Archive - Jan 3, 2011 - Story

Simon Black currently in Santiago, Chile, presents a quick introspective on the key events of 2010, before moving on to a few broad forecasts for 2011. We hope his predictive ability is better than that of one Byron Wien. The key among Simon's predictions is that very soon we may see the same kind of power vacuum that brought about the Thermidorian Reaction in that last major systemic overhaul. Of course, the fact that we still have to experience a an actual storming of the Bastille is a little perturbing. But everything in due course...

You have seen it it in the New York Times in a much abridged version...So here it is in the original, in both real and nominal terms. Via Ed Esterling, Crestmont Research.

A source in mergers and acquisitions out of Europe has alerted King World News that Carlos Slim may be looking to enter the silver market in a big way. Gold and silver are in big bull markets and this is attracting the attention of some of the smartest money around the globe. James Turk commented, “If this deal does happen Eric, this is going to make the silver shorts choke.” Fresnillo has a current market cap of roughly $19 billion.

Instead of wasting time with Byron Wien's Top 10 "predictions for 2011" we have decided to skip this latest and greatest worthless charade in prognostication, and instead we believe that presenting the list of what the man whose retirement age has come and gone, thought would happen in the past year, is a great example of why all these so called institutional Wall Street experts are nothing but two bit hacks. As may be expected, somehow Wien got exactly zero out of ten correct! The man is the contrarian indicator on Wall Street. Also keep in mind: it takes a lot of skill to be this bad.

I have been constructive on the dollar index for a little while. I had drawn attention a few weeks back when we broke the 60-dma as it has been an excellent envelope since 2008 for the price action bullish or bearish. My thinking was that one should try buying on a retest. Sure enough we almost saw tick-for-tick the moving average on Friday (at a time when most certainly very few bought). What now? Well one cannot ignore that from the lows of early November to the local highs of November 30 the wave pattern looks like a corrective a-b-c in a generally bearish trend. However as you know looking at the chart bigger picture I believe 2008 marked the lows and we are about to embark on a major bullish move. - Nic Lenoir

RANsquawk Market Wrap Up - Stocks, Bonds, FX etc. – 03/01/11

One can not blame Mort Zuckerman for being bullish on housing (or at least some segments thereof): after all the outspoken Obama critic just splurged $930 million on the John Hancock building (which recently went into foreclosure at a $660 million valuation, but Mort has a story about how improvements in the parking lot and somesuch are worth the 50% hike in price). Yet what the Boston Properties chairman likes in commercial real estate (and for a contrarian and somewhat more lucid view feel free to peruse comparable thoughts by Howard Davidowitz) he loathes in residential real estate, which would be bad news for Bank of America if the bank's real name wasn't Bank of Banana Republic. In an interview with CNBC's finest, the USNews editor said that the record shadow inventory is "what’s going to put downward pressure on residential prices. And in my judgment, that’s going to continue forat’s going to continue for several years. We’ve seen home prices go down now for four months in a row, according to the Case-Shiller Index , by 1.3 percent in the last month. So it’s an accelerating downtrend in those prices. This is on top of three to four years of declines.” Oddly enough, no mention of the fact previously discussed by Davidowitz that "we have 21 square feet of selling space for every man woman and child in this country" but then again that may not be too bullish for CRE. And at the end of the day everyone has an agenda.

When we predicted a few weeks ago that the US would end 2010 with $13.8 trillion in debt we miscalculated the settlement dates on all the last round of bond auctions . As a result, we are happy to announce that as of December 31, 2010, the US now has $14,025,215,218,708 and 52 cents in debt (incidentally this is an increase of $154 billion in debt on the US balance sheet overnight). As a reminder the debt ceiling is 14,294,000,000,000. Which means at a run rate of $125 billion in net monthly issuance, the US may not even get to the end of March at the current burn rate. Which also means Congress better start the discussion on raising the debt ceiling as soon as February. Which means someone is about to [win/lose] some serious cash on the Feb 28 debt ceiling hike InTrade contracts.

