Archive - May 6, 2011

This Weeks Guest - Curtis Hertel Jr. Ingham County Register of Deeds...

The Supreme Court of Canada decided Thursday that the plaintiffs had legal grounds to appeal a 2007 decision that said 700,000 public servants, military and RCMP personnel were not entitled to any of the $30-billion surplus in their pension plans.

As expected... and this is just the beginning. More tomorrow.

Nothing has really changed with Wall Street's risk models and risk evaluation theories. Instead of focusing on doing a better job managing clients' wealth, they are more concerned with managing their risk from client lawsuits. Pretty sad conclusion in a post-Black Swan world. See what they said at the Milken Institute's Global Conference.

rare - (of a thing) Not found in large numbers and consequently of interest or value.

Three days after the Flash Crash of Thursday, May 6, 2010 I posted a fictional story on Zero Hedge describing what might have happened. To commemorate the anniversary I have rewritten, novelized and illustrated that posting and present it below for your reading pleasure.

Just like QE is nothing new in the monetary arena, and has seen some incarnation at least since the early 80's primarily in Japan, so parabolic commodity price surges have occurred periodically, most notably in 1980, when Bunker Hunt brought the price of silver to over $50. However, unlike any time before, never in the history of the world have we seen a coordinated worldwide monetary stimulus via relentless credit money "printing" courtesy of global central banks. In that regard, this time really is different, as there is no other remaining backstop to the world financial system: the global banking cartel has used up all its bullets and now can only double down in the most nightmarish Martingale system ever conceived, where each iteration means further fiat absolute value destruction (on a relative basis it simply means a race to the currency bottom, whereby definition only one can be in the lead at any given moment: usually the one with the biggest printing press, and greatest deflationary threat). And while many still believe that QE2 will be the last of domestic US monetary easing episodes, as Bill Gross noted earlier, it is very possible that the US may be headed into a triple-dip recession, for which the only prescription will be another QE round (with political gridlock in DC at unseen levels no fiscal stimulus is even remotely possible). If this happens, precious metals will once again surge. The only question is what will the exchanges do after the next gold and silver spike? Indeed, as we suggest, margin hikes are just the beginning. For a complete playbook of how the CME may proceed after the margin hike approach fails, we once again go back to the curious case of Bunker Hunt. Below, from the Playbook biopic of the Texas billionaire we posted yesterday, we present the walk through of how the CBOT, Comex and CFTC tried to break silver's back. Back in 1980 they succeeded. Have they, and will they succeed this time?

Equities underperformed credit once again as macro protection was in demand (in all asset classes) and some rotation from macro-to-micro protection in equities ended a day which was very ugly open-to-close despite what headlines will yell.

Just as expected:

• EU'S JUNCKER SAYS `STUPID' TO TALK OF GREECE EURO EXIT
• EU'S JUNCKER SAYS `NO WAY' GREECE WILL LEAVE EURO AREA
• EU MINISTERS TO DISCUSS NEW `ADJUSTMENT PROGRAM' FOR GREECE

But yes, the EURUSD will open at 1.43 on Monday, not 1.45. FX ping pong game mission accomplished.

And meanwhile, the repulsion to silver as exhibited by both the Comex (where as we predicted yesterday we see the first 32MM ounce handle in registered silver - a new record low), and Scotia Mocatta indicates that the silver paper and physical markets are in perfect unison. Or not. But yes, the feedback loop mechanism of SLV unwinds will likely have a greater impact on the paper market until such time as it once again reverses and aligns paper and physical interests yet again.

Looks like this one time the Greeks may actually be telling the truth. But who cares: by Monday, when every nation in the eurozone will be right where it was on Friday, the EURUSD will be 200 pips lower. Mission accomplished. Although unlike in 2010, we are absolutely certain no investigation will ever be launched to discover who instigated this EUR hit piece which just end up benefitting both Greece, German and... the eurozone. And yet, should it be uncovered one day that none other than Greece initiated this process to weaken the euro we would be almost as surprised as learning that Greek banks had bought CDS on Greek debt.

Had enough of neverending BLS inflation data manipulation? You may be in luck. Hot on the heels of the MIT Billion Prices Project (which we were delighted to see recently came back on line), there now is... PriceStats, potentially the most revolutionary concept to come to the fielf of econometrics, and thus fiscal and monetary policy in ages.

Earlier today the Fed announced that consumer credit increased by $6 billion in March, $1 billion greater than expectations, with seasonally adjusted revolving credit increasing by $1.9 billion, only the second time it has grown in the past 31 months (as shown below). Non-revolving credit also increased by $4.1 billion, both number to be trumpeted in the mainstream media, as it means that in March US consumers we using the credit cards once again to lever up. Yet two things that will not be discussed is that non-seasonally adjusted credit declined for the third month in a row to $2,407.5, an $8.9 billion drop M/M, following a $16.5 billion drop in February. But probably more importantly, the question of where all this credit comes from is once again perhaps best answered graphically: second chart below. As usual, thank you Uncle Sam... Which simply means that no banks wish to lend yet again. And yes, the government is and continues to be the only major source of credit (primarily for student and car loans).

RANsquawk Market Wrap Up - Stocks, Bonds, FX etc. – 06/05/11

And once again, those seeking a reason why the EURUSD has plunged 600 pips in two days need look no further than this chart. As of Tuesday, per the CFTC net non-commercial long contracts in EUR rose to 99,516, a massive 45% rise in one week and by far the highest in years, following Bernanke's dovish statements from last week, all of which were wrong footed yesterday when Trichet announced no rate hikes for a while, just as Zero Hedge anticipated courtesy of a global economic downturn. As a result of this surge in exposure, we have seen a one way trade as the specs exit the trade en masse. And while the DXY has seen some move higher, the primary reason why its has not surged faster yet is that over the past 5 weeks USD shorts have covered. And just as notable, net Yen short positions declined in half, from -37k to -18.8k. This mean that the G7 will soon have to intervene all over again to keep the Japanese currency weak.