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Quick Newscan for Tuesday, June 1st 2010
In the news this morning:
- Stocks,
U.S. Futures Tumble on China Growth Concern, BP Spill; Oil Plunges:
We discussed the topic of China’s unsustainable growth and the knock on
effects its slowdown would have on other economies in detail just last
week. How timely…- The
Narrowing Chinese Trade Surplus - In
Australia, Tax as a Contagion - Australia: The
Land Down Under(water in mortgage debt) - BoomBustBlog
China Focus: Inflation? - BoomBustBlog
China Focus: Interest Rates - My
China Ruminations Have Come to Pass As the Country Enters a Bear
Market - Chubble
(The Unmistakeable, Yet Thoroughly Argued Chinese Bubble),
Unemployed/Deleveraging Shopaholics Pushing Retail Stocks & Other
News
- The
- Euro
Weakens Against Dollar on Speculation Crisis Hurting Region’s Economy:
Nothing new here. BoomBustBlog newcomers, see the Pan-European Debt Crisis here.
- BP
Tumbles Most in 18 Years After Abandoning Attempt to Plug Leaking
Well: The company’s future doesn’t look to bright! - Paulson
Drops 6.9% as Hedge Funds Post Biggest Monthly Losses Since Lehman
(HNWs and institutional investors should take the time to read this
article and my summaries): Many funds, including Paulson’s, made
hard bullish bets on the financial sector recovering, in direct
contravention to my positions and research. Yes, the financial sector
took off like a bat out of hell the last 3 quarters of 2009, but one
shouldn’t confuse sharp market price movements with fundamentals. Many,
if not most are in bad shape, and it ain’t lookin’ much better in the
near term either. See The
Next Step in the Bank Implosion Cycle???. Most importantly, many
(if not most) professional money managers and analysts totally
underestimated the extent of the damage being done Europe. I have was
weary of Europe since 2008, put short research and positions on in 2009
(with mixed results due to the bear market rally) and went full blown
GRIZZLY BEAR in 2010 (reference the Pan-European Debt Crisis which publicly documents
and details it all). Back to the news clip:
- (Bloomberg) — John
Paulson, Louis
Bacon and Andreas
Halvorsen navigated the global market turmoil of 2008 with little
or no damage. They weren’t as successful last month as the Dow Jones
Industrial average had its worst May since 1940. Hedge funds lost an
average of 2.7 percent through May 27, according to the HFRX
Global Hedge Fund Index, as the sovereign debt crisis in Europe
triggered declines in stocks, the euro and commodities, and the gap in
yields between U.S. short-term and long-term debt narrowed. It was the
biggest decline since November 2008, when hedge funds lost 3 percent in
the wake of Lehman Brothers Holdings Inc.’s bankruptcy two months
earlier. Almost every strategy lost money in May, according to Hedge
Fund Research Inc. in Chicago, as the Dow index
of 30 big stocks sank 7.6 percent including dividends amid speculation
that Greece’s debt problems would spread to nations such as Spain and
Portugal. Some of the best-known funds saw their gains for this year
erased. “Attempting to manage risk in an environment where everything
that could go wrong does go wrong seems like a fruitless endeavor,” said
Brad
Balter, who runs Balter Capital Management LLC, a Boston firm that
invests in hedge funds for clients. “The only defense that seems to
work in months like these is being in cash.”
“SAC Capital Advisors LLC, the hedge-fund firm run by Steven
Cohen in Stamford, Connecticut, with about $12 billion under management,
lost 2.9 percent last month through May 21 with its SAC Capital
International fund, trimming this year’s gain to about 4 percent,
according to people familiar with the firm.Citadel Investment Group LLC, the $12 billion hedge-fund firm run
by Ken Griffin, lost about 2 percent with its biggest funds last month
through May 21, said people familiar with the Chicago firm. The funds
soared as much as 62 percent last year as markets rebounded after
losing as much as 55 percent in 2008.Brevan Howard Asset Management LLP in London, Europe’s largest
hedge-fund firm, lost 0.1 percent for the month through May 21 with its
Brevan Howard Fund Ltd., leaving it with a decline of 0.3 percent this
year, according to an investor.- I will gladly compare the performance of BoomBustBlog research to
any bank, fund or asset manager that charges big commissions or 2 and
20! Reference Updated 2008 performance and
the 2009 Year End Note to BoomBustBlog Readers and Subscribers
for rough performance numbers covering 2007, 2008 and 2009.
- (Bloomberg) — John
- Analysts
Boosting Forecasts See 25% Stock Gain Defying El-Erian New Normal:
Yeah, but aren’t analysts mostly wrong unless we’re in a bull market?
