Archive - Mar 2012

Here is where the parasitic 1% have their problem. What they have “sold” the American public as the spirit of the nation is now in direct opposition to reality. In fact, it has become so obviously untrue that the population is waking in drove to the truth and the truth is that we have a utterly corrupt, sociopathic minority running the nation like a giant criminal syndicate for their own power and money. Therein lies their weakness however. They have no philosophy. These guys are actually so twisted that all they think about is how can they keep growing their money and power. Furthermore, they are operating under an exposed playbook of control. Just take a look at Obama’s approval ratings. They are plunging. They are plunging despite fabricated economic numbers and biblical stock market rigging to make things look good. They are plunging because people are waking up and seeing all of this for what it is. A gigantic scam. All the signs I see point to increasing desperation on their part and exponential awakening on the part of the meat of the bell curve. These guys are toast and what we should now be focusing most of our attention on is what kind of society we want when this one collapses. Hopefully the other side of the bell curve can influence the debate for the first times in five thousand years. That is my hope and my vision of the future.

With Greece seemingly well-and-truly in the mainstream media's rear-view mirror, we thought it useful to go over a few details that are 'evolving' as we approach the CDS auction and foreign-law bondholder participation deadline. In a nutshell, there are now seven (count them seven) classes of debt in the Greece capital structure ranging from Old GGB holdouts to Troika- and EFSF-subordinated 'loans'. Critically though, just as we have written extensively, it is the size of the holdouts that will become a growing headache for the European Greek government. As BNP notes today, there are at a minimum EUR2.5bn but potentially up to EUR11bn of holdouts that leaves the Hellenic Republic with the chance of achieving 100% participation practically impossible and some very difficult choices between a disorderly failure-to-pay default on these holdouts (with all the ugly ramifications of out-of-control bankruptcy and litigation) or 'unfairly' pay this 'small' group of desperadoes out as normal (i.e. pay interest and principal to Par at maturity - no haircuts). This is exactly the 'blocking-stake-Foreign-Law-bond' strategy we suggested that hedge funds would undertake and it appears successful given the record price differential that now exists between Greek- and Foreign-Law bonds.

From Deutsche Bank: "We removed Apple from SOLAR following a ~50% gain since adding it to Solar on October 19th (adding ~$175Bln in market value). Over the same time period, the S&P is +15%."

Why do families persist in taking on $100,000 student loans for mostly mediocre educations with mostly mediocre "benefits" in the job market? Because they feel they have no other choice. Why do people persist in mortgaging their future and accepting the yoke of debt-serfdom to own a house? Because they feel they have no other choice, and owning a house has become integral to the "American dream." Why do local state, county and city politicos continue playing absurd budget games, shuffling funds, borrowing from their employees' pension plans to make this year's pension plan contribution and similar threadbare tricks? You guessed it: they have no other choice, lest someone somewhere feel some pain. Why do our Federal "leaders" borrow $1.5 trillion each and every year now, fully 10% of the nation's total output, knowing full well that this level of borrowing will bankrupt the nation? (Don't forget to add in the "supplemental" off-budget borrowing.) You know: they have no other choice, lest someone somewhere feel some pain. So instead they keep the accelerating vehicle pointed straight for the cliff. There are only two end-states to this level of borrowing: hyper-inflation or default. Any other "choice" is mere fantasy.

The crash in home prices in Spain is re-accelerating. Bloomberg data shows the drop in Q4 as the third worst drop YoY ever and the fastest rate since September 2009 taking prices back to March 2005 levels. As WSJ reports, Spanish banks hold more than EUR400 billion worth of loans to the construction and real-estate sector, back by collateral that is now losing value at almost record paces. Is it any wonder that the banks are seeking state-guaranteed debt issuance (as no-one will touch them directly) as "the outlook remains bleak, with the demand for housing expected to shrink throughout 2012 with debt-laden households struggling to cope with a devastated labor market and limited access to credit." Perhaps today's disappointing Spanish auction (weak demand) is the first reality-seeking canary in the LTRO-enthused coalmine of Spanish and Italian self-dealing as the real-money vigilantes start to bet actively against Spain in favor of Italy (which trades tight of Spain for the first time this week since August). Spanish banks need more cowbell LTRO (but what collateral is there left) to fund more support for their local govvies.

It seems like it was only yesterday that Goldman initiatied a long in the Russell 2000, only to prematurely close the trade a few days later. Sure enough, here it is again. So, dear muppets, you are to buy all the 'elephants' that Goldman has to sell. As for the three letter acronym: just use RUT.

