Archive - Jul 14, 2011

Still confused by the last two days of Ben Bernanke testimony which in under 24 hours had elements of glaring contradiction? A) You are not alone and B) Judging by the market's response to the Congressional and Senatorial portions of Bernanke's testimony, not even he knows what monetary message he was trying to convey. And since all of his decisions are ultimately predicated by Goldman Sachs (either in the form of current GS employee Jan Hatzius, or former GS employee Bill Dudley) here is Goldman's take on the "Q&A on the Monetary and Fiscal Policy Outlook" based on Alec Phillips and Sven Jari Stehn's take of Humphrey Hawkins events in the past two days.

In this relatively quiet night (no major central bank interventions... yet, just one downgrade warning of the United States, Fed "other assets", mostly of the 30 Year Treasury calls variety, at fresh record high), we are delighted to present our readers with the latest edition of Abe Gulkowitz' fabulous newsletter: "The PunchLine" which in our humble opinion succeeds in doing in 18 pages what Kiril Sokoloff's 13-D does in 80 (both being the best 3rd party research one can get about economic developments). So for everyone curious about what has been happening in the US in the past few months, or what is sure to happen, TPL is your one stop shop for unvarnished information, most typically presented in easy to digest, chart format.

The emergency room doctors are missing the bigger problem ...

So much for the market "completely ignoring" the total chaos and complete cacophony out of the tragicomic DC soap opera which is transitioning into less of a comedy and into more of a tragedy with each passing day. For everyone still wearing rose-colored glasses here's a refresher: stocks dropped, the S&P expressed in dollar terms, or adjusted for loss in dollar purchasing power is now negative for the year, bonds tumbled despite a "strong" auction driven almost entirely by Direct Bidders on the margin, and, the kicker, US CDS is now at 56 bps: US default risk is now the highest since February 2010.

The Trust will use the net proceeds of this Offering to acquire physical gold bullion in accordance with the Trust's objective and subject to the Trust's investment and operating restrictions described in the prospectus related to this Offering. Under the trust agreement governing the Trust, the net proceeds of the Offering per unit must be not less than 100% of the most recently calculated net asset value per Unit of the Trust prior to, or upon determination of, pricing of the offering.

There is something oddly pot-meet-kettle-esque when Barney Frank, one of the men most responsible for the nationalization of the GSEs, sends out a letter bashing S&P head David Sharma, one of the men responsible for the credit crisis. Especially when the bashing is over something that is actually 100% true: that Dodd-Frank is the most pathetic and corrupt piece of legislation to come out of Washington since Gramm-Leach-Bliley.

RANsquawk Market Wrap Up - Stocks, Bonds, FX etc. – 14/07/11

Now that's what one calls prudent fiscal planning...

Last night I had quite an unexpected surprise. You see, at my hotel here in Thessaloniki, there’s a delegation from some group of the European Parliament called the Committee on Regional Development. They’re here to help… Hey, isn’t that what they always say? The Committee wants to supervise Greece working its way out of the debt crisis and make sure that Greece’s poor are getting the support they need. The hotel’s restaurant was filled with these sycophantic parasites last night– an entire room full of people with a superiority complex who think that they are entitled to make decisions about other people’s lives and money. They sat at dinner drinking fine wine and polishing up steak tartare making proud, bombastic proclamations about the virtues of foreign aid, the democratic process, and the great progress of Greece’s austerity measures. Coincidentally, not 300 meters down the road, a campsite has been gathering for economic refugees, Thessaloniki’s former middle class that has been vanquished by the crisis. Some of the children swung by the restaurant’s outdoor terrace begging for change, only to be waved off by one of the delegate’s extended pinkie fingers as he sipped his wine. It couldn’t have been more ironic… the perfect image of what passes for democracy today, right here in the country that invented it.

