Archive - Jun 2011

This is a very, very important article. It is important enough that it should easily go viral, for it clearly and meticulously illustrates both the ease of perpetuating inaccurate information through the mainstream media (in this case, the venerable NY Times) while simultaneously demonstrating the blatant conflicts of interest, the “profit off of the client’s back” mentality and the piss poor performance of Wall Street’s biggest and most well respected (well, at least some of them) investment banks.

Lately there has been some confusion as to who of the Fed's 12 presidents is a hawk and a dove. Luckily, SocGen provides a handy tearsheet to keep track of who, as per recent public appearances, is hawkish, who is bearish, and who is largely irrelevant (everyone) considering that nobody has dissented at an FOMC meeting since Hoenig left the voting spot. Ultimately, the deciding vote is always and only in the Chairsatan's hands.

While Greece may or may not receive Bailout #2 "any minute now", Greek depositors refuse to wait for the resolution. In April, bank deposits declined for the 4th consecutive month according to the central bank, a 1.2% decline M/M. From Reuters: "Bank of Greece data showed deposits fell to 196.8 billion euros ($288.2 billion) from 199.2 billion in March. A shrinking deposit base has added to the strains of Greek banks, which have become reliant on ECB funding for their liquidity needs as access to wholesale funding remains mostly shut on sovereign debt concerns. Deposits have shrunk by about 13 billion euros since the beginning of the year. In 2010, they contracted by 29.1 billion euros or 12.2 percent." In addition to the Reuters breakdown, a look at the source data indicates that overall deposits held by "Domestic Residents" dropped by €5.4 billion: the culprit was the Central Government which withdrew €3.1 billion in April, bringing the total from €14.3 billion to €11.3 billion. As usual, the best real-time proxy, if not completely accurate, to gauge the flow of capital in/out of Greek banks is to keep an eye out on the EURCHF. Today, it is a little higher. Over the past year, it is, well, not...

The below chart from SocGen demonstrates why the stock market, unlike bonds, is currently massively overpriced. The current economic surprise factor swing, from an all time record at +100 recently, down to about -100 (the third lowest in the past 5 years, and likely longer), a 200 point swing which only compares to the 2008-2009 Lehman collapse, was accompanied by just a 15% drop in stocks over the past 8 months, indicates two things: either the current "soft patch" is indeed "transitory" as the Fed would like us to believe, or that the market is pricing in QE 3. And while SocGen, which is the source of this chart, believes that the collapse is indeed "transitory" we completely fail to see what the factor will be that will push the global economy higher in Q3 and onward: Japan? Europe? Fiscal generosity in the US? China? No, no, no and no. Sorry, there is no catalyst that will provide an impetus for a hockey stick effect this time around. Except, of course, for more monetary easing, perhaps in Japan, but mostly in the US. Yet for that to happen, as we have been claiming for nearly half a year, stocks will need to plunge to their pre-QE2 levels, or about 900. Alas, the mutual funds which currently hold the lowest amount of cash in history, and are levered more than ever, are simply unable to sell without blowing themselves up. We are confident, more than ever, that an unstoppable desire for extend and pretend is about to hit an immovable force...

A harbinger of what the front office doors of various investors in Sino-Forest will soon look like...

In a move that is sure to send the infamous Fed "economist" (Ph.D., never forget) Kartik Athreya over the edge, Obama's nominee for the Fed Board, after unsuccessfully trying to enter the one circle that is just less exclusive than the Goldman partnership ranks for over a year, has decided to pen an Op-Ed in the NYT titled "When a Nobel Prize Isn't Enough", and disgusted with the fact that his utterly worthless Nobel prize in something or another can't even buy him one seat with those who decide the price of money, has pulled his nomination in utter disgust. "Last October, I won the Nobel Prize in economics for my work on unemployment and the labor market. But I am unqualified to serve on the board of the Federal Reserve — at least according to the Republican senators who have blocked my nomination. How can this be? " How indeed: could it be that, gasp, Nobel awards are merely a honorary award in groupthink, presented to anyone who perpetuates the status quo with little regard for actual merit-based contribution (one needs only recall Obama's Peace prize just as the President is contemplating opening up a 4th, or is that 5th, war front?). Most importantly: nobody tell Krugman his one validation of his life's work, has just been downgraded to junk.

