Archive - Aug 2012 - Story

It's quiet out there, quieter than usual. Perhaps this is because Merkel is in Canada today and so hasn't had a chance to crash any dreams of magic money trees yet. The EURUSD however did drop preemptively without any news and touched on 3 day lows moments ago under 1.2280, forcing DraghiFX and his long EURUSD call to pay another margin call. Eventwise, in Europe Spain continues to pretend it does not exist, with its bond yields quietly sliding lower even as the country's economy continues to deteriorate, on expectations that Rajoy will ask for a bailout, when in fact the lower yields go, the more unlikely this event is. Of course, all that needs to happen for the deer in headlight market to snap out of its trance is a reminder of just how broke Spain is before it does need a bailout. In the meantime, Spain is extending unemployment benefits. More importantly, it seems that the Chinese slowdown is about to hit Germany like a brick wall: Hamburg - Europe’s second-largest container harbor - reported its first quarterly decline in container volumes in nine quarter. And now the recession is really coming to Germany.

One of the most vocal advocates of a NEW QE announcement next month, at either the FOMC meeting or Jackson Hole - Goldman Sachs - has just pulled the plug. From Jan Hatzius: "The US economic data continue to look a bit stronger. Tuesday’s retail sales report for July beat expectations, while inventory accumulation showed a further slowdown in June. Our Q3 GDP tracking estimate edged up to 2.3%. The recent news also has implications for Fed policy. While QE3 at the September 12-13 FOMC meeting remains possible, our best estimate is that it will take until late 2012/early 2013 before Fed officials return to balance sheet expansion." Just as we have been saying. Which means the Fed is now out of the picture until the end of 2012. And with corn prices where they are, so is the PBOC. As for the ECB - talk to Rajoy, who will do nothing as long as 10 Year yields are under 8%. Which means that, as explained previously, Spain and Italy, and in fact the entire world, must all be destroyed first, before they are saved.

In America, winning the Presidency has proven to be a question of how much money you're willing to spend. The trend constantly shows that, he who spends the most money on elections, usually wins.

We have said it over and over, we'll say it again. For all those who for one reason or another would like to boycott the broken markets, yet trade gold in paper form, please understand that all the invested capital is at risk of total loss and can and will be lost, commingled and rehypothecated, not necessarily in that order, with little to zero recourse and the residual claim on liquidating assets pushed to the very end of the queue. Because if Lehman, MF Global, Peregrine, and countless other examples were not enough, here comes Amber Gold: a gold-based investment ponzi scheme out of Poland, in which it is likely needless to say that the gullible investors never had actual possession of the gold. And when they tried, it was gone. All gone.

"Personally, I look at the Americans and I see a people who have been very effectively brainwashed, or who simply have given in to the entirely human tendency to shuffle unquestioningly onto the path of least resistance and let themselves go. I see a people who, on a wholesale basis, have consciously or unconsciously decided to trade the idea of America for the false security of a totalitarian state."

 

David Galland

And the hard reality is that the vast majority would raise their hands in favor of the current system that has the state deeply involved in pretty much every aspect of the economy and society at large. The level of support for the very same tangled body of state-controlled handouts, regulations and central economic planning now choking the last gasps of life out of the body politic is obvious and overwhelming. The champions of liberty are fighting against a very entrenched and increasingly dangerous public mindset. Today the enemy (of true freedom) is within. In fact, the nation is overrun by them... they dominate in most every community, in most businesses and even in most families.

Since 1990, across the four 'major' emerging markets and the advanced economies, UBS estimates a point estimate of a 29% increase in the number of “well-off” households in these economies. This sounds like a new age of affluence. But before we get carried away by the rise of what might be termed the upper middle class, economist Paul Donovan notes that the number of well off households having increasing 29% from 1990 to 2010 needs to be compared against a rise in the global population of 30% over the same period. In other words, the number of “well-off” households has risen broadly in line with demographics. This then begs the question – why has income inequality increased, if the number of "well-off" households is rising proportionate to the increase in overall population? The answer, quite simply, is that in relative terms, the “well-off” are not as “well-off” as they used to be.

Q2 hedge fund reporting season has come and gone. Below is a summary of the key funds, and who held what at the end of June.

