Archive - Aug 2011 - Story

Ok, someone please explain this one to us because we must be a little slow. Wasn't the whole thing with the debt ceiling hike such that no more Congressional melodramas would have to be inflicted upon the population until after Obama [won|lost] the 2012 elections? Because according to the one again exponentially increasing debt balance of the US Treasury (there is another $51 billion in debt/cash coming in next week), the total US treasury balance (subject to the ceiling) is $14.54 trillion (and $14.58 trillion for total), an increase of $20 billion overnight, the Treasury will hit its latest ceiling no later than the end of September. As the latest DTS statement indicates, the debt ceiling now is $14.694 trillion: a number which Tim Geithner will hit in about a month. So if this is due to a planned expansion as part of the two step plan, we would like to understand how it works, because the $400 billion additional ceiling is barely sufficient to cover the catch up in funding for the SSN and the various governmental trust funds. And the far bigger concern is that tax receipts are about to plunge courtesy of the imminent double dip. So we wonder just based on what assumptions does the Treasury believe that its issuance needs will be met by this paltry debt ceiling.

Following today's apocalyptic trading in Bank of America, David Faber disclosed that one of the biggest cheerleaders of the increasingly doomed bank, David "Balls to the Wall" Tepper, had cut his entire stake in BAC and Wells Fargo (despite presenting the most laudatory powerpoint back at the 2010 Ira Sohn conference which predicted BAC going to $27... no comment). That's great, however, as we disclosed the other stock that is currently causing Paulson to scramble and to extract "value" out of every non MTM 2nd lien currently held by the fund, is none other than Citigroup which tumbled just a little less than BAC, closing down 17%. The issue is that as per the just released Appaloosa 13F, Citi is the top stock held by the hedge fund currently... Although probably not after today. Which is surprising because if Tepper expected Bernanke to announce QE3 tomorrow, he would pull more of his on screen antics and instead of dumping his financial holdings, he would be adding. Then again as the chart below demonstrates, Tepper is a guy who is happy to buy high and sell low, if in the meantime he can take advantage of the Fed's generosity with taxpayer capital to make billions in his Christmas bonus. Anyway, while Tepper may or may not have been skewered on his top position today, below is the complete summary of all position changes between Q1 and Q2.

If anyone thought that the Congressional subpoena of Meredith Whitney was taking it too far, you ain't seen nothing yet. According to flashing headlines, the idiots in the Senate now have S&P firmly set in their sights. Reuters adds that, "the Senate Banking committee has begun probing last week's decision by Standard and Poor's to downgrade the U.S. credit rating, a committee aide told Reuters on Monday. The aide said the panel was gathering information about the S&P move but no decision had been made on whether it will hold hearings into the downgrade. But, the aide added, all options were being weighed." At least this action did not involve the Feds and a SWAT team breaking into the company's headquarters unlike a comparable escalation in Italy. We are currently conducting a Lexis-Nexus search to find when the last time that a rating agency upgrade of a nation resulted in the type of prosecution which the glaringly terrorist and racist S&P (in the US) and S&P and Moody's (in Italy) are subjected to currently. We will be sure to bring you the results as soon as have them. We are confident the search will be very, very fruitful. In the meantime, keep an eye on the FBI's most wanted terrorist list. The face below may soon be staring at you from it. And if not, Deven Sharma should prepare for a lifetime of body cavity searches courtesy of the TSA.

Peter Tchir submits: "I have no idea on the next move.  Headlines will continue to dominate.  If the ECB can't or won't keep Spanish and Italian rates down tomorrow, and the Fed doesn't initiate QE3, it could get really ugly.  Seems weird saying that it could get really ugly after a down 6.66% day in SPX, but it could.  BAC is another wild card.  With market volatility so high, and liquidity minimal, the one thing that makes the most sense is to stay small and nimble."

RANsquawk Market Wrap Up - Stocks, Bonds, FX etc. – 08/08/11

And there you have it: following last Thursday's massive 500 point drop which so many said was a buying opportunity, here comes a -633.78 plunge in the DJIA, which is the 6th largest absolute point drop in Dow Jones Industrial Average history, following 4 larger drops in 2008 following the Lehman bankruptcy, and one back in 2002. We just made history. If the DJIA can drop more than 800 points tomorrow, which it probably will if Bernanke does not announce QE3 in some form, 2011 will be #1!

This is what happens when everyone shifts from the same side of the boat to the other... at the same time.

Update: it is now back online. Redemptions and liquidations shall proceed in an orderly, dignified manner please.

Just in case anyone wonders what is eventually coming to our own shores, here is a live webcast.

Back on May 17, Zero Hedge proposed a simple trade idea, something what we called the "Great QE Unwind" trade. The trade consisted of two legs: "long Utilities and Consumer Staples while shorting Industrials and Consumer Discretionary, leaving Financials alone." We unwind this trade today, one day ahead of the announcement of QE3, as it has since returned an absolute +3.7%, and a whopping return 18.7% over the broader S&P index. Obviously this is for the less than three month period the trade was held, and not annualized. We now unwind the trade. To those who piggybacked on this trade that not only protected capital, but generated absolute return, congratulations! To everyone else, better luck next time.

The S&P downgrade was not as much a comment on the numbers of credit service as a comment on the political process. The political process is about confronting the probability of a hyper-inflationary collapse of our currency if fiscal irresponsibility, entitlement spending and bank bailout mentality are not addressed. If the credit rating firms had continued the charade of AAA quality, it would merely enable the not sustainable march toward hyper-inflation. Ultimately, the S&P downgrade of Treasuries is a downgrade of all dollar denominated assets. If we can print dollars to pay Treasury debt, it is the currency that is at risk. A nominal default of Treasury obligations is not going to happen. Yet, a real default as a currency event is the risk. In order to save the currency,  we must sacrifice the money center banks. A sacrifice of the international banking system is a deflationary event. For Treasuries to rally in a flight to quality as a market reaction to their own downgrade is a flight to the relative safety that remains. Anticipation of the deflationary political discipline of an S&P downgrade is the rational reaction of capital flight away from securities propped up by the reflationary status quo.

With QE3 to be announced tomorrow, is anyone really surprised that we just experienced Flash Crash part 2? After all Bernanke has to be thanked for rescuing the Russell 2000. Dow dropping as much as 600, BAC down 22%, Citi down 21%, and everything else bidless, Level two does not work... Total market shut down.

Ancient Greek mythology tells the tale of Odysseus, the heroic king of Ithaca whose 10-year journey home after the Trojan War became one of the world’s most famous epics. At one point in the journey, his ship was heading straight for two deadly hazards– on one side was Scylla, a six-headed monster disguised as a giant rock, and on the other side was Charybdis, a sinister whirlpool born from the sea god Poseidon. The perils were close enough to pose an inescapable threat to ships passing through, forcing the captain to choose between the two evils. A Latin proverb from this story, “incidit in scyllam cupiens vitare charybdim” (he runs on Scylla, wishing to avoid Charybdis), is now “between a rock and a hard place” in modern English. This is exactly where the entire world finds itself right now. With confidence vanishing, markets panicking, and entire nations going bankrupt, ultimately there are no good solutions… and thinking people need to understand some simple truths about the situation...

Update: the meeting scheduled for 1:00 pm has been delayed until 1:30 pm. Summary: "It's all the sandtrap at 18's fault"

The daily teleprompted appearance you have all been waiting for. Summary: "It's all S&P's fault"

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