Archive - Jul 16, 2010 - Story

It's a testament to the odd world in which we live that when a Wall Street firm pays a $550 million fine by conceding negligence in how it dealt with clients, its stock surges, adding billions of dollars in market value for the firm's shareholders. But that's what's happening to Goldman Sachs, as it reached its long awaited settlement with the Securities and Exchange Commission over how it sold a basket of mortgage related debt to investors in 2007. Back when the SEC brought the case, the conventional wisdom on Wall Street and the financial media was that Goldman didn't have to settle -- the case was weak and Goldman is, after all, Goldman. Now that Goldman has indeed settled, the news is being spun, again mostly by the financial media, that the deal with the SEC was a victory for Goldman's CEO Lloyd Blankfein, who survived the investigation largely unscathed, paying a measly $550 million to the government (equivalent to a few days trading gains at Goldman) and without having to give up any power, such as relinquishing his role as chairman of the board, as senior executives both inside Goldman and at competing firms believed would be part of any settlement. Well, if history is any guide, Blankfein may not go tomorrow, or even next month, but sometime in 2011, Blankfein will at the very least no longer be chairman of Goldman, and may also be forced out of the firm altogether. - Charlie Gasparino

Here's a head scratcher: as everyone knows from elementary chemistry courses, gold is the most inert metal in the world - it does not rust, nor corrode. Yet this is precisely what Russian commercial precious metal trading company, International Reserve Payment System, discovered on thousands of (allegedly) 999 gold coins "St George" (pictured insert) issued by the Central Russian Bank. The serendipitous discovery occurred after various clients of the company had requested that their gold be stored not in a safe, but in a far more secure place: "buried under an oak tree." As the website of IRPS president German Sterligoff notes: once buried, "the coins began to oxidize under the influence of moisture." And hence the headscratcher: nowhere in history (that we know of) does 999, and even 925 gold, oxidize, rust, stain, spot or form patinas, under any conditions. Furthermore, as IRPS discovered, Sberbank of Russia released an internal memorandum ordering the purchase of the defective coins with the spotted appearance. Sterligoff concludes: "It should be noted that the weight and density of the rusty coins coincide with the characteristics of gold that would be expected after after conventional testing methods would reveal. We think that the experts will be interesting to determine the nature of this phenomenon." So just how "real" is 999 gold after all, either in Russia or anywhere else?

Oil prices were lower on Friday, as the complex posted its third consecutive day lower. Tellingly, though, the losses over Wednesday, Thursday and Friday were not as large – combined – as the gains posted on Tuesday. Crude oil prices lost $1.14 a barrel over the final three days of the week, but had gained $2.20/bbl on Tuesday. Curiously, in an odd symmetry, crude oil also had lost $1.14 on Monday, leaving it a net loser of $0.08 on the week, dropping four out of five trading days. The biggest factor at the end of the week was the economy and its leading barometer, the stock market. The DJIA dropped 261.41 to 10,097.90 on Friday afternoon. - Cameron Hanover

Spreads closed considerably wider today, with the biggest close-to-close widening since 6/22, as HY dramatically underperformed (pushing back above 600bps for the first time since 7/7) with the macro fears that we have been discussing crystallized and micro issues seem to be turning the same way.

Dismal confidence data along with more worrisome in-/de-flation data set the early tone and stocks and spreads pushed quickly lower (wider) out of the gate. The eight day rally that we have seen, and we have been vociferous in our view of what caused this and what was under the surface, was an exact mirror of the rally a month ago in credit. The swing from wides to tights from 6/10 to 6/21 (8 trading days) was 132 to 104.125 (which was the swing tights since 5/10's 95bps). The recent swing from 7/1 wides to 7/13 tights (126.755 to 106.5) was also over 8 trading days and the same pattern of index outperformance of intrinsics was very evident - which supports our thesis of macro hedge unwinds and underlying selling.

It is obvious by now that the macro economic picture is collapsing. The only good news is courtesy of the micro economy, specifically corporate earnings, where massive deleveraging and cash hoarding is the only thing keeping the economy alive at this point. Here is Goldman's David Kostin with a perspective on the Q2 earnings season: where we were, are and are going.

PAST: 2Q 2010 earnings season - We expect index-level 2Q 2010 earnings will positively surprise relative to bottom-up consensus expectations. Of the 37 companies already reported, 20 beat consensus EPS expectations by more than one standard
deviation.

PRESENT: 2010 full-year earnings outlook - Our full-year 2010 S&P 500 operating earnings forecast of $78 per share implies 4% potential negative revisions to current bottom-up consensus estimates of $82. GS Economics expects US GDP growth will slow to 1.5% annualized pace during 3Q and 4Q 2010, below the consensus estimates.

