Archive - Aug 2010 - Story

Another disconnect is forming out in Europe, where the much more popular overnight lending metric Euribor rose by 0.001% overnight and hit 0.900% for the first time in 2010. At the same time, EUR Libor dropped slightly to 0.83031 from 0.83156. Alas, the latter datapoint seems to be less relevant: as we have long observed, European interbank liquidity is contracting, confirmed by Market News: "On Tuesday, in the ECB's full allotment Main Refinancing Operation banks tapped E155 billion of 1 week liquidity. With this operation replacing a maturing E190 billion MRO, as economists at Citi noted the reduction in overall liquidity in the euro area is continuing." Market News also points out the obvious lack of correlation between Libor and Euribor: "In theory this is likely to carry on feeding through to higher short term money market rates. Euro 3 month LIBOR rates, however, have not risen since July 29, after their prolonged move higher."We hope for Europe's sake that ever increasing reliance on the ECB for all sorts of liquidity requirements, both short and long-term, will be offset by the export boom, which is now unfortunately over, courtesy of a EUR which any day now will be back to the mid/upper 1.30s. The result will be a continuing game of currency devaluation ping pong, so that one quarter Europe can benefit from an export surge, the next one: the US. We also hope, there is someone left out there to import all this stuff. As we saw in China's trade balance data, the trade deficit was a one time affair, and for the third month running China is again running a trade deficit. So just who is this net importer?

Goldman's economic team continues its string of market negative output, this time focusing on debunking the myth of an expected market run up into the mid-term election in 3 months. Contrary to the attempts of numerous pundits who consistently try to create a self-fulfilling prophecy and allow themselves better exit points on legacy underwater positions, Goldman performs a statistical analysis and reports that while in the past the stock run up has in fact occurred after the mid-terms, this was traditionally accompanied by loosening fiscal and/or monetary policy, resulting in a boost to the economy. As Goldman's Alec Phillips says: "For various reasons, market participants tend to take a more optimistic view of growth following the midterm election." And for all those who think this time is different, fiscal loosening post the elections will be hard to come by, and will be further impacted by the natural contraction of the economy following 2+ years of fiscal gluttony. Goldman says: "By contrast, our own estimates imply a tightening of fiscal policy in 2011, including decreased transfer payments as a result of expired unemployment benefits and increased tax liabilities as a result of tax expirations, and while we don’t have quarterly estimates for 2012, our budget projections assume additional further restraint on an annual basis then as well." In other words next time someone says that the market traditionally runs up into midterms, be aware they are uninformed. And not only that, but it is far more than likely that the stock market will drop after November, as the unprecedented disconnect between the contracting economy and the irrational stock market, finally collapses.

RANsquawk European Morning Briefing - Stocks, Bonds, FX etc. – 04/08/10

Excerpt from the much anticipated letter of what will soon be a hedge fund even bigger than Goldman Sachs: "As our mortgage investments mature, we will use the cash proceeds to seed FRC. FRC will then go out and buy S&P 500 futures, wheat, etf’s, leaps, reit paper, speculative biotech stocks, BRIC assets, and anything else you can think of. The Fund’s mandate is to be long only-everything- anywhere on earth." The fund is also rumored to have a lock-up period of 1 milisecond to allow HFT frontrunners to park their securities at FRC LLC, while the traditional 2/20 payment structure will be inverted, with Bernanke paying out 2% on all AUM, and will also pay out an additional 20% to any profit (or loss) generated by the fund for its LPs.

Associated Press reports: "A handmade grenade exploded Wednesday near President Mahmoud Ahmadinejad's convoy in western Iran, but the leader was not harmed, a conservative website reported." We are trying to determine just how this news will be spun to push the red futures (probably the first day in two weeks futures have been negative, and one of several times in the past two months this has happened) back into the green.

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.