Stocks always go up, Right????!!!! Reference Blog vs Broker, Who Do You Trust? - Cameron
Bull Market in Gilts Beating Merkel Bonds as U.K. Keeps AAA Rating: For
now, at least. Subscribers, see
UK Public Finances March 2010
- advertisements -
Reggie,
joining in on your discussion with sheep92...
"The reason why CBs are afraid of Lehman is because there are implicit Lehman's ALL over the place"
This is the crux of the issue ...
We cannot know for sure how long and to what extent CBs CAN (LIMIT) intervene. As of now it appears that they are able to conjure up the $T as and when they feel like it.
The corllary of this is we cannot be sure whether or even when the doomsday scenario will play out.
Probably it is also one of the reasons why you could not estimate the length and extent of the rally.
As long as intervention is possible by these CBs no doomsday scenario will play out.
Assume even Greece defaults .. then Portugal, Spain ... even then if ECB comes up with $$T then again your doomsady scenario becomes a moving target
Ability to intrevene is screwing up good analysis.
Thus to get it right you would need to predict correctly when INTERVENTION WILL NOT WORK!!
Your site offers the retail, professional, and institutional memberships. What institutions are subscribing to the BoomBustBlog? It would be interesting to see if some of these hedge funds or asset managers at these banks have access to the info you provide and still shit the bed on major macro events.
You can assume that I have all of the major US global investment banks and a handful of top tier, brandname multi-billion dollar funds, as well as the analysts from a central bank or two. State securities regulators are also around.
The prices are relatively cheap since I diidn't want it to conflict with the hedge fund that I was starting, it is not much of a barrier or big decision for institutions. I have decided to take it a different route and just implemented heavy duty social networking on the site. Register, upload (or preferably link) your favorite video or two and check it out.
What ever happened to the good ol days when disasters, such as oil spills, and hurricanes in oil country meant higher prices?
That so 2006 I suppose.
Dear green shoot bugs, sell all your stocks while you still can, sky is falling. Chinese Prime Minister openly warned "Be prepare for 2nd bottom". HP just announced 9000 layoff. Here in Silicon Valley, more buildings are cleaned out , yes I happen to drive from street to street on daily basis. Central Express Way, for exemple, so many buildings empty you can easily remodel it to a cemetery. There are only two options to save US now, go to another oil war or contact UFO.
Well worth the quick read, includes books NOT to read on investing!
Paul B. Farrell
June 1, 2010, 3:11 a.m. EDT
American investors: Predictably stupid losershttp://www.marketwatch.com/story/story/print?guid=F22B6FE1-A7A1-4618-A14...
Dear Reggie,
Having allocated to the best hedge funds in the world, all I can tell you is if I had to bet, I'd bet Cohen, Griffin and Howard will outperform their peers. :)
That doesn't necessarily mean that Cohen, Griffin and Howard are that good, though. It could mean that their peers are simply peddling leveraged beta. I'm not necessarily saying that is the case, just tossing out some food for thought.
like that point...or food...
I wonder if Wall Street was a stupid as they seemed in 2007 and 2008, maybe just their customers were stupid
1 barrel oil ~ 6 cubic feet
delaware is about 2000 square miles
number of cubic feet in delaware 400 yards thick
2000 * 5280 * 5280 * 1200 = 66, 908 ,160 , 000 ,000
number of barrels = 66908160000000 / 6 = 11,151, 360, 000, 000.
That's 11 trillion barrels of oil.
I'm guessing that Mr. Simmons needs to go back and refigure.
The oil is heavily diluted, not 100% pure, thus rendering your argument null and void. The problem with the spill is that it indeed is larger than those states and can be easily verified by anyone who cares to look at the NASA daily photos.
The secondary problem, despite the dilution, is that petroleum is toxic to sea life in very small quantities. If you want a demonstration, take a 100 gallon aquarium full of fish and add 1 tablespoon of gasoline. Go ahead, I'll wait while you do the experiment. Just be sure to run like hell when whoever owns the aquarium finds out what you did. Oh and if you are a couch potato unwilling to do the experiment, I'll tell you what happens. Within half an hour, all fish inside the aquarium are dead.
Further, most the "light" hydocarbons like benzene, xylene, etc., are capable of being uplifted into storm centers that cross the Gulf and then being deposited on land. In case you are totally unaware, the vast majority of the people in the Gulf states get their water from surface water sources, which would be poisoned if this occurs. They don't draw water from the aquifers because this causes serious subsidence and sinkhole problems down here.
Finally, these same lighter hydrocarbons could be carried as far inland as the US plains states, resulting in corn and wheat crops being exposed to these carcinogens this year. Long term exposure to these types of hydrocarbons causes nerve damage, liver failure, and kidney failure. Of course the FDA would surely protect us all from toxic food produced by Monsanto and ADM, right? Campaign contributors wouldn't get a wink and a nod from regulators to peddle poisoned foodstuffs in this country, just like regulators would not allow blatant fraud in the great US financial system, right?
