Archive - Mar 2010 - Story

German TV station ProSieben finds what appears to be some evocative proof of gold counterfeiting, in the form of tungsten gold substitutes coming to the W.C.Heraeus foundry, which is the world's largest privately-owned precious metals refiner and fabricator, located in Hanau, Germany. The foundry has isolated at least one 500-gram tungsten bar due for melting, originating from a (so far) unnamed bank, which as the head of the foundry stated made the unpleasant discovery that "not all the glitters is gold."

As of last night, a variety of financial firms have received subpoenas seeking information on collusion to short the euro. We are currently pursuing more information and will post once we get it. Certainly sovereign CDS traders can not be far behind (especially those who traded with a less than bullish bias over the past month) from the wrath of the Greek, Spanish and British secret services, and now - various US legal and criminal administrations, which are currently convinced that it is just speculators who are at fault for 15 years of fraudulent eurozone budgetary presentations and countless bond offerings based on fake financials, finally coming to the fore. Seriously, sell anything, and you will soon be facing the business end not of misdemeanor, but real-deal felony charges, and possibly with sprinkles of treason to boot.

Chris Wood, who publishes the famous Fear and Greed newsletter, which Zero Hedge has republished on many occasions in the past (and whose latest edition can be found here), has some very scary things to say about the dollar in his interview by the CNBC lunch brigade. While Wood is still optimistic on Asia, and specifically China, due to lack of deflation in the region (for now), and expects an appreciation of the yuan soon, he is about as pessimistic on the dollar and "developed" economies as they come.

Lest someone think the market is all safe and sound, here comes the FHA to remind that without government subsidies we are all staring at the sub 666 S&P abyss. "Federal Housing Finance Agency Acting Director Ed DeMarco today announced the extension of the Home Affordable Refinance Program, (HARP), a refinancing program administered by Fannie Mae and Freddie Mac, to June 30, 2011. The program is a key component of the Administration's Making Home Affordable Program announced last February. The HARP program expands access to refinancing for qualified individuals and families whose homes have lost value. The program was set to expire on June 10 of this year."

Greek bailout rumors are fine and dandy, even if you can get 10 for the price of a Kindle these days. They originate roughly every 2 hours, "sourced" by the same lowly bureaucrat in Athens, and day after day are proven flat out wrong. And while rumors are fleeting, and Merkel keeps saying that the only reason why Germany does not want to bail out Greece is because Greece has actually not asked for any bail out (Europe may be doomed, but its bureaucrats sure have taken the art of passing the buck to next level), what we do know are the specific funding milestones over the next two months that alas will not accept rumors instead of accrued interest or bond maturities. Goldman's Erik Nielsen provides a wonderful revised roadmap for what will happen in the immediate future, not what may happen in order for Greece to have its cake (European bailout) and eat it too (avoid riots that may soon be put on the escalating warfare conviction buy list). In the meantime, our belief is that every day that concludes with no bond deal announced, will cost Greece another 15 bps in yield for whatever GGB issue the country finally comes to market with. Today it is 7%, tomorrow 7.15%, a couple of years from now: 100%, then 1,000% after that, etc.

An increasingly cautious Bill Gross joins his yet more pessimistic colleague El-Erian, in noting that disruptions to the MBS market may be severe post March 31, primarily as a function of concerted liquidity withdrawal by not just the Fed, but central banks across the globe. Not surprisingly, Gross would like to see a very small investment by Germany in its Greek bailout so as not to impair PIMCO's existent Bund holdings. Yet Gross is sounding surprisingly timid on future German sovereign debt prospects, which has now been singled out as the least of all evils (hardly the most glowing endorsement) except for Canada. Is PIMCO now hoarding not just Brazilian, Polish, Russian and German bonds, but aggressively acquiring Canadian treasuries as well? Rosenberg will be happy.