Republican Presidential candidate Mitt Romney's selection of Rep. Paul Ryan (R-WI) as his running mate has generated renewed interest in the House-passed budget resolution that Ryan authored. Ryan's budget outline would reduce the deficit more quickly and impose more fiscal restraint than the President's budget proposal. However, as Goldman notes. while both proposals would increase revenues due to the scheduled expiration of the payroll tax cut at year end, the President's would raise income taxes as well. Rep. Ryan's plan, on the other hand, would cut spending sharply in 2013 and 2014, even though it assumes a one-year delay in the spending cuts under the "sequester" set to take effect at year-end. If the President wins reelection and/or Democrats hold their majority in the Senate, a bipartisan compromise would be necessary to enact fiscal reforms. This has been difficult to achieve over the last year or so and we expect compromise to be even tougher. We continue to believe that the economic effects of allowing the fiscal cliff to take effect in full will be the greatest motivation for members of Congress to reach an agreement.

Want to solve the unresolvable issue of America's $100 trillion in unfunded welfare liabilities? Start with this: America's sugar addiction, because in 1822 America, the average person consumed 45 grams of refined sugar, or the amount found in one 12-ounce soda can, every 5 days; fast forward to 2012 and in the same period the average American now consumer a whopping 765 grams of sugar - the equivalent of 17 (non-diet) soda cans; also the equivalent of 130 pounds of refined sugar every year! More than anything, this country's fascination with the sugar high (as well as all other various forms of cheap fast food gratification) coupled with an increasingly sedentary "behind a computer" lifestyle is the leading contributor to obesity, chronic healthcare conditions, and numerous other known and unknown sources of emergency healthcare funds. As always: if one wants change, that change always has to start in the mirror.

The Obama administration is evil.  Sorry, there is no other adjective to describe it at this point.  They know they are corrupt, they embrace their corruption and now they are doing everything possible to silence anyone who dares call them out on it.  The latest case of Obama’s war on whistleblowers relates to how the Scientific Integrity Officer within the Interior Department, Dr. Paul Houser, was attacked when he started raising some scientific and environmental questions.

Unlike Dan Loeb, David Einhorn did a far more calculated portfolio reshuffle in the three months of Q2, purging only 6 positions among which RIM, CA, Dell, HCA, the GDXJ Junior Gold Miners ETF, and Roundys. He appears to have also hired a new healthcare/insurance analyst after adding positions in Cigna, Coventry Health, UnitedHealth, Humana, Wellpoint, as well as Einstein Noah Restaurants, Virgin Media, Hess, Chipotle, Genworth and some Oaktree bonds. His top 5 positions are Apple, Seagate, Microsoft, Marvell Tech and Cigna. Overall, it does not appear as if he has had a major shift in perspective on the economy. Total reported long equity AUM as of June 30 was $6.4 billion.

In Q2 Dan Loeb went to town to his holdings as of March 31. Of his roughly 38 different positions, Loeb cut 24 names to zero among which Cisco, Marvell Technology, Sara Lee, Google, Wells Fargo (with the Octogenarian of Omaha likely buying every share), El Paso, Abercrobmie, Goldman and many others. Of course, he kept his stake in Yahoo and added to Apple, while cutting his Delphi stake from 13.34 million shares to 11.5 million. He used the proceeds from these sales to add to new positions (latest 13F here) in new names such aws AIG, Aetna, Chesapeake, Cigna, Coca Cola, Enphase, Humana, News Corp, and Unitedhealth Group. Also, Loeb went quite optically against Bill Ackman and bought a $6.5 million share equivalent put in JCPenney. He is significantly in the money in this.  Altogether, his disclosed equity stake was at $3.3 billion as of June 30, down from $4.1 billion at March 31. Dry powder? Or more likely getting more into bonds (which he doesn't have to disclose on any filing).

Don't panic. Change is good. The S&P 500 futures market somehow dropped 1.25 points today - its worst in 10 days! - and yet, shock horror, data was positive, European leaders offered more jawboning support, and Treasuries weakened. NYSE volume remained bleak but S&P 500 e-mini futures (ES) volume rose to its highest in over a week (yes - we were stunned too - volume picked up as selling began) amid reasonable average trade size (especially as ES lost 1400). After VIX's implosion yesterday, it ramped over 1.25 vols higher today - testing back to 15% late on. The USD leaked higher all day, back to unchanged on the week (while Copper/Gold/Silver are all down 1.2-1.3% on the week - having gapped down on positive data this morning). Oil remains green on the week and spurted modestly higher on the day. Treasuries are still under pressure - not getting much back as equities sold off into the close - higher/steeper in yield by 4-8bps on the week now. Of course - the closing rampfest was inevitable as that stunning 4 point drop in ES was rapidly 'tickled' back up to near VWAP into the day-session close - though we note that ES was unable to get green and unable to reach the safety of VWAP with heavy 'down' volume after-hours. Cue 'Asian-opening-gap-worm' algo.