Archive - Apr 2011 - Story

Over the past few weeks I have followed, with something oscillating between frustrated interest and frustrated apathy, what now passes for political theater. Or, I should say, budget-minded theater, for never has a topic of debate so fitted its mode. What bothers me most is not that the show contains thousands of actors and critics performing on thousands of stages, making coherent debate impossible, relegating revues of Simpson's Bowels to off-off-Broadway matinees, and leaving each potentially useful turn -- first a soliloquy by Ryan and then one by Obama -- quickly clouded with the dust kicked up by its champion's clumsy steps; What bothers me most... wait for it... is that the debate is about entirely something else than it claims to be. Return to the revolutionary, insightful phrase we were recently taught: "live within our means." What are our means, really? Are they numbers in congressional bills? Numbers our online bank accounts display? Pieces of paper? These are but (poor) representations of our true means: the resources the planet affords us and that we waste -- err consume -- and are encouraged to waste by the government in order to grow our economy like some chart-shaped chia pet.

Once again we are reminded why we like Jim Grant so much. From his latest Grant's Interest Rate Observer (which, trust us, is worth the subscription): "Almost 30% of the respondents to a poll conducted by UBS a few weeks back said they anticipate a third round of so-called quantitative easing... We count ourselves among the expectant 30%. To its congressional directed dual mandate the Bernanke Fed has unilaterally added a third. It has undertaken to make the markets rise. The chairman himself has more than once taken credit for the post-2008 bull market (on one such occasion in January, he reminded the CNBC audience how far the Russell 2000 had come under Fed ministrations). Could he therefore stand idly by in the face of a new bear market. Byron Wien, vice chairman of Blackstone Advisory Services, went on record the other day predicting a summer swoon in stocks following the scheduled winding down of QE2 in June. Let us say that Wien is right, and that, furthermore, drooping stocks are accompanied by sagging house prices and a weakening labor market. Bernanke was hard put to explain why he chose to let Lehman go while acting to save Bear Stearns. He would be harder put to explain why he chose to implement QE1 and QE2 but, in another hour of need, refused to launch QE3." And "Sooner or later, gravity turns speculative markets into investment markets. When this transformation occurs, the Fed will confront the need to bail out the innocents it had previously bailed in. Hence, QE3." And therein lies the rub. Simple, sweet, and, for the US dollar, suicidal.

That over the past few years there has been a substantial push to expose some of the chicanery at the SLV iShares silver ETF, especially among the non-indoctrinated blogosphere, is no surprise. After all fear of a massive paper silver wipe out is not only the reason for success of Eric Sprott's physical silver ETF, but for the massive and consistently record premium over NAV of the PSLV. Yet up until now, we were not all that concerned about such allegations (despite having written about this ourselves on several occasions). After all, the one thing that would essentially validate such, at time exorbitant, allegations, was missing: a formal refutation. That is, until now. Kevin Feldman, a Managing Director in the iShares unit of BlackRock, has just blasted out the following email which we were lucky enough to become privy to. Basically, we now have the one and only thing we were missing: an official denial of all the "rumors." It may now be time to abandon the SS SLV, because if this letter is the best defense iShares can muster, then SLV holders may be in trouble. But better confirmation than. And leaving the content of the letter aside, its existence, and that Blackstone itself is willing to engage the tinfoil hat clad blogosphere, is the biggest red flag so far...

RANsquawk Market Wrap Up - Stocks, Bonds, FX etc. – 21/04/11

No commentary necessary.

It isn't a Wall Street CEO. But it is a start. One of the most well known market manipulation crimes of the pre-Great Financial Crisis era, has just been fined $30 million. Yes, it is far less than what Hunter has made during his career, but it is not just a wristslap either. And at least it has finally happened: after 5 years many had assumed that regulators would totally screw this up as well. From DealBook: "Energy regulators on Thursday fined a former hedge fund trader $30 million for his role in a scheme that manipulated prices in the natural gas futures market. Mr. Hunter and Matthew Donohoe, a fellow Amaranth trader, sold huge sums of natural gas futures contracts in early 2006 to drive down the settlement price of the trades, according to the Federal Energy Regulatory Commission. Mr. Hunter placed the trades during a so-called settlement period, the last 30 minutes of trading on the day that a futures contract expires." Now... For that precious metals market manipulation that only fringe lunatic website allege is happening...

Often times we are amazed that Deutsche Bank's Peter Hooper works in the same place as that other "economist." The reason is that yesterday, Hooper, who tends to have some of the most original sellside thoughts, came out with one of the best summaries of America's fiscal dead end:an 8 page summary far more accurate and detailed than anything to ever come out of the rating agencies, yet one which reaches the correct conclusion. What is startling is that a Wall Street institution (well technically desk.... there is of course that other "economist") is willing to come to grips with the truth. Which according to Hooper is rather ugly: America may have 2 years at the most before it all comes crashing down when the world's former superpower hits its own Minsky Moment.

And for today's case of pure unadulterated idiocy:

• ( RTR ) 04/21 02:30PM OBAMA SAYS HAS ASKED ATTORNEY GENERAL TO CREATE TEAM TO "ROOT OUT" FRAUD, MANIPULATION IN OIL MARKETS THAT COULD HIT GAS PRICES
• ( RTR ) 04/21 02:31PM OBAMA, IN PREPARED REMARKS, SAYS TEAM'S FOCUS WILL INCLUDE OIL MARKET TRADERS AND SPECULATORS
• ( RTR ) 04/21 02:31PM OBAMA SAYS WILL MAKE SURE THAT NO ONE IN OIL MARKET IS TAKING ADVANTAGE OF THE AMERICAN PEOPLE FOR THEIR OWN SHORT-TERM GAIN

Number of mentions of the one true satanic culprit for oil price explosion? Zero. For everything else there is scapegoating. And again. And again.

