Archive - Jul 2011 - Story

As the chart below shows, while at the end of every quarter, the US Treasury is traditionally supposed to fund a quarterly payment into the various government retirement funds (previously discussed here), this time around, instead of putting in even one penny into G and CSRD Funds, Tim Geithner has decided to defraud government retirees by the most since the US debt ceiling was breached, or, specifically, since intragovernmental "holdings" became a mere plug to make room for marketable debt. So while the debt held by the public increased by $21 billion following the settlement of last week's auctions, in order to stay under the $14.294 billion ceiling, the Treasury was forced to "disinvest" another $20 billion from retirement funds. At this point the various funds that fall under this umbrella are underinvested by at least $120 billion and likely much more. Of course, this is not an event of default as per Geithner's fine print: as soon as the debt ceiling is hiked, these will be the first funds that are replenished. On the other hand, if there is no debt ceiling hike, and courtesy of marketable debt having priority to intragovernmental debt, government retirees are increasingly becoming the impaired class in what may be shaping up to be the world's biggest bankruptcy filing in history.

RANsquawk Market Wrap Up - Stocks, Bonds, FX etc. – 05/07/11

We were too lazy to Shift-F7 that and change it to "whimper." The chart says it all. At this rate Wall Street firms will have to cut 120% of their headcount and replace everybody with the same Made in Taiwan Chinabots that are now responsible for ramping up the /ES courtesy of its 1.0000000 correlation with the EURUSD, which as is now well known, is solely purchased by the Beijing politburo.

Last night, the FT penned a rather curious, not to mention 2 month delayed, PR puff piece, discussing Paulson's success in investing in Lehman bonds, ostensibly to offset the firm's recent horrendous investing performance (Sino Forest, Bank of America and Premier Foods to name a few). While it is true that Paulson was one of the very first investors in Lehman bonds following the banks bankruptcy on September 15 some of the math in the FT piece is rather misleading. We will present a detailed analysis and a more objective version of Lehman bond trading history when we bring to our readers the complete breakdown of trading as disclosed in the Lehman 2019 ad hoc committee response (thank you Northwest airlines) that hit the Lehman docket on April 19. However, in the meantime we wanted to bring to both readers', and regulators' attention one rather peculiar piece of information that has emerged as a result of the trading disclosure provided by the firms in the Lehman ad hoc creditor committee, in this case Paulson and Taconic, which hold over $4 billion and just under $2 billion in face value of Lehman General Unsecured Claims. Specifically, it appears that when trading out of Lehman bonds, Paulson may have obtained highly preferential terms which were certainly not available to other hedge funds, beginning the question: were (are?) dealers willing to assume losses on transactions with Paulson (to the detriment of other market players), simply to be in the hedge fund manager's good books? We don't know. But here is the data.

We kid... We kid... Who the hell know what caused the surge in the Swissy. Maybe the fact that the Titanic just sank by another 5 feet. We'll confer with the violinists and let you know. In the meantime we fully expect the mean reversion algos to take over and reverse the correction overshooting by 2 std devs to the upside next.

And heeeeeere's Moody's to dump on today's no volume levitation and push Portugal further into junk: "Moody's Investors Service has today downgraded Portugal's long-term government bond ratings to Ba2 from Baa1 and assigned a negative outlook. Concurrently, Moody's has also downgraded the government's short-term debt rating to (P) Not-Prime from (P) Prime-2. Today's rating action concludes the review of Portugal's ratings initiated on 5 April 2011."

Another must read from one of the "less cheerful" people on MarketWatch. His 7 reasons why "kicking the can" should no longer be the official policy of the ponzi banker syndicate: 1: Capitalism’s now a lethal soul sickness, needs a reawakening; 2. We’re already in the early stages of a Great Depression; 3. Good Depression exposes our self-destruct bubble-thinking; 4. Good Depression will stir outrage, force real reforms; 5. Good Depression forces Wall Street to think outside the box; 6. Good Depression will deflate America’s warring soul; 7. Good Depression now … avoids a far bigger depression later

Unfazed by threats that DSK's legal team would sue her for defamation if she proceeded to accuse the former IMF head of sexual assault, France 24 has just reported that Tristane Banon has formally filed an official legal complaint against DSK.

French writer files attempted rape complaint against Strauss-Kahn

French journalist and writer Tristane Banon has filed a legal complaint alleging that former IMF chief Dominique Strauss-Kahn attempted to rape her while she was interviewing him in a Paris apartment in 2003, her lawyer said.

Bulgaria, from where I write this letter, is an interesting case. As the poorest member of the EU, there is a lot of opportunity at face value. Labor is dirt cheap. Property is dirt cheap. Living costs are a joke. English is widely spoken and is, in fact, more prevalent than Russian in the capital city. More importantly, the government is finally beginning to privatize some of its state-owned companies, as well as make some business-friendly decisions related to taxes. Now, this is not a part of the world where tax compliance is particularly strong. The immediate post-Soviet years turned the entire region into a veritable Deadwood, and devoid of any functioning tax authority, people got used to dealing in all cash and keeping 100% of their earnings. Given the country’s low tax rates, cheap minimum wage of just $185/month, and business-friendly policies, Bulgaria is a reasonable alternative for companies that want to stay within the EU’s customs union. Bulgaria is, after all, an EU member… though they likely fabricated their financial statements to gain entry in the same way that Greece did. Simply put, Ireland’s decline will be Bulgaria’s gain, and the influx of foreign investment will be of great benefit to this economy and asset prices.

