Archive - Aug 3, 2010 - Story

Raoul Pal, who retired from managing money at the ripe age of 36, after co-managing GLG's Global Macro Fund, and the hedge fund sales business in equities and equity derivatives at Goldman among others, and has been publishing the attached Global Macro Report since, has just come out with the most condensed version of truth about our economic reality we have read in a long time. The attached report provides the most in depth observation on the "future recession in an ongoing depression" which is arguably the best way the describe the current economic predicament. Raoul goes all out in describing he worst recovery in history, touches on he complete disconnect between the bond world and the imaginary equity surreality, provides countless evidence the economy has not only not left the recession but is getting progressively deeper into it, shares several trade recommendations, and on occasion swear like a drunken sailor. A must read report for everyone who is sick of the CNBC/sellside daily onesided propaganda.

When TrimTabs Charles Biderman questioned the source of the money that propelled stocks 65% from the March 2009 lows, he got beaten with the idiot stick so badly that he actually turned bullish in April 2010. Lost in the ensuing choke-out was the fact that no one ever actually answered his question, unless scoffing and muttering “dark pools and stuff,” under your breath counts (and he’s the one who should be wearing the tin-foil hat?). Here we go again.

The Steering Group of the Veteran Intelligence Professionals for Sanity (VIPS) which consists of Phil Giraldi, former CIA (20 years), Larry Johnson, former CIA; DoS, (24 years), W. Patrick Lang, Col., USA, Special Forces (ret.); Director of HUMINT Collection, Defense Intelligence Agency (30 years), Ray McGovern, US Army Intelligence Officer, CIA (30 years), Coleen Rowley, FBI (24 years), and Ann Wright, Col., US Army Reserve (ret.), (29 years); Foreign Service Officer, Department of State (16 years), have penned a memo to the president in an attempt to alert him "to the likelihood that Israel will attack Iran as early as this month. This would likely lead to a wider war." Read on for the full memo by the activist group.

The killing of former Lebanese Prime Minister Rafik Hariri was until recently widely believed to have been perpetrated by the Syrians, or at least on their behalf. It was the assassination of Mr. Hariri that led to the forced departure of Syrian troops from Lebanon as a result of international pressure and wide-ranging opposition from the Lebanese street. Blame for much of the political dirty games that have taken place in the country, such as the assassination of the former Lebanese prime minister was directed at Syria. Mr. Hariri was known for having stood up to Syrian meddling in Lebanese affairs. As any Lebanese politician will attest, blaming Syria is not as easy as it sounds and the consequences for implicating Damascus can be deadly, to say the least. Lebanese politicians openly opposed to Damascus tend to face turbulence along their political careers as Damascus has always had its say in Lebanese affairs. So is it coincidental or reality that more recently accusing fingers have begun pointing at Lebanon’ s other neighbor, Israel?

Meredith Whitney appeared on CNBC earlier and was about as bearish as ever, not only on financials, but on housing as well. In addition to saying that she expects the housing market to get worse in Q3 and Q4, the maven again reiterated the blatantly obvious, namely that all the recent earnings beats by financials have been an accounting sham driven by:

• Provisioning for less future losses, by reducing NPLs in the current quarter, thus generating profits out of manipulated air (particularly relevant for HSBC's results yesterday, which were the main factor in pushing the market 25 points higher)
• Increasingly more difficult for consumers to get loans. Not much of an issue - Obama will simply blame this on the previous regime.
• And the glaringly obvious, i.e., that all European banks sit on bloated amounts of largely overvalued sovereign debt. Should another sovereign risk flaring appear (and it is Zero Hedge's belief that this will occur promptly, as soon as the European vacation season is over), it will be time to dig up the old skeletons of financial insolvency once again, only this time with EUR LIBOR and Euribor about 100% higher than where they were in May.

Pure cannibalization of a dead business model in action. Now all we can do is lean back, grab the popcorn, and wait for the Moody's response, as both companies junk each other (literally) into oblivion. Importanly, we learn that the passed Donk provision on rating agencies is pretty much a dealbreaker for the rating agency model. Once the SEC exemption is over, Mark Zandi better have that government job in hand: "In our opinion, the legislation will likely result in more instances of defending against litigation and other changes in operating practices that will likely increase operating costs and thereby reduce profitability and margins. The legislation, among other things, addresses the applicable pleading standards for certain litigation brought against rating agencies. This is contained in a provision whereby investors may be able to sue a rating agency if they can show that the agency knowingly or recklessly failed to (1) conduct a reasonable investigation of the factual elements relied upon by a credit rating agency's rating methodology, or (2) obtain a reasonable verification of those factual elements from independent third-party sources. While we believe it is likely that the new pleading standard will lead to an increase in litigation-related costs at Moody's and therefore poses an element of risk, whether the new pleading standard may increase the likelihood of successful litigation against Moody's will be determined in the future by the courts."