I suggest you re-evaluate your post and worry about the log in your own eye before you worry about the speck in Mr. Simmons eye. The log in your eye is a bit more obvious.
If dilution was primary to any and all size comparison why did we only see it now?
One simple math problem showed the narrative to be flawed.
Up pops the team that never ever allows the narrative to deviate.
Only religious nuts with planes are as sensitive are those who have the faith, the unique, and infallible understanding of the ecosystem.
Knowledge is shared. Dogma is preached.
You could be wrong. I could be wrong. Could you?
I bet you 400 baby seal skins you can not catch me when I take them.
So if this hits the gulf stream the damage is multiplied and if its starts to circulate in ocean currents look to see a dramatic? drop in marine food harvesting.
I know I will be looking to get into Australian beef and wheat stocks at some stage if it is confirmed that this disaster escapes out into the wide blue seas.
Whew! like I said that logic thing can throw an argument for a loop! I don't know a lot about the science behind this but I see nothing but downside and perpeutual litigation in the future of BP.
That math thing tends to throw a lot of arguments astray.
Thank you Reggie, I appreciate your thought leadership, keep it up.
Btw, just finished listening to Puplava interview Matt Simmons. He said
that the well head blew out of the well and that there are 120k
barrels flowing out per NOT 5k like they are reporting. Said the only way to stop the flow is via the Navy, like a sub.
Also said that there is a mass of oil 400 yards thick the size of the
states of Delaware and New Hampshire floating around the ocean floor
that will come ashore at some point. Worst environmental disaster
I always look look forward to Reggie's posts.
I have a question...
There has been a lot of focus on the USD/RMB
exchange rate which is artificially fixed. Isn't the real
dynamic the Euro? Euro zone/China trade is higher than
trade with the USA.
Surely the RMB isn't pegged to more than one major currency.
A falling Euro has a tremendous impact on Chinese exports.
Is there a trade weighted RMB Index anywhere?
If the Euro falls to parity, this will more than sufficient to collapse
the Chubble.
The wild card in China is who is able to take advantage
of the inevitable unrest. Whatever power shifts occur will not be more favorable
to the west.
I agree for the most part. Even if austerity measures succeed in Europe (which I doubt in several cases), the effect will be a drastic reduction in imports. Much of the EUM subsists off of exports to other EMU members and the US. The US consumer is tapped, and saving at best. We know what is happening to the EU and EUM consumers, thus those that need to export to these buyers are going to see harder times, including China and the inter-Eurostate trade web.
The current batch of central banks having lived thru the liquidation of lehman are not going to go the same route again, period, unless they are forced by some outside political process. About the only way that I see the Greek default occuring in the short term, is if there is pan Greek social upheaval of such scale that and some politician gets up, gets a following of real size, and says lets default and abandon the Euro. So far that does not seem to be in the cards.
I agree that global bond markets and certainly the weaker EU ones are ripe for failure but not because the 'bond vigilantes' are going to take them out. The only thing that will stop the monetization of sovereign debt will be competing political claims, or real honest to god inflation of the sort that makes the population push the politicians to go the volker route. While that may be an endgame down the road it is no where near fruition. Tmmrw, the Fed and the Ecb could monetize a trillion dollars in EU or other debt and the inflation rates as felt by the population would barely blip. Where as they know for certain that if they go the Lehman route with peripheral countries and maybe a few core ones that instead of 10% unemployment they will be looking at 20, I can not understand how people can put their chips on an over agressive tightening cycle. I'd say the biggest flaw in this thinking is that the countries that are outside the worst part of the financial crisis (Bric and commodity producers) pay no heed to the rest of the world and keep on tightenging regardless.
Massive monetization still effectively devalues the debt. Some of the bond vigilantes are actually bondholders, and eventually someone will have to buy the debt besides CBs and their cronies.
There is a big, very big, "economic" capital and value hole in Europe and it needs to be filled. This is not a doomsday scenario proclamation, it is a arithmetical fact. Going by the numbers, I don't see anyway out for Greece other than to default or restructure. The ECB, unfortunately, has to monetize the whole EMU if it is going to monetize at all, and can't monetize Greek, Portugese or Spanish problems individually.
Its a mess over there.
I'm sure you know the numbers better than me, so I'll ask.
First, what is the total amount of greek paper out there, what is the average maturity and what is the current price in the market. What price would you think is 'fair value' for the paper.
What does this reggie fair value calculation look like for the rest of the PIIGS.
If the EU were to monetize the difference in fair value from today's market number to reggies number would you agree that the going forward the EU banks would be no worse off from a market to market perspective than they are today?
I think this frame work is a decent way to get some idea of the arithetical nature of the problem.
