Archive - May 2010 - Story

In a rogue email blast sent out to its clients, UBS committed the rather unfortunate goof of telling the entire world that on June 1 it "will have published on Tuesday June 1 morning a strategy update going less cautious in mining and commodities." Obviously nobody is supposed to know what a sellside desk will do ahead of time. Only that in this case, everyone now does. The attempt to subsequently recall the email was met with disaster as every trading desk in the US now knows that the bailed out Swiss bank will be going bullish on this critical sector, likely leading to the increased buying in everything commodity related, which in keeping with the US tradition of frontloading everything that is not nailed down, is occurring today instead of Tuesday for those in the know. And since public information is by definition, public, it is now the right of the entire world to know just what UBS will be doing next week.

BBC Newsnight held another great financial round table discussion (why do these occur only in Canada and across the Atlantic? Is it so difficult to have 20 minutes of commercial free debate here in the US where people can actually tell the truth?) which brought together Hugh Hendry, Gillian Tett and Jeffrey Sachs. As usual, Hendry takes it odd with a bang: "I would recommend you panic. The European banking system is in a crisis." He continues: "Let's purge this system of its rottenness. Let's take on a recession. It's going to be tough, people are gonna lose their jobs. They are going to lose their jobs anyway. We can spread this over 20 years, or we can get rid of it over 3 years." Of course, the Columbia professor, is completely against purging the system: how else can US higher "educators" continue to indoctrinate generation after generation with the flawed principles of a bankrupt ideology, and continue getting getting paid handsomely if there is an global reset? Even funnier, Jeffrey Sachs loses it when Hendry calls him out on his BS at 5 minutes into the clip. The ensuing smackdown is worth the price of admission alone.

If u know u have only 1 bullet left in the rifle - and unless you are amazingly stupid - u don't try to shoot the charging grizzly bear when its 50 yards away. No, you wait till its 5/10yards away...WHEN we get this final bullet out of the rifle it had BETTER not miss, as if it 'misses' we would then have the mother of stagflationnary busts in history where bonds get crushed due to debasement, taking risk assets out with them too. If this is the outcome - and this is really I think a late 2010/2011 story - then trust me, 2008 really will seem like the Good Old Days.....lets hope Uncle Ben not only has the rifle ready, but also that his scope is well lined up and that he has been practising hard... - Bob Janjuah

The U.S. Securities and Exchange Commission said it sued Connecticut-based hedge fund manager Pequot Capital Management Inc., and its Chairman and Chief Executive Officer Arthur Samberg for insider trading in Microsoft Corp. securities.

By now everyone has read Ambrose Evans-Pritchard's article discussing the historic plunge in the M3, which speculates that due to the failure of attempts so far to reflate the economy, Obama is likely considering a renewed stimulus. To validate his point, Evans-Pritchard quotes Tim Congdon of International Monetary Research": "The plunge in M3 has no precedent since the Great Depression. The dominant reason for this is that regulators across the world are pressing banks to raise capital asset ratios and to shrink their risk assets. This is why the US is not recovering properly. Fiscal policy does not work. The US has just tried the biggest fiscal experiment in history and it has failed. What matters is the quantity of money and in extremis that can be increased easily by quantitative easing. If the Fed doesn’t act, a double-dip recession is a virtual certainty." SocGen's Albert Edwards chimes in with an observation from a slightly different angle, namely that the collapse of global FX reserves, whose explosion until 2007 "fuelled both global GDP growth and the credit bubble," which are simply indicative of global imbalances and are a very useful measure of total liquidity, are now plunging. This merely reinforces the deflationary pressures of the plunge in money supply, and forces the Fed into a corner from which there is no escape except by activating another multi-trillion QE program. Yet away from the US, Edwards argues that the huge imbalances within the Eurozone will serve as the seeds of its own destruction.

The Freddie Mac 30 year Fixed Rate Mortgage rate for the May 27 week was announced, and, in tried and true "let no crisis go to waste" fashion, it has dropped to a fresh 2010 low of 4.78%. So to recap: stocks are where they were at the beginning of the year, the US federal debt is over $13 trillion, QE is over, Europe is imploding, China is tightening, North and South Korea are blasting The Eagles at each other at over 200 dB in clear violation of the Geneva convention, there is no oil left in the GOM, US double dip is accelerating, Marsian global rescue swaps are being considered by the Fed, yet mortgages are cheaper than they ever have been, as the government goes double all in in its attempt to reflate the housing bubble. Well played, Ben, well played.

