Archive - Apr 2010 - Story

I can assure you of two things. Israel is definitely planning a strike on Iran, which I’m told may happen this Summer. The country has been having large simulated chemical attack drills, and even my small town has had its own drills (which I’m sure were ordered from above). Number 2 is that I am also hearing that Israel will not attack w/o the OK of the US. Israel needs to fly over Iraq to reach Iran, and it can’t do this w/o US attack codes. I’m not sure what the solution is, but, as someone once said – “a Jew who does not believe in miracles is not a realist.” - Chashmonaim, Israel (West Bank)

Dylan Ratigan and the Story Pirates have dumbed down the biggest generational theft in US history to the level where a Sesame Street fan can get it... Or is that a master ES trader with laser precision liquidity withdrawal reflexes? Anyway, it is somewhat sad to witness the transition of America from at least a passably respectable nation to one in which it is made plainly obvious to children, that to succeed in life one must cheat, lie and steal with the best of the the bankers.

Earlier today we posted the unredacted version of the 5th volume of the Lehman Examiner report, which unhid all the specifics of the unwind related to Lehman's options and futures positions. There was a reason why Goldman et al felt sufficiently motivated to make the data hidden in the first place. The reason: the banks participating in the liquidation made a killing on the unwind. Yet another involuntary gift from the Lehman creditor estate to the big banks who had the inside scoop on Lehman's books all along, and certainly in the days just before the bankruptcy was announced. The market continues to be one for the banks, and one for "everyone else." And "everyone else" still can not borrow at the Discount Window. Although we are confident that that may change soon. At least in the meantime, Anton Valukas scores one for honesty and transparency, and "concludes that an argument can be made that the transfers at issue were fraudulent." Which means Goldman can likely be sued for ripping off Lehman.

Spreads were broadly tighter today with HY outperforming IG as equities got a boost from retail sales, Bernanke's low-and-long comments, and Beige book headlines. JPM's earnings (along with CSX's beat and INTC's smash) also helped as financials outperformed in equity and credit. The psychological break of several critical levels in equity and credit indices seems relevant for the moment (despite the survivorship bias inherent in these long-run indices reducing the real worth) but there was no arguing with the breadth today as tighteners outpaced wideners by over 8-to-1.

Zero Hedge is happy to announce we are starting a daily Oil market summary, generously provided by FMX Connect. We will vary the content as appropriate with an eye toward actionable information for active traders and managers. FMX Connect is a Commodity Information Portal that provides traders with data and analysis of various markets. They also host and publish research for boutique firms like Cameron Hanover, whose principals have 30 years experience in markets.

Paedophilia is a great scandal. The fact that it involves Catholic priests is an even greater scandal. Especially for a devout Catholic, this pain is like few others. It is good thing that it is coming to light. It would be worse if we allowed such a cancer to slowly consume souls and let it pollute and destroy the structure of relations of the Church from within. No one could find a better pretext to attack the Catholic Church than this. We saw this recently in the wanton attacks against the Pope that culminated in the obviously ones-sidedness of an article by Laurie Goodstein published in the New York Times. Paradoxically, the Pope, who recently called for zero tolerance in cases of paedophilia, was targeted more than ever and more than others. Various Vatican media outlets have already described who did what, refuting charges against the Pope. But even the Wall Street Journal in an editorial challenged the defamation of the Pope by the New York Times article.

Notwithstanding the lies, there are some disturbing coincidences. Why so many accusations (some going back 40 years) appeared all at once in various countries around the world? This is a peculiar coincidence, but there are others, far more complex, that lead to a somewhat more disquieting picture.

It appears the Fed meeting on the Discount Rate that was held last week behind closed doors is about to yield results. In a Q&A with reporters following a luncheon sponsored by the Levy Economics Institute, Dallas Fed's Richard Fisher said that "his Bank's board of directors recently requested an increase
in the primary credit rate. The request was made out of a
desire "to normalize" the spread. "We would like to get it back to 100"
basis points."According to Market News, Fisher "also told reporters he opposes the Federal Open Market
Committee's continual assertions that it expects the federal funds rate
to stay 'exceptionally low ... for an extended period.'"Furthermore, when discussing the steepness of the curve, Fisher hit the nail on the head: the curve is record steep due to a "limping" economic recovery (at record underemployment and an inventory restocking based GDP boost, we wait with baited breath to see just where this recovery is), but mostly due to record treasury supply. And because auctions have not busted yet, banks, whose PDs bid for these very auctions, especially on the short end, help to create a record steep curve, thus allowing them to borrow at zero costs and lend (assuming there is anyone out there who actually wants to borrow) at whatever rates they choose, thus guaranteeing themselves record profits for so long as the US continues to issue an average of $10 billion in debt a day! If you see this as a perverted Catch 22, you are not alone. The only one getting raped in all of this, has always been, and continues to be, the US middle class. At some point, the debasement to the dollar which all this printing results in, will catch up with consumers, but by then all the wealth in NPV terms will have long been transferred to the banks, their shareholders, and their managements.

Another plethora of breakouts, scalded dog runs, maniacal squeezes, as short sellers run for the hills and fund managers desperately search for dips to buy leading stocks. Nothing's changed, as long as the financials are leading, there is no stopping this run yet.