I'm distibuting the realistic haircut/restructuing numbers to susbcribers now. I can't give it out for free to the public, but look at this way. It does beyond what the nominal losses on the investment will be for the banks. They banks are highly leveraged, thus losses are extremely magnified, see "How Greece Killed Its Own Banks!".
Then consider that any of the hedges that were taken are really straw hedges. The banks are hedging with a very small handfu of banks and investors that hedged similar risks with the original hedging bank, all with less than 10% as a cushion at the most conservative, (some banks are pushing 50x to 80x leverage). See the bank implosion cycle articel on my site.
Thus if the right counterparty or two goes down, it will rock the system. The reason why CBs are afraid of Lehman is because there are implicit Lehman's ALL over the place.
first off, thanks for your continued posts and research. It is always
interesting reading. I've been a long time lurker, mostly cause I am
an information junkie and like to read all points of view especially
when they are presented well. That being said, I find myself
generally opposed the views expressed here which go from apocalyptic
to merely depressing. Forgetting the very long term view (in which as
our host has opined we are all dead anyway) the short term seems to be
configured so that it is going to be pretty hard to make money on the
shortside except in perhaps specific stocks or sectors.
While the headline news is centered on European banking problems cause
of the crappy sovereigns that polute their balances sheets, the real
driver of this most recent decline has been the beginnings of the
tightening cycle. Rates and policy have been tightening in Asia and
to some extent South America for several months now, and indeed it is
those markets that have taken the biggest hit and are the worst
performers. In this last piece it has been the resource stocks and
other em stocks that have lead the decline. FCX made 63 from 85
(~25%) likewise brazil did about the same. China has been about the
worst performing market all year. So in order for this decline to
continue in earnest, the central banks are going to have to withdraw
liquidity globally too fast. While that is certainly a possibility
its pretty hard to believe that with bernanke calling the shots for
the worlds largest economy that liquidity at least in the US and the
G7 is going to be withdrawn willy nilly. Indeed because of the equity
market decline and 'de-risking' the dollar is soaring. This alone will
give the US Fed enormous latitude in postponing tightening.
If the bears are going to be right, the rock and a hard place point is
going to be when and if the dollar and US treasuries fall
together. Right now that is exactly the opposite of what is occuring.
With the most read and most commented articles on MarketWatch being
Paul Farrells 'Sell now crash ahead' you can be pretty certain that
no such thing has any chance of occuring in the near term save some
outlier like north korea taking out Seoul.
thx
d
Interesting perspective. What happens if Greece restructures/defaults, causing collateral call throughout the European bankings system. We can assume the ECB will come to the rescue, but if the same threat approaches Portugal and Spain (haicut analysis of these sovereigns will probably be on my site tomorrow), then we are talking a decent amount of money. One should also expect real market rates in Europe to move higher, faster than many expected.
Have at it Reggie...like the review of news and your bragging too...
I wouldn't exactly call it bragging. I had an awfuld 3 quarters in 2009, undersestimating the breadth and the depth of the bear market rally for that year. Hey, none of us are perfect, and we all have blemishes in our records - it's just that some of those blemishes may not exactly be worth 2 and 20, that's all. Rest assured, I have plenty of respect for most of the guys mentioned in the article, Paulson included.
Your commentaries are good; I usually scope them out. I think you - as any other sane individual did - underestimated the breadth and depth of fraud & obfuscation that was perpetrated last year.
It would have been impossible not to underestimate the breadth and depth of fraud and obfuscation. Only a lunatic could have correctly guessed how deep it would go.
To me it sounds like you need someone who is a bit more of a trader on your team to go along with the info. since the dollr started up at the end of december i wave been wondering why the markets have gone up. I thought we were going to peak then. I recall how dollar going up was a good signal for the last "crisis"
You're right, I could use a very good trader. I'm a decent trader, but I'm defintiely not the best - much more of a medium term strategy guy. It is not as if I didn't see the rally coming, though. I (luck and paying attention, not expertise) called it the weekend before it started as I pulled all of my profitable positions. It's just that I (nor I doubt anyone else) expected the markets to rally 80% across the board, and totally against anything that had any semblemce to fundamentals. I also was very distracted, father had cancer, etc.
That doesn't happen too often, though (once every 70 or so years, maybe) so those momo chasers who seemed smart for 9 months may be exposed in the upcoming quarters.
hard to trade when the entire index moves because of the whims of one company!! :-)
you had your rough patch, now they are having theirs, we will see who gets the best of it long term, whatever you call it, calling it out is fine. Not like you are CNBC or anything...TD does same thing occasionally...when your predictions are generally right, you deserve to note this and deserve attention.
I have a lot more respect for you than Paulson...I suspect you didn't ask anybody to to package fraud so you could make more money shorting it. I trust even if you had better connections, you would not go there.
reggie, you do brag. you are a bragger. mind you, you do have a pretty good score.