Archive - Nov 29, 2010 - Story

The beating in Shanghai is getting serious. Here are some technical levels from Credit Suisse, which sees 2719 on the SHCOMP as the next support. If taken out: whoosh (which is a technical name for a drop all the way to 2320).

In a surprising reversal, the Shanghai Composite has dropped 3% in early trading following a statement by the China State Council which on Monday said it will revise penalties to crack down on price violations to tackle inflation, which has been interpreted by traders as an imminent December rate hike. Per Dow Jones: "Shanghai Composite Index down 2.5%3.0% at 2793.95, faces immediate support at 2750 level. "There has been heightened expectations for an interest rate hike soon, which exacerbated earlier weakness in the index from sovereign debt concerns from Europe as well as a stronger U.S. dollar," says Wang Junqing, analyst from Guosen Securities." More importantly key stat arb pairs such as the AUDJPY and the ESZ/NDZ are being dragged below the surface. On an indexed basis, the ES will soon take out the intraday lows per the AUDJPY. For Brian Sack's sake, we hope the Fed has its midnight crew in tow as this could get ugly fast. We will be following.

I’m at the Omni Shoreham on business the next few days, and all I’m hearing about is salary freezes here, and bank debt conditionality programs in Europe. “Austerity” seems to be all the rage. Problem is we don’t even know the meaning of the word. Let’s face it: most of us are pretty coddled when it comes to belt tightening. So I found some data long forgotten and collecting dust to shed some light on the subject. The data comes from a survey of 2,910 households, randomly chosen in clusters of 30 households, stratified across 32 of the 39 provinces in 1964. The only region of this country not included in the survey was the Central Highlands, because the surveyors would surely have been killed as soon as night fell. Half of the hamlets surveyed were “secure”, meaning that it was reasonably safe to travel there in daylight hours. Whether or not the hamlets surveyed were under tight Viet Cong control is unknown, but they averaged around 16 miles from the nearest provincial town. It covered all rice growing areas and most areas of commercial activity. The country was South Vietnam.

We very much enjoy the view of Michael Cembalest (CIO, JPM Private Bank) when it comes to the sensitive topic of geopolitics, as it tends to provide that incremental perspective over and above what otherwise his and other banks would skirt around due to conflicts of interest (after all they are banks). Today, in his Eye on the Market report, Cembalest looks again at the Irish bailout. And while his summary of the 4 key dynamics (in his opinion) is certainly spot on, it is his footnote that caught our attention, as it carries in it the most pertinent information: namely, that since its bankruptcy and currency devaluation, Iceland's economy and stock market have surged, unbound by the shackles of a zombie monetary system and exponentially growing debt. Ireland, to the contrary, can only hope for at best a gradual decline in its economic output instead of an outright collapse now that European Commission council is the country's new politburo. It can also, at best, hope that its pension fund will have a few penny farthings left for the aging population once it is done rescuing Europe's banks. It is precisely this option that a formerly democratic country refused to offer its citizens, and is the reason why its entire government should be tried for treason: instead of using empirical evidence that default and devaluation is the best outcome, Ireland crumbled to the interests of a few parasite plutocrats, which have just their own interests in mind, and never those of the host nation (which ends up being abused and discarded like a used condom off the side of the road).

A summary of the day's key developments in equities, vol, FX, rates, credit, and commodities. The biggest highlights of the day by far was that despite two POMOs, stocks closed once again red on a POMO day.

Honest distributor of leaked data or a clever PsyOps front, one can not deny that whatever it is, Wikileaks does share some unique information with the world (as to how it is interpreted is a different story). Yet for the most part, the bulk of the organization's recent exposures have focused on the US military and away from the private sector, and thus away from that which is really important in today's world: money (of a paper representation thereof). Which is we read with interest in the latest Julian Assange interview with Forbes' Andy Greenberg that next on the docket of Wikileaks disclosure is not some facebooky look into the gossip world of international espionage or the foreign service, but something far more tangible and relevant: "A Big US Bank."

If ever there were a sign of the times, one can clearly see the desperation of the establishment upon reading Andrew Clark's "Eric Cantona's bank protest isn't very wise". After reading the article and comments it becomes painfully clear that most people, the author included have no idea how the monetary system works. How does Mr. Clark propose with that "There's nothing evil about the concept of banks – they exist to look after our savings and to provide investment for businesses", given that banks create money out of thin air based on deposits as a multiplier. One cannot say (with a straight face) they are looking after our savings as the very purchasing value of those savings is being diluted through legalized counterfeiting known as leverage and or the money multiplier. I do not think Mr. Cantona is arguing against the concept of banking, but rather organizing the end of the current predatory casino model paraded around as capitalism. Calling this model capitalism is an insult to capital, as it is after all savings. True capitalism cannot exist in a system where money is based on debt, not value; a printing press and not from savings. On the point that the concept of banking is not evil, one concedes that an idea cannot posses any characteristics of a living entity as it is an idea. That said debt based monetary systems utilizing a fiat currency, are historically used by oppressive régimes as the system itself is a giant wealth transfer and consolidation mechanism.

