Archive - 2011 - Story

The last week of 2010 was not an outlier to the prevailing trend of consummate selling by insiders which has marked all of 2010. Just like in previous weeks when selling vastly outpaced buying, so the week ended December 31 was no exception on the S&P: there were three insider buys for a total of $4.3 million (including one purchase for $4.3 million by a TIMET executive, where a continuing 10b-5 program seems to be accumulating stock, while on the selling side there were 34 deals worth 81 million in notional. The bulk of the selling was in Starwood, which has seen aggressive selling for several weeks if not months now, as well as Qualcomm, Salesforce.com, Varian Medical and Abercrombie & Fitch. Unlike suspectible retail investors, insiders refuse to flip to the other side and become buyers. But what do insiders know that retail doesn't...

With an endless supply of cartoons striving to fill a niche of information lack created by the silent but deadly combination of attention deficit disorder and a fear and loathing of anything math related, below we present the latest animated explanation of how the recent transition of the American Dream (purchased entirely on credit), was virtually guaranteed to become an American Nightmare... and how this is nothing new in the grand scheme of things.

RANsquawk US Afternoon Briefing - Stocks, Bonds, FX etc. – 03/01/11

And so the first POMO of 2011 is in the history books. Brian Sack just bought $7.79 billion worth of bonds with a maturity between 2018 and 2020. At just a 2.2 submitted toaccepted ratio, this was yet another auction in which the PDs had more than enough cash in advance, and did not need the Fed's generosity. Incidentally, Brian Sack put the most recent 10 year issuance, the PC8s of 11/15/2020, which were the auctioned off security in both November and December's reopening, on the exclusion list, and the one issued just before that, the NT3s of 2020, saw exactly zero bids confirming that even PDs need to have an apriori profit before they flip a given bond.

That the ECB bought E164 million in peripheral bonds in the last week is not surprising. After all, there is nobody else who would even consider buying that stuff . What is surprising is that the ECB had to buy as much as it did: while we did not see even one Morgan Stanley euro sov run in the week ended December 31, somehow Jean Claude Trichet still managed to load up on quite a few PIIGs bonds about as quietly as possible absent a dark pool in government securities. Expect this number to jump again next week as the vigilantes return from Chamonix, but are still rather shy to knock on Bernanke's door.

After construction spending printed at 0.4% on expectations of 0.2%, the ISM came in at 57, precisely in line with expectations. And as always, margin pressures remain: Price move from 69.5 to 72.5, in tune with the following comment from the survey: "Strong pressure still exists on raw material prices in almost every area. It is unclear as to whether they can get them." Oddly enough, invntories declined by -4.9%, a move that makes absolutely no sense when juxtaposed with all the other diffusion index data from December.

With the value proposition of sell-side research now completely gone, as most of it has become merely a conduit for shot gun propaganda (is there even one sell on Goldman's most recent conviction list?), third party research shops such as Credit Sights are promptly becoming the only objective and impartial sources of analytical insight.  In its January 3 market commentary Credit Sights shares the first semi-official view of the adverse consequences to the economy should the current liquidity surge from the Fed not be moderated (and with such pundits as Fred "Dynamite" Mishkin telling Bloomberg earlier today that QE3 will not come, it is guaranteed that QE3 is imminent). In a nutshell: "a rising oil price creates economic headwinds via numerous channels
particularly if the increase is sudden. A decline in disposable incomes,
reduced consumer confidence, lower levels of travel, a decline in
demand for gas-guzzling larger autos and an upward bias to inflationary
expectations are all spin off effects on the consumer of a rapid ascent
in the price of oil." Which is why as liquidity continues looking for paths of least resistance, and finds them in such places as commodities (especially now that China has all but shut down the door to importing US liquidity) it is precisely the risk of a price spike in crude that is rapidly becoming the biggest risk to the "wealth effect" derived from the continued lunacy out of the Fed.

In a bid to preserve groupthink, and to finally let Getco off the hook from going chapter if GM's price were to ever drop below $33, JPM's Equity Derivatives desk led by Adam Rudd, who is recommending a trade based on Himanshu Patel's view that GM is massively undervalued, has just come out with a trade recommendation to buy GM March $38 calls funded by selling Ford $17 calls. After all can't let a government funded post-reorg story ever go to waste. And for JPM's functioning retard clients, here is the trade's explanation: "We believe that this trade may be particularly attractive for those investors who anticipate outperformance of GM relative to Ford." One quick look behind the scenes indicates that this call is nothing more than a less than glaringly obvious attempt to recreate the options trading frenzy seen in Ford stock in mid/late October in GM, now that Ford derivatives mania is over.

