Archive - Nov 23, 2010 - Story

Following last night's escalation in hostilities between the two Koreas in what was the worst peacetime incident in over 5 years, the AP has compiled a visual summary of not only the events that transpired, and the generations of conflict built up between the two countries that have led us to the current predicament, but most importantly, a comparison of the military strengths of the two countries. A most useful resource for all those who would like to know if the over/under on either country winning the next shelling incident is on the money.

Once a year, the International Energy Agency (IEA) releases its World Energy Outlook (WEO), and it's our tradition here at ChrisMartenson.com to review it. A lot of articles have already been written on the WEO 2010 report, and I don't wish to tread an already well-worn path, but the subject is just too important to leave relegate to a single week of attention. Because some people will only read the first two paragraphs, let me get a couple of conclusions out right up front. You need to pay close attention to Peak Oil, and you need to begin adjusting, because it has already happened. The first conclusion is mine; the second belongs to the IEA. Okay, it's not quite as simple as that; there are a few complexities involved that require us to dig a bit deeper and to be sure our terms and definitions are clear so that we are talking about the same things.

A summary of the day's key events in equities, vol, FX, rates, commodities, credit, insider trading, corruption, monetary manipulation, racketeering, prostitution, and a forecast of tomorrow's market travesty.

Putting a cheery on top of one of the best days in capital markets history, FOX Business Network’s Charlie Gasparino is reporting that Citadel Investment Group, the giant hedge fund run by Ken Griffin, has received a subpoena from the Department of Justice. It is unclear if the Chicago's fund long-rumored 'dark pool' dealings with Brian Sack's Open Market Group will be exposed as a result. From Charlie: “They got a subpoena. It’s the same subpoena that sources tell FOX Business Network that Steve Cohen over at SAC Capital got. It’s a wide ranging subpoena and it dates back to 2008 asking for information on certain stocks. From what I understand, it’s not just healthcare stocks, which has been a primary focus. FOX Business Network has learned two other hedge funds have received subpoenas. We have put calls into Millennium Capital Management and Maverick Capital Management and we are waiting to hear back to them.”

It was just yesterday that Goldman thought all of its dealings with the SEC would be over and done with: after all it is not that often that the firm gets slapped with a fine to the tune of 3 trading days' profit to neither admit nor deny it was raping its dumb as bricks European and Asian clients (the same ones who are responsible for the end of the shadow banking system) who could not realize just how massive a scam synthetic CDOs were. We hope the firm enjoyed its time away from the public's attention, because as Gasparino reports, it is about to reenter it with a thud. Quote Chaz: "Goldman Sachs, we can definitively say, is involved in this investigation through its healthcare group and through some sort of associate and potential leak to Diamondback, the hedge fund of five billion dollars that was raided yesterday. Sources are telling the FOX Business Network as the Feds are looking at Diamondback’s healthcare group, that’s were at least one Goldman Sachs banker has been roped in." When all is said and done, our money is on Goldman Sachs being "Investment Bank 2" (see here).

RANsquawk Market Wrap Up - Stocks, Bonds, FX etc. – 23/11/10

From RTE "The EU and the IMF will offer the Government an €85bn facility, which can be used to recapitalise the banks and fund the public finances. The EU and the IMF will offer the Government an €85bn facility, which can be used to recapitalise the banks and fund the public finances. The package would see the level of capital in the Irish banks being increased from eight to 12% in a move to bolster confidence of depositors in the financial system." This could well be too little, too late. The bank run has already started. And just to confirm that the schism between the ECB and Germany is now likely insourmountable, Nowotny said that he is 'irritated' with Merkel's remarks on the serious situation for EUR. Why, of course Ewald- nobody wants to hear the sad truth that you will be unemployed within a year.

Could this day get any better? Throw in some Ron Paul in there and November could be the best month for capital markets in many years.

My Christmas wish to Santa: please let this be the last Christmas in America that is dominated by the propaganda that holiday retail sales have any more impact on the $14.7 trillion U.S. economy than a moldy, half-eaten fruitcake left over from 2007.

Goodnight Sweet Prince

"Participants also differed in their assessments of the likely benefits and costs associated with a program of purchasing additional longer-term securities in an effort to provide additional monetary stimulus, though most saw the benefits as exceeding the  costs in current circumstances. Most participants judged that a program of purchasing additional longer-term securities would put downward pressure on longer-term interest rates and boost asset prices; some observed that it could also lead to a reduction in the foreign exchange value of the dollar. Most expected these changes in financial conditions to help promote a  somewhat stronger recovery in output and employment while also helping return inflation, over time, to levels consistent with the Committee’s mandate."

Channel checking firm Broadband Research CEO John Kunnican was on CNBC earlier and summarized in a few simple sentences the whole topology of precisely how Wall Street works: "It's impossible to be an analyst on Wall Street unless you have an expert network. I know that my contacts at these private companies are having lunch on a regular basis with analysts from Jefferies and Morgan Stanley and Goldman Sachs and what not and I get forwarded the research reports from these banks, and frankly it's a little bit intimidating. I say- geez, i thought i had pretty good contacts but I can't compete." And there you have it - a quid pro quo world, in which inside information (in some case blatant such as when dealing with Phase 1,2,3 trials, or borderline, such as aggregating channel check launch data contemporaneously from all Apple stores) is bartered among the "informational arbitrage" elite on Wall Street, and in which the retail investor has zero chance of competing on a fair basis. And this does not even touch on any of the much more discussed "high barrier to entry" topics such as High Frequency Trading. If after all the disclosures on Zero Hedge over the past two years (which eventually tend to be picked up by the MSM no matter how crazy at first they sound) investors still believe they have a chance to make an honest dollar, when everything is stacked against them, even and especially the regulators, they sure have our blessings and condolences. As for John, good luck finding a new career. Hopefully the clients to whom you showed such exemplary allegiance will put you on their payroll for at least a few months. Furthermore, now that the expert network business model is finally in the open, expect ultra low margin Indian companies to outsource the rolodex offshore, where it is even less regulated, providing their consultants even greater commission, and putting all existing "expert networks" out of a job. That is, of course, unless the SEC, the FBI, or the DA do so first.

The biggest idiots in the world come out swinging:

• U.S. regional bank Regions Financial Corp.'s financial performance in recent quarters has lagged our expectations. Furthermore, we think the company's financial flexibility has been somewhat reduced.
• We lowered our counterparty credit ratings on Regions and its primary bank subsidiary, Regions Bank. The outlooks on their long-term ratings remain negative.
• We expect net losses to persist at Regions in the near term, largely due to unfavorable loan and geographic concentrations. We think net losses could continue to modestly pressure capital ratios in the near term.

With today's $35 billion 5 year auction pricing at 1.41%, we continue to see confirmation that the recent strength in the belly of the curve is quickly turning into pronounced weakness. The Bid To Cover was 2.65, the lowest since June or 2.58, but most notably those mysterious Directs came and took down a record 15.6% of the auction: the largest in history. Offsetting this was the complete collapse in Indirect interest, as foreign institutions took only 31.5% of the auction, the lowest Indirect take down since April 2009. The result was that Primary Dealers got stuck with saving the auction as usual, taking down more than half, or 52.9% to be precise, the highest since June. That foreign interest in the bond was so low is not surprising to us: as we highlighted yesterday, the Fed is now the largest holder of US Treasury debt. At this point the divergence will accelerate, as PDs and the Fed end up owning ever more of each and every auction (and subsequent monetization), while China et al is increasingly relegated to stand by status.