Archive - May 2011 - Story

In another key note out of Goldman, we now learn that it is not only Jim O'Neill who is the natural hedge to the firm's other diametrically opposing views (as discussed earlier). While it is no secret that the firm's chief strategist David Kostin continues to ignore warnings from Jan Hatzius et al warning that the economy is set for a period of slower than expected growth, we now find that Goldman's Roman Maranets is out with a note in which he says that "the downshift in the macro picture (excluding Friday’s payrolls print) has not been fully reflected in the level of SPX, prompting us to shift the tactical trading stance in equities to neutral." Hmm, it is somewhat odd that nobody else has noticed that Goldman is now, well, neutral (and we all know what that means in sellside lingo) on the market. Now, the question is whether this is an honest opinion, or merely a way for the firm's prop desk to accumulate ES at the expense of its clients. Judging by the market's sudden surge, asset managers seem to be convinced it is the latter. That said, the firm is now proposing a USD long as a "Zero Cost Cross-Asset Hedge for SPX"  due to the firm's motivation "to find application of our framework in construction of “cheap” cross-asset hedges for investors being long SPX." Of course, why not just buy the USD and the market. We are long past the point where anything makes logical sense any longer courtesy of central planning. We wonder how Thomas Stolper feels now that his thunder has been stolen by both Maranets and Fiotakis, who predicted the EURUSD toptick to within minutes of the near-800 pip plunge in the pair in less than a week.

Moody's Investors Service has today placed Greece's B1 local and foreign currency government bond ratings on review for possible downgrade...Moody's says that a multi-notch downgrade is possible if it concludes that there is large risk that Greece's debt metrics are on an unsustainable path. In Moody's view, such conditions would materially increase the risk of debt restructuring over the short to medium term. Under such conditions, euro area policymakers have stated that future loans from the Exchange Stability Mechanism would be extended only if private creditors were to bear some of the losses. If the path of Greek debt-to-GDP were to appear unsustainable, then Greece might itself have an incentive to seek a change in the terms of its debt obligations.

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

Market Recaps to help improve your Trading and Global knowledge

And so the battle of propaganda begins: on one hand we have the US government demanding the population take a leap of faith that Osama was killed then promptly converted into lead-containing fish food, now Iran has stepped up to the plate claiming it has 'evidence' that bin Laden was in fact dead long ago. From RIA: "Iranian Intelligence Minister Heidar Moslehi said Tehran has evidence
that al-Qaeda leader Osama bin Laden had died of disease long before the
United States' alleged raid on the terrorist, FARS Iranian news agency
said. "We have accurate information that bin Laden died of illness some time ago," Moslehi said."  And since Osama's body was promptly dumped at sea, and Obama decided to not release any pictures of the corpse, the conspiracy brigade will surely have a field day with this one. We can only hope Iran's evidence takes a shorter time to produce than WikiLeaks' Bank of America "killer" expose.

And so we see why the proverbial 15 minute inflation reduction, even achieved though such brute force methods as relentless margin hikes everywhere except in the ES and 100x forward P/E stocks, is nothing but hot air. After dropping by over 10% in a few days, crude is now trading at a level that corresponded to gasoline in the low $3.00 range. Instead, as AAA reports, average gas prices did decline.... by $0.006. Apparently in his extended Princetonian studies, Printocchio never got to the class which says that prices are sticky on the way up, and refuse to plunge with the same enthusiasm, especially when involving margin starved companies which are more than happy not to undercut each other on overhead prices for a long, long time.

And another major source of physical demand in the already very undersupplied silver market appears. Just released from Sprott Asset Management, who recently added to the perfect storm in silver by cashing out on the record PSLV premium and converting proceeds to miner stocks: "The Sprott Silver Bullion Fund is an innovative offering, being the
first mutual fund in Canada to invest primarily in unencumbered, fully
allocated silver bullion. The Fund's objective is to seek to provide a
secure and liquid investment for investors seeking exposure to silver
bullion without the inconvenience associated with direct investment." We can't wait to discover how many tons of silver this mutual fund will soak up imminently, and where the always exciting adventure of "COMEX registered silver" takes us next...