I asked Chairman Bernanke about Federal Reserve agreements with foreign central banks and if he had had any conversations about bailing out Greece, which he flatly denied. However, he recently announced that the Federal Reserve will be looking into Goldman Sachs’ derivative agreements with Greece. Goldman Sachs, as we know, has “too big to fail” status with the Fed, so it is conceivable that any Greece-related catastrophic losses at Goldman Sachs will once again be passed on to taxpayers. - Ron Paul

Abu Dhabi Media website The National has disclosed some rather disturbing news about peace "prospects" in the middle east. It appears this past Friday saw a war council convene in Damascus, between Syrian president Bashar al Assad, Iranian president Mahmoud Ahmadinejad and Hizbollah chief Hassan Nasrallah to "devise counterattack plans and assign tasks in the event of an Israeli
offensive on one or all parties, wrote Abdelbari Atwan, the
editor-in-chief of the pan-Arab newspaper Al Quds al Arabi." And more troublingly, "the Iranian president said he expects war to break out somewhere
between spring and summer of this year. Meanwhile, the Hizbollah chief
vowed to strike the Israeli capital, its airports and power stations if
Israel dared to attack Beirut’s critical infrastructure."Let's recall that Goldman's most recent 2010 and 2011 WTI estimates call for prices to rise to $90 and $110/bbl, respectively.

The $26 billion 3 month Bill closed at 0.125% with 92.53% allocation on the high yield. WI last traded at 0.135% at 11:30 am. The $28 billion 6 month Bill closed at 0.185% with 12.03 allotted at high. WI last traded at 0.195% at the time of auction. Both auctions were very well bid, pricing inside of the WI price at 11:30am, and Bid to Covers both well over historical averages and the prior auctions. Direct bidders were once again a major component of the take down, coming at over 14% for both auctions.

As the euro is plunging (and dollar by implication surging) with gold yet again flat and looking like it may turn positive for the day, gold denominated in euros just hit another all time record of €827.

Last week in the FT the deputy governor of the PBOC was quoted as saying that his biggest fear for markets in 2010 was the risks to the $ carry trade, which China estimated was worth $1.5 trillion, dwarfing the yen carry trade at its height. Indeed, he's right to be worried, especially, as I believe, the lynchpin of the carry trade is now the Fed's balance sheet, which they are actively discussing shrinking.

The DXY just hit a 9 month high at 81.20. The euro tumble is accelerating and was at 1.3468 last. In fact, total chaos in pairs land. Equities now completely dislocating from the EURJPY signal: Japanese biotechs expected to to hostile bids for all US stocks imminently.

According to the ISM "Economic activity in the manufacturing sector expanded in February for the seventh consecutive month, and the overall economy grew for the 10th consecutive month." Too bad none of this China-driven production is making one iota of impact on the broader unemployment rate. Still, as ISM came in over 50 we are supposed to rejoice as it indicates economic expansion. Notably, the inventory direction as designated by the ISM is one of contraction. What happens if China ever turns off the liquidity spigot is unclear, but we have seen what programs that take from the futures to today do to subsequent demand. Look for a comparable inflection point in the ISM when consistent Chinese GDP "growth "of 12% starts being perceived as just a tad kooky.

Is normalization coming back to the stock market? A quick glance at the Goldman daily trading net revenues in Q4 demonstrates that the easy money for the firm may have been already made. While in Q3, Goldman reported just one days of losses in 65 total trading days, as well as 36 days of $100MM+ profits, in Q4 the distribution looks much more normal (if still massively skewed toward profitability). In Q4 the firm announced it lost between $25 and $50 million once, lost under $25 million for 7 days, but most notably made over $100 million on "just" 15 days, a 58% decline from Q3. The Q4 $100MM+ trading days represent just 11% of all 2009 $100MM+ trading days. And here is an observation for you distributions fans: in 2009, Goldman made over $100MM on 131 out of 263 trading days, or 50%. It lost over $100MM on 0 out of 263 trading days, or 0%.

"The Federal Reserve and the country owe a tremendous debt of gratitude to Don Kohn for his invaluable contributions over 40 years of public service. Most recently, he brought his deep knowledge, experience, and wisdom to bear in helping to coordinate the Federal Reserve's response to the economic and financial crisis. In addition, Don helped lead the stress tests of major financial institutions; he directed the Board's ongoing efforts to increase the transparency of the Federal Reserve; and he has been leading an international effort within the Bank for International Settlements to help central banks focus on key issues and responses to the crisis. On a personal note, I would like to express my deep appreciation for Don's friendship and counsel during some very difficult times. He will be greatly missed." - Ben Bernanke