Archive - May 10, 2011 - Story

So much for the world's largest economy no longer overheating. CPI came ahead of expectations yet most other key economic indicators confirmed a slow down in the economy, even as borrowing appears to be picking up once again. Could China be exhibiting the very first symptoms of our very own stagflationary squeeze?

• CPI at 5.3%, Consensus at 5.2%, previous 5.40%
• PPI at 6.8%, Consensus at 7.0%, previous 7.3%
• Industrial Production up 13.4%, Consensus of 14.7%, previous at 14.8%
• Retail Sales 17.1%, Consensus of 18.0%, previous 17.40%

What kind of goddamned bubble pops and then goes right back up? Oh wait, did the Central Banks retract the 8-K where they all promised they are done printing for ever and ever (granted, countersigned by Linda Green and Jean Claude Junker, and edited by the WSJ)? That must be it! Oh, and gold at $1,521, back to those lofty, long ago levels from April 27. Cue CNBC on precious metals popping. And yes, that giant sucking sound is the CME preparing silver margin hike 6 through 666.

And there were those who thought that the $20 billion demanded by state and federal officials of banks caught in various acts of robosigning fornication was a joke. According to the WSJ, "The nation's biggest banks are willing to pay as much as $5 billion to settle claims by federal and state officials of improper mortgage-servicing practices." Needless to say this is a sham of a farce of a "settlement", and amounts to one quarter in trading perfection for the likes of the afore discussed JPM, BofA or Goldman. Recall that Goldman pays well over three times this amount in bonuses each year. On the other hand, this is merely a counteroffer to the $20 billion preliminary bid. Which means that the final number to put the entire robosigning affair behind us will be about $10 billion give or take. And banks can go back to doing what they do best: post 0 trading losses per quarter, and other such infinite sigma events.

And just like that, the short trap is set: following some sideways movement over the past several months, in which the market grotesquely, mockingly did not proceed in a straight line up, unlike the 8 month "Birinyi Ruler" period from August to March which extrapolated to about S&P 2,800 in 2 years, some (naive) investors speculated that the Fed may be losing control of the market and proceeded to short ridiculously overvalued stocks, that no longer reflect not only the economy on Earth but probably on any other life-supporting planet in the known and unknown universe, in dimensions from 3 through 10 or anything else reasonably allowed by Kaluza-Klein. As a result, just announced short interest on the NYSE for the period ending April 29 has hit a fresh 2011 high, climbing to 13.094 billion shares from 13.05 billion . Alas, this comes just as the Treasury will do everything, and we mean everything, in its power to ram the market from the s to the p orbital, trap all the shorts, force the custodians to pull every share on borrow there is, and generally to make selling stocks illegal, probably coupled with a few thousand margin hikes in everything from precious metals to tetrahydrocannabinol over the next month just to keep traders' eyes focused on the ball, simply so it can divest some of its tens of billions in shares of AIG stock and claim victory over the tin foil clad skeptics. As usual, those hoping that the neo-feudal stock market is fair and/or efficient are about to be KYed.

Remember the other most hyped up re-IPO ever, AIG (after that other Marxist-inspired, union-lubricating, channel-stuffing debacle GM)? The same company that nearly brought down the system, that insured more disaster prone garbage than even Berkshire Hathaway, which is  92% owned by the government because it wouldn't look cool if the government fully nationalized everyone after Lehman was left to die, and was subsequently eagerly attempting to buy back its toxic filth at half off prices from Goldman's Bill Dudley who just so happens works at 33 Liberty now? Well, you can kiss that goodbye: the FT reports that "AIG and the US Treasury are discussing whether to shelve or scale back plans for a large public offering this month because of the lacklustre performance of the insurer’s shares in recent weeks, people close to the situation said." You can also kiss the Treasury's boasts of a break even on its AIG "investment" - this despite 2 years of endless market levitation, forced short squeeze, margin hikes, several wars, $4 trillion in monetary and fiscal stimuli, and most certainly, the kitchen sink. "People involved said the most likely outcome of the deliberations would be for the offering to proceed at a smaller size and closer to the Treasury’s break-even point. This would allow the restructured company to provide a longer record to the market before a larger sale later this year. Shares in AIG have fallen more than 30 per cent since January 20, hitting $29.62 on Tuesday and jeopardising taxpayers’ profits on the share sale. Treasury’s break-even level is $28.73 a share and officials have been reluctant to approve an offering below that price." This likely also means that any follow on equity capital raises by AIG will be relegated to CDO issuance and other "silly paper" that will be bought only with other people's money.

And so the Bill Gross juggernaut begins rolling.  Reuters reports that "Influential investment veteran Jim Rogers said on Tuesday he plans to short U.S. Treasuries as soon as this afternoon as he expects the end of quantitative easing to pressure government bonds." Odd. Where have we written/heard that before. But of course, who listens to Bill Gross (the largest bond manager in the world) and Jim Rogers (the co-founder of Quantum) - surely they are no-nothing fools (who just happen to agree with our initial assessment that in the absence of QE2 all bets will be off). Reuters adds: "Rogers said he expects the U.S. dollar to rally when the Federal Reserve's unconventional monetary measure ends in June. "I'm not short bonds yet but I plan to short bonds - maybe this afternoon if I get around to it," Rogers told Reuters Insider television." Recently Jim Rogers correctly pointed out that silver is not in a bubble (a finding confirmed yesterday by Zero Hedge when we demonstrated that non-commercial spec longs in silver are at 2 year low) and continues to be long precious metals until such time as silver really hits the parabolic phase, well north of $100 (by which point the dollar will likely be confetti anyway). So as ever more influential asset managers turn outright hostile on rates, just how much longer will the Fed's vol selling yield suppression scheme work for?

