Archive - May 2011 - Story

The stock of clearing and settlements firms Penson tumbled and was halted today after it was disclosed that the firm had $42.6 million in receivables collateralized by bonds issued by Retama Development Authority - a Texas racetrack. The problem is that the receivable had moved to a non-accrual category, in other words the collateral is most likely now worthless. What is odd is that the first mention of this appeared three days ago in the risk factors of the company's 10-Q: "With respect to the Nonaccrual Receivables, at March 31, 2011, approximately $42.6 million were collateralized by bonds issued by the Retama Development Corporation (“RDC”) and certain other interests in the horse racing track and real estate project “(Project”) financed by the RDC’s bonds. In each case these are owned by customers and pledged to the Company and/or its affiliates. Certain related parties to the Company own approximately $14.7 million of RDC bonds that are pledged to the Company and/or its affiliates." Since this goes directly to the company's liquidity, it is no surprise that investors decided to shoot first, and not even ask questions.

RANsquawk Market Wrap Up - Stocks, Bonds, FX etc. – 12/05/11

RANsquawk Market Wrap Up - Stocks, Bonds, FX etc. – 12/05/11

It has been a while since the non-paid media saw much from Rosie, who recently decided to go premium. It is ironic then that one of his most controversial pieces came out while he was behind a paywall, namely that he has gone bullish. Today, he takes the time to explain his real position, and share the report that started it all.

Eric Sprott making headlines in Vegas:

• SPROTT SAYS GOLD IS NOW THE WORLD'S RESERVE CURRENCY
• SPROTT SAYS SILVER WAS `MANIPULATED' DOWN IN PRICE
• SPROTT SAYS PEOPLE IN IRELAND, GREECE ALREADY FLEEING BANKS
• SPROTT SAYS SAVERS WILL FLEE BANKS TO PUT MONEY INTO GOLD

Naturally he will be called a nutjob and a tin foil-hat wearing moron, until he is, of course, proven right, at which point the conspiracy theory becomes non-conspiracy fact.

Today's foreclosure update from RealtyTrac is chock full of interesting data, although none of it is surprising. Those who have been following the complete debacle that is the fraudclosure crisis know that over the past 6 months the foreclosure activity has plunged. Indeed in April, total foreclosures, split between default notices, foreclosure auctions, and bank repossessions affected 219,258 properties: a 9% decline from April, a 34% plunge from a year earlier, and the lowest in 40 months! And while REO events (or disposals once a bank has the keys to the property in its possession) took an average of 400 days, up from 340 days a year earlier, and compared to 169 in Q1 2007, it is the length of the foreclosure process that explains not only the persistent surge in retail stocks, but why US GDP is artificially inflated by at least 0.5-1.0% (and likely has a major impact on inflation): from the release: "The average timeframe from initial default notice to REO in New Jersey and New York was more than 900 days in the first quarter of 2011, more than three times the average timeline in the first quarter of 2007 for both states." In other words, once a deadbeat stops paying their mortgage in NY or NJ, it takes nearly 3 years to get them to vacate. It also means that those who stopped paying their mortgages around time Lehman filed are still living mortgage free in the Empire and Garden States!  And there are those who wonder why the "squatters rent" amounts to at least $50 billion...

Save yourself the $1,000 bottle service at Tryst (not to mention the always failing Martingale strategy (unless you are the Fed or a Primary Dealer with discount window access of course) at the high rollers table), and cut right to the chase with this summary of the key points by Stevie Cohen, Jamie Dinan, Lee Ainslie, Izzy Englander and Jeremy Siegel.

So in Europe socialist beggars can be choosers. According to Reuters, "Ireland  wants to reschedule debt issued under its EU/IMF rescue package and will not accept less favorable treatment than other bailed out countries in changing the deal, its public expenditure minister said on Thursday. Brendan Howlin told Reuters that the government intended to seek to reschedule the International Monetary Fund/European Union portion of its debt in due course. "Obviously long-term rescheduling of debt is something that would be desirable and we will deal with it," Howlin, appointed in March to the newly created expenditure department, said." Congratulations to Ireland- having been boxed into a corner so deep, Ireland has now downshifted from Mutual Assured Destrcution to Self-Assured Destruction unless its ultimatum is met.

The end of the second round of quantitative easing (QE II) is going to be a complete disaster for the paper markets -- specifically commodities, stocks, and then finally bonds, in that order, with losses of 20% to 50% by the end of October. The only thing that will arrest the plunge will be QE III, although we should remain alert to the likelihood that it will be named something else in an attempt to obscure what it really is. Perhaps it will be known as the "Muni Asset Trust Term Liquidity Facility" or the "American Prime Purchase Program," but whatever it is called, it will involve hundreds of billions of thin-air dollars being printed and dumped into the financial system.

