below its IPO price in 25 minutes or less.

"Microsoft is near a deal to buy Skype for $8.5 billion." Microsoft is pulling another "Microsoft", though this time it may actually succeed. Private equity and eBay, which still owns 30% of Skype, may actually sell, unless Google or someone else rushes in with a competitive bid.

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