Archive - May 25, 2011

Jim Chanos is short China and solars. I say it's time to short Chanos...

And just as Wednesday appeared it would be (mostly) surreal news free. Radar online has just broken that "The Californian Attorney General will conduct what’s being termed an “inquiry” into former Governor Arnold Schwarzenegger’s alleged misuse of tax payer funds to cover up sexual liaisons. In a bombshell exclusive, RadarOnline.com has learned the Office of the Attorney General, a branch of the Department of Justice, is conducting a preliminary evaluation into the scope of Schwarzenegger’s double life, which allegedly included using his state-funded security details to cover up women being escorted into his hotel room." That's good news: following the earlier S&P report that massive state debt overhang is not really helping economic growth, the funds saved from not buying hooker hoodies will go straight to the state's already broke educational, infrastructure and every other system.

This post has two parts: the first one, or the blue pill part, deals with the mundane,  namely Sarah Palin's brand new $1.75 million, 8,000 square foot house in North Scottsdale, which "sits on 4.4 acres and has a home theater, a billiard room, a walk-in wine room and a "resort style backyard" with a gazebo and pool, according to the listing and listing photographs. The brown, stucco-and-stone house, which was renovated this year, has several fireplaces, a six-car garage and mountain views. The property has a circular driveway and desert landscaping." The second part, which is where one takes the red pill, deals with something far more serious: short sale fraud - yet another facet of the ongoing discovery of just how deep mortgage fraud in this country (in this case by real estate "investors") runs. Only this time it is fraud which results in impairments to the banks (arguably). Yet even then, questions remain...

Secondary bond selling continues, but seems as much about rotation into new issues as derisking for now. Equity outperformed credit on the day but we wonder whether the self-fulfilling liquidity support in corporate bond land is starting to ebb as concessions and basis contract and curves reach extreme steeps.

Back in January we wrote with some amusement that China would be Portugal's knight in shining armor following a "Reuters report that Portugal is in the process of making a private placement of bonds, without announcing details on size or the buyer... The WSJ has just confirmed that China was indeed the buyer, and the amount purchased was €1.1 billion." Since then Portugese bonds have tumbled and China has taken at least a good 10% loss. Five months later, it is time to kick the can once more down the road, courtesy of the Chinese yet again, who not surprisingly don't want to experience a partial wipe out on their foolish investments across their soon to be European protectorate should Greece file tomorow. The FT reports: "Asian investors including the Chinese government are expected to represent a “strong proportion” of the buyers of Portuguese bail-out bonds when the eurozone’s €440bn rescue fund begins auctioning them next month, according to senior fund officials. Klaus Regling, chief executive of the European Financial Stability Facility, told reporters on Wednesday that Beijing was “clearly interested” in the Portuguese auctions and that he expected China to participate." And whoever said that stupidity follows an arithmetic progression was wrong. It's exponential: "He argued the intense interest from Asia and other international investors showed renewed confidence in the future of the euro as a currency." Uh, no. That was the bullshit excuse in January. Now it is merely an attempt to not get destroyed in the upcoming massive pan-continental "rights offering" which will see existing "investors" take haircuts of up to 50%. But since when does Europe even pretend to tell the truth.

DSK's torturous stay in corporate housing for the average joe, even for those from IMF bailed out countries, is coming to an end. Next stop: a $14 million palace just purchased by the missus at 153 Franklin Street, half a block away from iconic TriBeCa eatery Bubby's. From the WSJ: "David Bookstaver, a spokesman for the state court system, said that New York Supreme Court Justice Michael Obus approved Mr. Strauss-Kahn's move to a new residence during a conference call with his defense attorneys and prosecutors on Wednesday afternoon. Mr. Bookstaver said he doesn't know where Mr. Strauss-Kahn's new residence will be or when he will be moved." Damn it sure is good to be married to a billionairess, who will do everything in her power from preventing her husband's improprieties from spilling over into her own social scene.

Remember The Social Network? Like, the movie? So Eduardo Saverin and Mark Zuckerberg are having lunch with Sean Parker, and this is a source of tension already because Eduardo wants to start charging for stuff, and Zuckerberg doesn’t, and--people don’t realize it, but that one creative difference was the most important decision that had to be made in Facebook’s early days--Eduardo was totally wrong and a threat to the company--if they charged for it, they would have killed it. Sean Parker nailed it. “We don’t even know what it is yet,” he said, “but what we do know is that it’s cool. And once you start charging for it, it’s not cool anymore.”
That’s the beauty of Facebook. They still don’t what it is. It’s just cool. And they’re going to put a twelve figure price tag on something that is nothing more than cool. But it’s not a bubble! A company that is this important cannot be a bubble. Put on your tinfoil hat and think about why the government will never, ever let Facebook go out of business. There is an embedded put, and it has a very high strike. I hate talking about stuff like that, but a company that has intimate information (that people willingly put on there!) on every man, woman and child in the country is worth more (to somebody) than $100 billion.

Fight Club is about personal growth and community, of discovering what we are all made of, of seeking the inner steel and honing it to perfection, then using our newly strengthened muscles to build a tighter more functional community. Fight Club is about creation, not random destruction.

Remember Fukushima, the worst nuclear catastrophe in the last 20 or so years which soon will surpass Chernobyl in total radioactive emissions into the environment? Well, the radiation in the now officially melted down Reactor 1 has just hit the highest ever reading since the crisis began, or 204 sieverts/hour, recorded in the drywell. Not Micro. Not Milli. Sieverts. It appears the "excuse" that the counters are broken isn't being used this time, although we are confident that the "spurious reading" allegations will fly.

