Archive - Dec 13, 2010 - Story

There is more to Deutsche Bank than just that douchey joke of an economist who appears on CNBC every other day to repeat that the November NFP number was irrelevant (incidentally we agree, simply because everything out of the BLS now has the same trustworthiness as Chinese data, and the November number was politically motivated to pass the UI extension) and who changes his story diametrically and on a daily basis, with every incremental piece of economic data that does not fit his amateur theories. Deutsche Bank has always had a very decent fixed income platform, and we are happy to announce that in reading the firm's 2011 FI forecast we encounter not only views that diametrically oppose those of the aforementioned hack (for which alone the report is worth reading), but also has some very detailed and insightful observations (which we are confident David Rosenberg would agree with wholeheartedly). The report's summary: bonds may drop a little more, then surge once it becomes clear the economy is as scroomed as always. And another interesting observation, which has to the do with ending the 10s30s flattener trade. We tend to agree with that as well. Having almost penetrated 100 bps today, the second retest proved unsuccessful, and the time for a steeper long-end is coming (primarily due to a renormalization of the curve), and a flattening of the 2s10s.

What individuals fundamentally seek is order, by which we do not mean regimentation but harmony, i.e., “a pleasing combination of the elements in a whole,” wherein the whole is the wholeness of one’s life. And because such order is virtually impossible to attain in isolation (even hermetic monks live in a society of shared belief, without which their mode of existence would be devoid of meaning), individuals socialize for this reason, and naturally so. For insofar as there is order in nature (and of course there is astounding order), freedom – which is inherent, for instance, in the random variation that is integral to the evolutionary process – is the cause, not the effect, of it. So too, then, is freedom in the human realm “the Mother, not the Daughter, of order,” it being but the conscious application of its counterpart in the natural realm. And thus is freedom the sine qua non of human civilization – the foundation upon which its twin pillars stand – without which the order that its individual members yearn for cannot be generally attained or continually increased.

The Asian sharks are smelling the aforementioned blood. As of a minute ago, silver has jumped to far above intraday highs and is three nickels away from $30. At the same time gold is flying too, moving well north of the $1,400 barrier, as JPM silver's short is nothing compared to its gold paper shorts. And if the firm is capitulating on one, it is a certainty it is doing so with not only gold, but all positions it may have margins calls in. Look for a spike in GC repo paper rates tomorrow as the tri-party system manager tries to take advantage of its monopoly status as the big dog in the repo market (that just happened costing Lehman its liquidity line).

In the latest example that virtually every conspiracy theory is almost always inevitably proven to be fact, the Financial Times reports that JP Morgan, the firm targeted by thousands of "tin foil hat" wearing, conspiratorially-oriented "gold bugs", has cut back on its US silver futures. "JPMorgan has quietly reduced a large position in the US silver futures market which had been at the centre of a controversy about its impact on global prices for the precious metal." And in what can only be considered an unprecedented victory for all those who have over the past year agitated to putting JP Morgan out of business, most recently spearheded by the likes of Mike Krieger and Max Keiser, by forcing a massive short squeeze on its commodities trading desk, we learn that "the decision by JPMorgan was an attempt to deflect public criticism of the bank’s dealings in silver, a person familiar with the matter said. The person added that the bank’s position in silver would from now on be “materially smaller” than in the past." Of course, the latter is pure and total bullshit: as Bart Chilton indicated over the weekend, it is JP Morgan who at one point or another (and possibly very recently) controlled as much as 40% of the silver market, via a massive short. Attempting to make others believe that this short could be covered without pushing the price of the silver metal to over $100/ounce is an indication of either how stupid JPM believes the general population to be, or just how desperate the firm is to end the ongoing short squeeze onslaught. Either way, we are confident that this first unprecedented confirmation that a) JPM is indeed massively short silver and b) that it is hurting bad, will merely redouble efforts to put the world's biggest financial company out of business.