One of the most long-suffering LBO names, Seagate Tech, has just decided to pull the plug on its going private aspirations. After on October 14 months of LBO rumors culminated with a press release from STX that the firm had received a "preliminary indication of interest regarding a going private transaction", today, just over a month later, the foreplay ended, and management is now forced to appease its angry shareholders by announcing a $2 billion share buyback having been snubbed by its PE suitor. Of course, this is too little, too late, and the stock is getting gutted in the after hours session. At last check the stock was just above $13, or a 6% slide from closing. Which begs the question: which hedge funds jumped late on the LBO bandwagon hoping to receive some of that 20% upside love? Well, quite a few it appears. The list below shows all the funds who bought for the first time by September 30, and possibly later. After all the LBO was not announced until October 14, and in this broken market it would be stupid to assume that this information was not leaked in advance. The question remains: who bought when, and who sold when. And how many of those who still have not sold, and played this name for the LBO are now stuck with far less valuable stock certificates?

RANsquawk Market Wrap Up - Stocks, Bonds, FX etc. – 29/11/10

The good news: insider sales of S&P stocks were only 218 times greater than insider purchases. This is a notable improvement from last week's nearly 9,000x ratio. The bad news: the ratio was skewed by what is probably the biggest insider purchase in the past 6 months: someone bought 542,198 shares of Citi at $4.30 (hopefully not a short cover). Take that out and things get sad again. The worst news: insider selling, in total notional continues to trend ever higher, and while better than last week's $1.2 billion, this week's $757 million in sales is a top 5 dump when looking at the last 24 weeks of insider action. Adding to this the fact that this week will see the 30th consecutive outflow from dometic equity funds (absent Mary Schapiro, Tim Geithner, and Ben Bernanke resigning of course), and the confidence game continues.

The S&P is now green on no news at all. However as Rick Santelli points out, $9 billion of debt was monetized by the Fed today and this is money used by the primary dealers to levitate stocks to a green close. Surely a double POMO day resulting in a red close would have been a massive slap in the face to the only trading desk that actually trades anymore (that situated at Liberty 33 for the cheap seats). In other words, a complete reversal from the day's low has cost US taxpayers only $9 billion in future debt that will never be repaid. To everyone involved it seems like a perfectly fair squid pro quo.

Contrary to malicious rumors, Uranus has not confirmed it has enough money to bail out earth. Repeat: Uranus vehemently denies it will bail out the earth. In fact the Uranus Monetary Authority has ceased all diplomatic connections with earth feeling snubbed there was no gossip about it in the latest programmed Wikileaks release. Too late though: the HFTs are already in forward feedback loop mode, are buying because they are buying, and will close the market green on a straight line upward move. Futures are now green.

The inquiry into various hedge funds is no longer merely civil. The AG (yes, people, America does have an attorney general although you may be forgiven to think otherwise) is now officially involved. From Dow Jones: "Holder Confirms Criminal Probe On Wall Street"

Just a headline from Reuters right now: "White House says WikiLeaks and people who share information with them are criminals"

Unclear is Assange is about to be charged with treason. It is also unclear if the First Amendment is still valid. If so, we will try to bring you an update on this situation.

Today's second, and larger, POMO has closed. Brian Sack bought back $7.226 billion of notes due 5/31/2013-11/15/2014, at a perfectly as expected 4.1x Submitted to Accepted ratio, confirming that PDs have extra paper in the longer-dated end (the Submitted to Accepted ratio on the earlier auction was ~6x). And for those who followed our recommendation from this weekend to buy the highlighted CUSIPs have experienced a 100% frontrunning success rate, which couple with this morning's 93%, speaks for itself just how "unpredictable" the Fed's monetization actions are. And, even more hilarious, precisely as we expected, CUSIP PU8 was one of the most monetized bond issues. As a reminder this is the bond that was auctioned off on November 8, or three weeks ago. Today the PDs put back $1.7 billion of their total PU8 exposure back to the Fed. And so the Treasury -> PD -> Fed shell game continues without interruption, but in the meantime, the PDs get the benefit of picking up the spread, which as we highlighted previously amounts to about a $50 billion gift for the duration of QE2.