Archive - Sep 26, 2011

Classic method of FUD - fear, uncertainty and doubt.

"We're not doing this for the Greeks, but for us," said Angela Merkel amidst a cacophony of doomsday scenarios. It's all about propping up German banks and exporters. For the French, however, the European debt crisis doesn't seem to exist.

If Goldman rules the world where governments around the world fail as Alessio Rastani claimed, then GS stock chart should not look this ugly-- down almost 50%-- in the past 24 months.

So what are those lines on charts telling us?

From the same fine Swiss folks who three weeks ago (and before it was uncovered that when it comes to playing, or at least scapegoating, dangerously, UBS is second to none) brought you, "Under the current structure and with the current membership, the Euro does not work. Either the current structure will have to change, or the current membership will have to change," comes the sequel: "We believe the Eurozone sovereign crisis has entered a more dangerous phase. Financial and banking stresses are plainly evident as concerns about sovereign default grow. Notwithstanding signs from Washington this past weekend that European and world leaders are willing to consider more decisive policies, concrete steps remain elusive. Yet rising uncertainty threatens an already weakened world economy." The Swiss Bank's conclusions? "First, Europe’s politicians and policy makers must do more to shore up the Eurozone and investor confidence more generally. Among others, that probably includes stronger capital buffers in the banking sector, an expanded EFSF/ESM to finance bank recapitalization and support Eurozone bond markets, and further fiscal austerity in ‘at-risk’ Eurozone countries. But these are big asks of Europe’s ‘political economy’. Hence, the second conclusion: The likelihood is that the crisis will intensify before policy can deliver what is required." Reality 1: Strange little "source" voices inside the heads of chief economists of financial comedy cable channels: 0.

While few were expecting that the US government would pull a Belgium and collapse following an end of fiscal year lack of funding resolution, virtually everyone was secretly harboring just such a hope. Well, trust the government to once again kill all hopes that America has a chance to finally grow out of its depression. As the WaPo reports, with just 4 days to go until the end of the fiscal year end, and until some form of a continuing resolution has to be struck, we have once again averted Keynesian Armageddon (i.e., the inability to issue publicdebt to fund the digging of holes). "Senate leaders announced a bipartisan agreement Monday evening that would keep government agencies funded until Nov. 18, potentially ending a contentious dispute on how to pay for disaster funds. The Senate is expected to approve its version of the temporary spending bill Monday evening. The House is likely to approve a very brief extension of funding by a voice vote later this week and, when it returns to session next week, hold a vote on the stop-gap bill funding the government till Nov. 18." Expect the market response to be furious and hilarious as somehow news that America won't be lining up in front of the Southern District of New York (or, more properly, Beijing) for now, will be spun as massively bullish.

Yes, the GREAT COLLAPSE has begun. The markets will be going to new lows (below the March 2009 lows) in the coming months. We're also going to be seeing major banks go under, market crashes, food shortages, government shutdowns, and SYSTEMIC FAILURE.

Earlier we presented the flowchart of the first part of the Eurozone endgame. While satisfactory, many immediately clamored: "what is part two?" Prompted by this surge in intellectual curiosity, John Lohman has risen to meet the challenge of what the Eurozone's Biggest, Baddest, Sexiest Motherf#%$^* Flow Chart looks like. It needs no commentary, and since it also really ties the ponzi room together, we hope nobody micturates upon it until the plane crashes into the mountain. That said, we do have an accounting question: is "ass rape" a credit or a debit?

S&P futures managed an impressive 2.5% rally today making it back to the closing level from last Wednesday (Bernanke-Day) amid merely average volume. The leaked rumors of the EU's octuple-down CDO^2 bet on themselves was enough to get the buy-the-rumor juices flowing and we rapidly squeezed higher. IG outperformed, ending the day notably tighter than respective equity and HY spreads would expect as even though risk seemed on, we did not see a mad scramble for high beta and HY bonds remained offered in general. Gold and Silver managed a huge bounce off intraday lows ending the day -1.5 to 2% while the dollar sold off into the close (as EUR rallied) to end the day unch from Friday. ES ended a little rich relative to risk-assets in general as the small cap short squeeze seemed to take-over.

