Archive - Apr 22, 2010 - Story

A week ago we disclosed the unredacted Volume 5 of the Valukas report, in which the full details of the Lehman derivative portfolio were presented, as well as the names of "white knights" who stepped in in the last moment to onboard Lehman's holdings at a firesale valuation. Furthermore, it was Valukas' conclusion that Lehman may have a claim to sue the counterparties for fraudulent transfer. It appears this is precisely what is about to happen. We just received the following tip:

Lehman Holdings will be filing a lawsuit against one or more major banks in regards to the valuation of derivatives. This will occur tomorrow or Monday. It is the first such lawsuit (valuation dispute) of its kind by Lehman. Some of the counterparts to Lehman's existing trades weren't willing to play nice, so the "estate" felt it necessary to rack up another few thousand billable hours and take this battle to court.

One of the notable observations in recent Treasury auctions has been the increasing participation by commercial banks in taking down 10 and 30 Year Treasury auctions - traditionally two parts on the curve banks have historically avoided like the plague. We present some observations on why this may be happening as well as some troubling conclusions, both of which indicate trouble, namely that liquidity is and has been the name of the game for the past 13 months, and that commercial banks, or presumably some of the smarter money around, are seeing economic distress ahead.

World markets are beating the victory drums that finally the idiots in America have shut down the algos and everyone else can get back to reality. The first effect: after closing north of 1.33, the euro is now in free fall mode, plunging to 1.3216, slicing through every imaginable stop like butter as the world has said "enough" to the bullshit market action out of the US, which, like a petulant child, refuses to acknowledge anything and everything negative. All the stops at 1.3250 just got taken out causing a 50 pip drop in seconds. The next level of stops at 1.315 will likely be tested as Asia opens, but these are weak and any real resistance will be found below 1.31. The all critical Euro-Yen pair is down to 123.6 from 124.4 late on Thursday when the math Ph.D.'s had the market firmly under control. The DXY continues surging. Expect world market weakness overnight, translating into a drop of ES until just before the US market opens and the fume melt up resume again as America is now decoupled from every world market.

The recent crisis and instability in Kyrgyzstan, highlighted the fragility of security and the potential weakness of the political systems throughout the region and exposed new dimensions in the conduct of Kazakhstan’s foreign policy that may well prove pivotal for US energy interests in the Caspian Sea region. These complexities, often disguised or downplayed by the national governments in the region, attest to the deep political fault lines running through Eurasia as well as the potential for events in one state to ignite potential cross-border discontent and instability elsewhere.

The revolution in Kyrgyzstan came and went, and because the country is somewhere "over there" and doesn't have nice islands or a major oil stash, was promptly forgotten by the US media. Zero Hedge has been posting a series of articles on the situation there (courtesy of our friends at www.oilprice.com) and in fact will post the most recent article shortly. However, here is a useful primer on revolving door politics in developing countries: the fate of each member of the ruling party can be easily traced. On second thought, this is precisely what happens in the US, less bloodily, and without a Wall Street to redirect the output of the working class into the pockets of the "feudal casino-state" kleptocrats.

The wealth transfer continues: another $118 Billion in coupon issuance is coming up, the bulk of which will be bought up by Primary Dealers, repoed back to the Fed, and the resulting cash used to ramp stocks to new all time highs, generating short-term profits for the banks and another year of record bonuses as future US generations will experience the kinds of riots caused by debt mismanagement as Greece does today. Another $49 billion Bills will see the same fate. Also, with the first auction of 5 year TIPS since 2009, is someone telling us something? The Obama plan: Dow 36,000 by the mid-terms or else.In other news, the most recent unmanageable debt load per the DTS is $12,808,961,000,000. This is money that will not be repaid, and includes Trust Fund balances that are amortizing ever faster as America's entitlement state dream joins that of Greece.

Oil prices were under selling pressure in trading overnight, as traders in Europe and Asia were more concerned by the figures released this week by the DOE than their American counterparts had been. As has been the case quite often recently, the bigger part of the day’s move happened while US traders and investors were sleeping. Prices opened lower and they then traded at and around the new lower levels. The US dollar had been higher in trading overnight, and that continued in normal trading during the day. The DJIA was down rather substantially in the morning and precious metals were lower, as well, in what seemed to be a general repudiation of risk across all platforms.

RANsquawk Market Wrap Up Video - 22/04/10

RANsquawk Market Wrap Up - Stocks, Bonds, FX etc. – 22/04/10

Who would have thought triple digit forward P/Es were expensive? The company reported an operating income guidance for Q2 of $220-$320 versus expectations of $332. Guess not everybody is rushing to learn to read good. Time to start handing out free Kindles to Greeks so they can finally download books that define "austerity."

Well, dumb money is clearly at work today. With Greece basically on the brink of default, Spain, Portugal, Italy are begging to follow suit before people start realizing that disbanding the Eurozone might be inevitable. At the same time GDP would be still solidly negative if it were not for inventory rebuilding and government spending, and our entire financial industry (representing 20% of the earnings of the S&P and access to credit it generated has been the engine of growth for the past 30 years) is being exposed in the media as a fraud and threatened to be dismantled or at least turned into a shadow of its current self. No wonder then that last week the Nasdaq made highs in 21-day RSI that were not seen since December 1999. A 2.3% retracement is clearly the buying opportunity of a lifetime, especially since we are only up 82% since last March. Maybe I missed the part where growth prospects are booming when schools on the West coast only have money to be open 4 days a week. - Nic Lenoir of ICAP

Europe is closed, and Greek bankruptcy is out of mind (FTSE at a one month low is victory for the bulls) so risk is on, as seen by the parabolic intraday rise in the EURJPY: The only trade now is to short the Yen and buy everything else, until Europe opens again and Greek yields hit double digits. In the meantime let's sneak a RMBS securitization deal in the form of the Redwood Trust, the first securitization since early 2008: there is no stopping the bubble.

Today is proof that the Algo/Igor/Robo computer trading programs have run amok. While Wall St. engages in bear raids against foreign countries, panicked algos are triggering wild squeezes everywhere, causing lots of head scratching among the pundits trying to explain these insane moves. Proof that the worse the Greece situation gets, the retail stocks simply go up faster.

"For those that are in big business and think they have made a great move by joining forces with the state I suggest you go back and read your history. You never will possess the ultimate power, you will be seduced into thinking you do and then when the time is right government can eliminate you and your fortune with the stroke of a pen. Power is granted to you by this authority when you engage in this unholy union and it can be taken away on whim and your wealth confiscated. Selling out freedom and your fellow citizens for some extra money or government contracts will come back to haunt you. Your legacy to the United States will be as Max Keiser has called it, a neo-feudalistic, gulag casino economy that has already begun." - Mike Krieger

The Good: The president had strong language for backing real derivative reforms.

The Bad: Vague language about the "Volcker rule" will not stop Too Big To Fail; but a plan like this (or even one like this) for breaking up the current mega-banks and limiting their liabilities will.

The Missing: NONE of this matters while our cops still work for the crooks.

Dylan Ratigan