Archive - Jun 28, 2011

The story that the world forgot, and that everyone wishes could just be buried under a 10 foot lead plate, not only refuses to go away but is getting worse by the day. The latest news from Fukushima is that the highly radioactive water has started leaking from Reactor #2, into a trench which is located just 180 feet away from the sea, prompting more fears that the most radioactive water recorded to date would soon seep into the ocean. The Telegraph reports: "The water seeping into a trench outside the Number two reactor at Fukushima Daiichi nuclear plant in northeast Japan had a radiation level of more than 1,000 millisieverts per hour." To be expected, here's captain "all is fine" aka TEPCO, to remind us that this is perfectly normal and 1 sievert water is no cause for concern: "we do not believe it is leaking into the ocean. We are now working out where the cause of the leak is and finding ways to remove the water as soon as possible." Luckily, nobody believes the lies out of Japan anymore: "Speculation surrounding the extent to which the radiation may be leaking into the Pacific Ocean was also mounting after tests last weekend found nearby seawater contaminated 1,850 above legal limits." Too bad they still believe the lies out of the US government. And while this recent development is happening, people in Fukushima have finally started getting full body radiation screens from the prefecture.. a move that is about 3 months overdue.

The stock is up 35% on news of a non-exclusive content deal. To sell content into a market unaccustomed to paying for it. How could this possibly go wrong?

Regardless of what Greece does, the facts remain that we are headed into another Crisis in the near future. The global economy has already begun to roll over. Social unrest has spread from the Middle East to Europe. The US is now actively raiding pension funds to fund its debt issuance, and more.

Remember how 4 very long days ago, the 60 million barrel SPR release was vaunted as being the reason for the second consumer renaissance after it was largely expected it would lead to sub $90 crude, and low $3/gallon gas, and result in every Joe Sixpack going out and buying 3 houses at least? Well, so much for that: the IEA's action has now been fully priced in and WTI is back to precisely where it was before the IEA announcement on Thursday. Which means that what some said was a shadow QE (and don't get us started on all the mainstream media "journalists", among which Bloomberg and CNN, who continue to confuse QE Lite with something they call QE 2.5) had a half life of just over 3 days. Expect future intervention half lives to continue declining, as the criminal banking cartel's ammunition is now down to just one thing, the only thing, printing.

May the farce be with you...

The magical RISK (commodities, rates, carry FX)-ES spread trade which we pointed out yesterday as soon as it blew out, providing a 7.5 ES equivalent pick up, suggesting a compression trade at this divergence level usually leads to a happy ending, has just closed (although in a classic reminder why trading just one leg of the spread can lead to hazardous conclusions - remember: this is a pair trade). Oddly, today RISK has notably outperformed the ES for three main reasons: the outperformance of crude, the plunge in the JPY, and the big move in the butterfly as a result of two consecutive abysmal bond trades. On an intraday indexed basis, the spread is actually favoring going long ES here while shorting the entire risk basket. The bad thing for the IEA and the administration is that today's move in crude higher is more than offsetting the jump in stocks (which intuitively should now be moving in opposite directions as Brian Sack has gotten his marching orders to kill oil and send stocks back to 1350).

Nothing new in the latest S&P 500 insider selling (and occasional buying). There were 2 (count them: two) purchases of stock by corporate insiders, of which one, which accounted for 97% of all purchases, came from Berkshire Hathaway. As usual selling dominated, with a ratio of 41 in notional sales to buys. And while we have been exposing this relentless dumping by insiders for years now, TrimTabs has added some voice to these ongoing warnings in which insiders sell their holdings to far less knowledgeable investors who are happy to burn "other people's money." Specifically, TrimTabs looks at the corporate share repurhcase-to-insider stock buying ratio, and gets some shocking results, namely that companies that have enacted $168 billion in corporate buybacks in 2011 have matched this with just $10 million in insider buying, a 16,800-to-1 ratio.

As expected. Just sent out from Lagarde's twitter account: "The results are in: I am honored & delighted that the Board has entrusted me with the position of MD of the IMF!" Now can the symbolic IMF and its double symbolic head please step aside and leave the real bailouts to China, please?

It has been a long time since we had seen a 5 Year auction as ugly as today's: printing at a 1.615% high yield, the 5 Year had a 3.5 bps tail off the bat to the 1.58% WI where it was trading before. The internals were just as ugly, with the Bid To Cover coming at 2.59 a plunge from May's 3.20, and the lowest since June 2010. Not surprisingly, Indirect interest evaporated once again, tumbling from 47.1% to just 37.6%, with Primary Dealers having to take up more than half, or 52.1%, and the remainder going to Direct Bidders. Too bad they will have no more opportunities to flip these back to the Fed. Which as expected starts to confirm Bill Gross' thesis that in the absence of the Fed monetizing, rates are about to go higher. One look at the second chart shows the relentless selling in bonds since Sunday. And as reported previously, with a barrage of issuance due in the months following the debt ceiling hike, which will probably be some time in July or August, look for the sell UST thesis to start getting its long overdue confirmation. In the meantime, the 5 Year yield has surged from 1.35% yesterday to 1.5727%, a mindnumbing move.

More nuclear mishaps?

Following up on our inaugural post tracking Sigma X transaction, where as we first reported Italian banks had captured the imagination of the big money, accounting for the three most active positions in Goldman's Dark Pool, today's update should not come as a surprise. For the second day in a row, the most actives continue to be UniCredit and Banca Monte dei Paschi di Siena (Intesa has fallen from 3rd to 12). This builds on earlier rumors of a major shake up (see below) in the Italian government, where Finance Minister Tremonti has allegedly threatened to resign again, and this time Berlusconi may be prepared to accept the resignation. Should this happen, look for Italy CDS and Bund spreads to react appropriately. The Sigma X signal is merely the continuing writing on the wall.

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

Market Recaps to help improve your Trading and Global knowledge

There was a time when markets looked to pre-discredited titans such as John Paulson new position announcements and surged appropriately on any kind of news. Now, it is small, actually due diligencing outfits, such as Muddy Waters, which move stocks by up to 50% on mere position initiations. To wit, MW has just reported that is has started a short position in Spreadtrum Communications, (SPRD). "Muddy Waters, LLC has begun researching Spreadtrum, Communications Inc. (NASDAQ: SPRD), and we have taken a short position in it. (Please see our disclaimer below.) We have identified a number of issues in SPRD's filings, and we believe that there is a high risk of material misstatement in the reported financials. Our concerns are gravest regarding 2010 and 2011 numbers. The below link is to an open letter we have written to SPRD chairman Li regarding our concerns." Next up: stock implosion.

Once this number passes 100%, one will need to deposit more cash than bond par notional to short the cash product. With CDS trader stigmatizing no longer working, the criminal cartel continues to target cash players. It is interesting that some market prices on bonds are below the actual cash requirement threshold (80%). In essence LCH just set a fake recovery rate on PIIGS cash bonds at 80 cents on the dollar.

For those asking, here is a full breakdown of the actual proposed fiscal measures to be implemented if the mid-term austerity vote passes tomorrow, courtesy of the BBC.