Archive - Dec 21, 2010 - Story

When a week ago we reported that JP Morgan has denied it owned more than 90% of the copper positions on the LME, we suggested that this could very well mean that Blythe Master's firm could just as easily control 89.999% of the copper and still not misrepresent the truth per that non-commital press release. Turns out our unbridled cynicism was spot on as usual. The Wall Street Journal has just reported that in the copper market "a single trader has reported it owns 80% to 90% of the copper
sitting in London Metal Exchange warehouses, equal to about half of the
world's exchange-registered copper stockpile and worth about $3 billion." Oh and yes, while JP Morgan technically is not singled out, we will be delighted to issue a retraction the second JP Morgan approaches us with a refutation that it is not the trader in question. And while we are at it, we also will repeat our claim that it was indeed JP Morgan that reduced its massive silver position, as per the recent FT article: as above we will immediately issue a retraction and apologize should JPM's legal department contact us that we are wrong on this. Somehow we don't think that will be an issue. And so it is once again made clear that the biggest market manipulating cartel in the world is not only JPM's commodity trading operation, but the "regulators" at the CFTC, who are doing all they can do to delay implementing rules on position limit- a stalling tactic whose sole purpose is to make the life of Jamie Dimon as comfortable as possible while he corners the copper market (and offloads his PM shorts to some "foreign bank"), even if that means the complete collapse in faith in the commodity market. Presumably, this means that Mr. Gensler has received an outsized Christmas gift to assuage his conscience. As for the commodity market, well, just look at what has happened to the stock market now that everyone knows it is nothing but a house of cards scam where a few robots front run each other. We are confident to quite confident tomorrow's ICI report will confirm that 33rd consecutive outflow from domestic equity funds. It is a pity that the same fate will now happen to the commodities market, as everyone tells Gensler to shove his corrupt market, and moves to physical. Frankly, it couldn't happen to a nicer group of so-called regulators.

First president Obama becomes Bush in all but name with respect to his predecessor's economic policies, and now he follows by espousing Bush's interpretation of "civil rights" as well. According to Pro Publica, the White House is preparing an Executive Order for indefinite detention. And while the premise behind a comparable draft has been circulating around for 18 months, the uptake was seen as problematic. The "humanitarian" premise behind the order is that it will "provide for the periodic reviews of evidence against dozens of prisoners held at Guantanamo Bay... and allow for the possibility that detainees from countries like Yemen might be released if circumstances change." That's the theory. The "practice" is that the Order will, as the name implies, afford the administration the option of "indefinite detention as a long-term Obama administration policy and
makes clear that the White House alone will manage a review process for
those it chooses to hold without charge or trial." In other words all those, and we assume that the Order is not merely targeting those involved in September 11, and is wider in its scope, who are perceived by the administration as "high value detainees" will be denied due process, and will be held in captivity essentially indefinitely with no legal recourse, for as long as the "review process" so deems fit. As for the "theory" aspect, Politico summarizes just how much of a bold lie Obama's promise two years ago to close Guantanamo has become: "Nearly two years after Obama's pledge to close the prison at Guantanamo,
more inmates there are formally facing the prospect of lifelong
detention and fewer are facing charges than the day Obama was elected." In other words, Obama has one upped Dubya not only when it comes to Republican economic policy, but has in fact surpassed his abrogation of basic human rights. And seeing how in the aftermath of the Assange arrest (speaking of which, Julian better run following this announcement), it is only a matter of time before that whole 'Internet free speech' premise is perceived to be a form of treason, by the likes of Biden, Palin and Lieberman, potentially punishable if not by death, then certainly indefinite, lifelong detention.

These days, it’s hard to draw any conclusion other than that the train is gaining speed on wobbly tracks perched over a rickety bridge. Most notably, unemployment has again risen – to 9.8% from 9.6% – very much not the direction things should be headed given the amount of money the government has pumped into the economy. The latest data shows that this nation of 310 million souls managed to add just 39,000 jobs in November. That, unfortunately, falls short of even keeping up with a population growth of about 1% – doing just that requires generating a net of about 250,000 jobs a month. As for eating away at the millions of unemployed and the many millions more who are underemployed… oh, well. Of course, the mainstream financial media wastes no time in pointing to this latest dismalia as proof positive that the Fed’s recent decision to energetically restoke the money machine with upwards of $100 billion a month was the right decision. This despite the clear evidence that adding debt to debt is having no real effect, except begetting more debt. This is a lesson that, so far, appears to be making no headway in the cognitions of Washington’s policy makers, even with the latest election results delivering a sharp rap across the knuckles to the power elite.

