And while the open warfare between speculators and the administration, senators and exchanges continues, the gasoline fundamentals are poised to take another turn for the worse. As Reuters reports, "Valero Energy Corp's and Motiva Enterprises refineries in St. Charles Parish Louisiana, west of New Orleans, will be flooded if the Morganza Spillway is not opened, the St. Charles Parish emergency preparedness director said on Wednesday." Alas, the decision is not a simple one, and diverting the water from Louisiana, and attendant surge in gas prices once refining critical capacity is taken off line, would result in the flooding of Morgan City. From KFLY: "Officials say a decision on opening the
Morganza spillway could come soon. The Morganza Spillway is upriver
from Baton Rouge and could be opened today, or this weekend. The floodway pours into the Atchafalaya River, and on to the Gulf of Mexico. Right now, inmates are filling sandbags to protect properties that could
be damaged if the spillway is opened. If the Morganza spillway is
opened, Morgan City could see up to 20 feet of water. Mark Bernucho owns a fire and safety supply business across the street
from the 22-foot seawall, and he said it's the only thing keeping the
water away. The U.S. Army Corps of Engineers installed water gauges
Wednesday, to monitor the rising river waters." So the administration is faced with another dilemma: not divert and potentially see a surge in gas prices, or divert, and risk flooding and be accused of pandering to the oil lobby, one short year after the same lobby was villainized for the biggest oil spill in history. The biggest loser, however, is all the real estate in proximity to the flooded Mississippi river.
Today is shaping up to be an identical replica of the action from last Thursday as seen on the chart below. That's two flash crashes in less than a week. Whether this is driven by another margin hike known only to the CME and its closest, or due to news from Reuters that 17 senators have written to the CFTC to immediately crack down on excessive speculation in crude oil, is unclear, and largely irrelevant. The outright campaign to stomp out any non-stock trading is in full force. The message is clear: the only place where investors can henceforth put their money in is in stocks.
Because one video is worth one thousand pictures...
The fed has just released its new POMO schedule for the period from May 12 to June 9. In essence, every single day between now and Thursday June 9 will see a POMO, except for holidays and June 2. The total amount to be monetized is just $93 billion consisting of $80 billion in Treasurys (no surprise) and just $13 billion in MBS, confirming that as we have expected, the QE Lite component of monetization is coming to a rapid end as few if any prepay their mortgages with the Fed any longer. The MBS component is down from $17 billion as of the last schedule, and from $22 billion two months ago. The total monthly amount of $93 billion is the lowest of any monthly QE2 schedule. And following the end of this schedule, there is just another 20 days before QE2 ends on June 30, meaning from now until the end of the ramp, there is at best about $160 billion in incremental capital courtesy of Brian Sack and Printocchio. Furthermore, as of the end of this POMO schedule, the Fed will have monetized just $711 billion. Throw in another $60 billion total
for the remaining period through June 30, and the Fed will be woefully
short of its upside range of monetizing up to $900 billion in USTs and
Some may accuse us of simply recycling the same post over and over, with pictures of what appears like periodic violent rioting in Athens. Trust us: these are brand new, and the main reason why there is a seemingly massive media blackout of the events in Greece is because the journalists themselves are on strike. Luckily, the WSJ has compiled the following selection of pictures showing just how ugly the reality in an otherwise civilized European country has become. And since much of the proposed next round of austerity spending cuts would come from reducing wage costs in the public sector, cuts in operating expenses at state-owned enterprises, and reduced defense and health-care spending, the vicious cycle of more violent demonstrations will continue as even more cuts are implemented.
And so another $24 billion in liquidity is sucked out of the market, at least temporarily until PDs flip Cusip QN3 back to the Fed. The bond priced at a 3.21% high yield, and a 3.00 Bid To Cover, the lowest so far in 2011. Nonetheless, the bond came inside to the WI which was about 3.222%, confirming the risk off aspect of today's market. Primary Dealers took down 44.4%, with Direct responsible for 8.4%. This means Indirects were left with 47.2%: better than April, but the second lowest of 2011, only better than April's 42.4%. The other question of how this will settle, together with yesterday's $32 billion and tomorrow's $16 billion, under the debt ceiling, we will discover in a few days.
Today's (further) ceiling busting $24 billion 10 Year bond auction is set to price in under 10 minutes, at 1 PM. That's $24 billion in liquidity that wil be taken out of the market on this flashy crashy day. Keep an eye on cross-asset volatility as the bond prices. One thing is certain: the CME will hike a variety of margins today based on vol models across the commodity space in the aftermath of this second wipeout in a week, which will be further exacerbated by a plethora of margin calls hitting at 3:45pm as Prime Brokers start dialing for dollars.
Update 2: NYMEX GASOLINE, HEATING OIL LIMITS NOW 50 CENTS, CRUDE $20. Basically the CME just doubled daily limits. Of course, the CME is happy to double the drops... but never the surges.