Our speculations that the SPY is increasingly used as nothing but a broad market hedge by asset managers, which are terrified to short individual single names in pair trades over concerns of short squeezes and forced buy-ins, has been proven: as of the end of November, the SPY, for the first time dating back to the start of our data, and possibly ever, has become the most shorted security on the NYSE, at 294.1 million shares short. That this has happened just at the time when the market hit a new 2010 high is not surprising: as single names melt up, hedge funds offset long risk by selling SPY in droves. Perhaps just as notably, the short interest in Citi, which had long stayed flat at around 400 million shares, has plunged by almost 30% in the last two weeks of November, and has dropped to 293.6 million shares, behind the SPY in terms of total shorts. Yet what may be the most curious datapoint is that the shorts outstanding as a percentage of float in the KRE ETF (the KBW Regional Banking ETF) have exploded from 13.2x to 24.6x! This means that there are 24.6 more shares short this ETF than there is daily volume. Should there be a forced squeeze in KRE, the intraday stock price will likely make the Volkswagen short squeeze seem pale in comparison.

One needs look no further than the recent update of the Goldman conviction list (Americas) to get a sense of how Goldman is positioning its clients: with 53 Buys, and just 1 Sell, the list is the most skewed it has ever been. That said, we are confident that going long Lockheed (the only Sell on the list) will outperform a basket of all the longs that Goldman is pitching, among which most notably Apple, which in a last ditch attempt to retain the momentum was added to the Conviction Buy list late last night, which is the most definitive factor that the stock has now topped.

It is surprising that over the past several years very little has been said in the popular media about the fact that America is slowly (but surely) transforming from a full-time to part-time employed society. And while much has been said about the temporary and now past impact of census hiring, and government jobs on the workforce, there are still few mentions in mainstream media that since the depression started in December 2007, America has lost 10.5 million full time jobs, offset by a 2.8 million increase in part time jobs. Two recent mentions of this extremely troubling phenomenon were those by David Stockman, who characterized the recent unjustified economic (and naturally market) euphoria in terms that could have come straight from David Rosenberg's mouth, and, more recently, Van Hoisington. And since the Teleprompter in Chief has now made it a monthly pilgirmage to extol the NFP number no matter how manipulated by Birth-Death and seasonal adjustments, perhaps next time someone can ask him why the US not only lost 478k seasonally adjusted full time workers in November but has lost full time jobs for 6 months in a row, for a total of 1.6 million job losses! And since it is now clear that Americans only watch cartoons when it
comes to financial reporting, and, at worst, demand a chart, here is,
straight from the BLS' table A-9, the historical change of the US labor force.

RANsquawk Market Wrap Up - Stocks, Bonds, FX etc. – 13/12/10

Out of nowhere, a late day selloff in high beta tech names ends the Nasdaq's 8 day winning rally, and causes a red close to the tech index which as we presented over the weekend, has the highest bull/bear ratio since the dot com days. Various rumors are swirling to explain this stunning event, among which one of the more provocative ones is that the universe of Rentec alphaclones (namely the moderate money momos, which have recently taken over the market, and which mimic Rentec RIEF B public holdings, which many believe are broadly indicative of Medallion's portfolio) is slowly starting to pocket year end profits, comparable to the action in gold last week, when gold sold off after a couple of macro funds closed out gold positions at massive profits. Is the now extinct process of profit taking about to reemerge from the ashes? On the other hand, this could merely be a brief respite to what has become the most ridiculous tech-driven momo market in many current traders' lifetimes.

Have you noticed the latest sound bites coming from the punditry in the corporate mainstream media? Here is the latest wisdom flowing from the lying mouthpieces of the ruling oligarchy (Wall Street, Washington DC, Mega-corporations): "The economy is recovering and employment is growing", "Consumers are deleveraging, saving and using cash for purchases", Retailers are doing fantastic as consumers increase spending." These are the three themes being proclaimed simultaneously by the mainstream media. Every time I hear these themes proclaimed, I want to shout out like Joe Wilson – “YOU LIE!!!” How can consumers be deleveraging, saving and increasing spending at the same time? Let’s examine the facts to see who is lying.

The Senate tax vote, which is guaranteed to pass is starting on CSPAN shortly. Those who wish to watch how America's senators fight the record deficit by spending more, can do so here.

