Archive - Sep 19, 2011

The only surprise in the speech so far is that he hasn't told Transatlantic Holding Inc., that they should accept Buffett's offer. Now we can get back to trying to figure out what new plan Greece and the Troika come up with to justify repeating the process again a few weeks from now.  And just how much QE is going to be announced Wednesday.

Just out from Alfred Little: "SilverCorp Metals (NYSE and TSE: SVM) is a $1.2B market cap silver mining company deriving all its sales and income from mining assets located in China. Following the publication of our initial findings we are today publishing our complete report with substantial new findings..." Judging by the immediate stock price reaction (down 8%), the latest alleged Chinese fraudcap may have just been exposed.

I'm going to appear on the Max Kesier Show Tuesday and will do something that very few rarely do. I will walk through a hypothetical (actually, not so) run on the bank and show in detail what the fallout will be. This post will serve as a detailed outline.

Hide your millionaires and get your popcorn ready. This will be good.

It has been a while since we heard anything about everyone's favorite contrarian and most outspoken hedge fund manager, Hugh Hendry, and probably for a good reason. As everyone else was complaining about their performance (and P&L) collapsing, blaming it on everything from the weather, to Bernanke's diet, to fundmanetals and technicals, Hugh Hendry was raking it in and is now up 38.65% YTD, with a stunning +22.5% in August alone (or pretty much mirroring the collapse at Paulson & Co) and another 11% in September! As the FT reports, Hugh Hendry's Eclectica fund has "has soared in value over the past two months as global markets have plummeted and industry peers have suffered damaging losses." Hendry's opinion on China is no secret, with an indicative snippet being that he anticipates a 1920's Japan-like crash in China. And as was reported previously, based on his recent trade of buying up lost of Japan CDS of companies exposed to China, his outperformance is no suprise. Expect to hear much more about Hendry as the media gets tired of paraphrasing sob stories and actually focuses on the (very few) winners from the most recent market blow out, confirming that contrarian, non-lemming approaches to investing still do pay off.

No surprise in the only economic indicator of the day: The September National Association of Home Builders/Wells Fargo Housing Market Index declined from 15 to 14, missing expectations of an unchanged print, and at a 3 month low, although as the chart below shows, it is really just humming along the generational bottom with no threat of increasing any time in the near future. As the report demonstrates, sentiment was worse in 3 out of 4 regions, in Northeast at 15 vs August’s 17, in the West at 12 vs 15, and in the South at 15 vs 17; in Midwest 11 vs 10. That said, we are confident this will surge shortly, as soon as the President announces details of his plan to tax millionaires, which assuming we have hyperinflation shortly (remember: that debt won't inflate itself) means pretty much everyone.

The ECB just announced its bond purchases in the prior week, which came at €9.793 billion, a notable drop to the €13-14 billion purchased in the past two weeks. And while the cumulative total has now hit €154 billion (and we wish the ECB all the best as it seeks to sterilize an ever greater amount of bond purchases without a major operational failure), it appears that the ECB may be losing its appetite for transactions of this kind, which as is now known was the reason for Stark's departure from the ECB, and an indication of the growing chasm between Trichet and Merkel.The EURUSD, which just took out session lows, and is down 200 pips since the Friday close as it prepares to break 1.36 sure seems to think so.

As S&P futures head back towards their lows, they remain notably above commensurate credit-inferred levels as the credit and TSY complex is showing stresses far more than equities so far (and we know how that has ended recently). Europe is very ugly again with the major credit indices all significantly wider. Financials are losing grip on any hope as we now start to see not just PIIGS spreads widening but the core spreads crack as risk transfer is priced into the overall euro-area balance sheet. Non-financial European corps are also notably weaker as transmission mechanisms drag the real economy down and that is implicitly crossing the pond to drag IG and HY spreads wider over here.

As usual, UBS' Art Cashin, who may suffer the occasional pint but never outright idiocy, cuts right to the chase. His bottom line: "According to the Tax Foundation, after the 1929 crash, Congress proceeded to raise the top marginal tax rate from 25% to 63% by the end of Hoover’s term.... As you may recall, hiking those rates may have made folks feel that rates were more equitable but it sure didn’t help the economy."

Now that Netflix has lost its lustre, its coolness factor, and frankly, its cash flow (which it never had to begin with), here comes the Monday Morning Quarterbacking with some damage control from the CEO which is too little, too late. That said, if Whitney Tilson is re-shorting the company here, everyone should pile in ASAP.

A busy week in Beltway theater melodrama. Goldman summarizes what to expect below as the President's deficit reduction package goes to the Hill today; later this week the super committee meets, and Congress enacts stopgap funding for the new fiscal year...

All of the symbols employed by Hemingway add to premise that life is an endless struggle with illusory rewards. In order to achieve nobility in life, a person must exhibit bravery, poise, courage, patience, optimism, and intelligence during the struggle. Then, even if the prize is lost, the person has won the battle, proving himself capable of retaining grace under pressure, the ultimate test of mankind. Ron Paul’s life is a shining example of grace under pressure. He has single handedly battled his great fish (Big Government, Big Finance, Big Military) for four decades with no helpers and many detractors. His journey is nearing its end. But it isn’t how it ends that matters. The journey is what separates the noble lion (Ron Paul) from the hyenas (corrupt politicians) and jackals (media). Ron’s message will not die. His son will carry the torch. The young people who have been inspired by his words and example will carry the torch. All of our lives will end the same way. The lesson to be learned from Ron Paul is how we should live our lives. The ideologically myopic pundits that pass for the intelligentsia in the mainstream media scornfully declare that Ron Paul has no chance of winning, when all critical thinking citizens recognize that he has already won. They can destroy him, but he will not be defeated.

Back in the summer of 2007 two important things happened: the market hit an all time high, and the smart money realized what was about to happen (following the subprime and the Bear hedge fund blow up, it was pretty clear to all but Jim Cramer) and bailed out of stocks and into bonds, with Treasury holdings of Primary Dealers soaring at the fastest pace in history. Well according to the Fed, in the past few months Dealer holdings of Treasurys due in more than a year have soared by a whopping $90 billion, from a $75 billion short on May 6 to a $15.1 billion long on September 7. As Bloomberg reminds us, "the last time dealers bought bonds at such a rapid pace was between July 2007 and September 2007, as losses on subprime mortgages began to infect credit markets and the central bank unexpectedly cut interest rates." Also, as noted above, all hell was about to break loose. So what explains this surge in Dealer bond holdings? Well, expectations for said hell breaking loose all over again is one reason, as is the imminent announcement of Twist, QE3+, and who knows what else Bernanke has up his endless sleeve that will make the 2s10s as close to inverted as possible, putting Bank of America permanently out of business. To quote from Bloomberg again, "The problems are endless” for the economy, William O’Donnell, head U.S. government bond strategist at RBS Securities Inc., a primary dealer, said in a Sept. 13 telephone interview. “What will surprise people is how long this period lasts of very, very low rates.” Judging by leading market indications, perhaps people will not be surprised after all.

• Markets remained nervous ahead of a teleconference between Greece and the Troika, which has already been delayed until 1700BST today
• ECB’s Liikanen said that Eurozone growth risks are substantially on the downside, adding that sovereign debt crisis is not just individual countries' problem, but is a systemic Eurozone crisis
• According to a study by the DIW research institute, Germany's 10 biggest banks need EUR 127bln of additional capital
• According to Japan’s Economic Policy Minister, the country may announce outlines of measures to counter the strong JPY as early as tomorrow
• Moody's said it would finish reviewing Italy's sovereign credit rating for a possible downgrade within the next month, adding that Italy faces a challenging economic and financial environment