The WSJ has published the list of 18 trades that Finra is currently investigating (or, rather, isn't) Steve Cohen's hedge fund for illegal practices ("expert networks" and what not), using the same methodology as that applied by Zero Hedge a year ago, before anyone had the faintest clue that SAC would be the target of an extensive theatrical campaign by regulators and populist politicians. The following statement by Finra is priceless: "In the 18 referrals made by Finra and the NASD between 2002 and 2011 that were reviewed by the Journal, investigators said they were vexed by SAC's repeated appearance in routine screens of suspicious trading near mergers and acquisitions, earnings announcements and other market-moving news." Needless to say, if any readers has wittingly or otherwise traded alongside SAC in any of these transactions, it may be time to shred any evidence. After all, the "I don't recall nothing" testiony worked miracles for Rupert Murdoch.
With less than 48 hours left until Europe's latest and greatest summit on Wednesday (no point in keeping count: it is certain that yet more extensions wil be demanded and granted, letting the EURUSD have just that much more space from where to fall) Europe has, as it usually does in the 12th hour after it whips out the abacus, realized that the EFSF in its latest incarnation is Dead on Arrival (as expected). So what does Europe do? Why come crawling to Uncle Sam of course, only in this case it manages to save face as the uncle is really Aunt Lagarde, one of Europe's own, and ironically up until 4 months ago, the Finance Minister of what has emerged as the most distressed core European country. From the WSJ: "Europe may ask the International Monetary Fund to create and run a special new fund to help solve its debt crisis, according to a person familiar with the matter. The idea is one of several options still in the formative stage that European officials are considering as a way to prevent the crisis from engulfing its largest economies. The IMF and world financial leaders fear that if Europe doesn't act forcefully now, it could push the global economy into a recession and spark another global financial meltdown." And yes, there is a reason why three weeks ago we made big news out of the IMF scrambling to "Double Bail Out Capacity To $1.3 Trillion, May Issue Bonds." Because when in doubt always follow the money, or in this case the US taxpayer bailout, because this is what the IMF's turbo intervention will be: it will always give the right answer.
Ray Dalio On Whether The Current "Hopeless, Mob-Rule Deleveraging " Can Lead To The Ascent Of Another "Hitler"Submitted by Tyler Durden on 10/24/2011 - 20:19
Yesterday we presented the complete must watch Ray Dalio interview and transcript from his Charlie Rose appearance in which he explained how, in his increasingly skeptical view, we are now "out of ammunition" as there are "no more tools in the toolkit." Today, he layers on top of this rather bleak macroeconomic perspective some very disturbing observations, specifically, what the realization of the dead end situation facing monetary and discal authorities means when confronted with a violent (metaphorically) deleveraging, and a violent (quite literal) social mood. In an FT op-ed he writes; "We are in the midst of a deleveraging, we are nearly out of ammunition and we are at each other’s throats. Being in a deleveraging and nearly out of ammunition is a very difficult position to be in. But, being at each other’s throats is our biggest problem." Needless to say this won't be the first time we have found ourselves in such a predicament: one very vivid example from history beckons: "Frustrations increase, the established ways of doing things come under attack and frustrations over the ineffectiveness of government creates the perceived need for someone to gain control of the mess. Plato spoke of this dynamic. It was the reason Hitler was elected in 1933."
IceCap Asset Management: The Tip Of The Iceberg... Is Straight Ahead; Here Is What Lurks Below The SurfaceSubmitted by Tyler Durden on 10/24/2011 - 19:39
We have to say, the continuous unbridled enthusiastic cheerleading for the stock market to go higher has us puzzled. Yet, many of investment leaders from the big box banks and mainstream media continue to shout about buying the dip, proclaiming stocks are cheap as well as touting the merits of the one-size-fits-all balanced fund for every investor for every occasion. While we genuinely believe that today this view will lead many to financial despair, it’s important to recognise why this view is shared by the hands that hold the savings for many people in the World. For starters, many of the industry’s largest players simply do not have the product available nor the expertise available to properly guide the average person during these dramatic economic times. Either the cognizance to understand the realities of 0% interest rates, money printing, and a risk free investing game for banks is missing, or they firmly believe actions by central banks and governments will save us all.
UPDATE: HYG's premium to Net Asset Value (NAV) is its highest since May09!!