Yesterday we got to hear Doug Kass recite Howard Marks' most recent views on gold by memory (badly) and come up with the conclusion that gold may drop 25%, something not even Marks was foolish enough to suggest. Today, we present a contrary view, that of the extremely original and always provocative Simon Black, aka Sovereign Man. Writing from Auckland, New Zealand, the activist who has previously openly defended expatriation as a means of "revolting" against the collapse of US economics and society, turns his attention to gold and shares his thoughts on what to look for "when the market tops." As always Black, who has encountered more cultures in the past few months than most do in their entire lifetime, gives an unorthodox view on the metal's prospects, which if nothing else, are based on a much broader sampling of data, than merely the (biased) read of the opinion of just one other person. His conclusion is not that surprising for someone who has a worldview that is wider than just the FDR through the West Side Highway: "People are only starting to wake up to the reality that unbacked paper currency is fundamentally flawed, and it will be a long time before this belief becomes widespread once again, just as it was in ancient times."

RANsquawk Market Wrap Up - Stocks, Bonds, FX etc. – 21/12/10

Today's breach of the critical $1 trillion barrier by the Federal Reserve On/Offshore Genocide Opportunities Fund, LLC in its Treasury holdings is not the only important "trillion" milestone in the past few days. As was reported by the WSJ previously, total assets under management in the ETF space also passed $1 trillion for the first time ever, primarily courtesy of SPY, which added $11.6 billion (even as it continues to be the most shorted NYSE security in the world with 294.1 million shares short on 700 million total shares), and the IWM which saw $976 million in new assets. Granted, these numbers are just a little suspect, since according to the monthly Invesco PowerShares report, total ETF assets were still "just" $934.4 billion, but we will take Blackrock's word for it. And, considering that mutual funds, already at record low free cash levels, continue to bleed dry powder (32, and soon to be 33, consecutive weeks of outflows), and are saved from liquidations only due to levitating asset prices on this joke of a market which has absolutely no volume to it, many are trying to make the case that ETFs are rapidly becoming the next target of retail flows. Perhaps. Looking at the numbers this is certainly not as clear cut as those who specifically wish to see this, pronounce it as a fait accompli. Below we demonstrate that of the $96 billion in net flows YTD into various ETF styles, it is certainly not the case that equities are the pure beneficiaries of retail flows. That said, we present the thoughts of BNY's Nicholas Colas, who provides a useful reference guide on the history of the ETF business, and now that it has (allegedly) passed the trillion mark, looks at where the next trillion will come from (incidentally, it took the Fed four months to accumulate an incremental $250 billion in holdings; ETFs, on the other hand, as noted above, have seen inflows of $95.8 billion in all of 2010 - just wait until the Fed pulls a BOJ and starts buying the SPY openly instead of through Citadel).

Two very important articles have come out in the last couple of days that you must take the time to read thoroughly. The first is from the Washington Post and is entitled: “Monitoring America.” It is a lengthy article worth your time since it shows in no uncertain terms how the U.S. government has now officially started to turn war on terror technology and military weaponry on American citizens domestically. Stuff that had formerly only been “used in Iraq or Afghanistan” is now being turned on Americans and this newspaper reports it in a matter of fact manner. It also describes how anyone can just say that they think a fellow citizen is acting suspiciously and then all of a sudden the government’s “fusion centers” start snooping on you and a file remains “open” for five years. For nothing more than someone saying they thought you were acting suspiciously. Welcome to East Germany. This is where tax dollars are going, that and to pay bankster bonuses. - Mike Krieger

It's time for the Fed "one trillion" hats- as of 2:00 pm Eastern, the Fed's Treasury holdings have surpassed $1 trillion. Add to this the well over $1 trillion in MBS and agency debt held by the Fed, and there is your perfectly quantified reason why the S&P has just hit a two year high, and why the Nasdaq bubble is alive, back, and will soon retest its 2000 highs. Basically, with the Fed the de facto purchaser of all securities with a yield of under 4%, the entire definition of a risk-free rate per the MPT has to be scrubbed. To be sure, risk-free will very quickly become risk-full when and if the Fed, in its attempts to succeed with central planning where so many have failed before, either finally loses control over rates, or far less probably, decides to remove some of these extra trillions in free liquidity. Until then, the banker party is on in full force. The reason for the penetration of this key psychological barrier was the completion of today's second POMO operation, which added $1.619 billion in TIPS securities. By the end of this month, the difference between the Fed and the second largest holder of US debt will have surpassed $100 billion... and continue climbing at a rate of about $30 billion per week. And it will not stop.

