Archive - Jun 19, 2010 - Story

Update: It appears the Aircraft Carrier crossing the Suez is the USS Harry Truman, under the control of Herman "Herm" Shelanski, who is quoted by aish.com as saying "I understood that the strength of the United States is directly proportional to the safety of Israel."

Arabic newspaper Al-Quds al-Arabi reports that 12 American warships, among which one aircraft carrier, as well as one Israeli corvette, and possibly a submarine, have crossed the Suez Canal on their way to the Red Sea. Concurrently, thousands of Egyptian soldiers were deployed along the canal to protect the ships. The passage disrupted traffic into the manmade canal for the "longest time in years." The immediate destination of the fleet is unknown. According to Global Security, two other carriers are already deployed in the region, with the CVN-73 Washington in the western Pacific as of May 26, and the CVN-69 Eisenhower supporting operation Enduring Freedom as of May 22. It is unclear at first read what the third carrier group may be, but if this news, which was also confirmed by the Jerusalem Post and Haaretz, is correct, then the Debka report about a surge in aircraft activity in the Persian Gulf is well on its way to being confirmed. There has been no update on the three Israeli nuclear-armed subs that are believed to be operating off the coast of Iran currently.

Goldman's macroeconomists led by Jan Hatzius have launched a new tool, the US-MAP, also known as a Macro-data Assessment Platform, whose purposes will be to track up/downside macroeconomic "surprises" relative to expectations. As lately we have had nothing but downside surprises, yet the market keeps ploughing higher for some computerized reason, this would be a useful tool to keep track of just how overoptimistic the economic consensus is. Yet as usual, Goldman introduces a fudge factor in the way it grades the importance of specific economic data: for example according to Goldman's relevance matrix, such lagging and manipulated data as the Conference Board Confidence Index is given the same weight as the ISM Services and the ADP report, and greater weight than Initial Claims, New, Existing and Pending Home Sales, the Empire Index, Industrial Production, Core PPI , the Trade Balance, Housing Starts and, stunningly, actual Consumer Spending. How this makes any sense, we don't know - then again we did not win the Wall Street All Star Economic Prize last year, so address your queries to Jan. Yet even with all this doctoring, Hatzius is forced to admit: "A visual check of US-MAP readings for the data released thus far in June confirms the predominance of downside surprises." In other words, it is about time economists start factoring in a double dip instead of continuing to live in the land of unicorns, endless stimulus and pixie dust. The game of "the data beat expectations" is now over. Now what?

This past Monday, June 14, 2010, the Unites States Supreme Court let stand without comment or dissent the Second Circuit Appeals Court decision to dismiss Maher Arar's suit against the U.S. Government. Mr. Arar was illegally detained by U.S. officials while in transit back to his home in Canada, and then handed over to Syrian Intelligence officials using “extraordinary rendition”. The Syrians kept Arar for ten months, interrogating him using torture, and finally releasing him when they concluded that Mr. Arar was neither a terrorist, nor in possession of any relevant intelligence. Once free, Mr. Arar sued both the Canadian government (which peripherally assisted in his kidnapping and torture) and the U.S. government. The Canadian government issued him an unequivocal apology, and $10 million Canadian in compensation. Mr. Arar did not get any similar justice from the U.S. government, though. The Second Circuit Appeals Court quashed his suit by stating that Congress had not authorized such suits as Mr. Arar’s. By letting stand the Appeals Court decision to quash the suit Mr. Arar brought against the U.S. Government, the Supreme Court effectively ruled that the Government cannot be held accountable by private citizens for its actions. The Government can do as it pleases to any individual—including assassinating one of its own citizens—and there is no legal remedy. Now let's compare how the U.S. Government dealt with BP, regarding the oil spill disaster in the Gulf of Mexico.

Moody's Investors Service downgraded Anadarko Petroleum Corporation's and its guaranteed subsidiaries' (Anadarko) long-term debt rating to Ba1 from Baa3 and placed the long-term ratings under review for further possible downgrade. Moody's also assigned a Ba1 Corporate Family Rating. Moody's anticipates Anadarko, as BP's partner in the well, will meet its responsibilities through some allocation of some portion of the liability from the accident. Moody's believes the ongoing uncontrolled flow from the well will result in higher containment and clean-up costs than initially expected, as well as potential further increases in litigation costs and fines in view of the widespread damage caused to the economies of the coastal regions affected by the oil spill.

Even as recently 'demoted' BP CEO Tony Hayward is out and about, enjoying a fine yacht race-filled Saturday (cost of InTrade contract that the CEO leaves by year end, now at 74.9), the GoM gusher continues spewing up to 120,000 barrels of toxic sludge daily. Below is an informative interactive map from USA Today, disclosing all you need to know about the spill, and why both Texas and the entire Eastern seaboard are likely next to be picking tarballs out of their coastline. In the meantime, BP execs are glued to the Weather Channel, dreading any formation that could even remotely resemble a hurricane-in-waiting (InTrade odds of first Hurricane strike). Should one approach anywhere near the Horizon, all those investors who will buy the Company's unsecured bonds, or even a secured Term Loan of BP, will be wiped out.

In a statement posted on the PBOC's website late last night, the Chinese central bank has announced it will seek a flexible yuan, ending a two-year peg to the dollar. The news comes a week before the G-20 meeting at which the CNY exchange rate was set to be a key issue of debate. On the other hand, as the PBoC noted, With the BOP account moving closer to equilibrium, the basis for large-scale appreciation of the RMB exchange rate does not exist." As such, a large initial move is unlikely to occur, and the bulk of the volatility will likely strike at traded CNY forwards. Either way, this is sure to play major havoc with already extremely volatile EUR, CHF, GBP and JPY pairs.

David Kostin continues his attempt to reconcile the apparent incongruity between very bearish macro and just slighly bullish micro investors. In a recent trip to London, David Kostin conducts a detailed investigation on this divergence: "Through a combination of 1x1s and group breakfasts, lunches and dinners we exchanged views with a large cross section of macro equity, fixed income, and FX hedge funds, classic long/short equity hedge funds, and growth, value and global long-only mutual funds." The take home is that really pretty much everyone (at least in Europe) has a bearish tilt. We wonder when Goldman will readjust its EPS expectations appropriately.