Update: CME RESUMES TRADING ON NYMEX CRUDE, PRODUCTS FUTURES
- CME HALTS TRADING ON GAS, CRUDE OIL, HEATING OIL FUTURES
- CME TRADING HALT IN ENERGY FUTURES WILL LAST 5 MINUTES
So now crashes cause the entire market to be halted? Swell
So much for the Chinese IPO bubble, which accounted for 25% of all public offerings in the past year. DATE, which just went public at $11, is now plummeting as underwriters have entirely abdicated their market floor duties. Below is the much vaunted "Chinese Face Book" RenRen, whose epic collapse is a harbinger of what will happen to our own pretty soon. Also, we demonstrate what happens when an equity bubble pops and an IPO stock plunges 10% below its IPO price in 25 minutes or less.
Jeremy Grantham Goes Bearish: "Now Is The Time To Fight The Fed" And "Stocks Trading 40% Above Fair Value Are Badly Overpriced"Submitted by Tyler Durden on 05/11/2011 - 11:48
Just released from Jeremy Grantham, who has gone, for all intents and purposes, "balls to wall" bearish. "I do not feel the same degree of confidence that I did, which was considerable, that the Fed could carry all before it until October 1 of this year. A third round of quantitative easing would very probably keep the speculative game going. But without a QE3, there seem to be too many unexpected (indeed unexpectable) special factors weighing against risk-taking in these overpriced times. I had recommended taking a little more risk than was justified by value alone in honor of Year 3, QE2, and the Fed in general. Risk now should be more reflective of an investment world that has stocks selling at 40% over fair value (about 920 on the S&P 500) and fixed income, manipulated by the Fed, also badly overpriced. Although the taking of some “extra” risk by riding the Fed’s coattails has been profitable for six months, I admit to being a bit disappointed: I really felt the market had the Fed’s wind in its sails and would move up deep into the 1400 to 1600 range by October 1, where it would be, once again, over a 2-sigma 1-in-44-year event, or, officially, a bubble. (At least in a world where GMO is the official.) At such a level, I was ready to be a real hero and absolutely batten down the hatches, become extremely conservative, and be prepared to tough out any further market advance (which, with my record, would be highly likely!). The market may still get to, say, 1500 before October, but I doubt it, especially without a QE3, although the chance of going up a little more by October 1 is probably still better than even. And whether it will reach 1500 or not, the environment has simply become too risky to justify prudent investors hanging around, hoping to get lucky. So now is not the time to float along with the Fed, but to fight it. Investors should take a hard-nosed value approach, which at GMO means having substantial cash reserves around a base of high quality blue chips and emerging market equities, both of which have semi-respectable real imputed returns of over 4% real on our 7-year forecast. The GMO position has also taken a few more percentage points of equity risk off the table."
The fundamental dynamics of the U.S.-China trade partnership--certainly the biggest economic story of this generation--boil down to "capital exploits labor." I am well aware that this sort of quasi-Marxist analysis is supposed to be passe in the era where young nerds can start billion-dollar enterprises in a garage or dorm room. Capitalism is a priori "win-win," as all those workers in China are getting ahead while our youth launch $50 million IPOs of social networking Web 2.0 companies. But if you scrape away the high-gloss propaganda and myth-making, then the fundamental dynamic is definitely Marxist: American capital jettisoned American labor as a costly hassle in favor of cheap, no-hassle Chinese labor. Since Capital's best buddy in the whole world is the Central State and its proxies, i.e. the Federal Reserve, then the Central State and the central bank (the Fed) smoothed over the exploitation and furthered the consumer economy by inflating a credit-housing bubble. Since 60% of American households own a home, this enabled the increasingly impoverished "middle class" to borrow trillions of dollars in "free" money that could be spent--surprise!--on the new imports from China that filled the shelves of big box global retailers everywhere. Allow me to illustrate this dynamic by deconstructing two recent stories in the Mainstream Financial Media...
Justice, this time, is served. Raj found guilty on all charges. Next up: up to 20 years in federal pound me in the ass penitentiary (20 years on each of 9 counts, and 5 years on the remaining 5 so a total of 205 years possible). But that's ok, Raj Raj certainly frontran that verdict and is most likely prepared as necessary.
And following the overnight set of news which confirms our January assumption that the keyword of 2011 will be "stagflation" the entire commodity complex once again slides. It is unclear if the move is predicated more by fears of inflation or of economic contraction. After hitting almost $40 overnight, Silver has once again taken the daily tumble back to the sub $37 level. The catalyst today is crude, following the DOE announcement that crude inventories surged to 3,871K barrels on expectations of 1,500K, and Cushing inventory hitting 1,124K compared to 102K previously. WTI slides to sub $101, even with the latest series of margin hikes which purportedly is supposed to mitigate volatility. So much for that.
A hearing that is sure to spark a lot of controversy and debate will be held today at 10 am EDT, by the Domestic Monetary Policy Subcommittee, chaired by presidential candidate Ron Paul. As noted, "The hearing will explore the fundamental role that U.S. government debt
plays in the monetary system; the use of Treasury debt by the Federal
Reserve in conducting monetary policy; and the troubling reliance of
Congress on the Fed to print money to facilitate deficit spending." Alas, there will be no Fed members testifying at the hearing, instead we will hear from Dr. Richard Ebeling, Professor of Economics, Northwood University, Bert Ely, Ely & Company, Inc., and Dr. Matthew J. Slaughter, Associate Dean, Tuck School of Business, Dartmouth College.