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Guest Post: The Fukushima Cloud's Green, Not Silver Lining

According to China Business the earthquake and tsunami halted production at most of Japan’s giant solar power companies, including Kyocera, Sharp and Sanyo because of the subsequent lack of electricity. Prior to the earthquake China and Japan essentially shared the European photovoltaic (PV) market; since the earthquake analysts predict that Japan will lose one quarter of its market share. The shift has already started, as The Nikkei business daily reported on Wednesday that Softbank Corp, Japan's third-largest mobile phone operator, has announced plans to assist in the construction of about ten 20-megawatt facilities, costing about 8 billion yen ($100 million) each. But, as in many Western countries dominated by the nuclear and oil industries, solar energy policies have up to now enjoyed fitful support in Japan, where pioneers such as Sharp Corp and Kyocera Corp have lost their lead to overseas rivals that received larger subsidies and lower production costs. Furthermore, the cost of solar panel installation in Japan is double that in Germany. So, who will be one of the major beneficiaries of this policy shift towards reducing solar costs? China, surprise surprise.



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Treasury Continues To Dip Into Retirement Accounts, Prepares To "Take Out" $66 Billion Chunk To Make Room For New Bond Issuance

Today, very quietly, the Treasury released its latest refunding announcement, in which it disclosed it would issue another $66 billion in 3, 10 and 30 Year notes next week. The irony of course is that the US is and continues to be at its debt ceiling limit (or just $25 million short of it), at a total of $14,293,975 million. Furthermore, as was also disclosed by the Treasury, this gross issuance will also be the net amount added in marketable debt, as upon settlement on June 15, there will be no redemptions of maturing bonds. Which simply means that the continued "disinvesting" (which is merely a polite word for plundering) from intragovernmental debt, also known as retirement accounts, is about to kick into high gear. As a reminder, the only solution that Geithner currently has to run the government, at least until August 2 when even this runs out, is to slowly drain the debt in non-marketable accounts, in the form of Suspension of G-Fund and ESF reinvestments, as well as the Redemption and suspension of of CSRDF Investments, measure which when combined will provide a short-term buffer of $232 billion. Yet for all practical purposes, what is happening is that retirement accounts are now being seriously plundered, and if the unthinkable were to happen, and the debt ceiling would not rise, not only would the US be in technical default, but various retirement funds, which already are underfunded, would find themselves even more severely in the Red. As the chart below shows, the total amount of intragovernmental debt currently outstanding, has dropped to levels last seen in early April, even as total debt has continued its steadfast move higher. The scary thing is that by the time August 2 rolls around, the current total of $4.608 trillion in various Trust Funds, will drop to well about $4.4 trillion, or an implicit 6% underfunding in 2 months merely to keep the bloated government operating for a few more months.



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Discount Window Borrowings Spike To Highest In 2011

There was a time when depositor institutions (which nowadays paradoxically includes such entities as Goldman Sachs and its millions of ATMs crisscrossing the land), not flush with unprecedented amounts of bank reserves (which just hit an all time record high of $1.59 trillion), would go to the Fed's discount window for short-term funding needs: a stigmatized act which telegraphed to the street that the borrowing bank was undergoing some form of liquidity crunch. Not surprisingly, the Fed fought tooth and nail to prevent discount window disclosure from becoming public, especially since it was later discovered that the biggest recipients of Fed Discount Window generosity were foreign banks, and especially Dexia. We bring this up because going through the Fed's weekly balance sheet update (yes, it just hit a new all time record, and yes, we will provide a full breakdown soon) we find that weekly borrowings across the Fed's three discount window facilities, Primary, Secondary and Seasonal Credit, surged to a 2011 high of just over $100 million, and also saw the very first usage of the "reserved for really ugly bank" Secondary Credit Facility in the current year to the tune of $9 million. Yes, in the grand scheme of things this is a modest number, but when one considers that with all the liquidity sloshing around there should be no discount window borrowings at all, the fact that we have had such a dramatic spike is troubling to say the least. As for the culprit, we have one guess. If proven correct, this would mean that the emergency liquidity provisioning system of the ECB is starting to get a little "problematic" to put it mildly.