After hitting almost 10,000 a few weeks ago, insider selling has tapered off, and in the week ended December 10 insiders only sold a meager 177 more stock than they bought. There were 10 insider purchases of S&P companies for $3.4 million (of which one $2.6 million purchase of TIE stock accounted for 75% of the total), offset by just 136 insider sales totalling $605 million. Insiders who felt particularly compelled to share in their wealth effect included executives at Campbell Soup ($84 million), CVS ($55 million), Google ($54 million), Target ($28 million), and Ameriprise ($24 million). Other insiders who are applauding the Chairman's attempt to stimulate the economy by pushing the Dow to 36,000 (and the price per gallon to $360) included those working for Amazon, Salesforce, Freeport McMoRan, Stabucks, AvalonBay, and another 126 companies. Luckily, there is more than enough HFT buying interest to levitate said stocks into these major offers and offset any selling pressure. In the last 3 months alone insiders have sold just under $10 billion once again confirming just who it is that is benefiting the most from the Chairman's experimentation in monetary lunacy.

Last night, the BIS released its latest quarterly review, as always chock full of useful information. The one major item that caught our eye was the updated exposure toward the PIIGS countries by various foreign banks. And specifically the brand new category that had never been disclosed before by the BIS, namely the "other exposures" category, which per a rather closeted footnote is defined as: "other exposures consist of the positive market value of derivative contracts, guarantees extended and credit commitments." This is exposure that appears for the first time in an official BIS document. And it is sizable: while total foreign claims stood at $2,281 billion, the newly disclosed category accounts for a whopping two thirds of a trillion: $668 billion. How generous of the BIS to share this data which as recently as 2 years ago may have been considered as material, and these days is merely dismissed with a laugh. After all who cares unless the potential loss has at least 12 zeroes in it. Yet what is most significant for the US taxpayer, who is now dead set on proving that St Sebastian was an amateur when it comes to (in)voluntary martyrdom, is that US exposure to the P(I)IGS (Italy excluded, for the time being - give it a few months), has just tripled as a result of this revelation. While before it was "common knowledge" that US banks have nothing to lose should Europe go down the drain, it has now been revealed that US banks actually have $353 billion in exposure, of which $233 billion is of this newly revealed "other category."

"Sovereign Man" Simon Black's daily musing comes today from the Franz Josef glacier in New Zealand where he contemplates the present and future of a civilization in which the biggest company in the world (soon enough) will be one that creates a la carte fads and focuses on one-time mindless gratification. "We live in rather interesting times, though; the technology sector’s
engineering brilliance goes where demand and financial incentives are
the greatest… and for now, that seems to be designing devices that can
mimic flatulence or geolocate the nearest pizzeria. This will change eventually as the problems worsen and society’s
priorities shift… but for now, I think that Apple’s soaring profits and
society’s evangelical devotion to its products may be a social
reflection of the final days of Rome." If Apple is a sign of the end of empire, we would be even more curious with Simon's take on Netflix' symbology (which continues trading at such ludicrous forward multiples that excel goes straight to the BSOD when any modeling is attempted).

Reuters is reporting that the ECB is considering requesting a rise in capital. It is unclear how much would be requested, but a "doubling" is considered. The current subscribed capital at the ECB is  €5.8 billion currently, and  payments for the ECB capital hike would be staggered. Presumably this is to validate that the backstopper of all those other insolvent, pardon, stress test-passing banks (just like the Irish ones during stress test 1) that will soon pass Euro stress test 2 with flying colors, is not itself insolvent. And now for some compare and contrast: the ECB has €5.8 billion of capital on €1.924 trillion of assets: roughly 331x leverage. As a reminder the Fed has $57 billion leverage on $2,385 billion in assets, or a 42x leverage ratio. On the other hand, the ECB only holds €72 billion in directly purchased
bonds as part of its "assets", whereas the bulk of the Fed's assets are
rate-sensitive instruments: roughly $2.1 trillion in "securities held
outright." The bottom line: the ECB uses about 8 times more leverage than the Fed, which means that the two biggest hedge funds in the world can sustain a combined $65 billion in asset value reductions before they are technically insolvent. Of course, that would be the case in an ideal world where data actually mattered, and capital deficiencies could not be plugged up by just printing some more worthless linen.