Sigh:

• S&P says that it is impossible that any economic improvement would bring back the AAA rating
• US deficit progress is needed.
• Outlook remains negative.

And what do stocks do on latest S&P report that America is broke? Why they surge of course....

We thought it was getting stupid one post ago. Not sure what to call this then:

• REPORT OF AGREEMENT ON OIL RELEASE INACCURATE - OBAMA AIDE

But not false? At least the report of a mass aggregation of US naval assets off the coast of Iran is still 100% spot on. For those who wonder what just happened, it is called a "headline market test" - since Crude dropped less than $2 on the report of the release, the final action, which would be very politically unpopular, may just not be worth it for Barry.

We must consider that it is highly likely the option of simply defaulting is being discussed at the highest levels of the Spanish and Italian government. Should either country decide that austerity measures don’t work and it’s simply easier to opt for a default, then we are heading into a Crisis that will make 2008 look like a joke.

And so the lunacy hits a crescendo:

• U.S., U.K. AGREE TO EMERGENCY OIL STOCKS RELEASE, REUTERS SAYS

Translation:

Hi China, this is Barrack, please buy our oil at firesale prices as you in turn build your strategic reserves. I have a reelection to win. Oh and when Iran attacks one of our 3 aircraft carriers parked next to Tehran in a false flag attack, at least oil will soar from a lower price point.

Love, B.H.O

Update: as we hit print, we see headlines that the UK will cooperate with the US on bilateral agreement to release oil stocks. Crude down big on the news, which is merely an advance move ahead of almost inevitable war with Iran, simply to make the spike more palatable.

The push to get Iran to do something terminally irrational (now that USS Enterprise in its final tour of duty is almost on location just off the side of CVN-70 Lincoln and CVN-72 Vinson in the Arabian Sea, where the US will shortly have not one, not two, but three aircraft carriers) is now in its final stretch. As AP reported earlier, Iran has been now entirely cut off from the global financial system, as that anchor of international financial transactions, SWIFT, has just taken Iran off the grid. This leaves Iran with just three options for international trade: making gold into a fully convertible currency, barter, or exchanging Rials for Renminbi and other local currencies. As a reminder, virtually the entire non-parked naval fleet will be in the Arabian Sea and Persian Gulf in the next 4-6 days, where 3 aircraft carriers and one big-deck amphibious warfare ship are just waiting for the order.

Much has been made recently of the government's renewed efforts to spark the housing market from its dismal slide, however we fear there are yet more unintended consequences lurking just around the corner. The various ideas being posited for a broad REO-to-rental program is one of these steps as BofA points out in accommodating the dramatic shift from ownership to renting (with 4.2mm new renters and 1.2mm fewer homeowners since the end of 2006). Of course removing foreclosures from the for-sale market reduces competition for voluntary sellers - which should help to support prices for non-distressed homes but here is where the crux of the unintended consequence lies. We have a squatter epidemic. There are millions of 'homeowners' currently living mortgage-payment-free (by choice) who will soon be forced (as the foreclosure process ramps up post-settlement) to pay rent (since they will not qualify for a mortgage). This will have the double whammy effect of reducing overall discretionary consumption spending (as rent is greater than 'free' - unless the cardboard box is preferable) and driving inflationary forces into rental costs (something we are already seeing). Of course these are the much larger second-order effects and we will only be told of the primary benefits of clearing foreclosure inventory, but at the margin (along with gas prices) the household will have less discretionary iPad-buying ammunition as opposed to more.

Today, the metals space is abuzz with a CFTC "comment letter" posted on its website by an alleged "current JPM employee." There is only one problem - this letter is either a complete fraud or simply a total mockery, as it provides absolutely nothing new, and merely regurgitates existing manipulation claims already out in the public domain, and backed by precisely zero evidence. How about attaching a signed trade confirm, or a daily internal P&L report, or even a blotter entry? No? Because they don't exist? Needless to say, anyone can submit such an alleged insider letter, and since there is no name associated to it, we would advise everyone to merely enjoy this a prank attempt. Unfortunately, what more such repeated faux "whistleblower letters", which are likely forthcoming, from other "current JPM employees" will do is simply dilute the effect of any real such disclosure that may come in the future. For that purpose, we strongly caution anyone who considers submitting such disinformation attempts from doing so as it will merely impair and discourage any just intent of validated and justified whistleblowing, either at JPM or elsewhere.