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And For The Other Dot Bubble 2.0 IPO...

With all the commotion associated with the Groupon IPO, some may have missed that in scrambling to take advantage of the IPO window which closes on June 30 with the end of QE2, today music streaming company Pandora (Proposed ticker symbol "P") announced it would increase the money it would attempt to raise publicly up to $142 million at a price of $7-9/share for 13.7 million shares (of which 8.7 million are from selling shareholders). In other words, Pandora would retain at most $45 million in cash from the offering. But the stunner is that assuming the offering closes, the 13.7 million pro forma float is a laughable 8.6% of the total number of shares outstanding after the offering, or 158.7 million shares. Which also implies that Pandora would have a ridiculous valuation of $1.1-$1.4 billion! And what are the multiples: well, Q1 revenue was a healthy $51 million growing about 100% Y/Y from $22 million a year earlier, so about $200 million annualized. Ok: a 5-7 revenue multiple for a dot com 2.0 company, we'll buy it. The problem is that total costs and expenses increased by the same amount Y/Y: from $24 million to $56 million. Ergo, EBITDA, forget net income, was a negative $6.8 million in Q1. Annualized, this is, well, negative, meaning the company will have an EV/EBITDA that is N/M and at best #Ref!. So yes, the bubble is back. And for all intents and purposes, the only prospectus we are interested in is the one that specifies the terms and conditions of the quadruple negative ETF that will track only the stock of GRPN and P. To everyone else who does not get a primary allocation, just look at LinkedIn, where everyone who bought post the break and held is now at a loss.



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Guest Post: Too Big To Fail Or Too Stupid To Stop - Screw Banks/Not People

This morning, amidst news of Moodys cutting Greece's debt rating to Caa1, I came across a phrase I wish I'd thought of first, reading through a friend's morning commentary. The phrase? "Too Stupid to Stop". According to Bill Blain, Senior Director at Newedge in London, and self-professed Euro skeptic, "'Too Stupid to Stop' is based on politicians behaving as rational maximisers of their electoral objectives." He was referring to the real reason behind all the bank-demanded bailout loans for austerity measures throughout Europe. In the United States, that mantra can be extended to include appointed officials, like Treasury Secretary, Tim Geithner (still not admitting our record debt increase came directly from the $4 trillion worth of Treasury issuance and other forms of assistance extended to our banking system since late 2008, as we endure his stomach-churning 'show-begging' to the GOP for a debt cap raise) and Fed Chairman, Ben Bernanke (ditto). It also, of course, applies to congress people whose political survival depends on corporate and bank contributions and financial support, the ones that believe the Dodd-Frank bill changes anything. Rather than considering how governments have systematically done, and continue to do, the wrong (as in immoral, unfair, and uneconomically sound) thing by trying to preserve banks, any politicians possessing the ability to think independently (an oxymoron, I know) should be asking themselves instead, how clever they could be about closing them down. Take a cue from Iceland. But, the 'Too Stupid to Stop" behavior, prevents this from occurring.



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Groupon Files $750 Million IPO

Here is the key data from the Morgan Stanley (lead Underwriter), Goldman Sachs and Credit Suisse-led IPO:

  • Q1 Revenue: $644 million, up from $44 million a year prior
  • Q1 Gross Profit: $270 million, 41.9% margin, up from $20 million a year prior, and down from the margin of 45.5%
  • Q1 Loss from operations: ($117) million compared to $8.5 million profit a year earlier.
  • Q1 subscribers: 83.1 million, up from 3.4 million
  • Q1 cash flow: $6.978 million down from $12.0 million a year earlier
  • Cumulative customers: 15.8 million, up from 874K
  • Featured merchants 56.781 up from 2,903
  • Groupons sold: 28 million compared to 1.76 million
  • Cash balance: $208.7 million; Working capital deficit: ($228.7) million
  • Total Assets: $541.4 million, Total Liabilities: $14.8 million
  • Total shares outstanding: 296,140,145