RANsquawk Market Wrap Up - Stocks, Bonds, FX etc. – 03/08/10

Continuing the series of artist impressions of (in)famous desktops (Tim Geithner, Ben Bernanke), today we bring to you the proposed desktop of one Lloyd Blankfein, courtesy of Sancho P. If nothing else, it explains where all the physical is.

Zero Hedge has posted numerous research articles, white papers, hedge fund insights and generally articles, on why gold is likely underpriced (anywhere from 10% to 5000%) in the current environment when the only thing global bankers have recourse to producing in excess quantities is paper with various dead presidents painted on it (and are taking full advantage of that fact). It is only fair to present the flip side. Attached is a presentation by Granite Fund advisors in which the fund's PMs (an ex-Sandeller and ex-Karscher) spend 15 pages to convince their LPs that gold is neither a buy... nor a sell here. Of course, the bearish tone dominates, however if the presented counterarguments for gold ramping are the best the two authors can come up with, and if indeed these are the strongest arguments the gold bear camp can make, then there is truly little holding gold back from record (inflation-adjusted) highs (aside from the JPM/LBMA daily paper manipulation, of course). We may or may not get to refuting the arguments contained herein, although any paper that dismisses a hypothetical $4.5 trillion additional infusion of new money into the market as not likely having an impact fiat currency devaluation, likely stands on its own "merit."

Each week at Libanman Futures we review the CFTC’s COT Report which we have attached below for the Wheat Market. Many people follow the report as it pertains to various trading groups. The report provides an opportunity to gain insight into the deltas of a particular category of traders. We are most intrigued by the idea of the change in delta by a particular group as it pertains solely to the change in the Groups’ Gamma.

Friday's 2.4% GDP was enough of a stunner (and a plunger after the majorly upward revised Q1 GDP data), that it sent the market pretty much straight line higher ever since, now that QE is virtually guaranteed, as the Fed completes the circle and confirms that Einstein's definition of idiocy is nowhere more evident than in the Marriner Eccles building. So the fact that as JPM's Michael Feroli notes, the real Q2 GDP is actually 1.7% after revised data on non-durable goods, should have long sent stocks at least 1% higher for the day instead of the observed meandering in slightly red territory, has left the Zero Hedge staff scratching its head.

Too lazy to comb through the thousands of disclosures in the Wikileaks data? Shannon Larratt has created the following youtube video of monthly IED events in Afghanistan, in which a monthly tally of injuries and casualties is kept, both "friendly" and "enemy." The results are dramatic, and reminiscent of the clip showing how the US and Russia nuked their own territory several thousand times in the past 60 years. They are also reminiscent of various admonitions (unheeded) from The Prince Bride.

The following chart courtesy of good.is shows the world's largest ever IPOs. Not surprisingly, of the top 10, the peak activity occurred in 2006, while 2010 has been the second busiest year on record so far, courtesy of AgriBank of China and Dai-Ichi of Japan. Oddly enough, Visa 2008 IPO is the only US-based company to make the top 10 IPO list, with Japan having the most representatives (3), the same China, and Italy, Germany, US and Russia all with one company in the top ten listing. Altogether the top 10 primary stock issues have amounted to $156 billion in equity capital raised. In a world in which cost of money has become negligible, this seems like an surprisingly low number.

RANsquawk US Afternoon Briefing - Stocks, Bonds, FX etc. – 03/08/10

According to Charlie Gasparino, Goldman Sachs may soon begin discussions on spinning off parts or the whole of its massive Private Equity arm. From Fox Business: "One of the first casualties of financial reform and its restrictions on banks’ ownership of private equity and hedge funds may soon take place at Goldman Sachs as senior executives there begin serious discussions about spinning off at least a piece of the firm’s massive private equity arm, FOX Business has learned." Intuitively this makes sense: while BHC investments in hedge fund are far more liquid, due to the very nature of the business, when it comes to the 3-7 year investment horizons for private equity, the regulatory uncertainty may be too much for PE LPs to handle, as a result reducing a firm like Goldman's competitiveness when submitting a go-private bid over competing offers (even when accounting for discount window access and zero cost of capital). "Senior executives at Goldman are worried that the mandates of financial reform, namely the so-called Volcker Rule, which severely limits how much a bank can invest in such funds, will create enormous uncertainty and prod investors to flee their investments, or prevent the firm from raising money in the future, this person said."