We often discuss how credit markets have provided useful insights (and potential pre-emptive indications) with regard to risk appetite and whether ES should rip and today's incredible rally in HYG (the high yield credit bond ETF) is one to be aware (beware) of. The rumble of liquidity-driven hedging being unwound was very loud indeed and as spreads reach significant levels on a medium-term basis and HYG recovers its major drop in price, we wonder if the market is now less prepared to handle any downside shock especially as risk-appetite is clearly dragging even in high-concession primary issue land. Much of today's action in the high yield credit market seemed as much about catch up to each segment's relative-value as any real aggressive buying as hedges were clearly unwound. We would warn traders who use index aggregates to judge relative asset allocations between credit and equity to be very careful with this shift, as bottom-up, it does not exist yet.
Today's adjustment to the government's HARP program to get anything with a pulse as close to the discount window as possible was not the only proposal to revive the moribund US housing market. According to a new proposal by HUD, beginning this month and continuing for a year, anyone with a just $100 will be allowed to buy a HUD-owned REO home. In essence: the new buyer is merely taking over the mortgage payments in a repeat of what happened in 1970s New York along the Central Park West corridor. Granted for now it is stricly limited to only... 28 states! But it gets better: "HUD’s $100 down payment incentive program can also be applied to an FHA 203k loan, which can be used to fund repairs and renovations on the home. The 203k program allows buyers to finance both the mortgage and additional money for rehabilitation needs with a single government-insured loan." Said otherwise, a $100 downpayment gives one unlimited degrees of freedom how to spend non-recourse, massively levered capital, and courtesy of money's fungibility, to even fund, shhh, the occasional iPhone. "Matt Martin, CEO of Matt Martin Real Estate Management (MMREM), says this is one of the most exciting features of the new incentive program and should drive a lot of exposure to FHA’s 203k offering." Why of course it is: it will only take enterprising Americans a few weeks to realize that the latest HUD program is basically an EFSF in sheep's clothing, which provides US consumers with a Benjamin in their pocket, the ability to lever up by a factor of about two thousand (or more) and use the proceeds for pretty much anything (but make sure to call it "home repairs"). And when the HUD is stuck with hundreds of billions of non-performing, delinquent loans, what then? Why the same that will happen to the EFSF: another wholesale taxpayer funded bailout... of those who were tricky enough to figure out this latest subsidy of the global retailer base.
As we present Morgan Stanley in the role of the biggest Netflix bull (or is that loser? We are not sure we can use that word without preclearing it with the Wall Street directorate of truth), we eagerly await the barrage from the media that has a "gag order" on the investment bank with massive French bank exposure, that will shoot the messenger for suggesting that in addition to being a European bank risk derivative, Gorman's bank is also one of the biggest finders and keepers of momo darlings. As for the UBS Global Asset Management and Lone Pine analysts who loaded up to the gills on NFLX stock in Q2, we are confident you will have more than enough time to sample the company's streaming product in your extended search for the next job.
Netflix Implodes After Reporting Horrific Guidance; Notes It Repuchased Stock At $218 Avg Cost BasisSubmitted by Tyler Durden on 10/24/2011 - 16:58
One hopes that the European surprise on Wednesday will be more successful than this. In the meantime, the XIRR on Jim Cramer's recommendation to buy NFLX on Sept 26 at $135 through the current AH price of $87 is -99.6%.
Instead of tackling any specific and highly volatile high frequency macroeconomic data points today (which will most likely be diametrically inverted in the next update iteration), today David Rosenberg focuses on sundry items and flights of fancy that are worth noting, such as that "the S&P 500 has recorded 62 consecutive days in which it has swung by 1% or more in intraday trading. The Dow has also closed 1% higher or lower 38 times since the beginning of August (compared with just 25 in the first seven months of the year)." Additionally, Rosie shares some views on the Paradox of thrift, i.e., that "spending on appliances, jewellery, watches, air travel, recreation vehicles, cameras, gambling is actually lower today than in 2005", on credit unions whose customers don't want to borrow money, " "Too few of its 95,000 members, most of whom live or work in five counties in the San Francisco Bay Area, want to borrow money. And too many are making extra payments on mortgages and car loans — or paying off personal loans ... Provident's loan portfolio has shrunk by 25% since the end of 2008, including a 5% drop in the first nine months of this year" but most notably concludes with the observation that while the 2008 "Great Financial Crisis" was quite memorably, "I wonder whether we'll say 2008 wasn't the real crisis — it was a warm-up, but the real crisis was the sovereign debt crisis in Europe....It is clear that the situation in Greece has deteriorated markedly and that the scope for any further fiscal restraint without triggering some sort of revolution is small. The only way toward fiscal sustainability — to get the sovereign debt/GDP ratio down to 110% by 2020 — is for investors to grant the country a jubilee of sorts and accept a 60% write-down." Naturally, France will throw up over any proposal that sees a 60% haircut Greek haircut, not so much due to Greek losses per se, but due to imminent losses when Portugal, Ireland, Italy and lastly Spain (to which four countries France has exponentially more exposure) decide to do the same as Greece and start underreporting data, striking daily, and overall just shut down their economies.
