Archive - May 19, 2011

Hide you kids, hide you wives. DSK has just been granted bail pending the sexual assault trial. Terms of the bail agreement include a $1 million bail, $5 million insurance bond, the surrender of his diplomatic passport, 24 hour home monitoring including a constant webcam live feed, an armed guard to be posted outside a rented apartment, and all the usual electronic appliances attached to DSK's body. We reiterate our suggestion that DSK's webcam should be opened to the public at a monthly subscription charge with the proceeds going to the PIIGS (sinking) bailout fund.

This situation is too far gone, the energy industry has it's hooks too deeply in our politicians and they have WAY too much control over our daily lives. That means the logical thing to do, when faced with an out-of-control vital service that is gouging consumers and damaging our economy, our environment, and working against our national interests - is to NATIONALIZE THEM.

With just 45 minutes of trading left, NYSE volume will once again need to come up with an appropriate adjective to describe just how bad it is. The 2.6 billion shares traded so far are 56% of the YTD average and just under two-thirds of the Q2 average. Also explains why the levitation algo is hard at work to close the market well into the green on a day when the US economy virtually jumped the shark into contractionary mode. At this point we would once again go so far as to predict that flow and even prop-based revenue for the major hedge funds, also known as primary dealers, will come in materially below expectations, following continuing share trading weakness now that even the robots have left stock markets and much prefer to trade things like Lagarde succession odds, CME margin hike ETFs and the ZARJPY.

Following an earlier report by Handelsblatt which made it seem that Christine Lallouette Lagarde's (henceforth CLL) ascent to the head of the IMF was a fait accompli, here comes Reuters to spoil the party. As was disclosed deep in the footnote area of the German article, Christine has a bit of a legal cloud of her own to deal with. To wit: "Her prospects could be undermined by a legal row, unlikely to be resolved before June at the earliest, over her decision to settle a dispute between the state and businessman Bernard Tapie, a personal friend of President Nicolas Sarkozy. Lagarde denies any misconduct, and there is no suggestion of personal profit. But legal trouble could delay her appointment or even make her unacceptable to the IMF as it tries to polish its image after Strauss-Kahn's dramatic fall from grace." And once again nothing is ever easy for Europe: the continent which would be very glad to never again see a male figurehead atop the IMF following the latest humiliation (even though technically the IMF has the US as its key source of capital, European countries add up to well over the US stake) will likely not be willing to risk a court defeat which would likely come only after the critical decision will have to be made. Perhaps it is time to buy some puts on CLL white smoke chances after all.

There was a time when a young Mujahideen commander named Osama bin Laden was a core ally of the US in the fight against Soviet communism and central planning. Well, that particular affair did not end too well for either Osama, nor for the USSR (although one may argue that "communism and central planning" are experiencing a second renaissance courtesy of capitalist central banking). Along the same lines, Pakistan which as recently as 3 weeks ago was considered a core US ally, has very promptly fallen out of favor following the death of that other abovementioned former ally. Yet Pakistan is not wasting time. Two days after Pakistani PM Yousuf Raza Gilani took a direct stab at deteriorating US-Paki relations by saying that China is now his country's "best friend",  China has retorted in kind by announcing it will provide another 50 JF-17 fighter jets to Pakistan on an "expedited" basis. The WSJ reports that "the agreement to accelerate supply of the jointly developed jets, the first 50 of which are being assembled in Pakistan, came as Pakistan's Prime Minister Yusuf Raza Gilani held talks in Beijing during a visit that he has used to portray China as an alternative source of military and civilian aid. "We're getting the 50 jets, on top of the ones we already have. Something has been agreed in Beijing, so they'll be expedited" he said." In other words: step aside US, here comes China. As for those billions in USD aid which somehow never ended up being used to buy US Treasurys (Pakistan is nowhere in the listing of US Treasury holders) , it is now clear into whose pocket they are going (at $15 million a pop, those are big pockets). Lastly, this is more than just posturing by China: the country is clearly indicating its latest and greatest sphere of influence. As a reminder, "It was reported in 2008 that Azerbaijan and Zimbabwe had placed orders for the aircraft and nine other countries, including Bangladesh, Myanmar, Egypt, Iran, Lebanon, Malaysia, Morocco, Nigeria, Sri Lanka and Algeria were showing interest."