"A ‘91-style meltdown is almost inevitable." So says Alexei Moiseev, chief economist at VTB Capital, the investment-banking arm of Russia’s second-largest lender, discussing the imminent economic catastrophe that is sure to engulf Belarus following the surprise devaluation of the country's currency by over 50%, which we announced on Monday. "Unless Belarus heeds Russia’s call for mass privatization
of state assets, it is headed for “hyperinflation, massive un-
and under-employment, and a shutdown of production" Moiseev concludes. Ah: "privatization" as Greece is about to learn, the lovely word that describes a fire sale of assets to one's creditors, courtesy of a "globalized" new world order. Ironically, this is precisely the warning that will be lobbed at each country in the developed world, as the global race to devalue currencies, first against each other on a relative basis, and ultimately against hard currencies, or on an absolute basis, as the world realizes that there simply is not enough cash flow to cover the interest payments on a debt load, in both the public and private sectors, that continues to rise at an astronomic rate, even as the world prepares to exit from the latest transitory, centrally-planned bounce in the Great Financial Crisis-cum-Depression that started in earnest in 2007 and has been progressing ever since. Ultimately, Belarus will succumb to hyperinflation, as will each and every other government which seek to devalue its currency (hint: all of them): "Unless Belarus heeds Russia’s call for mass privatization
of state assets, it is headed for “hyperinflation, massive un-
and under-employment, and a shutdown of production,” VTB’s
Moiseev said. The ruble will slide to 10,000 per dollar, he
added." Of course, this is the primary side effect of attempting to avoid formal bankruptcy through currency devaluation. And all those who continue to believe deflation is an outcome that will be allowed by the Fed, need to look just to the former Soviet satellite to see what lies in store for everyone currently doing all in their power to devalue their currency.

Increasingly more people are starting to outwit the Fed at its own game, which appears to have run out of sufficient capital to manipulate all risk assets (troubles at Citadel?), and thus is forced to focus exclusively on the E-mini. While not pointed out explicitly today, those who were following the trade were presented with an amazing opportunity to pick several basis points when ES once again ramped away from the risk basket (AUDJPY, EURUSD, 10 year, 2s10s30s, Oil and Gold) following the more than obvious buy program attempt to triggers stops, only to slam back with a vengeance and close the gap at close. Like clockwork. The trade continues to be an ideal play for everyone who wishes to remain bull/bear agnostic, and merely trade against Brian Sack's increasingly desperate and underfunded attempts at risk manipulation.

RANsquawk Market Wrap Up - Stocks, Bonds, FX etc. – 25/04/11

While the hedge fund world (at least those who are not lucky enough to be among the 250 who have access to valueinvestorclub.com) is currently frenzied by the latest public revelations of attempted groupthink at the annual Ira Sohn conference, which Market Folly is doing a good job of summarizing in real time, Absolute Return magazine has compiled the returns of various managers' recommendations based on their 2010 picks. The big winners: Arbess, Eisman, Grantham, Dinan, and oddly enough Larry Robbins. The biggest loser by far was David Einhorn, whose once iconic cult of 13F clones appears to have lost critical mass. In the middle David Tepper, whose modest beat in Santander was more than offset by losses in Bank of America. Of course, nothing compares to John Paulson's thesis that BofA would hit $30 by the end of 2011. Full summary below.

One of the side effects of the overarching "price stability" mandate of the Fed, it turns out, is the fact that since its inception, food and pretty much all other commodity prices have, well, gone up non stop. And elsewhere, the purchasing power of the dollar is now predicted to go negative in under ten years.

There were those who were fuming about what a great deal Bank of America got in acquiring Countrywide. Ironically, that same deal threatens to bite the banks in the ass and cost it tens of billions in litigation as more and more realize that the bank's mortgage-related practices (both before the CFC acquisition and after) have been based on a foundation of fraud. While Zero Hedge has not discussed the issue at length recently due to the expected temporary pushback by various legislatures, which would make an outright risk assessment against BofA impossible since there is far more politics than finance involved, it seems that with each passing day things are getting closer to spiralling out of control for America's largest lender. The latest news, just out from Bloomberg, indicating that the bank may be advised to urgently increase its litigation and putback reserve, is that Utah's AG Mark Shurtleff advised Brian Moynhian that the bank's foreclosures in Utah are illegal. "A Bank of America Corp. unit conducting home foreclosures in Utah is violating the law, the attorney general said in a letter as individual states advanced their investigations of mortgage servicing. “All real estate foreclosures conducted by ReconTrust in the state of Utah are not in compliance with Utah’s statutes, and are hence illegal,” Shurtleff wrote." Oops. There goes another several billion in litigation fees because that beeping noise is thousands of foreclosed upon mortgageholders calling the first attorney they can find in the yellow pages in hopes (soon to be fulfilled) of unwinding completed foreclosures. This action joins comparable pushes from Connecticut, Illinois and California, and pretty soon BofA will be unable to foreclose upon any home in the domestic US. We estimate that the legal cost associated with foreclosure delays will cost the bank well over a billion when all is said and done. And just to make life truly miserable for BofA, Elijah Cumming sent a letter to the Committee on Oversight and Government Reform advising he is considering a broad subpoena to all mortgage servicers, chief among them, you guessed it: Bank of America.