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Pentagon Warns Of M.A.D. Should The War Powers Act Be Enacted And US Withdraw Its Troops From Libya

Who says Mutual Assured Destruction is to be used only by bankers: our military leaders appear to have mastered the strategy of getting what they want to warning about all hell breaking loose, just as effectively. Reuters reports that should Congress pursue a resolution to withdraw from the humanitarian Libyian oil liberation force, currently headed by Sarkozy, it would send
an "unhelpful message of disunity" to allies and foes alike. "Pentagon Press Secretary Geoff Morrell said that "once military forces are committed, such actions by Congress can have significant consequences," particularly on relations with members of the North Atlantic Treaty Organization. "It sends an unhelpful message of disunity and uncertainty to our troops, our allies and, most importantly, the Gaddafi regime," Morrell said in a statement in Singapore, where Defense Secretary Robert Gates arrived on Thursday to attend a security dialogue with Asian allies...Kucinich's measure would invoke the 1973 War Powers
Resolution to direct Obama to stop the U.S. participation in the
war. Kucinich says Obama violated the part of the law that
prohibits U.S. armed forces from being involved in military
actions for more than 60 days without congressional
authorization.
" Kucinich seems to forget that reminding a constitutional lawyer about constitutional abuses is actually racist. And more importantly, what excuse will those hundreds of billions in "defense spending" by the US government have if America's military is relegated to "bankster" status in terms of utility.



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EU Commission Denies Agreement On New Greek Aid Plan

And.... U-turn

  • EU COMMISSION DENIES AGREEMENT ON NEW GREEK AID PLAN

There is no point in even commenting on the cannonade of unbelievable bullshit coming out of Europe at this moment.

The central planners have now officially lost their minds.



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John Paulson Could Lose Up To $650 Million On Latest Alleged Chinese Fraud

That famous Chinese fraudcap swatter Muddy Waters was overdue to take down another Chinese fraud is not a surprise. Indeed, as reported earlier, the fraud-focused shorter just initiated coverage on Sino-Forest Corporation (TRE.TO), which the firm "Like Madoff, TRE is one of the rare frauds that is committed by an established institution. In TRE’s case, its early start as an RTO fraud, luck, and deft  navigation enabled it to grow into an institution whose “quality management” consistently delivered on earnings growth." The rating, not surprisingly, is Strong Sell, and the estimated per share value is <$1.00. MW describes the fraud as follows: "TRE, which was probably conceived as another  short-lived Canadian-listed resources pump and dump, was aggressively committing fraud since its RTO in 1995. The foundation of TRE’s fraud is its convoluted structure whereby it runs most of its revenues through “authorized intermediaries” (“AI”). AIs supposedly process TRE’s tax payments, which ensures that TRE leaves its auditors far less of a paper trail. On the other side of its books, TRE massively exaggerates its assets. We present smoking gun evidence that TRE overstated its Yunnan timber investments by approximately $900 million. TRE relies on Jakko Poyry to produce reports that give it legitimacy. TRE provides fraudulent data to Poyry, which produces reports that do nothing to ensure that TRE is legitimate. TRE’s capital raising is a multi-billion dollar ponzi scheme, and accompanied by substantial theft." So far so good: as soon as the report came out the stock traded down from CAD$18 to $14, and was promptly halted. Once again, none of this is surprising. What is surprising, is that the biggest holder of the stock, with over 34 million shares, which amount to just under $650 million, is none other than stock picker extraordinaire John Paulson. And to think Zero Hedge has been warning everyone about the dangers of the fraudcap space for 8 months now. Oh well, one analyst learned the hard way today.



