Archive - May 2011 - Story

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.

It has been a while since we refreshed the relentless insider selling rush. So it was good to see there were no surprises in the latest Bloomberg reported S&P 500 insider selling and buying. In the week ended May 6, there was $1.2 million worth of purchases, primarily in PBCT and NDAQ (some insider seems to think there is a possible upside catalyst here, ahem NYSE-deal), with a total of 10 insider purchases in the week. This was offset with a meager 165 insider sales, totalling $650 million, for a selling-to-buying ratio of 565x. The biggest selling occurred in GOOG, Praxair, Waters Corp, Campbell and Equity Residential. And while there are those who claim it is perfectly normal for insiders to cash out promptly without regard for the message sent to other shareholders, even Barrons' noticed the massive spike in selling in recent weeks, noting that any selling to buying ratio over 20 is bearish based on its limited universe of stocks. So, what about 565?

This one is just too good to pass by: the latest critic of US monetary, and budget policy, is none other than... Iran. From PressTV: "Iran's President Mahmoud Ahmadinejad strongly criticizes US economic policies, saying that the paper currency created by the American government is taking a heavy toll on the global economy." In an address to the fourth UN Conference on the Least Developed Countries in Istanbul, Turkey, on Monday, Ahmadinejad said that the cash injected into the global economy in the form valueless US dollars amount to over USD 32 trillion, IRNA reported. “This is while the US budget deficit for the 2011 fiscal year is expected to reach a figure above USD 1.6 trillion,” he added. Who would have thought The Onion reality of our centrally planned times would get to a point where Iran speaks more truth than our own politicians...

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

Market Recaps to help improve your Trading and Global knowledge

In a normal world, last night's surge in China's trade surplus would mean that, in a "normal" world, someone should be importing more (normal vs centrally planned - the two are not very comparable, just ask the USSR). So, assuming someone among the centrally planned proletariat actually took math 101! (the factorial sign is there due to fractional reserve mathematics, so according to a Keynesian this is really 9.3326215444×10157), does this mean that tomorrow US import data will surge, which by implication, will result in another steep cut to Q2 GDP? Well, logic would say yes, although the headline scanners on TV and in NYSE collocation boxes would beg to differ. Oddly enough, Citi also says yes. Below is Stephen Englander's note explaining why "US trade is at risk of an import surge."

And crude jumps to pre-margin hike levels. But please don't be too hard on the CME Herr President (in keeping with the whole "Weimar" theme). After all, it took them 5 consecutive tries to kill silver. We expect at least the same number before we get crude back to a price where China can wave it all in for pennies on the dollar.

Last week it was Ireland, where bond margins rose to over half, or 55%. Now it is Portugal's turn, where following the glowing success of silver speculative destruction (and crude, not so much), LCH.Clearnet has now hiked bond margins from 35% to 45%. Soon everything in the world will trade cash only... except for stocks of course. Stock margin debt is close to an all time high. But nobody is bothered by that particular speculative element. Ever.

Forgotten all about the civil war in Libya, and NATO's so far rather disastrous air, and at times naval, superiority campaign which has merely managed to get the rebels out of provisions faster than expected? Luckily, courtesy of the Pentagon Channel, NATO will provide an update on the Libyan situation in several minutes, to coincide with the end of today's $5-7 (more like $7 judging by the stock action) billion POMO. Perhaps NATO can provide some information on yesterday's crude moving rumor that it has started Naval bombardment of Libya, and also when it will finally send in the troops.

With so much of the attention once again focused on Europe's periphery (which somehow the efficient market could not be bothered with for about 4 months, even though it was all there, staring people in the face all along), it may be time to recall the Europe's core is just as troubled as everything else. Some may recall that back on December 14, S&P came out with a bit of a stunner (which in retrospect looks rather tame following the now forgotten warning on the US Debt): "And so European contagion is back as S&P, now clearly with a mandate
to remind that Europe is in a heap of trouble every month or so, puts Belgium on Outlook negative, saying that it is basically just a matter of time before the country loses its AA+ rating. The bogey: 6 months, which likely means that around May of next year, just like a year prior, we will see the same fireworks out of Europe, only this time not from Greece, but from the very heart of what is left of a solvent continent. "If Belgium fails to form a government soon, a downgrade could occur, potentially within six months.  Should a government be formed but is, in our opinion, ineffective in its fiscal stance or devolution, we are likely to consider rating action within two years." Well, it is now 6 months later, and Belgium still has no government. Time to pull the switch?

The $6.5 trillion lost in the bursting of the housing bubble is not a "paper loss," it is tragically real. Is anyone surprised that housing continues to slide? According to this report, Home Market Takes a Tumble: Turnaround More Distant After 3% Drop, Steepest Quarterly Decline Since 2008, housing has declined in value for 57 straight months, almost 5 years. Since the housing bubble topped in most areas in 2006, and it's now 2011, that makes sense: 2006 + 5 = 2011. American homeowners have lost $6.5 trillion in equity in those 57 months.