Chairman Bernanke has placed himself in a box. It is not a box of his choosing, but rather the result of his misguided economic beliefs, use of flawed statistical data, geo-political events occurring during his watch, poor decisions and a penchant for political pandering. Some of these may be requirements for academia success but not for leading global financial markets during turbulent times. It is time for Professor Bernanke to return to the collegial setting of Princeton University while the world still has time to correct the path he has mistakenly set us on. I was angry during most of former Chairman Greenspan's tenure because of his persistent use of liquidity pumping to solve every problem from Y2K to the Peso crisis. Greenspan's inability to see a bubble two inches from his nose and yet still pontificate about irrational exuberance, rather than taking the punch bowl away from the party, incited me. Bernanke does not affect me that way. He simply disappoints and leaves a taste like eating dry shredded wheat, with the hope of a child, to eventually get the prize at the bottom of the box. Character flaws show during times of stress. Honesty, integrity, value systems and beliefs are put to test and are highlighted under the public media microscope. I'm sure Chairman Bernanke is a nice guy, loved by his family but he is missing a backbone. On April 27th, 2011, that will become obvious to all.

We have gotten to a point where not only do we need annotated explanations of Fed speak, but annotations of the annotations, in this case of the Fed's deemed oracle, who for many years, has been the WSJ's Jon Hilsenrath (for some particular nuances of the "editorial" relationship between the New York Fed and the WSJ read here). Today's article in need of "between the lines" interpretation is Hilsenrath's "Bernanke to Open Up as Fed Embarks on Era of Glasnost" which can be read here. Luckily, Gleacher's Russ Certo comes to our aid, in attempting to predict what the general population can expect both next Wednesday during the Fed's first ever press conference, as well as for as long as Bernanke still is given authority to debase the US dollar.

Yesterday we reported news that has so far received almost no media exposure, namely that thousands of striking truck drivers had poured into Shanghai's Waigaoqiao zone, one of the city's busiest container ports, protesting over "rising fuel prices and low wages." Today, via Reuters, we learn that this situation has escalated materially, and progressed into violence: "A two-day strike over rising fuel prices turned violent in Shanghai on Thursday as thousands of truck drivers clashed with police, drivers said, in the latest example of simmering discontent over inflation. About 2,000 truck drivers battled baton-wielding police at an
intersection near Waigaoqiao port, Shanghai's biggest, two drivers who
were at the protest told Reuters. The drivers, who blocked roads with their trucks, had stopped work on Wednesday demanding the government do something about rising fuel costs, workers said." And while we have violent uprisings over austerity in Europe, now we have violent strikes over inflation in China? The question thus now is just how much longer will China continue to take massively ineffective steps such as RRR and rate hikes, both of which have been a tremendous failure in reining in inflation, instead of picking the nuclear option of revaluing the currency. And while many believe China may announce something along those lines over the weekend, Win Thin, global head of emerging market strategy at Brown Brothers Harriman, is not so sure and put the odds of a yuan revaluation at 25%. "With regards to currency policy, we are putting forth the following three possibilities along with odds: 1) keep current pace of appreciation (10%), 2) do one off revaluation (25%), and 3) speed up pace of appreciation (65%)." Either way, with more people joining the populist movement against inflation, China is now between a rock and a hard place: will it continue happily importing Bernanke's inflation exports or finally retaliate. Unfortunately for its economy, the appropriately called "nuclear option" of revaluation, will leave it export economy flailing. So the real question: is China ready to migrate from an export-led to a consumer-led model. Alas, the answer is a resounding no.

RANsquawk US Afternoon Briefing - Stocks, Bonds, FX etc. – 21/04/11

And in exclusively silly, but oh so symbolic news, the race track crowd bursts into a frenzy following the ultimate comeback story, as One Ounce Of Silver has now taken a full length lead over One Share Of JPM Stock into the final stretch.

For a stunning reminder of just how much of a haircut the market is expecting on Greek debt in actual cash terms, look no further than the country's 30 Year bonds. These are now trading just above 50 cents on the euro. That's a "50% off" blue light special and roughly comparable to the recovery the market is expecting on the paper. Alternatively any "liability management exercise" price on these notably above 50 will result in a Greek revolution.

There are two economies--the real one, which is in decline, and the "let's pretend" one touted by the State and corporate propaganda machines. Children love to play "let's pretend." Let's pretend the economy is "recovering." Why does this "recovery" remind me of an addict who's conning his caseworker? (Yes, I'm really in recovery--those aren't tracks, they're insect bites....) Let's play pretend that jobs are really really coming back...Let's pretend that households, corporations and government are reducing their debt...Let's pretend that wages are rising...Let's pretend your purchasing power isn't in a free-fall...Let's pretend unemployment is falling...Let's pretend corporate profits are the most important metric of our financial well-being...Let's pretend those great profits trickle down to the greater good...Let's pretend the corporate profits trickle down via the "wealth effect" to pension funds that benefit workers everywhere...How much longer are we willing to play "let's pretend"? Eventually we'll have to return to the grown-up world and deal with reality.