Earlier we predicted that following the carbon copy replica of last week's two day crash the likely outcome is another follow through surge to the upside, which will likely be tempered with another barrage of margin hikes to punish speculators daring to not put their money in massively overvalued stocks. Sure enough, the first part of the prediction comes true (see chart below), as the most recent overnight wipeout in gold, silver and crude is now a distant memory. Next stop for WTI: $100. As for what time today's margin hike will come, just keep hitting F5 on the CME Advisory Notices page.

And so we close this week's bond issuance with a very disappointing 30 Year, which priced $16 billion at 4.38, nearly 4 basis point wide of the When Issued, and at a very weak 2.43 Bid To Cover: the lowest since November's 2.31. And with the high yield closing at the lowest level for primary issuance in 2011, it is not surprising that foreigner expressed very little interest in this auction: only 33% of the auction went to foreign buyers, whose hit rate was a very high 81.2% (total Indirect tender was just $6.5 billion or 41% of the total), indicating that even had the entire Indirect order book been filled, it would not have covered even half of the auction. 8.7% of the bond went to Direct Bidders, leaving Dealers having to bail out the auction once again, with a massive take down of 58.2%. Altogether a very weak auction, and likely the last one for a long time now that the Treasury is in deep debt ceiling trouble.

Most have heard by now that Mexico disclosed that back in Q1 it bought 93.1 tonnes of gold, increasing its total gold holdings from 7.1 tons to a whopping 100.2 total tons, a stunning move which was disclosed to have been done "in line with prudent diversification principles of reserves management." However, what is less known is that many other central banks, chief among them Russia and Thailand were also waving the shiny yellow metal in between January and March. And just as importantly, from the World Gold Council, from where this update comes: "The latest statistics show no significant selling by the signatory central banks in Year 2 of the third Central Bank Gold Agreement (CBGA3)." So no central banks sell, yet the daytrading retail public knows better. As for the key question of whether China is adding to its meager holdings of 1,054 tons, which put it behind the GLD, not to mention France and Italy, there is no update. Recall, however, that when China announced an addition of +454 tonnes of gold in April of 2009, this indicated stealthy purchases of the metal in the 2003-2009 period. In other words, China is very likely accumulating gold and the next update will likely come some time in 2015.

A snapshot of the US Afternoon Briefing covering Stocks, Bonds, FX, etc.

Market Recaps to help improve your Trading and Global knowledge

Probably the strangest development in the world of ETFs today is that the silver ETF, SLV, was trading at a discount to its most recently disclosed NAV of 38.1932 at well over 10% earlier, when the spot price of silver dropped to just over $32: an all time record. So momentum-based and emotional is the trading in precious metal ETFs now that there appear to be gaping arbitrage opportunities within these high volume products. Granted, the NAV is updated once a day, and we expect that should today's silver paper price not revert to the NAV, that the NAV will decline. Alternatively, if the price drops, the discount to NAV could creep to yet another all time low. And while these are merely artificial ETF mechanics, which can and should not be traded merely for the sake of their manifestation in the market, the reality is that total COMEX silver just dropped to another fresh all time low, following another 250k ounce reclassification from Registered to Eligible, and the withdrawal of 444k ounces, offset by the receipt of 109.760 ounces by JPMorgan (of all COMEX banks).

Lost in all the hand-wringing over the corporate (mainstream) media's decline is a key cause of the decline: the MSM no longer publishes or airs anything that challenges the Status Quo. The timidity of the corporate media knows no bounds. The iconic Washington Post now makes its corporate bread off its ownership of a diploma mill of the sort that it should deplore. The print media has always lived off advertising. What's changed is the overt slavishness of the media toward its advert masters. The deal was this: the media was relevant, so people wanted to read it. Advertisers who wanted to reach this audience had to suck it up and advertise regardless of whether they approved of the content. Now that advertisers have a vast spectrum of choice, they have the upper hand. The media outlets have to sell their audience to advertisers: please give us money, because our audience is huge, or targeted, and oh yes, in all cases special. The media, corporate and non-traditional alike, could count on subscriptions to pay the basic bills. No more. "Free" content is of course not free: somebody has to pay the electricity bills for the servers and the staff to post the content, even if it's skimmed from other sites. The corporate media is fatally timid because it's running scared. The focus is on profits that must be made and shipped to restive shareholders and managers, and on keeping a job to pay the mortgage.