FUTURE: How various economic scenarios will affect - 2011 EPS Investors are intensely focused on the profit outlook for 2011 more than 2Q results. We provide sensitivity analysis around our 2011 EPS forecast of $93 adjusting assumptions for US real GDP growth.

It’s true that GLD’s assets just passed the $50 billion mark, and that it’s the second largest U.S. ETF. Yes, mints had difficulty filling orders when the Greek crisis broke. And yes, the gold price is up nine years in a row. But those who look at statistics like these are missing the other side of the equation. I think it’s less about how much money is already invested in gold and more about what’s available to invest. After all, one could be impressed that China, for example, invested $14.6 billion in gold over the past few years – until you realize they have $2.45 trillion sitting in reserves. So, how much is invested in gold, and how much is available?

The CFTC reports that in the week ended July 13, speculative EUR net positions dropped once again, this time to -27k, the lowest since mid-January, and the fastest plunge every recorded since the all time biggest net short position recorded in May. In other non-EUR pairs, net spec positions in the Yen spiked to a 2010 high at 47k, while the CHF posted its first net bullish spec exposure since January at 15k. Lastly, the decline in GBP bearishness continues dropping to the lowest since January at 35k positions. Obviously, the speculators are aggressively betting against the dollar and in favor of other crosses. Then again, with even Goldman joining the EURUSD bull crowd, we are now fairly certain the bullish trade is heavy.

Once again the actual value of accumulation volume can be seen today: after a 10 days short covering rally on fumes pushed the market higher by nearly 7%, one day alone was sufficient to cut the rally almost in half. The bounce is now back to the half way point of the most recent decline, and just above the half way point of the bounce, at just under 1,060. It appears Goldman's technical charting on the 55/200 DMA cross was spot on. Lastly, note not only the Lower Highs, Lower Lows, but that the market is repeating the identical drop regime as was seen during the last plunge.

RANsquawk Market Wrap Up - Stocks, Bonds, FX etc. – 16/07/10

Another slapdown in equities where 6 days worth of longs were wiped out in one fell swoop. Instead of a killer weekend at The Hamptons, now the hedge fund managers will head to the Jersey shore and pick up some low grade hookers. And after failing to unload all their holdings at the 200-day for the second time in a row, many managers are likely to "Go Gibson" on their weekend escorts.

With the topic of Keynesian stimulus now so prevalent, that for some reason everyone, even economic Ph.D.'s feel entitled to chime in with their useless opinions on whether or not it is appropriate for your overleveraged economy, we would like to present this very educational anecdote about the Obamanomic version of Keynesianism as it pertains to jobs, explained by Daniel Mitchell of the Cato Institute. The kicker - Victoria's Secret models. If after this one still doesn't understand the wonderbra approach to pushing up our economy, one is hopeless.

In September 2009 it appeared like there may be some hope for CNBC yet. The channel had just received its latest import in the face of one Simon Hobbs, whose first appearance on the station involved him making a total mockery of the ridiculous momentum chasers on Fast Lost Money. Unfortunately, in the subsequent 9 months, it appears the GE Goebbels crew visited Mr. Hobbs in the deep of the night, resulting in an ideological and propaganda transformation that makes Dr. Jeckyll and Mr. Hyde look tame by comparison, and is more reminiscent of Jeff Goldblum walking through a teleport device. Luckily, today Delta Advisors' Michael Pento proceeded to provide a smackdown of the currently unrecognizable Simon Hobbs that only rivals his own friendo treatment of TV's best-tanned man, Joe Terranova, back in 2009. We hope, for Simon's sake, that he takes this opportunity, to finally get his act straight.

A chart from Bespoke Investment Group demonstrates why Steve Jobs better pick his words very, very carefully. As AAPL accounts for a 20.1% weight in the Nasdaq, and is an HFT darling, as well as having every analyst on Wall Street loving it, should this stock tumble, we expect an 80 point ES drop in the market by EOD.

And now the one you've all been waiting for. Legendary painter Geoffrey Raymond has just completed his Annotated Cramer, suggestively titled "Naked Short." If the annotation on the painting and its sheer brilliance alone does not fetch millions of dollars in a few years time (in today's dollars, not in post QE2.0 hyperdevalued greenbacks), the third Fibonacci nipple will surely do it. Here is your chance to get the only Cramer-associated asset that will continue to grow in value.

Earlier, we pointed out that Euribor is surging, despite continuing verbal assault by European bureaucrats that all is well, indicating that the European overnight funding market is structurally broken even as the ECB has become lender of first, last and every resort. The problem, however, is that when it comes to currency liability mismatches, nobody, not even all the central banks in the world, have enough capital to satisfy demand. Which is what seems to be happening with the EUR right now, as the EURUSD surges each day by an unprecedented 100 pips (will someone please advise when in history has the pair been ever so volatile?). Nic Lenoir explains.