While Goldman Sachs' Jim O'Neill continues to push his theory for decoupling based on an extended developing world, which includes such countries as Nigeria and Iran, to drive global growth as per his recently launched BRIC replacement, the N-11, Bank of America's economics Ethan Harris and Neil Dutta, have taken a far more novel approach to finding "hidden" sources of pent up growth potential: women. Of course, neither dares to admit that the only real source of 'growth' is nothing less than previously unprecedented amounts of monetary stimulus in the form of endless free central bank liquidity. But in every bank's quest to find the missing link in the "virtuous circle" dynamo, we expect increasingly more ridiculous assumptions about what will manage to be a standalone driver for a 4%+ GDP growth for the US. In the meantime, the fact that the underlying "organic" economy, not to mention the stock market, would flounder absent trillions in cheap money supporting all asset prices continues to be resolutely ignored by everyone. Which merely confirms that the Fed will likely never hike rates again, as that would eliminate two years of what will soon amount to nearly $4 trillion in monetary stimulus in the US alone, which in turn represents roughly 25% of the stock market capitalization in the US alone. But going back to why Bank of America is now going long women, here is Harris' summary: "The wounds of the economic crisis will take years to heal. However, we expect female earnings to recover faster than male earnings. In many households, women already do most of the shopping. So, while we remain cautious on the trajectory for consumption, our sense is that women will increasingly drive consumer spending." At least BofA will have someone to blame it all on, when their latest ridiculous "economic" theory collapses in a pile of dust.

RANsquawk US Afternoon Briefing - Stocks, Bonds, FX etc. – 21/12/10

test

According to the just released census data, whose collection and subsequent contribution to job numbers resulted in so much consternation over 2010, the US population is 308,745,538 with another 3,725,789 in Puerto Rico. Just as importantly, the data will result in a realignment in Congressional seat representation, with states such as New York losing republican seats, more than offset by pick ups in states such as Texas, Florida, Georgia, Nevada, Arizona, Utah, and others. For all those interested in a detailed break down of the 2010 census result, we present the interactive table below.

After it was announced earlier by the EU that it would launch its first bonds under the EFSF and EFSM in January, of which €17.6 billion are slated for Ireland in 2011, and €4.9bln in 2012, it is useful to recall just what the dynamics of this last recourse fund are, and why not all is as good as the EU may want the broader population to believe. Below, we present the thoughts of Knight's Brian Yelvington who has a rather damning view of what this latest development means for the EU: "This latest band-aid solution obfuscates the issue that the EMU needs
the ability to print money and tax across member states in order to
match its common central bank and currency. There might well be a rally in spreads commensurate with what we have
seen for other band-aid like packages over the past two years.  Once the
measure has been revealed to be inadequate by the market, discussions
around size will begin to emerge.  Our view has been that the facility
was flawed from the start and we believe that view has become more
widely held during this most recent spread widening.  Future upsize
discussions will no doubt see the specter of haircuts raised again –
this time more seriously – and this will serve to push sovereign spreads
wider." In other words, long-term bearish, short-term very bullish. Just like everything else in the battle to preserve the ponzi.

As we discussed in detail in March it would be only a matter of time before the AG would file some sort of suit against E&Y for the firm's involvement in Lehman's Repo 105 end of quarter window dressing violations. And as we reported yesterday, Andrew Cuomo has now officially filed civil fraud charges against Ernst & Young. While overdue following Anton Valukas' "examiner Lehman" report which obliterated all integrity E&Y may have had, and while we are confident there will be a settlement in this case as well, at least this final act by Cuomo as NY AG pretends to give the impression that the US judicial system is not completely corrupt.

Today's first POMO has closed, with Brian Sack buying $7.790 billion of Treasury maturing between 6/30/2016 and 11/30/2017. Among the bonds purchased was $689 million of PK0, auctioned off less than a month ago, meaning the Primary Dealers continue to flip bonds from auction straight back to the Fed, making a few million in the process each and every time. And while not even POMO matters anymore, in a market entirely dominated by Delta, i.e., Goldman (even Joe Kernen earlier announced on live TV that "Goldman can do whatever it wants in the futures market."), trades, and where the cumulative TICK is now progressively negative, the only thing that may be of relevance is when will the Goldman vol traders decide they have had enough and start unwinding the trade on which they are massively profitable at this point. What certainly does matter, is that total US debt is now $999 billion, just $1.3 billion away from a trillion, a level which will be breached, as we expected last week, during today's second afternoon POMO in which the Fed will monetize another $1.5-$2.5 billion in TIPS.