When it was reported last week that Eric Cantor, who had just walked out of Biden's debt ceiling talks leaving Democrats to talk amongst themselves, was pushing for a "balance budget" amendment to the constitution, many took it as merely more posturing in the relentless debt ceiling drama that is rapidly approaching its inevitable conclusion (under one month left until August 3). It now appears that this may have been more than a bluff, at least to members of the Tea Party. According to the Huffington Post, "Sen. Rand Paul (R-Ky.) is planning a Senate filibuster next week in an attempt to force debt ceiling negotiations into the open." More: '"We've had not one minute of debate about the debt ceiling in any committee," he said in an interview with C-SPAN's "Newsmakers" that aired on Sunday. "We haven't had a budget in two years. We haven't had an appropriations bill in two years. So I'm part of the freshmen group in the Senate that's saying, 'no more.'" Paul's plan: "Next week, we will filibuster until we talk about the debt ceiling, until we talk about proposals."" He added that a group of senators in the "conservative wing" of the Republican Party will also be presenting a proposal to tie raising the debt limit to passage of a balanced budget amendment." So, just more posturing, which may now be indicative of the first splinters within the republican party, especially after John Cornyn said the GOP may accept a "mini deal" on raising the debt ceiling, or actual concerns about the debt hike that have to be appreciated? For now, at least judging by the market, the debt ceiling rise is a foregone deal.

It was only last week when rumors that Italy's Finance Minister Giulio Tremonti was about to step down due to irreconcilable difference with the man who puts DSK's (alleged) sexual exploits to shame, pushed down Italian bank stocks. Today, The Guardian picks up where last week left off, and brings us the following scene from a real life version of The Office, wherein we learn that Tremonti, who now is hated in Italy and will soon join the Greek Finance Minister in being the target of a massive scapegoating campaign that will likely end in his termination, has just threatened to quit if calls for his resignation don't subside. Yes, it didn't make much sense to us either but whatever.

A snapshot of the US Afternoon Briefing covering Stocks, Bonds, FX, etc.
Market Recaps to help improve your Trading and Global knowledge

This systemic decline in sensitivity to central-bank/State interevention suggests the end-state of "extend and pretend" and "mark to fantasy" is drawing nearer, as the next round of stimulus, quantitative easing, bailouts, etc. will buy considerably less time for the Status Quo than the last fix. At some point, the announcement of a new bailout or Fed "fix" will boost spirits and markets for a few days rather than a few months. At the very end of this process, the announcement of the next "fix" will crash the credit and stock markets because participants will finally understand that the fixes are only floundering, last-ditch acts of desperation which have zero chance of actually working. In other words, neither Cognitive Dissonance nor Wishful Thinking have happy endings.

Hedge fund numbers though just before the last week of June when everything ripped. Looking at these it is not difficult to see why stocks were in dire need of a vapor volume ramp: Millennium: +0.16; Tewksbury: -0.40%; Cantillon: -3.99%; Silverpoint: -0.20%; Davidson Kempner: -0.56%; King Street: -1.07%; Owl Creek: -4.8%; Perry: -3.72%; Pershing Square: -3.7%; York Capital: -3.47%, Avenue: -1.9%; Bluemountain: -0.67%; SABA (aka negative basis implosion-in-waiting): 0.46%; Viking Global: -1.09%; Maverick: -4.25%; Highbridge Long/Short: -6.37% (oops), REIF B: -0.75%; Cobalt: -0.88%; Tudor: -2.83%; Moore Global: -2.35%; Moore Macro: -0.64%; Hutchin Hill: -0.30%; and so on.

There has to be some mistake here: according to the just released
June CBOT volume for futures and options across the 4 key product
categories: interest rate, equity index, energy, and commodities, plummeted by 92.9% Year over Year for the month of June. Although apparently not really per Reuters: "Trading volume at the Chicago Board of Trade was down 92.9 percent in June 2011 at about 5.3 million contracts versus about 74 million contracts traded in June 2010, CME Group said in its monthly volume report. The year-to-date volume through June 2011 was about 442 million contracts, compared with 443 million contracts for the same period in 2010, down by 0.3 percent." Some of the more jarring observations: $25DJ index futures: 2 contracts in June 2011, Mini Dow futures: 154K versus 3.7 million, and a complete collapse in IR futures and options: 5 and 10 Year Note futs down from 24MM and 10MM respectively to... 1.9MM and 934K! We can only assume this is due to some recalendarization of trading as otherwise this implies an epic collapse in any investor participation.