Archive - Jun 2011

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.

Despite a veritable flood of financial and political analysis about Greece, nobody seems to have noticed the obvious: Greece is a kleptocracy. Here's the real dynamic in Greece: The Kleptocracy--broadly, the political and financial Elites of the nation--saw a stupendous opportunity to embezzle hundreds of billions of euros from greed-blinded European banks at super-low rates of interest. Being kleptocrats, they sniffed out the basics of the bezzle right away, and have been playing it ever since: we're not paying any of these loans back, so go get the money from the European Central Bank (ECB) and the German taxpayers, or declare bankruptcy. Your choice. The Greek kleptocrats knew all along that the German, Dutch, French and Finnish taxpayers were easy marks, just as they knew the European Union Power Elites would fall all over themselves to "save the euro" which was the centerpiece of their "one Europe" strategy of domination. Only the Greek kleptocrats just beat them at their own game. The entire game plan of the "one Europe" Elites depends on nation-states actually complying with non-enforceable codes of conduct and on European banks making prudent loans. Neither condition held: Greece's Elites reckoned they could game the system and string along the Eurocrats, if not forever, then certainly long enough to engorge their Swiss accounts with euros skimmed from the banks, and they've played that hand to perfection. Their performance is truly a thing of beauty, a masterful display of the Big Con.

The schizophrenia is now complete.

It may not be gold, but it is the closest substitute to the shiny metal in the fiat space (where comparative devaluation is the name of the game once again). While the Swiss Franc has yet to retest recent lows against the euro, the USDCHF just touched an all time record low price of 0.8287, as today's theme is once again wholesale shorting of the funding (note, not reserve) currency. In the meantime Swiss exporters continue to pretend that margin compression is something best left for the comic books. And after all, Tim Geithner made it all too clear at all recent G8 meetings that it is every country's patriotic duty to welcome DXY 0 with open arms.

I don’t know if anyone else has noticed, but this country has been thoroughly gutted over the past few decades. Our industrial base has been dismantled and shipped overseas to the benefit of foreign nations and corporate feudalists. Our grain reserves, once ample, have been depleted to an all time low. Our currency has been systematically debased. And now, our oil reserves, without rational cause, are being sold off only to feed the catastrophe our government is supposedly out to stop. Are the American people being prepped like a glazed ham for the fires of the globalist oven? Is this really all due to coincidence and stupidity as skeptics claim, or is there something else at work here? I find it hard to believe that the IEA and our government are not aware that their proposed strategies conflict with their own source data, or that they are completely oblivious to the destruction they are about to reap upon our economy. The latest IEA decision is just one more piece of evidence of an agenda of deliberate financial destabilization trending towards a disaster that serves the interests of a select few, to the detriment of all the rest.

According to crossing headlines, US Consumer Confidence per the Conference Board, which was expected to print at 10:00am, has come out at 58.5, on expectations of 61.0 and down from 61.7. It is unclear if this is due to an embargo breach, but this is the number for what its worth. Not even the HFT algos could front run a fully leaked number. The index components were worse on both counts: present situation was down from 39.3 to 37.6, while expectations dropped from 76.7 to 72.4. Naturally, this number only has an impact on the market when it show improvement so the embargo break will likely be promptly forgotten.

Two weeks ago we reported on Goldman's natgas trading recommendation change, after analyst Samantha Dart said to short at $4.84. Well, in what may be the first time in 2011 in which a Goldman trading reco has lead to client profits (and Goldman prop losses), the firm apparently has just reached its breaking point on how much losses it can take, and just announced it is closing the short. "Closing: Short October 2011 NYMEX Natural Gas (initial price $4.84/mmBtu, closing price $4.33/mmBtu, gain $0.51/mmBtu) We close our short trading recommendation in the October 2011 NYMEX contract, as prices have corrected in line with our expectations. We also see increased price support from higher coal prices going forward, which allows for coal-to-gas substitution at a higher price level." Confirming Goldman's now suddenly "bullish" bias is the firm's reco to go long Q4 2012 ICE natgas: "Long UK NBP Q4 2012 ICE Natural Gas contracts (initial price 70.8 p/th, current loss 0.8 p/th) We recommend opening a long position in the UK NBP Q4 2012 contracts, as we expect a continued tightening of global LNG markets to lead to a reconnection between spot prices and oil-indexed prices in Europe, with spot gas pricing above oil-indexed in the beginning of the winter to attract incremental volumes for the peak demand period. This reconnection between spot and oil-indexed natural gas prices in Europe is not currently priced in the UK NBP forward curve." In summary: "outside of the United States, after two years of a cyclical surplus, the tightening has been accelerated by the recent events in Libya and Japan. As a result, we expect future global demand growth to test effective LNG production capacity, ultimately leading to a re-connection between UK NBP and oil-indexed gas prices this year on a sustainable basis."

There was some good news for the home sector after Case Shiller the first sequential increase in home prices in almost a year, with the Composite 10 increasing 0.8% in April, and a 0.7% increase in the Composite 20 on a non-seasonally adjusted basis. On a SA basis prices fell again, this time by 0.1%, slightly better than consensus which was looking for a 0.2% drop (and lest anyone believes revisionism is contained to the BLS, the February/March decline was revised even more from -0.23% to -0.26%) and in line with Goldman's expectation noted earlier. But before Toll and Lennar go ahead and prebuild another 10,000 empty units, there were some caveats: "In a welcome shift from recent months, this month is better than last - April’s numbers beat March,” says David M. Blitzer, Chairman of the Index Committee at S&P Indices. “However, the seasonally adjusted numbers show that much of the improvement reflects the beginning of the Spring-Summer home buying season. It is much too early to tell if this is a turning point or simply due to some warmer weather...“Other housing statistics show the same trends. Single-family housing starts were up in May, but still well below their 2010 levels and still very close to their 30-year low. Existing home sales rose in May, but are still about 15% below last year’s pace and about 35% below their 2005 pace. While foreclosures remain a large factor in most parts of the country, the S&P/Experian Consumer Credit Default indices show a small decline in the pace of new defaults since last November. Other reports confirm that banks have tightened lending standards in the past year making it harder to qualify for a mortgage despite very low interest rates." Lastly, and perhaps most important, is that this is data that was relevant back in April... and that 6 out of 20 MSA just hit new lows. America is increasingly becoming a story of two polar opposites.