Back in February, when looking at the CDS of MBIA, we observed the dramatic tightening in the corporate opco risk which had seen levels tighten from 55 pts upfront to 37, we speculated that "MBIA recently succeeded in making life for mortgage originators a living
hell, after it successfully challenged, and was allowed to use
statistical sampling in pursuing repurchase demands. While it is unclear
how actively MBIA itself will pursue this strategy, which would be a
viable way to pick up at least several additional points of recovery
courtesy of fat-check settlements, the loophole has already opened the
door for Allstate to sue both Bank of America and JP Morgan,
confirming what everyone has known, namely that the two banks lied and
misrepresented their products with impunity when offloading them to
hapless investors." In other words, by doing to Bank of America first what the NY Attorney General is doing to the firm right now, it was only a matter of time before the Charlotte-based symbol of all that is broken with America's mortgage system (courtesy of the Counterywide Acquisition, rapidly becoming, if not already is, the worst purchase in M&A history) those long MBIA risk were sure to experience a windfall upon any settlement announcement... or even rumor. Which is what just happened earlier today after Bloomberg reported that "Bank of America Corp. (BAC), the biggest U.S. bank, has made a preliminary offer to bond insurer MBIA Inc. (MBI) aimed at settling a legal dispute tied to defective mortgages, according to two people briefed on the discussions."

The "too big to fail" banks and Corporate Cartels effectively own the Federal machinery of governance, the Savior State's fiefdoms are expanding their reach and power like uncontrollable cancers, and the "leadership"--mostly self-glorifying. grossly incompetent, self-absorbed, greedy Baby Boomers, but with a few equally clueless 40-somethings present just to prove that age is no protection against self-delusion and supreme greed-- has resolved to surrender to the Financial Power Elites and State fiefdoms, and fiddle around with "extend and pretend" strategies until they can exit the stage with bulging bags of swag.
Their only goal is to not be the one blamed when the whole corrupt contraption finally collapses under its own weight. If there was ever a more pathetic, corrupt, cowardly and incompetent set of "leaders" in the nation's history, they must have done their skimming during periods of relative prosperity. Now we need real leaders, not TV-ready simulacra spouting bloated slogans that contain the magic word "change."

Now that traditional alpha generation is long dead courtesy of central planning, and even levered beta no longer works as a strategy at least until such time as Benny and the Inkjets return with a whole printer cartridge full of goodies for the uberwealthy, and that old "sophisticated investor" go-to staple - insider trading - is no longer an option courtesy of the clamp down on "expert insider information leaking networks", what is a hedge fund to do to justify ridiculous terms such as 2 and 20 (or 3 and 45 in some soon to be Wall Street criminal folklore cases)? Simple: run, don't walk to Bank of America Merrill Lynch Countrywide and demand an immediate, if not sooner, hook up to the "Securities Lending GM Portal Locate System (SLGPLS)." Why the SLGPLS? Because it is the last remaining way to make money: isolate companies with large short interest and create a major covering spree. From the horse's mouth: "We are offering a brand-new technology for prime broker clients giving them the ability to do locates via the web. It is a user-friendly system that features instantaneous easy to borrow (ETB) locates and hard to borrows (HTBs) that are delivered to our securities lending desk personnel desktop. Additionally, clients have the ability to get color and email alerts on a select list of securities." Translated: BAC, seeing plunging PB revenues now that everyone is departing this bloated scam of a bail out with hundreds of billions in toxic RMBS, is offering the holiest of holies straight to the end user (for a price): all the names, that with just a little buying prod, would likely surge as shorts get spooked an cover en masse.

Not sure what this is all about, but Timmy is about to throw some more mutual assured destruction fire and brimstone bombs.

A default by Greece on the weekend of August 20th with IMF/EU secured financing in place would solve a lot of problems. Greece would get actual debt reduction and only have to re-prioritize who gets proceeds from asset sales. The IMF/EU would become secured or at least senior, making it more likely they get repaid on debt they have already promised to issue anyways. The IMF/EU can tell the banks that next time they ask for some voluntary help, they better get it, and they can tell their citizens they were tough on their own banks and on Greece. August 20th has about 8.5 billion euro of principle and interest payments due from Greece, and we all know the Troika likes weekends for big announcements because they have the most time to explain their plans and spin their story while the markets are closed.

From $4 trillion to $2 trillion to $1.5 trillion (soon $0 trillion of course, but that is another story). The latest gimmick to bounce the market is the completely unfounded rumor that the White House has said both side agree on $1.5 trillion in deficit cuts and an additional $200 billion can be agreed upon soon. Stocks surge, bonds tank...because, you know, this is good for America's credit standing according to Moodys. We give this rally a few minutes before Boehner comes out and denies everything. To all those who just bought the 30 Year, condolences... at least for the next few minutes.