We have a quick question for the Treasury Secretary: according to today's DTS, as of close yesterday, the Treasury had $14.274 trillion in debt subject to the ceiling of $14.294 trillion, or a $20 billion "buffer." To the best of our knowledge there were no redemptions today, and certainly none in the non-Bill pipeline this week. So, uh, how exactly did Tim Geithner auction off $32 billion today? (and plans to auction off another $40 billion tomorrow and Thursday)

And another momo dream of fast riches bites the dust. And not even a single margin hike was required. The reason: huge revenue miss, with top line coming at $26.3 million on estimates of $41.7 million. EPS are obviously irrelevant in this context. Additionally, Molycorp says that Japan may hurt market demand in Q2 and Q3... BUT... it sees demand fully recovering by Q4. Press release was likely drafted by Jean Claued Junker and edited by the Wall Street Journal. In other news, one still can't eat Praseodymium.

Yesterday, when we posted the full original letter submitted by True Finns leader Timo Soini titled "Why I Won't Support More Bailouts" as presented by the Wall Street Journal in verbatim, we were surprised that the WSJ, traditionally the bastion of various Fed interests (a topic previously dissected in "On The New York Fed's Editorial Influence Over The WSJ"), would allow such a truthy letter to appear on its pages. Today, courtesy of Karl Denninger who pointed out something glaringly disgusting, we were forced to look again at the letter as it now  appears on the website of the WSJ. Shockingly, as the redline below indicates, the entire letter was scrubbed with blatant deletions from the original text which can still be found on the pages of Zero Hedge. It is high time that the WSJ readers demand to know whether this unprecedented scrubbing was due to an editorial intervention, or if Soini himself was responsible for this blatant revisionism. If the latter is indeed the case, perhaps supporters of the True Finn party in Finland should inquire who it was that forced their leader to adjusted his letter in such a way. And here we are making fun of Jean Claude Junker for openly lying to the media...

One quick look is enough to understand what is going on with "market participation." Now that not even Johnny 5 will come out and play, as there are no more rebates to be collected in Citi shares, NYSE volume is now at 2.5 billion shares, just barely above 50% of the average, with one hour left in trading: in other words the perfect time for the Fed-Citadel JV to ramp everything higher using nothing but ES and SPY. Once again, central planning wins. The problem, however, will be when the selling resumes, as there will be no marginal buying, especially with no more shorts left in the market and looking to cover.

Because nobody can ever get enough of the Jeethner.

Ireland just floated another proposal that is sure to be very popular with the general population: "The various tax reduction and additional expenditure measures which I am announcing today will be funded by way of a temporary levy on funded pension schemes and personal pension plans. I propose that the levy will apply at a rate of 0.6% to the capital value of assets under management in pension funds established in the State. It will apply for a period of 4 years commencing this year and is intended to raise about €470 million in each of those years. The levy will not apply to pension funds established here and providing services and benefits solely to non-resident employers and members....I am conscious of the concerns of the pensions industry about the impact of a levy in circumstances where the pensions sector, in common with other sectors in our economy and society, is finding the current economic and financial environment very challenging. However, the imposition of the levy is for a relatively short period and its purpose is to improve that environment by providing the means to encourage job creation in areas of our economy most likely to deliver that employment quickly."

When we presented the first casualties emerging from last week's crude crash we predicted that in addition to Clive and Astenbeck, many more would soon crawl out of the woodwork. Sure enough, the WSJ discloses that London-based, $2.4 billion BlueGold commodities hedge fund is so far the winner in the loser category, dropping a whopping 20% so far in May, and once again confirming that in a market that only goes up, hedging is for wimps. This is the firm's worst downturn ever. But even the shellacking experienced has done nothing to dent the firm's conviction that fundamentals, once margin hikes and other "risk mitigation" features come and go, are as strong as ever. From the WSJ: "Despite the upheaval, the firm, led by Pierre Andurand, is exiting few positions, according to someone close to the matter. He remains bullish on oil prices, predicting that oil could hit a record $180 a barrel over the next few years, according to this person." This is all fine, but we keep banging our heads over this simple question: Just how will Joe Lavorgna be able to spin $180 oil as bullish for the economy?

Lately, Whitney Tilson's "value investing" record has taken some bruises (today's latest MSFT fiasco notwithstanding: bottom line is sometimes stocks are "value" for a reason), although he still makes presentations better than most. Below is his latest comprehensive analysis of the economy "An Overview of Behavioral Finance and the Economy, What Worries Us, Our View of the Market, and Some Stock Ideas." Lots of pretty charts and some good overall observations, with an emphasis on housing and macroeconomics.

Today's $32 billion bond priced at the memorable 1.000%, with auction strength confirmed by no surprises to the WI, and also the highest Bid To Cover since August, and the third highest ever. Naturally, none of this due to actual demand, but merely due to Primary Dealer expectations of a prompt and profitable flip back to Brian Sack: PDs accounted for 51.9%, with Directs taking down a notable 15.3%, leaving Indirects with the lowest allocation of the three past auctions or 32.7%, the the third lowest since January 2009. But nobody cares about the declining foreign interest: after all the ponzi game is all internal. And since this auction is potentially debt limit busting (as it is more than the total capacity under the debt ceiling), we can't wait to see what machinations Tim Geithner's henchmen will concoct to prevent an unconstitutional breach of what is now known as the "debt target." Look for Cusip QM5 to be briskly monetized as soon as the next 3 Year POMO is announced, when the next POMO schedule is revealed tomorrow at 2 pm.