Wondering why you may not have heard of hacking collective Anonymous for a while? Because, as it appears, the ad hoc organization has been busy assembling Anonymous Analytics, a public equity research entity (and we venture to guess focused mostly on the short side) whose motto is "Acquiring information through unconventional means" and follows up with "You should have expected us." Think of them as Muddy Waters on steroids: no regulation, no supervision, no accountability - just pure content, and credibility-driven merit (or, of course, lack thereof): a model which if validated will totally revolutionize the field of public company research. Well, someone who certainly should have expected AnonAnalytics is Chaoda Modern Agriculture, a HK$ 8.5 billion market cap company, or on par with Sino Forest from its pre-fraud days, which as Anon alleges is one of "Hong Kong Exchange’s largest, and longest running frauds." As the below report demonstrates, Anon has presented a serious case to prove just that stunning allegation, and if ultiamtely validated, the outcome for stock longs will be very unpleasant: "Theoretically, Chaoda may be worth HK$0.60 per share (currently Hk$2.50) derived from a blended NAV and DDM approach. However, based on the evidence in this report, as well as information we have decided not to release, we believe Chaoda may face delisting." If proven correct, this report will have an even greater impact on capital markets than Muddy Waters take down of Sino Forest, as it will finally integrate the two formerly completely disparate worlds of hacking and software analysis, opening up a world of very concerning possibilities for the world's public companies.

RANsquawk Market Wrap Up - Stocks, Bonds, FX etc. – 26/09/11

Credit Suisse and Goldman Sachs have two indices that track the most shorted (highest short interest) stocks in the S&P500 and Russell 3000 respectively. This afternoon's action shows a considerable outperformance by the Russell 3000 most-short index over the Russell 3000 while the S&P 500 most-short index has stayed relatively well-behaved relative to the S&P 500. It seems smaller cap shorts have had the stuff squeezed out of them today.

Still confused by the doomed endgame in the 21st century Greek tragedy? Have no fear: here is the BBC (which today is two out of two for useful information)with a flowchart of Greek endgame. With apologies to the optimists, who think there may be a happy ending here, here are the only 5 possible outcomes: 1) Pyrrhic Victory; 2) Depression; 3) Moral Hazard; 4) Political Turmoil and 5) Global Meltdown. In this context, it becomes all too obvious why stocks are surging...

As alleged details are leaked about an alleged proposal to leverage the EFSF all I can do is cringe. I'm waiting for some actual details, but as far as I can tell, Europe is attempting go all in. It is going to make leveraged bets on itself. If it doesn't work, the senior debt holders will own Europe if the BRICs buy the senior tranche and will end in a fast and furious death spiral if the senior tranche is owned by the ECB or European banks. We may get a lift on the news. We are trying to rally on the back of the news right now. But if this plan goes ahead, even the slightest cold in the future will turn into the plague. There will be no strong countries left as they will have tied themselves to the PIIGS anchor with a Gordion Knot that will never be untied in time.

Steve Liesman has just broken news of the latest European bail out mechanism which will likely push risk higher for at least a few hours. Why just a few hours? Because what according to Liesman the ECB is about to propose, is nothing short of not just a CDO, but a CDO SQUARED. We are still waiting for more information, but according to his description of what this last ditch bailout bazooka (before Eurobonds of course), is that the ECB will take the debt bought by sovereign governments and will issue EURs against EFSF/ESM bonds as collateral: this is in its simplest definition, a CDO Squared (because as we have described in the past, the EFSF is simply a CDO), which in turn means that the systemic leverage of the Eurozone is about to rise 8-fold. If you thought the capitalization of the ECB was bad before, you ain't seen nothing yet. Expect cubed and quadratic iterations by the end of the week when the half life of this latest bailout rumor dies out. Oh, and expect many more headlines out of Europe talking about bailouts and hyperinflation as noted earlier.