Archive - Jun 27, 2010 - Story

As with any Nimitz class carrier, the USS Dwight D. Eisenhower (CVN 69) doesn't deploy alone.  Instead she sails with a number of other support vessels composing a "Carrier Strike Group."  Within the Eisenhower's traditional strike group (Carrier Strike Group Eight) are:

Command Destroyer Squadron Two Eight, composed of 8300 ton Arleigh Burke class guided missile destroyers focused on antiair, antisubmarine, antisurface, and strike operations using the AN/SPY-1D Phased Array Radar, an AEGIS upgrade, and the best-in-class AN/SQQ-89 integrated ASW Suite.  Originally designed to deal with former Soviet air threats (like Iran's Su-25, MiG-29A (Fulcrum) and MiG-29UB aircraft?):

The USS Bainbridge (DDG 96)
The USS Barry (DDG 52)
The USS Laboon (DDG 58)
The USS Mitscher (DDG 57)
The USS Ramage (DDG 61)

The G20 meeting has revealed two important things that tell us something about our combined economic future. First we learned that the US lost the battle to try to get everyone back on the Keynesian print-a-thon bandwagon. This tells us something about US leadership in these troubled times. Once-upon-a-time, the US could dictate such things, and those days are apparently over which deserves to be noted. The second thing we learned is that, despite these differences in how to fund future growth, there is nothing yet to indicate that any the world leaders are aware that the very concept of perpetual growth is an unworkable fallacy. It’s obvious, hopefully to even the most casual of thinkers, that someday, sooner or later, whatever growth one is engaged in will have to stop. Nothing grows forever; everything has a limit.

In his latest analysis, Goldman credit strategist Charles Himmelberg resumes the firm's party line of claiming the market is overestimating the risk impact of "fat tail" events, because presumably, as Goldman's Javier Pérez de Azpillaga showed previously, even though Spain is insolvent, is facing a massive budget deficit, has a huge debt-rolling problem, and has a banking system that is locked out of capital markets, all is good (full report here) and all those who are betting on Europe's demise are about to lose money (how this Eurozone optimism jives with Goldman's recent downgrade of the EURUSD to 1.15 is beyond non-lobotomized comprehension, so we'll just leave it be as yet another fully expected Goldman inconsistency). Yet, as ever so often, inbetween the conflicts of interest, Goldman does tend to provide that occasional piece of useful, actionable information. In this case, Himmelberg has done a very relevant analysis comparing Jump to Default costs for CDS and for out-of-the-money equity puts on distressed public names, and concludes that purchasing CDS provides a far better, lower-costing entry point to hedge against default. As he notes: "Our results show that pricing in the two markets follows the same trend, but that credit protection may be cheaper in many cases." Specifically, anyone wishing to arb the mispricing of credit and equity downside protection would be wise to put on a pair trade basket where one buys CDS/sells OTM Puts in SFI, LIZ, BC, MIR, NYT, and DDS and the inverse (sells CDS/buys OTM Puts) in F, AMR, MGM, TSO, SFD and LEN on a DV01 neutral basis, and wait for risk normalization between equity and credit to lead to a recoupling in the spreads.

As we first reported last week, in an article that was met with much original skepticism, the Pentagon has now confirmed that a fleet of 12 warships has passed the Suez Canal, and is now likely awaiting orders to support the escalation in the Persian Gulf. The attached image from Stratfor shows the latest positioning of US aircraft carrier groups as of June 23: the USS Harry Truman (CVN-75) is now right next to USS Eisenhower (CVN 69), both of which are waiting patiently just off Iran. As for the catalyst the two carriers may be anticipating, we provide the following update from the Gulf Daily News where we read that Israel may be on the verge of an attack of Iran, with an incursion originating from military bases in Azerbaijan and Georgia.

The NYT's Frank Rich and PressThink's Jay Rosen have both done tremendous post-mortems on Michael Hastings' McChrystal-shattering report in Rolling Stone Magazine. While Rich focuses more on the implications of the whole affair, and the containment of the fallout, possibly including its repercussions on the war in Afghanistan, concluding boldly that McChrystalgate "gives us reason to hope that the president’s first bold move to extricate America from the graveyard of empires won’t be his last", a much more relevant observation that both authors target in on is the future of reporting, and journalism in general, in the US and elsewhere. Both frame their arguments based on statement by Politico, subsequently deleted, which was spot on, in describing the media-establishment relationship. To wit: "as a freelance reporter, Hastings would be considered a bigger risk to be given unfettered access, compared with a beat reporter, who would not risk burning bridges by publishing many of McChrystal’s remarks." In other words, never again expect a (beat, but one can generalize) reporter who is invited to political press shows to break anything of importance, and most certainly never expect a columnist (or certainly an analyst) invited on CNBC, or someone who writes books describing his high-level access to financial professionals, to ever again have anything insightful or relevant to say about the very system that is supposed to be supervised, yet ends up paying his or her bills. Which is why we will forever be happy to operate in the shadows of the establishment, where bridge burning is the norm not the exception. If that means a Penguin book deal lost now and then, so be it.