The similarities between the US today and Weimar pre-hyperinflation are striking. As in Weimar, US fiscal authorities are not taking any steps to rein in their loose money policies. Similarly, the US Fed, like Germany’s financial elites believes that currency depreciation is a good thing.

We all know by now that the centrals planners believe the tail wags the dog. So the economy doesn’t lead to higher stock prices but higher stock prices will lead to a better economy. Insane? Absolutely. Is it their religion? 100%. The other important thing for investors to be aware of now when they are comparing the current state of affairs to what many lived through in the 1970’s is that the central planners have learned some lessons. What we must always remember about central planners is that they will never renege on their core philosophy which is that an elite academic and political class in their wisdom are better stewards than free humans interacting in a marketplace. That said, most people do not share their worldview for obvious reasons (who wants their lives micromanaged) so the trick of the central planners is to micromanage your life while you think you are in charge. As Goethe said “None are more hopelessly enslaved than those who falsely believe they are free.” He didn’t just make up this clever quote, it is a tried a true method of the most successful control systems throughout history. So even the brainwashed masses out there understand that price controls were tried in the 1970’s and failed. We also know why. Therefore, the last thing the current group of central planners will want to do is announce price controls. That doesn’t mean they don’t attempt them anyway. They have been rigging stocks in the United States consistently for the past two years and most people get this and accept it as a part of the current state of disunion we are in. However, as I wrote last week we have now entered Phase 2. This was represented by the raid on commodities.

It appears that according to some, the world will end in 48 hours or something, on May 21, in what Christian radio broadcaster Harold Camping has called the Day of the Rapture. Judging by the inverse selling in the stock market today (if not by those allocated underwriter shares in LNKD: those guys are long gone), mutual funders and other idiot money aren't buying it. Neither is the Treasury which just released its latest 2, 5 and 7 year refunding statement in hopes someone aside from Brian Sack will be left alive to bid up the $110 billion in new US paper. So in order to help readers decide if it is time to start reciting that "The End Is Nigh" here is NMA with their as usual absolutely spot on, and typically humorous, assessment of this most recent brick in the wall of apocalyptic worry, which at best will merely add to the already near record NYSE margin debt.

It may be a great momentum trade as web 2.0 hype (finally, eventually?) climaxes, but longer-term its a total dog of a company.

I'm calling their bluff. If Treasury answers this, I will publish their response.

Now that it has finally been made clear that in order to accommodate the debt ceiling by adding marketable debt, the Treasury has no choice but to literally plunder retirement accounts, we now know that in order to fit in the just announced $110 billion in new bond issuance over the next week, Tim Geithner will have to reduce US retirement funding (the bulk of which, the Social Security Trust Fund already lost $1.1 trillion in the past year) by at least $45 billion. That is the net result of $60 billion in net new cash and $15 billion in bill paydowns which will settle between May 19 and May 31. What remains to be seen is just how much cash the Treasury will bleed as it seeks a parallel track of under-rolling maturing Bills, in order to keep its previously disclosed intentions of issuing just $142 billion between April and June. Keep in mind almost two thirds of this period has passed, which means that somehow the Treasury has to not only stop but in fact reverse its net issuance. We are not sure how this will actually happen.

A snapshot of the US Afternoon Briefing covering Stocks, Bonds, FX, etc.

Market Recaps to help improve your Trading and Global knowledge

And now for some actually relevant news. Any minute now the president will address the nation over US policy in the MENA region: a topic far more important than some tech stock indicating the dot com bubble is alive and well, and that the Fed's liquidity will not be restrained (good luck with hiking the rate on the IOER Ben).

It seems investors are doing their best to recreate the entire 1998-2000 bubble in the span of one trading day. After opening at $83, LNKD has just passed $100. The question is will the bubble pop today or take a few more trading days? And yes, at current count the P/E is over  1,200x.

11:40 EDT: The stock just moved from $100 to $107......

11:43 EDT: $108....

11:45 EDT: $110...

11:46 EDT: $115

11:47 EDT: $118

We will chart it as soon at it hits $200 in a few minutes.

Hey, on the positive side, LinkedIn is better off that Facebook. You see, Facebook will have to register the whole computer capable populace of the world to justify the Au plated, Goldman Goldilocks fairytale other wise known as marketing materials. LinkedIn will just have to grow revenues 300% or so for about about a decade to make this JPM/MS fairytale have a happy ending. No matter what, I betcha there will be a moral to these stories for investors, though!