A report issued by the US Joint Forces Command has a rather bleak view on US oil production, and on peak oil in general. In a foreword to the report issued by General James Mattis, he warns that "By 2012, surplus oil production capacity could entirely disappear, and as early as 2015, the shortfall in output could reach nearly 10 million barrels per day." Does this mean that oil, just like in the Bush administration, is about to become a "strategic interest", which coupled with the upcoming discoveries of non-existent weapons of mass destruction, would result in some additional geopoltical tensions particularly in the middle east? With nuclear tensions between Iran and Israel already at boiling hot levels, will Uncle Sam decide to make landfall in the Persian Gulg once again? More from the General: "While it is difficult to predict precisely what economic, political, and strategic effects such a shortfall might produce, it surely would reduce the prospects for growth in both the developing and developed worlds. Such an economic slowdown would exacerbate other unresolved tensions, push fragile and failing states further down the path toward collapse, and perhaps have serious economic impact on both China and India." Well, Mr. Chanos, there's your catalyst. We just hope that the negative carry of a five year short position is palatable to your LPs.

RANsquawk 14th April Market Wrap Up - Stocks, Bonds, FX etc.

Looking at the short interest in the NYSE one would think that the market is a mirror image of where it has been. Interestingly, even though for the week ended March 31, the NYSE recorded a drop in short interest by 224 million shares, the total number of 13.9 billion shares short is near 2010 highs. Beginning at a low of 13 billion shares on January 1, short interest has risen steadily hitting the YTD high of 14.1 billion on March 15. It appears that the shorters, at least as indicated by this data series still continue to disbelieve the no volume melt up. We will observe the next update in two weeks to see if the April 15th data point indicates capitulation by the shorts, or if shorts have layered into bearish bets. To be sure, compared to prior year short positions, which hit a high of 15.6 billion just before the second half 2009 rally began, we are at materially lower short levels.

We have disclosed on numerous occasions how excess refunds by the Federal Government despite subpar withholdings is goosing up consumer spending. Now we hear from none other than Mark Zandi of Moody's Economy that the government's tacit encouragement for "homeowners" to not pay their mortgage dues is freeing up $8 billion each month that is artificially increasing consumer spending and iPad preorders. And with banks not marking anything to market, all these houses that generate no cash flow are still marked at 100 cents on the books. If you ever needed a justification to not pay your credit card, your mortgage, or anyone else you owe money, now you know - contract law in America no longer exists. Just stop paying everything. And please dont save. Saving is for non-banana republics. Remember - the market is never wrong. And nobody can remember when was the last time we had a downday. So all must be well.

Alas, it has been five years since I attempted to write and then publish a meaningful trend forecast. In hindsight those forecasts proved to be more predictive than I ever expected. I would rather have been wrong because it would be to everyone’s benefit were we to reform towards functional governance and strategic planning. With progressive action not taking place, and with ignorance being bliss, I am reticent about embarking on new writing because of the conclusions I have reached. However, I view it as a social responsibility to make this forecast, so in that light I accept the pain of publishing it.

At today's rate of market melt up, we will hit Dow 36,000 in 332 days, or on March 12, 2011. This should occur a few days before Bernanke finally agrees to raise the discount rate to 0.50 bps. Also, at today's rate of price change, we will hit $715/bbl on the same day. We are confident that gas at $30/gallon will cause the Fed Chief Execution Officer to evaluate his conclusion that his brilliant monetary policy is not causing the single biggest asset bubble in US history. Last and not least, total US Federal debt on that day will be about $14.5 trillion, and when adding all the off-balance sheet items, should hit about $120 trillion. We have less than a year before total Alice In Wonderland oblivion. Oh, and since the latest episode of market melt up began, the SPY is trading as a 4x leveraged ETF on the XLF. Ignore that this statement makes no sense. Just buy. Buy everything. Then repo it to the Fed, they are particularly receptive to used single ply toilet paper, and then buy on repo margin. Insanity is here.

The SEC has finally acknowledged it is hopeless at regulating the latest generation of market forntrunning specialists, in the form of various iterations of High Frequency Traders. We are happy that one year after starting our campaign against the complete travesty to market efficiency that is HFT (yes, they frontrun and scalp and subpenny and generate artificial momentum, but they bring liquidity!.... in five bankrupt stocks while raising slippage costs everywhere else) the SEC has realized that there is so much more than meets the eye, and that no matter how many conflicted Op-Eds are publish in Advanced Trader, that will not change the nature of what HFT is.At a meeting today, the Securities and Exchange Commission voted unanimously for a plan to tag high-frequency traders with ID numbers and give the SEC access to information on their trades. Branding sure is an appropriate act for all these parasitic market participants. Hopefully the SEC will tear itself away from the terabytes of kiddie and tranny porn available on the internet to actually analyze and compile the data it receives (we realize that releasing it to the public would be far too much in keeping with Obama's initial and soon forgotten promise of unprecedented transparency), instead of just dumping it in the shredder as it has done in the past with Madoff, with Greenspan, and with other masters of the ponzimonium.