Just when the world's most pummeled stock of the past year thought it may see a brief short covering rally, here comes JPMorgan: "We are establishing our Dec-2012 price target and lowering it to $50 for FSLR due to what we believe has been significant erosion in investor confidence on the longer term growth story for the solar PV sector and the company. This has resulted in significant compression of the P/S multiple for FSLR from a recent range of 4.0x to 6.0x to a 1.4x level as of late. Historically, FSLR traded at a significant premium to other Solar PV stocks. This premium continues, but to a lesser extent. We believe that investors as a group no longer view the Solar PV market as a growth sector and that the stock multiple compression for FSLR is evidence of the increasing level of pessimism the Street has towards the sector outlook." And with that the Icarus Lazarus moment for the solars is postponed indefinitely.
Silver and to a lesser extent Gold are poised to move. You can make a case for either direction. Today’s action was very constructive for commodities in general. But Gold and Silver were the weak performers. The charts show bear-flags, but stochs are in the process of reversing. Fact is, we can see what we want based on our own bias. What we are much more confident in is that in the next week, the Precious Metals will have a move of their own. If you are in the camp that Europe must print money to solve its problems, despite the evidence that Germany is getting its way for now then put on your buying shoes. Ditto if you see Helicopter Ben cranking out more greenbacks in response to a Euro debasing or political pressures from our Keynesian overlords. If you believe that we are on a deflationary spiral, and that there simply isn’t enough money to buy anything at current inflated prices, and there will be no QE3 and that Europe will have enough (levered) money to solve their Grecian woes then get ready to sell Mortimer. Just remember that straddles don’t care which way the market goes.
Clearly all "bad" ideas are good again. Enron perfected the Special Purpose Vehicle (SPV) and was a master of off balance sheet guarantees. Guarantees with their own equity as collateral in many cases. SIV's are SPV's with leverage. The kind of "asset" that got Citi in huge trouble and almost took down the bank. SIV's had a special place in CDO hell, but I guess you can't keep a good idea down. Detachable insurance. So the EFSF would sell insurance that would come with a new issue bond but could be detached and sold separately? If that doesn't sound a lot like the evil enemy "CDS" than I don't know what does. The biggest detractors of CDS always seem to say it is like buying fire insurance on your neighbor's house. U never agreed with that analogy but this is definitely like buying fire insurance on a house that doesn't cover you in event of fire. The details will be interesting but they had better do as much with cash up front as possible because and ability to require cash in times of stress creates the contagion death spiral they are allegedly trying to prevent. Clearly everyone "gets it" now. What "it" is and how much damage "getting it" will cause remains to be seen.
Commodity prices have certainly been volatile in the last few days with near-record-breaking upside shifts in some. Copper's extravaganza in the last two days was discussed earlier but it is the huge shift in the whole WTI crude complex that is perhaps more fascinating. For the first time since May 2011, Dec 11 WTI is more expensive than Dec 12 and in the last three trading days alone, the entire curve has shifted to backwardation very aggressively. This inflation-prone signal, and much chatter among Fed talking heads on 'helping' the Europeans, could perhaps help explain the strange 'strength' in the EUR as it and the USD circle the drain of fiat currencies. Gold has obviously yet to get going, but today has broken $1660 (up over $50 in the last few days).
Trichet Interrupts Speech Calling For Formation Of European Finance Ministry, Booed Off By German StudentsSubmitted by Tyler Durden on 10/24/2011 - 13:53
Earlier today we transcribed the speech by outgoing ECB president Trichet in which he called for the formation of a European Ministry of Finance coupled with what is essentially a requirement for the abdication of national sovereignty of those less than worthy countries, together with some less than flattering commentary. It appears a few people at least were not too happy with the call for the formation of the United Empire of Europe, at Humboldt University where the speech was delivered. Bloomberg reports that the "ECB president interrupted during speech in Berlin. Banners held up by students in audience reading “no more money for banks,” and “say no to debt tyranny.” We hope to bring readers a video as soon as one is available.