Archive - 2011

General Motors confirmed today that it has made a $2 billion contribution to its underfunded U.S. pension plans, giving it 60.6 million shares in common stock. Is GM loosening its pension noose?

After a brief stint in the end of November dethroned Citi from the title of "most hated company" if not in the world then at least on the S&P, and replaced it with the traditional hedge fund long position offset, the SPY, December has seen a valiant rebound by Citi shorts, which successfully pushed Pandit's company back to the top. And with 355 million shares short, Citi is no danger of being overtaken any time soon by runner up, SPY. The surge in shorting also likely explains why the same company has, courtesy of various forced buy ins, once again pulled a March 2009, and soared on absolutely nothing, as a short covering spree has taken the name double digits higher in days. We would have hoped that realist speculators would know by now that any time there is a surge in the short interest, it is immediately reported by the exchanges and the brokers to the custodians who in turn enjoy institute HTB days, which just sometimes see pervasive forced buy ins to generate an industry wide short squeeze. Just like we have seen in financials in the past several weeks.

Twofer.

“As we peer into society’s future, we – you and I, and our government – must avoid the impulse to live only for today, plundering, for our own ease and convenience, the precious resources of tomorrow. [Emphasis added.] We cannot mortgage the material assets of our grandchildren without risking the loss also of their political and spiritual heritage.” Wow! How is it possible that we collectively seem to have forgotten this clear warning? I have not once seen it referred to...All in all it appears that Eisenhower’s worst fears have been realized and his remarkable and unique warnings given for naught. From now on, we should tread more carefully. Honoring President Eisenhower’s unique warnings, we should perhaps not take this 50-year slide lying down. Squawking loudly seems preferable. - Jeremy Grantham

Just because sometimes we need a reminder that there is a lighter side to life even when living under Hewlett-Packardian central planning...

No, not 2008. 2007. It is at the same level it traded last when the S&P hit its all time highs, when stocks moved 10% on a Cramer recommendation, when complacency was virtually infinite, and just before the first quant wipe out of August 2007. That said, the summer of 2007 did not have a politburo of 12 Fed presidents and one Chairman determining every single tick in the Russell 2000. In that regard, this time is truly is different. Expect the VIX of the policy instrument now known as the stock market, to hit 0 as vol in FX, rates and commodities approaches asymptote.

Last week's surge in net commercial EUR short positions to -45,182, nearly a double from the -24,201 the week before, explains why the last few days have seen one of the sharpest and most pronounced upward moves in the EUR(USD) in recent history. All a historic short squeeze needed was a little gratuitous systemic backstop like the Chinese rhetoric about bond purchases, and a proximal catalyst such as the Goldman "tactical" upgrade of the EURUSD and the avalanche of shorts, which was at the highest it has been in over half a year, rushed like headless chickens and completely chaotically in traditional groupthink unwind fashion out of the burning theater entrance. And what certainly "helped" the EURUSD trade unwind was the massive jump in bullish USD positions from -1,268 net to 10,057. That said, next week we expect the inverse, as EUR shorts plunge, and USD shorts surge, only to be taken advantage of at the first possible opportunity by far bigger and sophisticated institution, and not to mention, countries, which have $700 billion in FX reserves in a currency that needs to be sustained at about 1.35.

RANsquawk Market Wrap Up - Stocks, Bonds, FX etc. – 14/01/11

With the US Mint selling silver at an unprecedented pace, it was only a matter of time before the silver shortage would be spotted across the Atlantic, where distributors ran out of both gold and silver on a daily basis during the first time Europe became insolvent some time in early May 2010. Sure enough, BullionVault.com has announced that it has run out of silver in Germany "due to high demand." In the meantime, the CFTC's actions have succeeded in allowing the JPM's suppression of precious metals markets to continue indefinitely, yet all its actions have really done is to provide a short-lived lower cost basis for the precious metals as there is no indication demand is subsiding. At some point the margin calls will come. Then not even Gary Gensler will be able to bail out JPM (we wish we could say the same about Ben Bernanke to whom JPM's role as head of the tri-party repo clearing market is irreplaceable in maintaining an orderly shadow liquidity market).

The League of Arabian states has just experienced its first populist revolution in modern times in Tunisia. The prime minister has announced that he is in control now that the President of the last 23 years or so has fled the nation.

Inflation is occurring but it is not what you think it is.

Gold and silver are now down hard over the past two days and the reason may have something to do with the fact that the CFTC utterly caved to JPM in their long-awaited decision on position limits in a 4-1 vote. While position limits will eventually be set, maybe, someday, the course of action taken by the CFTC grandfathers in JPM's (and HSBC, et al) current outlandish positions. For anybody like JPM that has no intent of taking physical delivery, they are prevented from accumulating a position that is 125% of the total deliverable supply. What sort of a limit is that?? That's like trying to limit the damage from auto accidents by limiting freeway speeds to 'no more than' 175 mph. Also, anybody who might want to actually buy the physical is limited to 25%, so any potential Hunt Bros. need not apply. The outer limits of this game have been exclusively reserved for speculators and manipulators. That's not even remotely the outcome I was hoping for. This 'ruling' tantamount to saying "carry on!"

Iceland, which alone in the entire developed world allowed its banking sector to collapse, and which, also alone, has benefited from a recovery that is truly organic courtesy of a devaluation of its currency and a global restructuring of its corporate balance sheet (read wipe outs for its banker class), continues to show the world that it is possible to have at least some semblance of justice in a world captured by fraud and criminal financial interests. After the CEO of failed bank Kaputhing was arrested back in May, today AFP reports that Iceland police has also detained the former CEO and several other executives of the other major Iceland failed bank: Landsbanki.

Adding insult to injury for holders of muni bonds, whose assets have plunged in value in the past month, pretty much as expected in light of pervasive state insolvency which is no longer being masked by the government's generous "Build America Bonds" distraction, is Charlie Gasparino's breaking news that now the SEC has gotten into the fray, and is looking into muni bond prospectus disclosures. Per Gasparino: "What they are looking at whether municipalities, cities and states, are adequately disclosing their budget woes to investors who buy these bonds." Which only means that as the risk of further pervasive impropriety is unearthed, and the muni space ends up being as much of a fraud as the MBS one, that the risk of holding on to MUB-derivative equivalents will only get higher, leading to yet another round of sell offs now that the muni bond situation has entered a toxic spiral where, in the inverse of the stock market, any news creates merely greater selling pressure.

Today we present yet another analysis of the complete failure of the QE framework, this time from Van Hoisington: "From the standpoint of most households, the home is the main component of wealth, not stock market investments. The continuing drop in housing prices serves to underscore the ill advised and likely temporary drop in the personal saving rate that was so critical to economic performance late last year." The problem is that with even the Fed itself confirming that it no longer cares to even attempt to reflate housing, and merely is seeking the make the wealthiest even wealthier, why bother? Why even speculate what the theoretical framework behind the Fed's actions and what proper policy should be, when Bernanke has now made it clear that the Fed cares not one bit about its two key mandates, both of which have been made irrelevant to its only real prerogative: inflating stock prices to as high levels as possible, asset bubbles be damned. Next month we will bring you the latest all time record high number of Americans on food stamps. And the same for the month after, and after, until eventually we get a replay of the Tunisian (French citizenship) candidate situation in our own country.