When we last looked at the updated CAPE and q S&P valuation readings as compiled quarterly by Smithers & Co, the market was only 48% overvalued. It is therefore not surprising that following one of the most ridiculous melt ups in the past two years (and we have had many in that period) that following the firm's most recent Z1 update of the CAPE (Cyclically Adjusted PE) and Tobin q chart, the S&P is now well over 70% overpriced. This is obviously amateur hour. With the Bernanke Put having eliminated all risk and stock trading lab rats now concerned about being bumped up in a higher tax bracket, not to mention that the S&P 500 20 day historical vol just hit 39 year lows, please wake us up only when this number is in the 4 digit range.

And then there was one... correlation desk. Following Reuters news that the US government would allow 13 oil firms to restart deep-water Gulf of Mexico drilling without the new environmental review (under certain conditions), oil drops, drillers spike... and precious metals plunge. Obviously, this is just because silver extraction is so very closely tied to how deep underwater a given jack up can reach. Record correlations may have declined, but only to be replaced with correlations that no longer make absolutely any sense. This is just how ridiculous the power of Wall Street's correlation desks is now that almost nobody is trading.

It was one short week ago that a visibly emotional Ken Griffen was regaling investors with stories of his grandmother. Inbetween heartfelt recollections of childhood memories, the man who tends to be surprisingly close to the New York Fed when the Dow is not quite generating the desired wealth effect, Griffin interjected the following note on the "strength" of the Citadel team: "We begin our third decade with the strongest team that I have ever assembled. Our professionals have seen the firm through the unprecedented challenges of 2008, when many could have left for other ventures. They stayed committed to Citadel because of who we are and what we represent: an entrepreneurial, results-driven meritocracy that is changing the face of modern finance." It appears something has drastically changed in this whole "results-driven meritocracy" because over the New Year's weekend, three of the most important people at Citadel picked up and left.

The chart below, while obviously a misprint, is certainly quite amusing, and provides a serendipitous look at what may happen once HFTs have bled stocks, options, exchange traded bonds, OTC derivatives, and lastly FX, dry of all adverse selection participation. Perhaps in 5 years all we will have to look forward to are massive self-reinforcing feedback looping, momentum swings, in pretty much anything and everything (alternatively, this "print" is as good an approximation of the true state of the world economy as any, should one eliminate the monetary and fiscal crutches that have propped up the global economy for the past 2+ years). In the meantime, we await to see what the first real BDIY print of the year will be. That said, the one carryover theme from 2010 is that good is good and bad is gooder, so should the BDIY really faceplant by 27% overnight we expect a new all time high in the S&P shortly thereafter.

The last week of 2010 was not an outlier to the prevailing trend of consummate selling by insiders which has marked all of 2010. Just like in previous weeks when selling vastly outpaced buying, so the week ended December 31 was no exception on the S&P: there were three insider buys for a total of $4.3 million (including one purchase for $4.3 million by a TIMET executive, where a continuing 10b-5 program seems to be accumulating stock, while on the selling side there were 34 deals worth 81 million in notional. The bulk of the selling was in Starwood, which has seen aggressive selling for several weeks if not months now, as well as Qualcomm, Salesforce.com, Varian Medical and Abercrombie & Fitch. Unlike suspectible retail investors, insiders refuse to flip to the other side and become buyers. But what do insiders know that retail doesn't...

With an endless supply of cartoons striving to fill a niche of information lack created by the silent but deadly combination of attention deficit disorder and a fear and loathing of anything math related, below we present the latest animated explanation of how the recent transition of the American Dream (purchased entirely on credit), was virtually guaranteed to become an American Nightmare... and how this is nothing new in the grand scheme of things.

RANsquawk US Afternoon Briefing - Stocks, Bonds, FX etc. – 03/01/11