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Moody's Says It Expects To Place US Rating For Downgrade Review If No Progress On Increasing Statutory Debt Limit

From Moodys, which now appears to have been hacked by Greece (in what may or may not be considered an act of war): "If the debt limit is raised and default avoided, the Aaa rating will be maintained. However, the rating outlook will depend on the outcome of negotiations on deficit reduction. A credible agreement on substantial deficit reduction would support a continued stable outlook; lack of such an agreement could prompt Moody's to change its outlook to negative on the Aaa rating....Although Moody's fully expected political wrangling prior to an increase
in the statutory debt limit, the degree of entrenchment into
conflicting positions has exceeded expectations. The heightened
polarization over the debt limit has increased the odds of a short-lived
default. If this situation remains unchanged in coming weeks, Moody's
will place the rating under review.
Translation: unless America promises to increase its total debt to 120% of GDP in one year, the current debt which is just under 100% will be downgraded.



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Postcards From Greece

These seem to be becoming quite popular lately: This particular one was titled: "Let them buy bonds." We are waiting to see how it will be revised following today's wonderful "Bailout #2" news.



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Done Deal: Reuters Reports New Greek 3 Year "Adjustment Plan" Has Been Agreed On, Can Kicked For Another 3 Years

Just out from Reuters:

  • According to a source, programme will involve new international funding to mid-2014, apportionment yet to be agreed
  • According to a source senior Eurozone officials agree in principle on new 3-year adjustment plan for Greece
  • According to a source, private sector involvement will be limited to avoid a credit event

Congratulations Europe: you just screwed your taxpayers, but at least bought your insolvent banks 3 more years of bizarro world existence.



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Guest Post: This Would Never Happen Where You Live

As I travel frequently and spend time in so many different countries, it’s becoming clear to me that there are essentially two categories in the world– police states that are running towards George Orwell’s view of the world in 1984, and countries where you can still feel like a free human being. Unfortunately, the police states are doing their best to corrupt the rest of the world. Homeland Security chief Janet Napolitano recently toured India and met with senior security officials there, undoubtedly trying to influence them to toughen security measures and join the Orwellian order. Back in the US, DHS recently announced its ever-expanding “If you see something, say something…” program, this time at the 2011 Indianapolis 500 race. If you’re not familiar, this is the program that encourages people across the country to become unpaid spies for the federal government and rat out friends and neighbors for anything ‘suspicious’. In eerie Big Brother fashion, Napolitano delivers this message from monitors perched throughout WalMart stores nationwide. The stated DHS purpose for the Indy 500 message this past weekend was to “help ensure the safety and security of fans, employees, and race crews by identifying and reporting suspicious activity” at the venue. Realistically, though, it’s just a precursor to having Homeland Security involved in public sporting events… in addition to airports, train stations, subway stations, bus stations, and eventually shopping malls.



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Guest Post: Are You There Stocks? It's Me, Credit

Interested in a long-only stock index investment strategy that captures 65% of the upside when the index goes up and limits losses to 21% of the downside when the index goes down? $100 invested in the strategy back in May 1997 would be worth over $800 by early May 2011 compared to less than $300 if you bought and held the index (chart at right). Most investors would agree that $800 sounds a wee bit better than $268. We created a tactical asset allocation (TAA) strategy that outperforms a buy-and-hold policy in a back-test when standard performance metrics are considered . The chart on the left plots monthly Russell 2000 returns (x-axis) against strategy returns (y-axis). In our back-test of the strategy, we were able to capture 65% of upside equity moves on a monthly basis while only taking 21% of the downside. Additionally, the strategy can be extended for use with other equity alpha strategies and to achieve complementary portfolio goals like capital preservation.



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As ES Realized Vol Continues Spike, It Is Time For The CME To Hike ES Margins To "Protect Investors"

The CME's decision to lower ES margins two days ago may enter trader folklore as the most incompetent decision ever made (and we won't get all tinfoily on them: after all we know the CME doesn't see to manipulate markets with margin moves: they told us so themselves). Which is why in order to keep up with the exchange's primary prerogative of "intense focus on risk management" it is now time to not only undo that decision but to actually hike ES margins. Because as the chart below shows, since the margin cut on May 31, realized vols have surged!



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