A tremendous report by Reuters' Matthew Goldstein, Svea Herbst, Jennifer Ablan, Emma Farge, David Sheppard, Claire Milhench, Zaida Espana, Robert Campbell and Josh Schneyer, identifies that while the shaky macroeconomic conditions and an overbought market were among the key reasons for last week's history crude rout, the match that caused an unseen before plunge in commodities was, you guessed it, "computers." Naturally, this is not unexpected to Zero Hedge readers who have been warned about the massive instability of a market comprised almost entirely of unsupervised algos, since the spring of 2009 (a phenomenon which the CFTC and SEC will not "comprehend" and/or change, until it is too late). Additionally, in addition to the previously identified losses at Clive Capital and Andrew Hall's latest plaything, Reuters also identifies BlueGold, Winton Capital and FTC. Basically, throw out a name that has energy exposure (let's not forget Touradji or Centaurus) and you likely have a winner. Must read.

As gasoline prices passed $4 per gallon in Connecticut, Sen. Richard Blumenthal and Rep. Joseph D. Courtney joined President Obama in denouncing "speculators" and urging investigation of manipulation in the oil market. There are a few problems with this.

Enjoying WTI at sub $100? Since we have at most two months of WTI trading sub $115 (and Brent at $130, assuming the WTI-Brent spread does not finally collapse) according to JP Morgan, enjoy it while you can. From Lawrence Eagles: "Although oil prices fell sharply last week, on Friday we raised our Brent crude price forecast to $130/bbl for 3Q2011 due to a tight supply/demand outlook. While product cracks and crude differentials also saw some readjustment, we do not expect a major realignment in differentials going forward as the underlying pressures remain intact." In other words, as we said last week, nothing has changed (except for some margins). And since all commodities correlate as one, and since Jim O'Neill was out earlier today bashing commodities (the surest contrarian sign ever), time to load up the boat courtesy of the CME's persistent banging the speculator is likely here.

Because you wouldn't want to miss lots of empty words being delivered with the appropriate dose of pathos (or is that pathology?) and hypocrisy.

Yes, Geithner, and the US "strong dollar policy" take center stage again... Hilarity (at least for Chinese students) ensues.

Your daily diversion comes from German government advisor Bofinger:

• Eurozone needs a very comprehensive solution, or may not remain intact over next 12 months
• Need to consider EU stimulus measures for Greece in addition to belt-tightening
• Have to change overall approach for Eurozone periphery countries

Euro now sliding since apparently the EURUSD traders did not get the Friday memo that the G-7 have decided fair value for the pair is 1.35 tops. Oh yes, in the meantime we can't wait for Germany to get back to the DEM which will buy about $10 USD and make German exports a thing of the ancient past.

If Too Big To Fail was made into HBO namedropping comedy hour, this certainly deserves its own 90 minute, Bollywood produced, TheOnion directed, 3D motion picture:

• GREEK FINANCE MINISTRY SAYS S&P CREDIBILITY IN QUESTION
• GREECE SAYS S&P MOVE ISN'T JUSTIFIED

Pretty much says it all. Elsewhere, Greek prosecutors are "investigating" Der Spiegel. No Citigroup bond runs to be scapegoated this time...

• Under our sovereign ratings criteria, a commercial debt rescheduling typically constitutes a default.
• In our view, there is increased risk that Greece will take steps to restructure the terms of its commercial debt, including its previously-issued government bonds.
• Accordingly, we are lowering both the long- and short-term ratings on Greece to 'B' and 'C', respectively.
• We are leaving both ratings on CreditWatch Negative.

• Fannie Mae requests additional 8.5 billion dollars in government aid (Xinhua)
• U.S. Will Press China to Hasten Yuan's Rise (WSJ)
• European Officials to Revamp Greek Aid (FT)
• Europe Pressured to Revise Irish and Greek Bailouts (Reuters)
• Krugman: The Inflation Monster Under the Bed (NYT)
• Euro Holds No. 1 Spot as EU Shows Resolve on Greece Debt (Bloomberg)
• EU to Cut Emerging Nations’ Trade Benefits (FT)
• Japan Reaffirms Nuclear Energy Use (NYT)
• The truth behind the popular markets adage of 'sell in May' (Telegraph)
• What to watch, on the Street and on the court, to determine whether the rally will continue…or fizzle (Barrons)