Jim O'Neill "Anyhow, dear grizzlies....bet your [sic] worried about today’s rally? See u later." Not sure this type of smugness by god's firm should be surprising, or even deserve to be pointed out, but we just wanted to store this for posterity, as we are confident we will return to this quote on many occasions in the future.

The WSJ reports that, as broadly expected, Lehman is not alone in its illegal Repo 105 window-dressing scam: it turns out that Citigroup and Bank Of America also routinely used such shady practices for years. As Michael Rapoport reports, "Citigroup said the misclassified transactions-of $5.7 billion as of the end of 2009, and as much as $9.2 billion over the past three years-involved "a very limited number of our business units" that "used this type of transaction in very small amounts." So its all good - fraud may have been performed but it was just nickel and diming: after all it's not like Citigroup was robbing cemeteries or anything (and since guilt was neither admitted nor denied in that specific case, one can say Citi was never sleeping because it was robbing graveyards but only due to honest mistake). Sure enough, this disclosure come only after the SEC demanded clarification on Repo-105 comparable transactions at all major firms. And with such daily distractions as ten trillions point swings in the market, and crude oil filling up the world ocean, who really cares anymore that all US banks commit fraud on a daily basis. The punchline: "Bank of America and Citigroup say their misclassifications were due to errors--not an attempt to make themselves look less risky." Well, that surely justifies everything.

Who said living in a SkyNet-controlled world isn't fun and exciting. Atari will not be satisfied until we have a 1,000 point intraday swing in the S&P.

BP stock now dropping after a company spokesman has refused to confirm that the leak has been plugged, and notes that any speculation otherwise is without merit. BP has previously stated that any confirmed leak plug would be reported first and only by it directly... Where does one buy a BP rumor straddle?

BP stock up notably on the news.

Initial jobless claims come in at 460,000, on expectations of 455,000, down slightly from a revised last week number of 474,000. This number is indicative of a general Nonfarm Payroll deterioration, as a reduction in the unemployment rate needs initial claims to be below 400k. This further confirms that the Fed is on some alternative planet when it comest to making economic projections, as recently quantified by ConvergEx: "According to the minutes from its latest Federal
Open Market Committee (FOMC) meeting in April, the Fed predicts
unemployment will fall to 9.3% this year followed by 8.2% in 2011. In order to reach these projections, by our calculations, the
economy will need to add 385,000 jobs each month from now through
December 2010 and 323,000 each month from now through December 2011.
These already seemingly high numbers appear even more extraordinary
when taking the government’s temporary hiring of census workers out of
the equation. Also, in the 3 months since the FOMC’s prior meeting,
unemployment projections became more optimistic: The average expected
unemployment rate for this year dropped 0.3 percentage points from 9.6%
to 9.3%." With every month that the economy keeps not adding the number of needed people to hit the target rate, the back end just gets heavier, thus making the attainment of the Fed's expectations ludicrious.Also today, the revised GDP number of 3.0% came in, well below both estimates (3.4%, and 3.7% by Goldman Sachs as pointed out two days ago), and below the initial read of 3.2%. Time to get those QE2.0 printers ready.

Full recap of the ideas and recommendations at yesterday's Ira Sohn conference.

A recap letter by Goldman's Dominic Wilson, Director of Goldman's Global Macro & Markets Research, is surprisingly conciliatory in its most recent view of the world. The firm notes tongue in cheek that while its Top 9 ideas for 2010 have lost its clients billions, it is still megabullish, but no longer "too dogmatic." We are not sure what that means except that Goldman prop is selling into every rally, and Goldman will still have all the >5x beta stocks on conviction buy up until it moves them to the conviction nuke list, just like JPMorgan did with its disastrous recommendations on greek banks. Nonetheless, reading between the propaganda lines, the following recap is one of the better two-sided evaluations of the world currently to come from a sell-side desk.

• China to have surplus diesel and gasoline next year, accdg. to PetroChina
• Europe crisis chokes Asia-Pacific loan market on concern exports to slump.
• Hedge funds inflows to Asian managers will surge this year, accdg. to Barclays
• Japanese exports increase for fifth month as Asian recovery boosts demand.
• Asian shares gain as global sell-off eases; Won, Kiwi advance against Yen.
• China's $300B sovereign fund will maintain investment in Eurozone, Xinhua says.