Archive - May 20, 2011 - Story

A new study by Deloitte confirms everyone's worst fear (and every millionaire's wettest dream): the wealth amassed by millionaire households is set to increase by more than 100% over the next 9 years. From a total of $92 trillion held by the world's richest in 2011, by 2020 the world's millionaire households will possess $202 trillion, or roughly 4 times current global GDP. Even though much of move up is attributed to the wealth surge in the developing world, the biggest beneficiary is, you guessed it, the United States where the millionaires (those with net wealth of at least $1 million), who currently account for $38.6 trillion of total wealth, will see their assets increased by 225% to $87.1 trillion! And while a comparable study of how much wealth the lower and middle classes are set to lose over the next decade, we are confident that it will be roughly comparable...inversely. So if anyone harbored any illusions that the current status quo was about anything but the rich getting richer, all those can be promptly swiped aside.

Another oops:

FITCH DOWNGRADES GREECE TO 'B+'; RATING WATCH NEGATIVE

The Greek CDS market is actually fairly small. According to DTCC, there is only 3.8 billion euro of net CDS exposure on the Hellenic Republic. That compares to almost 300 billion euro of debt outstanding. There may be some additional exposure to Greece cds since it is included in SOVX, but the Greek portion of net SOVX exposure is very low, and some of the exposure is offset by investors who trade 'cds index arb'. Not only is the 4 billion euro of exposure relatively small, most of it is held in mark to market accounts, so a lot of the loss to the system is already accounted for. Since the net exposure is small, banks are likely beneficiaries of a credit event, and markets will see through this feeble attempt at avoiding the stigma of a default, the EU finance ministers should stop worrying about how a restructuring will impact CDS. They should focus on restructuring in a way that provides the best possible outcome for Greece and creditors and not worry about what happens in the CDS market as a result. If after sorting out the Greek situation, they still have time to think about CDS, they should spend that time figuring out who sold the protection and why? For every evil, vile, nasty, hedge fund who had bought credit protection, someone took they other side and sold protection? If the purchasers are so evil, does that make the sellers angelic?

And here comes the first domino: according to Swiss journal NZZ, the Greek bailout is about to take a turn for the worse. "Norway will first stop all further financial aid payments to the highly indebted Greece. The reason is that Greece does not fulfill its obligations descendants, the Norwegian Foreign Minister Jonas Gahr Store said on Thursday before the Parliament." And with Norway which is a member of the European Economic Area, and actually one of the few solvent and non-basket case European countries saying let the chips fall where they may, it is just the first. Look for every other country currently on the sidelines vis-a-vis Greece (and just as insolvent) to follow suit as the European experiment falls apart.

Something interesting appeared in today's Release of David Kostin's Hedge Fund Trend Monitor. Actually make that shocking: as of the end of Q1, Apple is no longer the most hedge fund-held stock in the world. After 195 hedge funds held AAPL at the end of 2010, the most of any stock, with Citigroup and JPM in 2nd and 3rd position, over the next 3 months 22 fund or over 10% of the HF holder base have dumped their entire stake. And with a YTD return of just 4% who can blame them... for jumping out of the frying pan and into the "value investor" fire: as of Q1 the most widely held Hedge Fund stock is now Microsoft with 181 holders, up from 161 in the previous quarter. Which unfortunately means that 181 hedge funds have generated a -11% return on this holding. And with few if any funds left who have yet to enter, the only way for MSFT from here on out is down. Not surprisingly, both Citi and Bank of America saw their fans depart, with 12 fund closing out their C positions, and 9 doing the same for BAC.

As if Spain did not have enough to worry about with now daily protests gripping the main cities (the live webcam for the daily festivities in Madrid can be found here), next according to Goldman's John Noyce not only are Spanish bonds on the verge of a technical breakdown (and yields about to breakout), but due to the very high correlation between the Bund-Spain spread and the inverse EUR, it likely means that should the market start pricing in the Spanish domino, then the EUR, already lagging the move, is about to take out 1.40 rapidly. And with Spanish spreads flying as is over concerns what the Spanish elections on Sunday could mean for the country and the region, we can see something snap in advance of the weekend any minute.

• Netanyahu: U.S. "does not understand reality" (Reuters)
• Bank of Japan Refrains From Adding Stimulus (Bloomberg)
• Tepco Credit-Default Swaps Surge Above Levels BP Hit After Gulf Oil Spill (Bloomberg)
• IEA: More Oil Needed Urgently (WSJ)
• Obama Speech Elicits Conflicting Reactions (WSJ)
• Two top Fed officials say easy money still needed (Reuters)
• ECB Threatens Greek Funding (WSJ)
• Meredith Whitney Trips Over Her Muni Default Tale (Bloomberg)
• Watch out for tail risks hanging over Treasuries (FT)
• Spain Vote Threatens to Uncover Debt (WSJ)
• As we warned starting in December: Profit Margin Squeeze Continues to Grip the Economy (dshort)
• Capitalists Who Fear Free Markets (NYT)
• Drifting back to gold standard (The Hindu)

Gold and silver are higher again today with the debt laden dollar, euro and yen all being sold. News that China has become the world’s largest buyer of gold bullion and has seen investment demand double continues to reverberate in the markets and may have contributed to this morning’s strength. China becoming the world’s largest gold buying nation is very important. While informed analysts have been saying that this would inevitably happen much of the commentary and most of the public remain completely unaware of the huge implications that Chinese gold demand has for the gold market. Chinese investors bought 93.5 tonnes of gold coins and bars in the first quarter. China produced 340 metric tons of gold last year and consumption was about 700 tonnes, leaving a gap of nearly 360 tonnes. Demand is forecast to increase due to the growing wealth of the Chinese middle class and deepening inflation in China. What is most important and rarely covered is the fact that gold ownership by the Chinese public remains minuscule. Especially when compared to other Asian countries such as Vietnam and India.

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