• US data chief warns on employment - "Probably the most notable thing about [the jobs report] is there isn’t anything notable about it,” said Keith Hall, commissioner of the Bureau of Labor Statistics (FT)
• Geithner May Support Lagarde for IMF to Keep U.S. Leadership of World Bank (Bloomberg)
• Obama Is Focusing on Tax Incentives, Subsidies to Spur Jobs, Goolsbee Says (Bloomberg)
• Socialists ousted in Portugal election (FT)
• Sino-Forest to provide details of tree ownership (Daily Mail)
• New data suggests Iran military link-UN atom chief (Reuters)
• Rain quenches thirst of areas hit by drought (China Daily)
• Obama nominee withdraws from Fed race (FT, Reuters)
• Thousands protest against Greek austerity (FT)
• Plan Focuses on Rescheduling of Greek Debt (FT)
• Iran to send caretaker oil minister to OPEC (Reuters)

Please find below my interview with Max Keiser and our discussion regarding the Greek crisis and continued banker price suppression and manipulation schemes executed against gold and silver to prop up the US dollar and prevent a US dollar collapse.

Find the outliers in below's SAC Capital monthly performance chart. By the way, wasn't there some SAC porn taskforce or something that was focused on looking at funds that constantly beat the market come rain or shine... Perhaps a fund that has had just 3 down months in the past 29 may be worth a red flag or two?

Absolutely nothing on the US economic docket today means stocks will fluctuate based on liesflow out of Europe, and Greece. Since today's 13th consecutive protest in Athens is expected to commence at around noon, it should be in full swing by the time NYSE circuit breakers are turned off around 2:30 pm EDT.

It seems that some Germans are finally realizing that the way the second Greek bailout package is proposed, will likely never work due to the required voluntary acceptance of 100% of bondholders which gives an essentially infinite value to the nuisance factor of holding out. We were thus not surprised to read overnight that Germany has now once again directly contradicted Juncker's comment from Friday that Bailout #2 was agreed upon "in principle." As Goldman explains: "CDU/CSU floor leader Kauder said in an interview with Bild Zeitung that "it has not been decided yet whether there will be another help package or not". CSU head Seehofer said over the weekend that the approval of the Bundestag was not a given; though it is not even clear whether the Bundestag has to approve another package, depending on which sources are tapped for the program." Look for many more such headline whipsaws as one after another piece of news comes out, now that the troika realizes its last ditch house of cards has finally toppled.

A snapshot of the European Morning Briefing covering Stocks, Bonds, FX, etc.
Market Recaps to help improve your Trading and Global knowledge

Become a power user on your smart phone, computer or any web-surfing device ...

For anyone who was hoping that China would be the marginal source of liquidity in QE3 absentia (or until it actually does come, which it will), manifested by a halt to monetary tightening and a relapse into that good old methadone state of loose monetary policy, it may be time to pull those SHCOMP limit bids.  China Daily just announced tha "the People's Bank of China is likely to increase the interest rates banks must pay on deposits and the amount of money banks are required to hold in reserve to sop up the excess liquidity now found in the economy and slow inflation, said analysts. The changes in monetary policy may happen before the National Bureau of Statistics makes an expected announcement this week saying that the consumer price index (CPI), an indicator of inflation, hit a record high in May, they said."As a reminder, yesterday Goldman predicted a multi-year high inflation of 5.5% in May courtesy of the biggest drought in 50 years and surging food prices: it turns out that the PBoC, far more responsible that our own central planning charlatans, will not stand for that.

Even as the general market, dumb as a doorknob, had been following every headline out of Europe, soaking up the BS that Greece may after all end up being bailed out in some miraculous way, there were those who wondered about the legal basis of the Greek bailout #2, also known as a redux of the "Vienna initiative." The problem with the second "Deux Ex Machina" bailout is that there is absolutely nothing Deus about it, no Ex, and most certainly no Machina. In fact, as it now clearly appears, the whole rescue package is flimsier than a house of cards and a quick read through the indenture makes it all too clear. The key reason why the voluntary Vienna Initiative worked back in 2009 is that the alternative was the end of the world, and nobody would profit from not going along with the herd. This time things are diametrically different. The key phrase (or two) in the proposed package: "Voluntary" and "Collective Action Clauses"... Well as the following excerpt from Citi explains, both of these critical (as in binary: without them, Greece is dunzo) assumptions are unworkable, and explains why every single Greek bond in recent weeks has been purchased by hedge funds who have remembered that the economics of "nuisance value" when the upside of bluffing the EUR printer is virtually unlimited. Which means that not only is Bailout #2 in jeopardy of not passing the Greek parliament, but that we may suddenly find ourselves in the biggest "activist" investor drama, in which voluntary restructuring "hold out" hedge funds will settle for Cheapest to Delivery or else demand a trillion pounds of flesh from the ECB in order to keep the eurozone afloat. In other words, the drama is about to get very, very real. And, most ironically, a tiny David is about to flip the scales on the mammoth Goliath of the ECB and hold the entire European experiment hostage...