• Hedge funds offered weak returns in 2010 (Reuters)
• Wishful thinking: China's Inflation May Cool With Factory Slowdown (Bloomberg)
• And some more: Big Firms Poised to Spend Again (WSJ)... then again they have been poised for about a year now...
• And a little more: Investors' Forecast: Sunny With Chance of Overheating (WSJ)
• Albert Edwards, SocGen bear, takes a bite out of China (Guardian)
• Australia Hit by Devastating Floods (FT)
• Congress Targets Spending (WSJ)
• Euro Falls Most in Two Weeks on Concern Debt Crisis to Hamper Fund Raising (Bloomberg)
• Manufacturing activity helps European rally (FT)

Two years ago, Ken Lewis decided to scapegoat then General Counsel (and incidentally the guy who just happens to know more about BofA's dirty laundry than almost anyone else in the world, most certainly including Julian Assange - and that two year non-disparagement clause is pretty much over...) Tim Mayopoulos for no reason whatsoever, resulting in the termination of the latter without cause. Subsequently, we learned that this action was taken purely to prevent then head of Investment Banking at the world's laughing stock of a C-grade investment bank, and current CEO, Brian Moynahan, from going somewhere (rumor has it the 4th Bangalore Bank of Junk Bond underwriting had expressed a preliminary interest, and even provided a $0.69 retention bonus). Subsequently, Mayopoulos ended up as GC at perpetually insolvent GSE Fannie Mae. And since then, the bad blood has been flowing, most recently involving the dust up between the GSEs which have been demanding legal action against the zombie mortgage lender (BofA for the cheap seats) accusing it of Reps and Warranties breaches (and as the recent filing by Allstate showed, there sure are many of those). And this is just the beginning. As of a few minutes ago, we have learned that Fannie and its scorned GC just scored another victory against that other just-as-insolvent organization.

The key events driving futures where else but, yawn, higher.

A day which is a market holiday for many parts around the world, see the US reports its ISM and construction outlays… Also, since it is a day ending in "y", Goldman FX desk protege Brian Sack will be buying stuff: formally, $7-9 billion bonds due 2/15/2018 – 11/15/2020. Informally: 4.0x+ beta stocks.

RANsquawk European Morning Briefing - Stocks, Bonds, FX etc. – 03/01/11

Are silver and crude just happy to see 2011 or is that a tent in their minute charts? Silver briefly traded above $31 earlier, then penetrated the new magic number with aplomb, as investors had a chance to sit down over the weekend and realize that Bernanke, as we wrote over the past few days, has no choice but to start infusing his favorite WSJ with wafts of Large(r) Scale Asset Purchases via Goldman liaison Bill Dudley. Amusingly enough, we hear that Jon Hilsenrath has now developed a bit of cult following. Literally. Several "expert networks" are now rumored to be hot on the heels of the WSJ reporter as a leading indicator to the upcoming QE2extension . It is expected that his upcoming frequent visit clusters to the FRBNY, of which there have been many in the past two years, will be the best sign of when "the article" is about to go to print. And while we noted that it does appear to be mostly smooth sailing for PM longs, the same is the case for oil. WTI just hit $91.99 before backing off briefly. Look for $92 to be taken out cleanly and clinically as crude presses on to $100 some time in the next two weeks.

So far, Bank of America has been aggressively denying it will in any way be compromised by any possible Wikileaks disclosure. After all the bank claims it has done nothing to merit a take down based on what Assange has claimed is an "ecosystem of corruption." As everyone knows, Bank of America is the most non-MERS abusing, bonus non-extracting, putback over-reserved, and otherwise law abiding bank in existence. Which is why we are just modestly troubled by the fact that this innocent not until proven guilty but in perpetuity bank is doing all it can to demonstrate that there is in fact a very disturbing ecosystem just below the surface. The NYT reports that "a team of 15 to 20 top Bank of America officials, led by
the chief risk officer, Bruce R. Thompson, has been overseeing a broad
internal investigation — scouring thousands of documents in the event
that they become public, reviewing every case where a computer has gone
missing and hunting for any sign that its systems might have been
compromised." What goes unsaid is that BofA is really looking for what the disclosed dirty laundry is. Which really makes no sense: after all, for that to be the case, there would have to be dirty laundry in the first place, which would mean Bank of America is lying. How does one go about reconciling these two mindbogglingly contradictory facts...